Management & Organizational Behaviour, /Ed. [1 ed.] 9780071077934

Table of contents :
Cover
Contents
Chapter 1 Introduction to Management
Introduction
Definitions of Management
Nature or Characteristics of Management
Management as an Art and/or a Science
Management as A Profession
Universality of Management
Management and Administration
Levels in Management
Management Process or Functions of Management
Significance of Management
Objectives of Management
Social Responsibility of Management
Managerial Roles (Views of Mintzberg)
Skills of a Professional Manager/Leader
Functional Areas (Scope) of Management
Management and Business Environment
Professionalisation of Management
Impact of Family, Culture and Situation
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case True Story of Successful CEOs
Chapter 2 Schools of Management Thought
Introduction
Classification of Schools of Management Thoughts
Classical School of Management
Neoclassical School of Management or Human Relations Movement
Modern Schools of Management
Brief Idea of Other Schools of Management Thoughts
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case Dhirubhai Ambani, the True CEO of Reliance Group
Chapter 3 Introduction to Strategic Management
Introduction
Strategic Management
Management and Strategic Management
Definitions
Characteristics of Strategic Management
Strategic Management Process
The Seven-S Model
Porter’s ‘Five Forces’ of Corporate Strategy
Benefits/ Importance of Strategic Management
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case Innovative Management Practices at Mahindra and Mahindra Group
Chapter 4 Fundamentals of Planning
Introduction
Need for Planning
Definitions of Planning
Characteristics of Planning
Steps in Planning Process
Planning Premises
Components of Plan or Types of Plan
Importance (Need) of Planning
Strategic Planning
Corporate Planning
Operational Planning
Difference between Strategic and Operational Planning
MBO—Management By Objectives
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case Be Innovative or Get Ready to Perish
Chapter 5 Forecasting and Decision-making
Introduction
Forecasting
Definitions of Forecasting
Characteristics of Forecasting
Forecasting Process
Difference between Forecasting and Planning
Importance of Forecasting
Limitations of Forecasting
Methods/Techniques for Forecasting
Decision-making
Definitions of Decision-making
Characteristics of Decision-making
Decision-making Process
Types of Decisions
Group Decision-making
Decision-making Techniques
Key Problems in Decision-making
Decision-making Approaches
Rationality in Decision-making
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case
Chapter 6 Fundamentals of Organising and Organisation Theories
Introduction
Organising
Definitions of Organising and Organisation
Organising Process
Significance of Organisation
Features of Good Organisation or Guiding Principles for Effective Organising
Organisational Chart and Manuals
Organisation Theories: An Overview
Classification of Organisation Theories
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case Reforms in the Mindset are More Important than Formal Restructuring of the Organisation
Chapter 7 Delegation and Decentralisation
Introduction
Authority and Responsibility
Delegation of Authority
Decentralisation
Departmentation
Span of Management (or Control)
The Peter Principle
The Parkinson’s Law
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case Need For Decentralisation
Chapter 8 Types of Organisation Structure
Introduction
Key Constituents of Organisation Structure
Types of Organisation Structure
Contingency Factors in Organisation Design
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case CEOs need to be Innovative in Organising Efforts
Answers to Objective Type Questions
Case CEOs need to be Innovative in Organising Efforts
Chapter 9 Staffing (Human Resource Management)
Introduction
Definitions of Staffing
Characteristics of Staffing
Importance of Staffing
Functions/Scope of Staffing
New Developments in HRM
Principles (or Qualities) of Staffing
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case HR Practices at Microsoft India
Chapter 10 Directing and Coordinating
Introduction
Directing
Coordination
Cooperation and Coordination
Supervision
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case Making a Difference
Chapter 11 Controlling (Managerial Control)
Introduction
Definitions of Controlling
Characteristics of Controlling
Controlling Process (Control Mechanism)
Strategic Control and Operational Control
Types/Stages of Control
Importance of Controlling
Key Problems in Controlling Process
Principles of Effective Control System
Techniques of Controlling
Selection of Controlling Techniques
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignment
References
Answers to Objective Type Questions
Case New Controlling System
Chapter 12 Functional Areas of Management: Basic Principles
Introduction
Functional Areas of Management
Production Management
Marketing Management
Financial Management
Personnel (or Human Resource) Management
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case CEOs Going Incognito to Learn Home Truths—Innovative Marketing
Chapter 13 Emerging Issues and New Developments in Management
Introduction
Part I—Emerging Issues in Management
Part II—New Developments in Management
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case Ethics and Management Practices
Chapter 14 Introduction to Organisational Behaviour
Introduction
Organisational Behaviour (OB)
Definitions and Characteristics of OB
Human Nature
Importance of Organisational Behaviour
Contributing Disciplines to OB
Organisational Behaviour Model
Management and OB
Role of OB
Limitations of Organisational Behaviour
Ethical Organisational Behaviour
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case Gender Factor at Work Place
Chapter 15 Historical Background and Evolution of OB
Introduction
Historical Background of OB
Phases/Stages of Development of OB
The Hawthorne Experiments (Studies)
International Organisational Behaviour (IOB)
Emerging Challenges in OB
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case Seminar on Emergence of OB
Chapter 16 Organisational Structure, Climate, and Culture
Introduction
Organisational Structure and Design
Organisation Climate and Culture
Organisational Effectiveness
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case Employee Friendly Organisation Design, Culture and Climate
Chapter 17 Dynamics of Individual Behaviour
Introduction
Dynamics of Individual Behaviour
Perception
Learning
Attitudes
Values
Personality
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case Nothing is Absolutely Right or Wrong, but Perception and Attitudes—A Story of Contract and Corruption
Chapter 18 Dynamics of Groups and Teams
Introduction
Group Dynamics
Dynamics of Teams and Team Building
Transactional Analysis (TA)
Johari Window
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case Successful CEOs are Capable Team-builders
Chapter 19 Motivation and Morale
Introduction
Motivation
Morale
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case Need to Review Motivation Policies in Accordance with Global Management Practices
Chapter 20 Theories of Motivation
Introduction
Maslow’s Need Hierarchy
Herzberg’s Two-factor Theory of Motivation
McGregor’s Theory X and Theory Y
Ouchi’s Theory Z
Alderfer’s ERG Theory
Adam’s Equity Theory of Motivation
McClelland’s Achievement (or Learned Need) Theory of Motivation
Vroom’s Expectancy Theory of Work Motivation
Porter-Lawler Model of Work Motivation
Other Theories of Motivation
Scientific Approach to Motivation
Human Relations Approach to Motivation
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case Interpersonal Skills and Positive Approach—As Sources of Motivation
Chapter 21 Leadership
Introduction
Fundamentals of Leadership
Leadership Theories and Implications
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case The DNA of Indian Leadership
Chapter 22 Stress and Conflict
Introduction
Stress and Stress Management
Conflict and Conflict Management
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case Peace Pact of Pune-based IT Companies
Chapter 23 Managing Change
Introduction
Managing Change
Organisational Development (OD)
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case Making Office a Happier Place
Chapter 24 Communication, and Power and Politics in Organisation
Introduction
Communication
Power and Politics
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case Be Aware of Organisational Politics
Chapter 25 Positive Organisational Behaviour
Introduction
Components/Dimensions of POB
Summary
Key Terms
Exercises
Objective Type Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case Role of POB—Emotional Intelligence
Chapter 26 Managing Performance by Job Design
Introduction
Job Satisfaction
Job Design
Other Issues in Job Design
Summary
Key Terms
Exercises
Objective Questions
Descriptive Questions
Assignments
References
Answers to Objective Type Questions
Case Can We Apply the Latest Positive Management Practices?
Model Question Paper
Index

Citation preview

Management and Organisational Behaviour

About the Author Ramesh B. Rudani (MCom, DCS, PhD) is Associate Professor in N.R. Vekaria Institute of Business Management Studies, Junagadh, affiliated to Saurashtra University, Rajkot (Gujarat). He is also a visiting faculty in many institutions. He has about twenty years of academic experience and teaches courses on general management, organisational behaviour, and marketing management at graduate and postgraduate levels. He has actively contributed in framing and revising syllabi for various courses, including the ones with recently introduced CBCS (Credit-based Choice System). Dr. Rudani has also overseen the practical training of students (internship) in different areas of management. He has earlier authored a book titled Basics of Marketing Management. In addition, he has also contributed as a co-author in various textbooks at the regional level.

Management and Organisational Behaviour Ramesh B. Rudani NRV Institute of Business Studies Junagadh

Tata McGraw Hill Education Private Limited NEW DELHI McGraw-Hill Offices New Delhi New York St Louis San Francisco Auckland Bogotá Caracas Kuala Lumpur Lisbon London Madrid Mexico City Milan Montreal San Juan Santiago Singapore Sydney Tokyo Toronto

Published by Tata McGraw Hill Education Private Limited, 7 West Patel Nagar, New Delhi 110 008 Management and Organisational Behaviour Copyright © 2011 by Tata McGraw Hill Education Private Limited. No part of this publication may be reproduced or distributed in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise or stored in a database or retrieval system without the prior written permission of the publishers. The program listings (if any) may be entered, stored and executed in a computer system, but they may not be reproduced for publication. This edition can be exported from India only by the publishers, Tata McGraw Hill Education Private Limited. ISBN (13): 978-0-07-107793-4 ISBN (10): 0-07-107793-6 Vice President and Managing Director—McGraw-Hill Education: Asia Pacific Region: Ajay Shukla Head—Higher Education Publishing and Marketing: Vibha Mahajan Publishing Manager—B&E/HSSL: Tapas K Maji Associate Sponsoring Editor: Hemant K Jha Associate Acquisition Editor: Piyali Ganguly Associate Development Editor: Amrita Marik Executive (Editorial Services): Yogesh Kumar Senior Production Manager: Manohar Lal Senior Production Executive: Atul Gupta Marketing Manager—Higher Education: Vijay Sarathi Assistant Product Manager: Daisy Sachdeva Senior Product Specialist: Anusha Sharma General Manager—Production: Rajender P Ghansela Assistant General Manager—Production: B L Dogra Information contained in this work has been obtained by Tata McGraw-Hill, from sources believed to be reliable. However, neither Tata McGraw-Hill nor its authors guarantee the accuracy or completeness of any information published herein, and neither Tata McGraw-Hill nor its authors shall be responsible for any errors, omissions, or damages arising out of use of this information. This work is published with the understanding that Tata McGraw-Hill and its authors are supplying information but are not attempting to render engineering or other professional services. If such services are required, the assistance of an appropriate professional should be sought. Typeset at Script Makers, 19, A1-B, DDA Market, Paschim Vihar, New Delhi 110063 and printed at Sheel Printers Pvt. Ltd., D-132, Hoisery Complex, Phase - II, Noida. Cover Design: Meenu Raghav, Graphic Designer, TMH Cover Printer: Sheel Printers Pvt. Ltd. RAXQCRQGDLYBQ

Dedicated To Those Honourable Teachers Who Love and Worship Their Job and My Family Members: Father, Late Bhikhabhai Mother, Samjuben Wife, Harsha Son, Krutarth, and Little Heart, Dhruvi

Preface

I am pleased to place in the hands of the readers this book on Management and Organisational Behaviour. It has been developed for the students of commerce and management streams, both at the undergraduate and postgraduate levels. Rich content, reader-friendly presentation, real-life examples, relevant cases and examples, and a variety of exercises make it a useful textbook. It has been written to serve as a ‘must-have’ and a ‘ready-to-use’ companion of the students, rather than a treatise meant for reference only. Primarily designed for the management students, this book will be useful for the students of all disciplines having a course on general management and organisational behaviour.

Presentation and Approach Most of the topics in this book have been discussed with a to-the-point approach, avoiding unnecessary descriptions. This will help to minimize ambiguities in the minds of the students. The text uses simple, lucid and effective language to help the students comprehend every topic with least difficulty. An attempt has been made to give a feel to the readers that they are not reading a book—rather, as if someone is explaining the concepts to them!

Coverage The book contains all the relevant topics that are generally covered under management and organisational behaviour (OB). Special care has been taken to simplify the topics of OB that are related to psychology. In addition to all the key aspects of general management and OB, the book also touches upon many of the important topics that are covered under human resource management. The book is divided into two sections. The first section (Chapters 1–13) covers the fundamentals of business management while the second section (Chapters 14–26) discusses the fundamentals of organisational behaviour. Extensive cross referencing has been used to connect the common topics of both the sections. Additional readings for some of the topics are available on the companion website of the book.

Pedagogy Charts, tables and figures have been used extensively to explain various topics. A number of real-life examples give a glimpse of the management practices prevalent across the globe, with a special emphasis on India. Many examples related to leading corporate houses like Reliance, Hindustan Unilever Ltd., Proctor & Gamble, Mahindra & Mahindra, Tata Group, Bajaj Group, Aditya Birla Group, Infosys, Google India, Wipro, TVS Motors, Adani Group, etc.,

viii

Preface

showcase the actual management practices in India and work as illustrations to various concepts discussed. Topics are discussed in a clear manner with the help of the following features, among others: Boxed exhibits giving real-life examples Diagrams explaining processes and theories Tables giving a comparative perspective of topics discussed Chapter summary helping in recapitulation of the topics covered List of key terms used in the chapter Chapter-end cases to analyse and discuss applied aspects of the subject Variety of chapter-end exercises enabling the students to prepare for examinations For ease of writing, mostly masculine gender has been used throughout the book. However, the subject matter is equally applicable to all genders. I hope that the students and teachers will welcome and appreciate this humble effort to write and design a user-friendly textbook. I would appreciate if the readers can provide their valuable feedback for further improvement in the book in its future editions. Ramesh B. Rudani

Acknowledgements

From the Author This book is the outcome of constant and restless efforts spanning countless hours, supported directly and indirectly by a number of people. It would not have been possible without the support and contribution of my family members. My students were also a great source of motivation for me in writing this book. Their love, appreciation, respect, and recognition motivated me to work restlessly amidst several problems and difficulties. The authorities and colleagues at my college also provided their muchneeded cooperation and encouragement without which some of the challenges in completing the book could not have been overcome. In particular, I extend my warm regards to Prof. S.G. Sandhe who, from time to time, has recognized my efforts in writing this book and has boosted my morale. I also remember with respect my Ph.D. Guru, Dr. A. Kumar, for his blessings and inspiration. The publisher is a strong medium between the author and the readers. I am greatly obliged to the team at Tata McGraw-Hill for their necessary support, guidance, and inspiration. In particular, I express sincere thanks to Ms. Vibha Mahajan, Mr. Tapas K Maji, Mr. Hemant K Jha, Ms. Amrita Marik, Ms. Piyali Ganguly, Mr. Yogesh Kumar, Ms. Sampurna Majumder, Mr. Manohar Lal, and Mr. Atul Gupta, among others, who have worked with me dedicatedly on this project. I would also like to thank the reviewers of the manuscript for their timely and valuable comments and suggestions, which have helped me a lot in giving a shape to the text. The present volume derives from the innovative thoughts of a large number of authors and writers. It is difficult to name all of them here; some of them have been mentioned in references and bibliography. I remain indebted to all eminent authors, writers, and researchers whose books and other publications have been a source of reference for me. My sincere thanks are also due to various individuals and organizations for being source of various examples, illustrations and cases included in the book. These have been included with the sole purpose of aiding class discussion, and without these the book could not have come out in the present form. I have tried my best to acknowledge all the sources at relevant places throughout the book, as accurately as possible. I acknowledge the support of all the individuals who knowingly or unknowingly supported me in bringing out this book.

From the Publisher We thank the following faculty reviewers, among others, for giving their valuable feedback during the course of development of the book: Dr. Manodip Ray Chaudhuri, Future Business

x

Acknowledgements

School, Kolkata; Dr. P. Nagesh, JSS Centre for Management Studies, Mysore; Dr. Vinod Kumar Yadav, H.B.T.I, Nawabganj, Kanpur; Dr. Chandra Sekhar SF, Siva Sivani Institute of Management, Hyderabad; Smita Singh, Institute of Management Sciences, University of Lucknow, Lucknow; Dr. Suman Pathak, IILM Academy of Higher Learning, Lucknow; Dr. T. Thomas, Rai Business School, Hyderabad; Dr. Anil Sarin, Manav Rachna University, Faridabad; Himanshi Tiwari, BIMTECH, Noida; Dr. M. S. Khan, Integral University, Lucknow; Manjunath VS, NMIT, Bangalore. We also thank the following student reviewers, among others, for participating in the review process and helping us understand their requirements in a textbook of this nature: Garima Shukla, International Management Institute (IMI), New Delhi; Singdha, Integral University, Lucknow; Tahseen Fatima, Integral University, Lucknow; Gaurav Kriplani, IMI, New Delhi; Saloni Sharma, IMI, New Delhi; Swatisree Panigrahy; National Institute of Science and Technology (NIST), Berhampur, Orissa; A. Priyanka, NIST-B, Berhampur, Orissa.

Model Curriculum

This model curriculum has been developed on the basis of syllabi for Management/Organisational Behaviour course(s) prescribed in different universities and institutions across India. It is being suggested with the view to enable the readers appreciate the subject matter in a wellorganized, objective, and structured manner. It will also help the faculties to develop their course plan and make the best use of this book for their teaching.

Management and Organisational Behaviour Course Objective The aim of the course is to discuss the key concepts and basic principles of management and organisational behaviour, in relation to the real practices across the globe.

Important Notes: Course Name: Business Management and Organisational Behaviour Total Marks: 70–100 Question Paper Style: 20% multiple choice questions and 80% descriptive questions, three hours Contact Hours (or Course Duration): There are five units (or modules); every unit contains nine topics to be completed within nine contact hours—one hour for every topic.

Course Content Content Unit 1: Overview of Business Management (20%) Definitions and Features of Management Professionalisation of Management—Meaning, Conditions, and Conclusion Skills of Professional Manager and Management, and Business Environment Management and Business Environment Classical School of Management System School of Management Strategic Management—Definitions and Process

Coverage Chapter 1 Chapter 1 Chapter 1 Chapter 1 Chapter 2 Chapter 2 Chapter 3

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Model Curriculum

The Mckinsey’s Seven-S Model, and Porter’s ‘Five Forces’ of Corporate Strategy Social Responsibly and Business Ethics Unit 2: Management Functions (20%) Overview of Management Functions Planning—Concept and Process Decision-Making—Concept and Process Organising—Concept and Process Staffing—Concept and Brief Idea of Main Staffing Functions Directing—Concept, Directing and Coordination Brief Idea of Directing Tools—Leadership, Motivation, Communication, and Supervision Leadership—Leadership Styles and Importance Motivation—Concept and Importance of Motivation—Concept and Role of Morale Controlling—Concept, Process, and Importance Unit 3: Overview of Organisational Behaviour (20%) Concept, Nature and Importance of OB Nature of Man and Man Models Historical Background of OB—OB Evolution Stage Organisation Culture—Concept and Creating and Maintaining Culture Organisational Climate—Concept, Factors, Organisational Climate vs Culture Perception—Concept, Feature, Factors Learning—Concept, Features and Learning Principles Attitudes—Concept, Features and Attitude Formation Personality—Concept, Factors, and Personality And OB Unit 4: Important Aspects Of OB (20%) Group Dynamics—Concept, Factors and Formal vs Informal Groups Team Building—Concept and Approaches In Brief Transactional Analysis—Concept and Key Areas; Johari Window Stress—Concept, Stress as Motivator, Brief Idea of Stressors And Stress Coping Strategies Conflict—Concept and Sources of Conflict, Optimum Conflict, and Conflict Management

Chapter 3 Chapter 13 Chapter 1 Chapter 4 Chapter 6 Chapter 9 Chapter 10 Chapter 10 Chapter 21 Chapter 19 Chapter 11 Chapter 14 Chapter 14 Chapter 15 Chapter 16 Chapter 16 Chapter 17 Chapter 17 Chapter 17 Chapter 17 Chapter 18 Chapter 18 Chapter 18 Chapter 22 Chapter 22

Model Curriculum

xiii

Positive Organisational Behaviour (POB)—Concept and Brief Idea of POB Chapter 25 Components, and POB and Behavioral Performance Organisational Politics—Concept and Strategies Chapter 24 Chapter 26 Quality of Work Life (QWL) and High Performance Work Practices Motivation and Leadership Theories—An Overview of Motivation and Leadership Theories Unit 5: Case Studies (20%) Concept of a case and a case study; Provide guidelines for case study, and discuss at least six cases—three from each section. In examination two cases, one from management and one from OB can be asked. Both can be of equal marks.

Chapter 20 Chapter 21 (Refer to chapter-end cases in Mangement section and OB section.)

Brief Contents

Preface Acknowledgements Model Curriculum

vii ix xi

MANAGEMENT Chapter 1 Introduction to Management

1

Chapter 2 Schools of Management Thought

47

Chapter 3 Introduction to Strategic Management

76

Chapter 4 Fundamentals of Planning

95

Chapter 5 Forecasting and Decision-making

123

Chapter 6 Fundamentals of Organising and Organisation Theories

154

Chapter 7 Delegation and Decentralisation

183

Chapter 8 Types of Organisation Structure

208

Chapter 9 Staffing (Human Resource Management)

234

Chapter 10 Directing and Coordinating

259

Chapter 11 Controlling (Managerial Control)

282

Chapter 12 Functional Areas of Management: Basic Principles

305

Chapter 13 Emerging Issues and New Developments in Management

326

xvi

Brief Contents

ORGANISATIONAL BEHAVIOUR Chapter 14 Introduction to Organisational Behaviour

358

Chapter 15 Historical Background and Evolution of OB

382

Chapter 16 Organisational Structure, Climate, and Culture

406

Chapter 17 Dynamics of Individual Behaviour

433

Chapter 18 Dynamics of Groups and Teams

480

Chapter 19 Motivation and Morale

510

Chapter 20 Theories of Motivation

529

Chapter 21 Leadership

566

Chapter 22 Stress and Conflict

614

Chapter 23 Managing Change

644

Chapter 24 Communication, and Power and Politics in Organisation

669

Chapter 25 Positive Organisational Behaviour

705

Chapter 26 Managing Performance by Job Design

731

Model Question Paper

763

Index

765

Contents

Preface Acknowledgements Model Curriculum Brief Contents

vii ix xi xv

MANAGEMENT Chapter 1

Introduction to Management

Introduction 1 Definitions of Management 2 Nature or Characteristics of Management 3 Management as an Art and/or a Science 4 Management as A Profession 7 Universality of Management 9 Management and Administration 10 Levels in Management 13 Management Process or Functions of Management 17 Significance of Management 20 Objectives of Management 22 Social Responsibility of Management 25 Managerial Roles (Views of Mintzberg) 25 Skills of a Professional Manager/Leader 27 Functional Areas (Scope) of Management 28 Management and Business Environment 31 Professionalisation of Management 36 Impact of Family, Culture and Situation 40 Summary 41 Key Terms 42 Exercises 42 Objective Type Questions 42 Descriptive Questions 43 Assignments 43

1

xviii

Contents

References 43 Answers to Objective Type Questions 44 Case True Story of Successful CEOs 44

Chapter 2

Schools of Management Thought

47

Introduction 47 Classification of Schools of Management Thoughts 48 Classical School of Management 48 Neoclassical School of Management or Human Relations Movement 56 Modern Schools of Management 59 Brief Idea of Other Schools of Management Thoughts 65 Summary 71 Key Terms 71 Exercises 72 Objective Type Questions 72 Descriptive Questions 73 Assignments 73 References 73 Answers to Objective Type Questions 74 Case Dhirubhai Ambani, the True CEO of Reliance Group 74

Chapter 3

Introduction to Strategic Management

Introduction 76 Strategic Management 76 Management and Strategic Management 77 Definitions 78 Characteristics of Strategic Management 79 Strategic Management Process 80 The Seven-S Model 86 Porter’s ‘Five Forces’ of Corporate Strategy 88 Benefits/ Importance of Strategic Management 90 Summary 91 Key Terms 92 Exercises 92 Objective Type Questions 92 Descriptive Questions 92 Assignments 93

76

Contents

xix

References 93 Answers to Objective Type Questions 93 Case Innovative Management Practices at Mahindra and Mahindra Group 93

Chapter 4

Fundamentals of Planning

Introduction 95 Need for Planning 96 Definitions of Planning 96 Characteristics of Planning 96 Steps in Planning Process 97 Planning Premises 101 Components of Plan or Types of Plan 103 Importance (Need) of Planning 107 Strategic Planning 109 Corporate Planning 113 Operational Planning 114 Difference between Strategic and Operational Planning MBO—Management By Objectives 115 Summary 118 Key Terms 118 Exercises 119 Objective Type Questions 119 Descriptive Questions 120 Assignments 120 References 120 Answers to Objective Type Questions 121 Case Be Innovative or Get Ready to Perish

Chapter 5

95

114

121

Forecasting and Decision-making

Introduction 123 Forecasting 123 Definitions of Forecasting 124 Characteristics of Forecasting 124 Forecasting Process 124 Difference between Forecasting and Planning Importance of Forecasting 125 Limitations of Forecasting 126

125

123

xx

Contents

Methods/Techniques for Forecasting 126 Decision-making 127 Definitions of Decision-making 127 Characteristics of Decision-making 127 Decision-making Process 128 Types of Decisions 130 Group Decision-making 132 Decision-making Techniques 133 Key Problems in Decision-making 143 Decision-making Approaches 145 Rationality in Decision-making 146 Summary 149 Key Terms 149 Exercises 150 Objective Type Questions 150 Descriptive Questions 151 Assignments 151 References 151 Answers to Objective Type Questions Case 152

Chapter 6

152

Fundamentals of Organising and Organisation Theories 154

Introduction 154 Organising 154 Definitions of Organising and Organisation 155 Organising Process 156 Significance of Organisation 159 Features of Good Organisation or Guiding Principles for Effective Organising Organisational Chart and Manuals 164 Organisation Theories: An Overview 166 Classification of Organisation Theories 167 Summary 176 Key Terms 177 Exercises 178 Objective Type Questions 178 Descriptive Questions 179 Assignments 179

161

Contents

xxi

References 179 Answers to Objective Type Questions 180 Case Reforms in the Mindset are More Important than Formal Restructuring of the Organisation 180

Chapter 7

Delegation and Decentralisation

183

Introduction 183 Authority and Responsibility 184 Delegation of Authority 188 Decentralisation 192 Departmentation 195 Span of Management (or Control) 197 The Peter Principle 199 The Parkinson’s Law 201 Summary 203 Key Terms 204 Exercises 204 Objective Type Questions 204 Descriptive Questions 205 Assignments 206 References 206 Answers to Objective Type Questions 206 Case Need For Decentralisation 207

Chapter 8

Types of Organisation Structure

Introduction 208 Key Constituents of Organisation Structure 208 Types of Organisation Structure 210 Contingency Factors in Organisation Design 228 Summary 229 Key Terms 229 Exercises 230 Objective Type Questions 230 Descriptive Questions 230 Assignments 230 References 231

208

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Contents

Answers to Objective Type Questions 231 Case CEOs need to be Innovative in Organising Efforts 232

Chapter 9

Staffing (Human Resource Management)

234

Introduction 234 Definitions of Staffing 235 Characteristics of Staffing 236 Importance of Staffing 236 Functions/Scope of Staffing 238 New Developments in HRM 253 Principles (or Qualities) of Staffing 253 Summary 254 Key Terms 254 Exercises 255 Objective Type Questions 255 Descriptive Questions 256 Assignments 256 References 256 Answers to Objective Type Questions 257 Case HR Practices at Microsoft India 257

Chapter 10

Directing and Coordinating

Introduction 259 Directing 260 Coordination 264 Cooperation and Coordination Supervision 271

270

Summary 277 Key Terms 278 Exercises 278 Objective Type Questions 278 Descriptive Questions 279 Assignments 279 References 279 Answers to Objective Type Questions Case Making a Difference 280

280

259

Contents

Chapter 11

Controlling (Managerial Control)

xxiii

282

Introduction 282 Definitions of Controlling 283 Characteristics of Controlling 283 Controlling Process (Control Mechanism) 284 Strategic Control and Operational Control 287 Types/Stages of Control 287 Importance of Controlling 288 Key Problems in Controlling Process 290 Principles of Effective Control System 290 Techniques of Controlling 291 Selection of Controlling Techniques 299 Summary 300 Key Terms 300 Exercises 301 Objective Type Questions 301 Descriptive Questions 302 Assignment 302 References 302 Answers to Objective Type Questions 302 Case New Controlling System 303

Chapter 12

Functional Areas of Management: Basic Principles

Introduction 305 Functional Areas of Management 306 Production Management 306 Marketing Management 312 Financial Management 318 Personnel (or Human Resource) Management 321 Summary 322 Key Terms 323 Exercises 323 Objective Type Questions 323 Descriptive Questions 324 Assignments 324 References 324 Answers to Objective Type Questions 324 Case CEOs Going Incognito to Learn Home Truths—Innovative Marketing

325

305

xxiv

Contents

Chapter 13 Emerging Issues and New Developments in Management 326 Introduction 326 Part I—Emerging Issues in Management 326 Part II—New Developments in Management 345 Summary 352 Key Terms 353 Exercises 354 Objective Type Questions 354 Descriptive Questions 355 Assignments 355 References 355 Answers to Objective Type Questions 356 Case Ethics and Management Practices 356

ORGANISATIONAL BEHAVIOUR Chapter 14

Introduction to Organisational Behaviour

Introduction 358 Organisational Behaviour (OB) 359 Definitions and Characteristics of OB 359 Human Nature 360 Importance of Organisational Behaviour 364 Contributing Disciplines to OB 366 Organisational Behaviour Model 369 Management and OB 372 Role of OB 372 Limitations of Organisational Behaviour 374 Ethical Organisational Behaviour 375 Summary 377 Key Terms 378 Exercises 378 Objective Type Questions 378 Descriptive Questions 379 Assignments 379 References 379 Answers to Objective Type Questions 380 Case Gender Factor at Work Place 380

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Contents

Chapter 15

Historical Background and Evolution of OB

xxv

382

Introduction 382 Historical Background of OB 383 Phases/Stages of Development of OB 383 The Hawthorne Experiments (Studies) 385 International Organisational Behaviour (IOB) 391 Emerging Challenges in OB 399 Summary 400 Key Terms 401 Exercises 401 Objective Type Questions 401 Descriptive Questions 402 Assignments 403 References 403 Answers to Objective Type Questions 403 Case Seminar on Emergence of OB 404

Chapter 16

Organisational Structure, Climate, and Culture

406

Introduction 406 Organisational Structure and Design 407 Organisation Climate and Culture 415 Organisational Effectiveness 424 Summary 429 Key Terms 429 Exercises 430 Objective Type Questions 430 Descriptive Questions 430 Assignments 431 References 431 Answers to Objective Type Questions 431 Case Employee Friendly Organisation Design, Culture and Climate 432

Chapter 17

Dynamics of Individual Behaviour

Introduction 433 Dynamics of Individual Behaviour 434 Perception 435

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Contents

Learning 442 Attitudes 450 Values 456 Personality 459 Summary 474 Key Terms 475 Exercises 475 Objective Type Questions 475 Descriptive Questions 476 Assignments 476 References 477 Answers to Objective Type Questions 478 Case Nothing is Absolutely Right or Wrong, but Perception and Attitudes—A Story of Contract and Corruption 478

Chapter 18

Dynamics of Groups and Teams

480

Introduction 480 Group Dynamics 480 Dynamics of Teams and Team Building 490 Transactional Analysis (TA) 497 Johari Window 501 Summary 504 Key Terms 504 Exercises 505 Objective Type Questions 505 Descriptive Questions 506 Assignments 506 References 506 Answers to Objective Type Questions 507 Case Successful CEOs are Capable Team-builders 507

Chapter 19

Motivation and Morale

Introduction 510 Motivation 510 Morale 518 Summary 524

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Contents

xxvii

Key Terms 525 Exercises 525 Objective Type Questions 525 Descriptive Questions 526 Assignments 526 References 527 Answers to Objective Type Questions 527 Case Need to Review Motivation Policies in Accordance with Global Management Practices 527

Chapter 20

Theories of Motivation

529

Introduction 529 Maslow’s Need Hierarchy 530 Herzberg’s Two-factor Theory of Motivation 532 McGregor’s Theory X and Theory Y 534 Ouchi’s Theory Z 537 Alderfer’s ERG Theory 539 Adam’s Equity Theory of Motivation 540 McClelland’s Achievement (or Learned Need) Theory of Motivation 543 Vroom’s Expectancy Theory of Work Motivation 546 Porter-Lawler Model of Work Motivation 549 Other Theories of Motivation 555 Scientific Approach to Motivation 560 Human Relations Approach to Motivation 560 Summary 560 Key Terms 561 Exercises 562 Objective Type Questions 562 Descriptive Questions 563 Assignments 563 References 563 Answers to Objective Type Questions 564 Case Interpersonal Skills and Positive Approach—As Sources of Motivation 564

Chapter 21

Leadership

Introduction 566 Fundamentals of Leadership

566 566

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Contents

Leadership Theories and Implications 582 Summary 608 Key Terms 608 Exercises 608 Objective Type Questions 608 Descriptive Questions 609 Assignments 610 References 610 Answers to Objective Type Questions 611 Case The DNA of Indian Leadership 612

Chapter 22

Stress and Conflict

614

Introduction 614 Stress and Stress Management 615 Conflict and Conflict Management 627 Summary 638 Key Terms 639 Exercises 639 Objective Type Questions 639 Descriptive Questions 640 Assignments 641 References 641 Answers to Objective Type Questions 641 Case Peace Pact of Pune-based IT Companies 642

Chapter 23

Managing Change

Introduction 644 Managing Change 644 Organisational Development (OD) Summary 662 Key Terms 663 Exercises 663 Objective Type Questions 663 Descriptive Questions 665 Assignments 665 References 665

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Answers to Objective Type Questions 666 Case Making Office a Happier Place 666

Chapter 24 Communication, and Power and Politics in Organisation 669 Introduction 669 Communication 670 Power and Politics 690 Summary 699 Key Terms 700 Exercises 700 Objective Type Questions 700 Descriptive Questions 701 Assignments 701 References 701 Answers to Objective Type Questions 702 Case Be Aware of Organisational Politics

Chapter 25

703

Positive Organisational Behaviour

705

Introduction 705 Components/Dimensions of POB 707 Summary 725 Key Terms 726 Exercises 726 Objective Type Questions 726 Descriptive Questions 727 Assignments 727 References 727 Answers to Objective Type Questions 728 Case Role of POB—Emotional Intelligence 728

Chapter 26

Managing Performance by Job Design

Introduction 731 Job Satisfaction 732 Job Design 737 Other Issues in Job Design Summary 757 Key Terms 758

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Contents

Exercises 758 Objective Questions 758 Descriptive Questions 759 Assignments 759 References 759 Answers to Objective Type Questions 760 Case Can We Apply the Latest Positive Management Practices?

760

Model Question Paper

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Index

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CHAPTER

1

Introduction to Management Learning Objectives Upon completing this chapter, you will be able to Define management and discuss its key features Know whether management is an art, a science, or a profession Comment on universality of management and administration Resolve controversy related to universality of management Outline classification of managerial functions and suggest suitable functions Understand managerial role and skills Overview functional areas of business management State business environment and its factors Debate issues relevant to professionalisation of management in India

INTRODUCTION Companies are known for their indigenous and innovative management practices that are reflected in their balance sheet performance and social significance. Sound management practices determined by founders, promoters and key position holders, and visionary CEOs have helped many companies outperform during the recent global meltdown. Reliance Industries, ITC, HUL, Tata Sons (Group), M&M, Infosys Technologies Ltd., Wipro Corporation, Maruti Udyog Limited, Hero Honda Motors, HDFC Bank, and Birla Group are among companies that have maintained high performance records over years. Industrial units outperform due to ability of their managers to find opportunities, tackle adversities, and adjust to ever-changing environment. Management involves the way the managing body (including founders, chief

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Management and Organisational Behaviour

mentors, CEOs, functional heads, and experts) decides, deals with employees, and interacts with the business environment. The success of any business largely depends on how it is managed. Management is the brain of business. Our economic prosperity and social welfare are outcomes of efficient management. Each business enterprise tries to appoint capable, experienced and dynamic managers who can manage business activities efficiently. The managers with knowledge of fundamentals of management can better understand various issues related to business activities. Here, fundamentals refer to the key aspects of management, such as concepts, functions, processes, principles, and theories. Management is a wide term. Its meaning differs depending on the context in which it is used. In addition, its meaning has witnessed variations with time. Also, each group of writers has stressed particular aspects and needs of contemporary business situations. For example, the economists have defined management as one of the factors of production while management practitioners consider management as a process comprising various functions a manager has to perform. However, all definitions have, more or less, same implications. Let us examine some standard definitions on management.

DEFINITIONS OF MANAGEMENT Most authors have considered four aspects while defining the term ‘management’—economic performance (achieving high operational efficiency), directing people (making the people work), decision-making (taking decisions on various aspects), and functions (various functions a manager has to perform like planning, organising, staffing, directing, and controlling). The term ‘management’ is defined as under: 1. F. W. Taylor: “Management is the art of knowing exactly what you want (the men) to do, and then seeing that it is done in the best and the cheapest way.”1 2. Peter. F. Drucker: “Management is a multipurpose organ that manages business, manages managers, and manages workers and work.”2 3. Louis Allen: “Management is what a manager does.”3 4. John F. Mee: “Management is the art of securing maximum results with a minimum of efforts so as to secure maximum prosperity for the employer and the employee, and give the public the best possible service.”4 5. Koontz and Weihrich: “Management is the process of designing and maintaining an environment in which individuals, working together in a group, efficiently accomplish selected goals.”5 In the same way, we can define management as: Management is a knowledge consisting of concepts, principles, functions, and processes. The knowledge is used for achieving organisational objectives by effective utilisation of resources and coordinated human efforts. Finally, the term can be defined as: Management is a process of planning, organising, staffing, directing, and controlling human efforts to achieve organisational objectives effectively. Clearly, every author/expert defines management in his own way. But these definitions necessarily explain the nature of management. The key points of these definitions are the characteristics of management.

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NATURE OR CHARACTERISTICS OF MANAGEMENT Careful analysis of the definitions reveals specific characteristics, often referred to as features. Some of the important characteristics explain the nature of management are listed below. Note that this is not an exhaustive list.

1. Management is a Process A process consists of a series of interrelated activities or steps to be followed in a sequence, and it always restarts with the first step. Management as a process includes five steps or functions—planning, organising, staffing, directing, and controlling. Thus, the management process starts with planning and ends with controlling. Some experts have taken into account additional functions to constitute the management process. However such functions show duplication or repetition of any of the five main functions.

2. Abstract Phenomenon

Management is abstract and cannot be seen or touched like a physical object. It is invisible/intangible knowledge. The knowledge consists of concepts, functions, principles, etc., and it is used to obtain the desired results. People can learn and practice management.

3. Goal Oriented

The primary task of management is achievement the goals. The goals can be defined as the end expected results that can be actualized in the future. A manager, by applying managerial knowledge, achieves goals, with given resources, in time. If one has nothing to achieve, there is no need of management.

4. Decision-making

Management is synonymous with decision-making and a manager is known as a decision-maker because every function of management consist of a set of decisions. Success of an organisation depends on the quality of decisions taken by its managers. A manager takes decisions on various areas, like finance, marketing, personnel and production.

5. Working with and Through People

A manager makes the people in an organisation work. He himself doesn’t perform the actual work but is responsible for leading, motivating, directing, and controlling the efforts of people to get the desired results. Hence, management is essentially a human activity in which a person (manager) manages people (employees).

6. Factor of Production There are four factors of production, viz., land, labour, capital, and entrepreneur. Except the entrepreneur, the others are passive, cannot contribute automatically to the organisation’s objectives. The entrepreneur organises and coordinates these productive resources in an optimum manner to get maximum possible results. Here, the manager is required to perform all the tasks of the entrepreneur. 7. Integrated Activity Management integrates the activities and functions of various groups and departments. Integration is necessary to ensure that all people, groups, and departments work consciously and actively for the same purpose. If they are not integrated, their efforts get neutralised and, consequently, fail to achieve the objectives. A manager integrates the efforts of employees for effective achievement of objectives.

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8. As Art and a Science Management is both an art and a science. It satisfies most of the conditions of an art and some conditions of a science. An art concerns with practical use of managerial knowledge and a science concerns with systematic development of knowledge. This characteristic has been discussed in detail later in this chapter. 9. As a Profession Management is also regarded as a profession. A profession is specialised (body of) knowledge which is based on intensive study, experience and observation, and is used to serve others for fees. Management cannot be treated as a pure profession as all the conditions of a profession are not fully satisfied. It is considered an emerging profession moving toward professional status. This characteristic has been discussed later in this chapter. 10. Management as a Universal Activity Many experts believe that management is universal. Any subject which can be applied everywhere in all the times without any discrimination can be said as to be universal. In reality, there are two opposite views regarding universality of management. Management is universal with reference to fundamentals—concepts, processes, principles, and functions. But, it is not considered universal in practice. This issue has also been adequately debated later. 11. Multi-disciplinary Subject Management is managing human beings. To this end, management has enriched its knowledge by borrowing concepts, principles, and theories from disciplines like economics, marketing, sociology, psychology, social psychology, anthropology, etc. Management is a combination (or outcome) of all these subjects or disciplines.

12. Other Characteristics

Over and above these main characteristics, there are also some minor characteristics of management. They are listed below: (i) It is a system of authority (ii) It is a field of study (or a discipline) (iii) It is a multipurpose organ (iv) It follows a dynamic approach (v) It is essentially a leadership activity (vi) It is an organised activity (vii) It is a relationship among resources (viii) It is a social system (ix) It is different from the entrepreneur (x) It is what a manager does, but not what a manager is (xi) It is a group of functions, and not a group of people

MANAGEMENT AS AN ART AND/OR A SCIENCE Here, we consider the age-old controversy about whether management is an art or a science since it carries the key features of both. Let us resolve the controversy in a systematic way.

Introduction to Management

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Management as An Art Art can be defined as: An art means practical know-how or skills in getting the desired result with less efforts, less cost, and less time. An art helps in achieving better results. We can also define the term as: An art consists of practical use or application of personal skills and knowledge to achieve results effectively and efficiently.

Conditions or Characteristics The following conditions need to be satisfied by management to be considered as art:

1. Practical Know-how Art involves practical know-how. Management also requires use of practical know-how (i.e., skills, knowledge, expertise, proficiency) like other arts (like music, drawing, dancing, singing, etc.). Hence, this condition of art is satisfied. 2. Need of Practice or Experience To get mastery over any art, one needs continuous and intensive practice or experience. This is equally true with reference to management. The experienced manager can definitely do better than a new/fresh one. 3. Element of Creativity

Art involves creativity, i.e., developing something original or different to improve skills. This is also true for management. A manager must be creative to improve his decision-making ability. A creative manager can achieve targets more efficiently.

4. Result Orientation Any art is result oriented. It is aimed at some special outcomes. This condition is met by management as it is aimed at achievement of specific results or objectives.

5. Personal Element (Personalised Skills) Art is personalised in nature. Each artist has his personal and special way (style or pattern) to perform the art, and his presence is a must. Nobody can perform the art on behalf of the artist. Management is also personalised knowledge based on individual approach and techniques to solve the problem. However, in management, physical proximity is not always necessary. Managers have to be artful Gautam Adani of Adani Group, late Dhirubhai Ambani (and his successors) of Reliance Group, Ratan Tata of Tata Sons are among the most skillful Indian managers who have exemplified that managers must be artful (or skillful) in order to work successfully with different stakeholders. They were skillful enough to identify and grab domestic as well as global business opportunities. At every critical occasion, their artfulness was the key factor to change the situations in their favour. They have pursued continuous growth through expansion and diversification, and they could keep all stakeholders fairly satisfied for years together.

6. Qualities and Qualifications

An artist requires both qualities and qualifications to master the art. However, qualities are more important as one can be a successful artist with or without qualifications. In case of management, though it is desirable that a manager should have

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academic qualifications, one can be a successful even without formal education or qualifications. Since all main conditions of an art are satisfied, we can conclude that management is an art.

Management as a Science Science can be defined as: A science is a fact-based, critically tested, systematised body of knowledge pertaining to a specific field. The knowledge is accumulated through study, experience, and experimentation. The scientific knowledge produces impersonal results, and it can be empirically tested and universally applied.

Conditions or Characteristics The main conditions of science in relation to management have been discussed below:

1. Systematic Body of Knowledge

Science is based on the knowledge developed systematically. Systematic knowledge is purposefully collected knowledge by using scientific methods, and procedures. Management is also a systematic body of knowledge with a specific purpose. Therefore, this condition is satisfied.

2. Impersonal Results Science gives impersonal and unbiased results. It is free from personal values, personality characteristics, emotions, and ambitions. It provides the same result irrespective of time, place, person, situation, etc. This is not the case with management. A managerial result significantly differs due to personal values, geographical diversity, and situation. Two managers with same qualifications and experience cannot produce the same results. This condition is not fulfilled by management.

3. Clarity of Concepts Science provides clarity of concepts. Any scientific term has clear-cut and exact implication. It does not allow ambiguity. In case of management, such clarity is not possible. Certain terms may have different meanings and connotations for different people. 4. Empirical Confirmation or Empirically Tested Knowledge

Science produces empirical evidence for the claim made. Thus, a scientific principle can be tested to justify its validity. Naturally, this is not possible with management.

5. Universal Applicability

Scientific knowledge has universal applicability. The knowledge can be applied uniformly irrespective of time, place, persons, and circumstances. The condition is partially satisfied with management. Though management fundamentals are universal, management as a practice is not.

6. Cause and Effect Relationship Science establishes cause and effect relationship. One can easily predict the effect on the dependent variable by manipulating the independent variable. In management, it is not possible to establish the exact cause and effect relationship.

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7. Internal Consistency among Concepts, Hypotheses, Principles, and Theories Scientific knowledge is consistent knowledge. There is a close relation among concepts, hypotheses, principles, and theories. We hardly find such consistency in management. Based on the analysis of conditions of science with reference to management, it can be observed that some conditions are fully satisfied, some are partially satisfied, while some are not satisfied at all. Hence, the conclusion is that management is not an exact science like chemistry, mathematics, biology, or physics. Management is an inexact or soft science. It is also called social science. It is sometimes referred to as multidisciplinary science as it draws necessary knowledge from other sciences, including economics, sociology, psychology, mathematics, anthropology, political science, and others.

Conclusion Management is both a science and an art. A manager must have sufficient knowledge of management fundamentals (i.e., science). However, only management knowledge is of no value if not used judiciously. To use scientific knowledge, one requires skills and practical know-how to decide where, to what extent, and in what way should knowledge be applied to get optimum results (i.e., art). An art without scientific base is incomplete, and a science without an art (a sense of judgment and timing) is knowledge wasted. Successful application needs a unique combination of art and science. A wise manager requires the knowledge of management (principles, theories, and concepts), and also skills about how to use the knowledge in practice. Absence of either would result in inefficiency. Acquiring knowledge is not enough one also needs to know how to use it. Finally, we can say that management is artful science—a science with an art—because management theory (concepts, principles, functions, and processes) indicates a science and skills to use management theory in practice indicates an art.

MANAGEMENT AS A PROFESSION Another controversy in relation to nature of management is regarding management as a profession. The basic question is: Can management be considered a profession? In order to resolve the controversy, we shall define the term profession, derive its basic characteristics, and test each characteristic with that of management to conclude the extent of similarity between the two.

Profession The term ‘profession’ has been defined as: Profession means an occupation based on specialised knowledge, skills and training. The use of such knowledge is not for self-satisfaction, but for larger interest of society for a fee, and success of which cannot be measured by money alone.

Conditions or Characteristics Different experts have given different characteristics. However, most common characteristics include followings:

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Management and Organisational Behaviour

1. Existence of Specialised Knowledge A profession is based on systematic and distinct body of knowledge which a professional (person) must acquire. For example, doctors, advocates, chartered/cost accountants, et al, require knowledge relevant to their respective fields. Management also involves systematic knowledge, though not very distinct. A manager is required to have knowledge of the fundamentals of management. Thus, the condition is satisfied.

2. Service Motive

The motive of any profession is to provide service to society. If knowledge is used only for self-satisfaction, it is not treated as a profession. Though professionals charge (reasonable) fees for their services, the success of the profession is measured in terms of the social service, and not amount of money. This condition is partially satisfied with management because (1) the aim of management is not to serve society, but achieve business goals effectively, (2) managers are paid salaries or pay packages, not fees, and (3) success of a manager depends on level of economic excellence (efficiency, profits, or competitiveness). Though social obligation or social responsibility is stressed, practically, it has little value.

3. Need of Formal Education and Training It is mandatory for a professional (person) to undergo formal education and training in order to practice the specific profession. Legally, one is not permitted to practice the profession without requisite qualification. In case of management, this condition does not hold much relevance. It is desirable that a manager should be qualified and trained, but it is not compulsory. We find many successful managers without formal management degree (education) or training.

4. Personal Factor

Personal factor or presence is an important aspect in any profession. Professional services cannot be rendered in the absence of the professional as the professional’s qualities (personality) play an important role in satisfying clients. This equally holds true in case of management.

5. Professional Associations Every profession has its association. Professional association is a representative body of professionals that regulates and develops the profession’s activities, and prescribes the rules or criteria for membership. Examples are the Bar Council of India for legal practitioner and the Indian Medical Council for Medical practitioner. It is necessary for every professional to acquire membership of the relevant association. However, a manager is not required to be a member of such unified association. There is the All India Management Association, but membership is not compulsory. Therefore, this condition is not satisfied. 6. Codes of Conduct/Ethical Practice Every professional is required to follow ethical standards prescribed by the regulatory body. Codes of conduct are necessary to protect the interests of clients/society. In management, too, there are ethical codes to guide behavioural patterns of managers. But, these ethics lack uniformity and universal acceptability. For example, general ethical codes include protecting interests of customers, investors, government, employees, and so on. However, in the absence of any regulating body, these codes are not strictly enforced. This condition is partially fulfilled with management.

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7. Continuous Development Every profession needs to be progressive. Ongoing researches and experiments offer distinct and superior ways to serve clients more effectively. New techniques are discovered and practiced to keep the profession up-to-date. This is also the case with management. A manager is required to search new skills, methods, principles, concepts, and theories to cope with the dynamic nature of the business environment. Conclusion Some conditions of profession are fully satisfied by management, some are partially satisfied, and some are not satisfied at all. Hence, we can conclude that: 1. Management is not a pure profession; it is an emerging profession. 2. Management in India is moving toward professional management. It has yet to achieve the professional status. 3. Management as a profession, particularly in India, is in still its infancy.

UNIVERSALITY OF MANAGEMENT One more important controversy related to the nature of management is the universality of management. The basic question is: Is management universal? Universality of management indicates that managerial knowledge and skills can be applied and/or transferred equally from one company to another, from one person to another, and from one country to another. Experts have conflicting views on the issue. Many well-known writers and thinkers like F. W. Taylor, Henry Feyol, James Lundy, Louis A. Allen, Koontz and O’Donnell, D. E. McFarland, etc., opine that management is universal. In this regard, F. W. Taylor writes: “The fundamental principles of scientific management are applicable to all kinds of human activities from our simplest individual act to work of our great corporations.’’6 Similarly, Henry Feyol writes: ‘‘All undertakings require planning, organisation, command, coordination and control, and, in order to function properly, all must observe the same principles.’’7 On the contrary, other management experts and writers, including P. F. Drucker, Earnest Dale, and John Woodward, believe that management is not universal. P. F. Drucker notes: ‘‘The skill, the competence, and the experience of management cannot, as such, be transferred and applied to the organisations and running of institutions. A career in management is, by itself, not a preparation for major political office…or for leadership in the armed forces, the church or a university.’’8 The arguments for and against the universality of management have been summarised in Table 1.1.

Conclusion

Both arguments—for and against—seem valid. Management is applicable in all types of human activities. However, the method, priority, and objectives of management differ considerably. Therefore, it can be concluded that: 1. If management is considered a process or knowledge (concepts, principles, theories, functions, etc.), it is universal as management fundamentals are universal.

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Management and Organisational Behaviour

2. If management is considered as a practice (method or approach) to achieve objectives, it is not universal as practice depends on the type of situation. Management is situationbound. Objectives, resource ability, personal factors, and business environment (including economic, social, cultural, and psychological factors) constitute the situation. Different business firms at different places have to work under different situations. Different situations need different ways, methods, and approaches to manage business. All managerial functions—planning, organising, staffing, directing, and controlling—are universally applicable, but in different ways. TABLE 1.1

Arguments for and against universality of management

Argument for (in Favour of) Universality of Management

Arguments against Universality of Management

1. Management as a Process is Universal: Man- 1. Difference in Objectives: Management style depends on the objectives to be achieved that vary agement process—planning, organising, stafffor different organisations. ing, directing, and controlling—is universally applicable everywhere, in all types of management activities. 2. Management Fundamentals and Techniques: 2. Difference in Resource Ability: Management practices differ with resource abilities of organiManagement fundamentals—concepts, princisations. Obviously, economically poor and strong ples, functions, theories, etc.—are universally apcompanies have different ways to manage human plicable, but techniques and approaches cannot efforts. be applied universally. For example, leadership styles and approaches differ from place to place. 3. Need for Group Efforts and Objectives: Man- 3. Difference in Managerial Philosophies: A comagement is concerned with managing group efture, communication, leadership, morale of emforts for attainment of common objectives. When ployees, objectives and productivity. It guides group (joint) efforts are necessary to achieve common objectives, management is inevitable. founder. 4. Difference in Culture: A man is the product of his culture. Since people working in different places have different cultural backgrounds, management practices must be adjusted accordingly. 5. Differences in Situations: With given resources, every manager has to work according to the situation. Management style varies with the factors both controllable and uncontrollable in a situation.

MANAGEMENT AND ADMINISTRATION A controversy exists between the two related terms—management and administration. To many writers, both terms are similar. They can be used interchangeably, the difference lies in their use with reference to different fields of human activities. However, some authors do not agree with this conclusion.

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In the early stages of management development, the two terms were considered synonymous. In 1923 Oliver Sheldon9 differentiated between the two. He associated administration with decision-making, and management with execution function. At present, there are three viewpoints on the subject. They are: 1. Administration is above management 2. Administration is part of management 3. Administration and management are same

1. Administration is Above Management Some European classical thinkers, including Oliver Sheldon, William Spiegel and Ordway Tead, are of the opinion that administration is above (higher than) management. Administration and management are involved in different activities, though both are performed by the same individual in an organisation. Administration is primarily concerned with policy formulation while management is concerned with policy execution; administration defines the goal and management strives towards it. In this regard, William Spiegel writes: ‘‘Administration is the phase of a business enterprise that concerns itself with the overall determination of institutional objectives and policies necessary to be followed in achieving those objectives. Management, on the other hand, is an executive function which is primarily concerned with carrying out broad policies laid down by the administration.’’10 Thus, administration is a higher level activity while management is a lower level activity. Figure 1.1 shows the relationship between the terms:

FIGURE 1.1

Administration and Management Functions

2. Administration is Part of Management This approach considers administration as a part of management. According to this approach, management is a comprehensive term comprising a number of functions, including some administrative functions. Here, administration deals with routine, day-to-day functions while management is concerned with policy making. Administration doesn’t involve decisionmaking. American experts like William Spiegel, Theo Haimann, Kimball and Kimball,

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Management and Organisational Behaviour

McFarland and Florence believe that administration is an implementing agency, whereas management is determinative (deciding agency). In this regard, Brech states: ‘‘Management is the generic name for the total process of executive control in industry or commerce. It is a social process entailing responsibility for effective and economical planning and regulation of the operation of an enterprise in the fulfillment of a given purpose or task. Administration is a part of management that is concerned with the installation and involves a carrying out of procedures by which it is laid down and communicated, and involves a process of activities regulated and checked against plans.’’11 Thus, administration is subordinate function to management and is concerned with its day-to-day (routine and repetitive) functions.

3. Administration and Management are Same Eminent management contributors, including Henry Feyol, Chester Barnard, George R Terry, Louis Allen and Koontz and O’Donnell, etc., do not perceive any difference between the two terms. This is the most popular and practical approach to analyse the relation between them. Both involve same functions, principles, and processes. Both pursue the same objectives. The terms are synonymous and can be used interchangeably. However, the term ‘administration’ is popularly used in the bureaucratic structure of government and other public organisations. In government offices, we use administrator rather than manager. The term ‘management’ is commonly used in business activities where economic excellence (profit) is given more priority. For example, books titled ‘Business Administration’ or ‘Business Management’ contain the same contents and materials. In the same way, several universities in India and abroad offer management education at degree level under different names—Bachelor of Business Administration (BBA), Bachelor of Business Management (BBM) though the curricula and teaching methods seem identical. Same is the case at the post graduation level. Sometimes, administration is used for policy formulation and management for execution, and vice versa. Indian experts, too, consider them to be same. Figure 1.2 clearly shows that management deals with both formulation and execution functions.

FIGURE 1.2 Managerial Functions at Different Levels

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Conclusion It can be concluded that formulation and execution are two main functions of management and all managers perform them. It is better to say that management performs two types of functions, administrative functions, that involve determination of policies and objectives, and operative functions, that involve execution or implementation. The difference lies in their relative importance. Higher level management is concerned with policy formulation and lower level management concerned with policy execution. At present, management writers, practitioners, and experts prefer to ignore the age-old controversy; they consider them same.

LEVELS IN MANAGEMENT Levels in management refer to the classification of managerial functions on the basis of their relative importance. Their number in an organisation depends on factors like ownership structure, management philosophy, nature and size of business, dispersion of activities, and resource capacity. Most writers classify managerial functions into three levels—top, middle and bottom. Different position holders at different levels differ in terms of roles, status, functions, authority, responsibilities, etc. Their constitution and the designations within them vary with the organisations.

FIGURE 1.3 Levels in Business Management

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Management and Organisational Behaviour

FIGURE 1.4 Simple Departmentwise Levels in Business Management In business management, Top level is comprised of key position holders (Figure 1.3). Middle level includes departmental, divisional and section heads, Bottom level is made up of senior, functional and frontline supervisors.

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Management levels and key executives in each functional area are shown in Figure 1.4.

Management Levels and Functions An organisation may have more than three management levels. Position holders at each level, individually or jointly, perform relevant functions. These functions have been discussed, irrespective of the type and number of position holders.

Top Level Management Top level management includes board of directors, chairman (managing director), and chief executive (general manager). However, the designations may differ in different organisations. The level also includes top advisors.

Functions of Top Level Management The position holders at this level perform the following functions: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Analyse and evaluate the business environment and determine the firm’s response to it Determine basic objectives for the enterprise Formulate main long-term policies, rules, procedures, budgets, etc. Decide the structure of the organisation and select top executives Deal with legal formalities and procedures Deal with matters related to financial and technological issues Finalises strategic decisions, such as long-term contracts, mergers, acquisitions, etc. Guide, supervise, review, and control middle level executives Integrate efforts of departmental heads Motivate employees and boost their morale Build and maintain healthy public relations, and represent the unit to the outside world (or key stakeholders/publics)

Middle Level Management

This level works directly under top level and exercises direct authority over bottom level. Middle level management consists of two sub-levels:

1. Intermediate or upper-middle level management 2. Lower-middle level management Intermediate level management, also called upper-middle level management, comprises of departmental heads—production manager, financial manager, personnel (human resource) manager, and marketing manager. They are responsible for efficient functioning of their respective departments as per basic objectives, policies, rules, procedures, etc., laid down by the top level management. They plan their operations, guide employees, coordinate efforts, manage for resources, control their efforts, and maintain relations with other departments. Lower-middle level management operates between upper-middle management and bottom level management. It comprises of deputy or assistant heads, area managers, sales managers, branch managers, chief accountants, and office superintendents. They assist respective departmental heads to carry out relevant activities. The executives at this level serve the link between departmental heads and supervisory management.

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Functions of Middle Level Management The executives at the middle level perform the following functions: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Carry out operations according to the plan formulated by top level Make arrangement for necessary resources and facilities for the department Coordinate and control efforts of people working in their department Maintain amicable relations with other departments Serve as link between top level and operating level Recruit, select, and train supervisory personnel Motivate employees working at lower level Collect and analyse necessary information and prepare report for top management Guide, instruct, and control lower level employees Perform any task assigned by higher authority

Lower/Bottom Level Management Lower level management is known as supervisory or operating management. It is the lowest level of management. Normally, it consists of plant supervisors (in production department), sales officers (in marketing department), accountants (in financial department), and other lower cadre officers, like time-keepers, gang boss, foremen, trainers, and so on. Normally, lower level or supervisory level is more relevant to production and marketing activities. Employees at this level work under direct control of lowermiddle management.

Functions of Lower Level Management Position holders in lower level management perform the following functions: 1. Extend all possible cooperation to higher authorities in implementing departmental plans 2. Prepare and implement operating plans for carrying out day-to-day activities effectively 3. Deal with recruitment selection and training for workers 4. Supervise and control activities of workers/salesmen 5. Maintain discipline and order at work place 6. Create and maintain healthy work climate 7. Manage necessary materials and facilities for workers 8. Communicate problems of workers with higher authorities and seek suitable solutions 9. Report performance of workers to higher authority 10. Perform any activity assigned by the higher authority Executives, positions, and functions discussed in management levels vary according to business, size of operations, geographical dispersion of activities, management philosophies, etc. We have discussed general functions of each level. Each functional area has different levels like intermediate level, middle level and bottom level. Position holders in these levels perform relevant activities.

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MANAGEMENT PROCESS OR FUNCTIONS OF MANAGEMENT Management process consists of specific steps to be followed in a sequence. Management writers differ on the number of steps (four or five) involved in the process. After extensive study, we find that management process consists of five steps, referred to as functions (expressed in order). Every function is a bunch of related decisions. The five steps are planning, organising, staffing, directing, and controlling. The process starts with planning and ends with controlling, and starts again with planning to achieve a new target. And, five steps are: 1. Planning (including forecasting and decision-making) 2. Organising (including delegating) 3. Staffing (including manpower planning, recruitment and selection, training and development, etc.) 4. Directing (including motivation, leadership, communication, and supervision) Also called coordination because coordination is the result of direction 5. Controlling (including budgeting and reporting)

Steps in Management Process or Functions A manager has to perform certain functions to get the things done. However, there is no consensus among the writers on the functions (or steps) involved in the management process. The reasons for the diversity are: 1. Lack of agreement among writers on the functions a manager should perform 2. The terms and functions have not been defined with sufficient degree of precision 3. The list of functions depends upon managerial experience 4. The manager has to perform tasks in varied areas/fields 5. Priority for different activities changes with situation Therefore, it is difficult to suggest the exact list of functions to be included in the management process.

Classification of Management Functions Management writers, over the years, have given different classifications for management functions (Table 1.2). Henry Feyol has classified management functions as planning, organising, commanding, coordinating, and controlling. Luther Gulick and Urwick have described managerial functions in term of the POSDCORB formula. Each letter of this formula (a keyword) denotes the initial letter of a managerial function—Planning, Organising, Staffing, Directing, Coordinating, Reporting, and Budgeting. Dr. George R. Terry has considered four functions—planning, organising, actuating (guiding and motivating), and controlling. R C Davis has included only three functions in the management process—planning, organising, and controlling. E F L Brech has considered planning, organising, motivating, coordinating, and controlling as the functions the of management. In the same way, Koontz and O’Donnell have included

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five management functions—planning, organising, staffing, leading, and controlling. Modern writers and practitioners across the globe agree that management consists of five functions or steps, such as planning, organising, staffing, directing, and controlling. TABLE 1.2 Name of Contributor (Writer) 1. Henry Feyol

Functions or Steps in Management Process Planning, organising, commanding, coordinating, and controlling

2. Luther Gulick and Urwick

ing, coordinating, reporting, and budgeting

3. R. C. Davis

Planning, organising, and controlling

4. E. F. L. Brech

Planning, organising, motivating, coordinating, and controlling

5. Koontz and O’Donnell 6. Dr. George R. Terry

Planning, organising, actuating, and controlling

7. Lyndall Urwick

Planning, organising, commanding, coordinating, communicating, forecasting, and investigating

8. Modern Views (including Indian experts)

This shows the lack of uniformity regarding functions of management. However, most of the writers suggest more or less similar functions. We follow the modern trend (i.e., the last classification) and suggest the following five functions of management:

1. Planning Planning is the primary function of management. It is a thinking process. It determines the future course of action by deciding what to do (type of work), why to do (objectives), when to do (time), where to do (place or location), how to do (methods and procedures), and who is to do (people). Thus, planning helps in selecting the best course of action, among several alteratives that can contribute most to the objectives of the organisation. As planning is primarily concerned with looking into the future, a planner needs to set planning premises, conditions, or assumptions on which the plan is prepared. Planning mainly includes two aspects, forecasting and decision-making. The process of planning consists of the following steps: 1. Analysing business environment 2. Establishing objectives 3. Setting planning premises 4. Identifying alternatives 5. Evaluating alternatives 6. Selecting best alternative(s) 7. Formulating secondary plans 8. Implementation of plan 9. Review of results

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It should be noted that planning and plan, though closely related, are different. Planning is an on-going activity. It can be considered a process consisting of various sub-activities. On the other hand, plan is commitment of a particular course of action for achieving specific results. When decisions are taken about goals, type of work, place, methods and procedures, time, and people, it is a plan. Thus, planning ends with a plan.

2. Organising Organising is the second function of management. It is dependant on the type of plan. It is aimed at preparing a formal structure or design of the organisation, consisting of people, tasks, responsibility authority, communication network, and a scheme for arranging all these aspects. The structure so prepared facilitates implementation of the plan. The structure is presented in the form of an organisation chart. Organising ensures provision for all activities necessary for accomplishment of desired objectives. As a result of organising, various positions come into existence, different departments and divisions are created, communication network is prepared, various levels of management are created, and superior-subordinate relations are established. The process of organising includes the following steps: 1. Determining activities necessary for achieving objectives 2. Classifying and grouping of activities into units 3. Assigning tasks or duties 4. Delegating authority 5. Establishing relationships among several position holders 6. Preparing organisation chart and manual

3. Staffing Staffing is concerned with manning (i.e., filling positions with appropriate people) the positions created by organising. It is clear that business enterprise needs manpower to carry out its operations. Staffing involves acquiring, maintaining, and developing necessary human resources for smooth functioning of various operations in the organisation. In short, staffing performs all the necessary activities required from recruitment of employees to their retirement. It ensures that right person is appointed for the right post in the right way. Staffing is also known as Personnel Management or Human Resource Management. Generally, the person who performs staffing function is called personnel manager. Staffing (human resource management) involves following activities: 1. Manpower planning, determining the need for people 2. Recruitment, selection, and induction of employees 3. Training and development of employees 4. Wage and salary administration 5. Promotion and transfer 6. Performance appraisal 7. Grievance handling and maintaining good relations 8. Security and welfare activities

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Management and Organisational Behaviour

4. Directing

Directing is also known as the commanding or executing function. It involves instructing, guiding, inspiring, and supervising employees to make them work according to the plan. The manager needs to suitably and adequately direct employees to ensure better coordination and integration in their efforts, so as to achieve the objectives. The efforts of employees can be directed by using some techniques/tools. Main directing tools or techniques include: 1. Leadership: It is concerned with guiding and instructing employees at work. 2. Motivation: It is concerned with inspiring and encouraging people at work. 3. Communication: It is concerned with providing and receiving necessary information within (and outside) the organisation. 4. Supervision: It is concerned with observing and correcting employees’ performance. It involves overseeing people at work.

5. Controlling Controlling is the last but very critical function of management. It is a regulating function. It ensures that the plan has been implemented successfully and is accomplishing objectives. A suitable control mechanism (or controlling system) helps in achieving objectives effectively and efficiently. Various traditional and modern techniques are used for the purpose. Controlling is useful in finding out what is wrong and how it can be corrected. This function helps in both preventing and improving poor performance. Effective controlling system is necessary for effective functioning of the organisation’s various operations. The process of controlling involves the following steps: 1. Setting standards (expected results) 2. Measuring actual results 3. Comparing actual results with expected results 4. Identifying deviation between actual results and expected results 5. Taking corrective actions so that actual results match with expected results It should be noted that both planning and controlling are interrelated and interdependent. Planning provides a base on which control can be exercised. And, controlling ensures effective implementation of plan. It can be said: Planning is meaningless if there is no control and controlling is impossible if there is no plan.

SIGNIFICANCE OF MANAGEMENT Management is as important as the brain in human beings. It is pivotal in achieving any objective. Business management includes knowledge of all the functional areas, like production, marketing, finance and human resources, and also the external business environment. It has potential to contribute in the overall development of the nation. Management is important in personal life, too. Knowledge of management can be used to improve quality of life of people. Peter F Drucker stated: ‘‘Management is the dynamic life giving element in every business. Without it, the resources of production will remain (mere) resources and not production.’’ It is due to management that limited and valuable resources are coordinated and arranged in a systematic manner to satisfy individual, organisational, and society’s needs. Hence, management helps in:

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Efficient utilisation of resources Effective interaction with business environment Formulation of suitable rules, policies and procedures It can be said that management is a magic stick or a master key that can be used for solving any type of problem related to human activities. Following points focus on the significance of management in business: 1. Achieving Goals and Objectives Management is responsible for acquiring and utilising productive resources, appointing competent people, organising and coordinating activities, directing and coordinating efforts of people, and exercising control over their operations. These are the basic aspects for achieving goals and objectives. Hence, all basic functions of management create a system in which objectives can be achieved easily. 2. Optimum Utilisation of Resources Management ensures optimum utilisation of resources. Their effective use of men, money, materials, machines, etc., can help an organisation achieve objectives in time and reduce their unnecessary wastage, duplication, and misuse. 3. Efficient Running of Business Organisation Management involves leadership, motivation, communication, and supervision, that are crucial for guiding, encouraging, and informing people related to the organisation. It integrates employees with the organisation and ensures that their coordinated efforts result into successful completion of work. Improved quality, increased productivity, and better human relations are the outcomes of good management. 4. Sound Organisational Structure Management establishes a pattern of authority-responsibility relationships, and helps in creating a formal structure. It specifies roles, status, positions and direction of communication to facilitate action. It helps in coordination and control of human efforts and, thus, helps in creating a sound organisational structure. 5. Smooth (Undisruptive) Functioning of Organisation Management works to avoid conflicts and promote cooperation. It minimises possibilities of strikes, lockout, mass leaves, and other disruptive events. It, thus, ensures smooth functioning of the organisation. 6. Image, Reputation and Goodwill in Market Many companies operating in India, like the Reliance Group, ITC, Life’s Good (LG) Electronics India, the Tata Group, the Birla Group, Hindustan Unilever, Infosys Technologies, Wipro Corporation, Coca-cola India, and Mahindra and Mahindra are reputed companies in the corporate world due to their quality of management. 7. Successfully Implementing Changes Management helps in incorporating useful innovations successfully. This helps the organisation in adjusting and coping with the changing business environment and keeps it alert, active, and alive. 8. Better Industrial Relations Industrial relations include both internal and external relations. Management helps in maintaining healthy relations with outside parties, like customers, suppliers, financiers,

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governments, service providers, media owners, etc. In the same way, it helps in maintaining healthy relations with the employees to ensure their active involvement and cooperation. This can contribute to smooth functioning of the organisation. 9. Others In addition, the following points highlight the significance of management: 1. Tackling of complexities, competition, and uncertainties 2. Prosperity and improved living standard 3. Dealing with vast cultural diversity 4. Economic, social, and cultural development of the nation 5. Surviving during tough times 6. Development of human resources 7. Fulfillment of social obligations Thus, it can be said that management is a powerful device that transforms impossible into potential, difficult into easy, easy into effective, and effective into successful.

OBJECTIVES OF MANAGEMENT Objectives are the expected end results. Management is directed to achieve specific objectives within a time frame through group efforts. It strives for achieving both primary (or major) and secondary (or minor) objectives. Customer Relationship Building Narayan Murthy, the founder and chief mentor of Infosys Technologies, gives more importance to customer satisfaction, empowerment and customer relationship building. In this context, he stated: “Growth comes from repeat business; repeat business comes from relationships, and relationships with customers are built on trust. This trust emanates from the customers’ belief that the company will not short-charge the customer under any circumstances.” Customer-orientation business philosophy has helped the company maintain and improve its market position over the years. Table 1.3 shows the objectives of management as defined by various management writers. These objectives have varying degrees of economic, social, human, and national implications. The main objectives of (business) management have been summarised as under. 1. Economic Objectives Economic objectives one concerned with the economic/financial performance. Normally, these enjoy the highest priority among all kinds of objectives as every manager strives for the firm’s economic excellence. Some economic objectives include: 1. To earn adequate profit/fair rate of return on investment 2. To survive and grow continuously 3. To achieve high operational efficiency 4. To use up-to-date technology 5. To strengthen competitive edge of the company 6. To protect company’s economic interest in all possible ways

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TABLE 1.3 Objectives of Management No. 1.

Expert Peter F Drucker

Objectives 1. Market standing 2. Innovation 3. Productivity

6. Managers performance and development 7. Workers’ performance and attitude 8. Public responsibility 2.

George R Terry

1. 2. To provide good products and services 3. To stay ahead of competitors 4. To provide for the welfare of employees 5. To grow

3.

Sociologists, Economists, Philosophers, et al 1. 2. To generate employment opportunities 3. To supply good products to society 4. To take care of employees 6. To discharge social responsibilities, etc.

4,

Modern Businessmen, Writers, and Experts

1. Economic objectives 2. Social objectives 3. Human objectives 4. National objectives 5. Other objectives

2. Social Objectives Every business enterprise has to work within the society. It cannot survive and grow without social support. Therefore, it is the duty of a manager to fulfill its social obligations towards customers, shareholders, suppliers, general public, government and the country. Social objectives are: Profits with Social Responsibility Sunil Alagh, the CEO of the 80-year-old Britannia Industries, with the help of Tiger brand biscuit, sponsored a project titled ‘Save the Tiger’, in association with Sanctuary, an environment magazine. In relation to social responsibility, he said, “We are interested in profits, but we have always taken social responsibility seriously.” The amount spent for social welfare is treated as long-term investment that can yield long-term economic gains. Modern companies view social responsibility as profit centre, not as cost centre.

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1. 2. 3. 4. 5. 6.

To satisfy customers in view of their long-term interests To improve living standard of people To ensure fair dealing with employees and other stakeholders To contribute liberally in activities of social significance To refrain from any activities, contracts, or commitments that affect the society adversely To undertake necessary steps for the well-being of society (such as pollution control and protection of ecological balance) 7. To create and maintain firm’s image and reputation in society 3. Human Objectives Human objectives primarily relate to the people in the organisation. Human resources play a crucial role in determining success of a business enterprise. Without employees’ active support, it is impossible to survive and grow. Therefore, management emphasises on following human objectives: 1. To employ qualified, capable, and experienced employees in the organisation 2. To undertake necessary steps for training and development of human resource 3. To utilise creative and innovative capabilities of employees 4. To maintain staff stability over time 5. To support employees, in all possible ways, for job satisfaction 6. To build and maintain healthy human relations with people in the organisation 7. To ensure provision for sufficient employees’ welfare activities 8. To formulate and implement attractive motivation policies, and to boost their morale 4. National Objectives Every business unit can, directly or indirectly, contribute to development of the nation. Modern managers generally try to achieve one or more of the following national objectives: 1. To pay levies (taxes, duties, charges, etc.) honestly and regularly to help the nation undertake development activities 2. To support government(s) in implementing policies in the interest of the nation 3. To extend all possible cooperation for national unity and integrity 4. To help the nation during natural calamities (like epidemics, heavy rainfall, floods, earthquakes, tsunamis, cyclones, etc.) and man-made calamities (like strikes, riots, wars, etc.) 5. To use influence with international level agencies in favour of the nation 6. To help the nation achieve global recognisation, fame, and credibility 7. To refrain from any act that affects national interest adversely 8. To ensure careful use of natural resources and conserve ecological balance 9. To donate liberally for the activities aimed at overall development of the nation

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Development of Human Capital Harish Manwani, the Chairman of HUL, emphasises on human development for improving company’s business performance as well as nation building. He said: “We are committed to strengthen our efforts toward building ‘human capital,’ which is the need of the nation today. Human capital is the pivotal around which the long-term transformation of our economy has to be shared.” On importance of leadership, he said: “Leadership development is vital if India is to be the leading edge of innovation and competitiveness in this increasing interconnected world. Human capital is a key to realizing the India of our dream. HUL continues to be committed to ‘Corporate Human Development Responsibility’ and contributing to the broader national economic agenda.” (Source: Based on Harish Manwani’s speech delivered at the company AGM, 27th July, 2010). 5. Other Objectives In addition to the specific sets of objectives, there are some minor objectives: 1. To win/achieve national and international awards, certificates, or prizes 2. To create a suitable structure for the organisation 3. To represent the nation in events of global significance (such as international trade fair, international summits, etc.) 4. To maintain strong liaison with powerful national and international agencies and organisations

SOCIAL RESPONSIBILITY OF MANAGEMENT Business units work within a broad spectrum of society. Various interest groups constitute the society. Therefore, businessmen (and managers) have to fulfill different social obligations for different groups. (For detail, refer to Chapter 13)

MANAGERIAL ROLES (VIEWS OF MINTZBERG) Management is aimed at efficient use of organisational resources, both physical and human, to accomplish the desired goals. Today’s manager, irrespective of the nature of job or place in hierarchy in the organisation, performs more or less similar functions, such as planning, organising, staffing, directing, and controlling to achieve organisational goals. In addition, he needs to be a good leader, work as representative of society, and has to fulfill social obligations. Over and above these functions, he is also responsible for internal and external relations. In short, he is responsible for carrying out all the functions necessary to ensure better performance of the entire organisation. Performing functions indicates managerial role. Depending upon situations, he plays multiple roles in the organisation. In this regard, views of Henry Mintzberg12 are worth noting. Henry Mintzberg has identified ten roles in three sets of functions that a manager has to perform. These are:

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1. Interpersonal roles 2. Informational roles 3. Decisional roles Sub-functions of each function have been summarised in Table 1.4. TABLE 1.4

Henry Mintzberg’s Managerial Roles

Interpersonal Roles

Informational Roles

Decisional Roles

1. Figurehead

1. Monitor

1. Entrepreneur

2. Leader

2. Disseminator

2. Disturbance Handler

3. Liaison

3. Spokesperson

3. Resource Allocator 4. Negotiator

1. Interpersonal Roles A manager must have interpersonal skills necessary to create and maintain good interpersonal relations. Interpersonal roles include: 1. Figurehead: In this role, a manager performs duties of legal or ceremonial nature, such as welcoming visitors, giving testimonials to employees, and performing other similar roles. 2. Leader: In the role of an effective leader, a manager provides dynamic leadership to his subordinates by guiding, instructing and motivating them and maintaining healthy relations with them. 3. Liaison: This is one of the important roles of a modern manager. Performance of any organisation largely depends on the relations among its different departments and branches. In this role, the manager establishes horizontal contacts among various departments and their coordinates activities. In today’s context, a liaison officer is also responsible for external relations.

2. Informational Roles This role is concerned with ensuring smooth flow of required information. A manager tries to collect, furnish, and disseminate relevant information within and outside the organisation to facilitate its smooth functioning. Informational roles include: 1. Monitor: In this role, a manager receives and analyses information from outside and within the organisation, and also transmit the same to appropriate people. 2. Disseminator: The manager transmits the information to appropriate persons, both within and outside the organisation. He disseminates information by mail (e-mail), phone, meeting, and other suitable media. In this way, he shares the information and experiences with others. 3. Spokesperson: Here, the manager acts as a representative of the organisation to transmit information to the outside world. He plays the role of a spokesperson with trade union, media, government officials, and others. Thus, he provides information on behalf of the company.

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3. Decisional Roles This is the most relevant managerial role. A manager takes decisions on various aspects and gives judgments. Decisional roles include: 1. Entrepreneur: A manager assumes the role of an entrepreneur when he initiates changes in the organisation to bring about innovation and improvement in the existing methods or technology. 2. Disturbance Handler: The manager acts as a troubleshooter and provides speedy solution in a crisis. In case of an accident, breakdown of machines, dispute or conflict among employees, strike or lockout, loss of valuable customers, failure of contracts, etc., he is required to handle the situation swiftly and tactfully. He performs the role of a crisis manager. 3. Resource Allocator (Distributor): Every organisation has limited resources that include money, time, men, materials, place, know-how, and facilities. Proper allocation of resources is essential for their efficient and economic uses. A manager has to decide on the allocation of these resources in such a way that every individual or department gets adequate resources, and there is no dissatisfaction. 4. Negotiator: A manager is often required to negotiate with parties within and outside the organisation to arrive at an amicable and profitable settlement. He tries to decide on contracts or deals at favourable terms and conditions. He negotiates with subordinate for better commitment and loyalty, with peers for coordination and integration, with workers and trade unions for work-related conditions, with government for facilities, with other parties for extending necessary support.

SKILLS OF A PROFESSIONAL MANAGER/LEADER Henry Mintzberg’s managerial roles suggest what a manager should do for effective performance. A manager is required to acquire or possess requisite skills to perform different roles as leading style and role are closely related to skills. Different studies conducted across the globe suggest many managership or leadership skills. Table 1.5 outlines some commonly recognised managerial skills. N.R. Muthy of Infosys Technologies, S.K. Alagh of Britania, D.S. Bar of Ranbaxi Laboratory, C. Donati of Nestle India, Mukesh Ambani of Reliance Industries. Y.C. Deveshwar of ITC, Ratan N. Tata of Tata Group, are among India’s most skillful and successful CEOs. They were successful in maintaining sound positions in market, improving financial performance continuously and earned good reputation in society. In relation to the skills listed above, Whetten and Cameron13 comment: 1. The skills are behavioural, and not traits, reflected in managing styles. 2. The skills seem contradictory or paradoxical. 3. The skills are interrelated and overlapping. These skills are important guidelines for performing almost all managerial functions or roles. They can be considered for managerial development programmes as well as recruitment, selection, and career development.

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TABLE 1.5 Outline of Skills of Professional Managers Names of (Writers) Contributors Michael J Marquart and Dean W. Engel, et al 14

David A Whetten and Kim S Cameron15

Types of Skills 2. Communication skills 3. HRD skills 4. Creativity 5. Self-management of learning 1. Verbal communication (including listening) 2. Managing time and stress 3. Managing individual decisions

6. Delegating 7. Setting goals and articulating a vision 8. Self-awareness 9. Team building Fred E Luthans16

1. Participative and human relations skills—supportive communication and team building 2. Competitiveness and control skills—assertiveness, 3. Innovativeness and entrepreneurship skills—creative problem-solving 4. Maintaining order and rationality—managing time and rational decision-making

FUNCTIONAL AREAS (SCOPE) OF MANAGEMENT The process of management and its principles can be applied to any field that has some objectives and requires group efforts, including business, social, political, religious, and other human activities. Management principles are equally applicable and useful for personal use too. (see Figure 1.5). However, modern management is more relevant to business activities. Business management involves applying management functions to its various branches (production, marketing, finance, and personnel). Interestingly, production, marketing, finance, and personnel activities are also prevalent in other fields besides business. For example, in social field, the decision on type of social activities implies production; decision on how, where and for whom of activities implies marketing; decision on money or funds implies finance; and decision on people for carrying out social activities implies personnel. The four functional areas of business management are discussed briefly. Refer to Chapter 12, ‘Principles of Functional Management’ for details.

1. Production Management Production constitutes one of the key activities of business as the goal can be achieved only when something is manufactured. This is especially true for a manufacturing unit. Production

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management is also called manufacturing (or operational) management. The purpose of production management is to carry out all the necessary activities to manufacture a desired product that can easily be sold to the customers. It is concerned with producing the desired products (with right quality, features, and performance) in the right quantity and at the right time. Production management deals with the following aspects: 1. Product planning and design 2. Plant location and layout 3. Material handling/management 4. Plant maintenance 5. Production control 6. Establishing a suitable structure of organisation for production department 7. Maintaining healthy relations within and outside the organisation

2. Marketing Management This area of management primarily deals with selling the products. In fact, modern marketing is closely associated with the production department. It can be defined as the process of achieving the desired exchange with the target market. With increase in consumer awareness, marketing management’s tasks have increasingly become difficult, challenging, and dynamic. In today’s context, marketing management enjoys the highest status among all fields business management. Production management, financial management, and personnel management are treated as its subsidiary areas.

FIGURE 1.5

Scope of Management

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Marketing management deals with the following aspects: 1. Analysing business environment and selecting marketing opportunities 2. Defining and selecting target market 3. Preparing a broad marketing programme, including 4Ps (product, price, promotion, and place or promotion), and improving it over time 4. Preparing strategies to respond to competitors effectively 5. Designing an appropriate organisation structure of the marketing department 6. Maintaining good relations within and outside the organisation

3. Financial Management Finance is considered as the life blood of business. All business activities start and end with finance. Therefore, management of finance is crucial for the better business performance. Financial management is concerned with planning, raising, and utilising funds effectively. Financial management deals with the following aspects: 1. Determining needs of finance 2. Raising or collecting finance 3. Capital budgeting or utilisation of funds effectively and efficiently 4. Management of fixed assets 5. Working capital including cash, inventory, receivable and payable management 6. Profit management 7. Systematic recording of transactions, or book keeping and accounting 8. Preparing a suitable organisation structure for the financial department 9. Maintaining good relations within and outside the organisation

4. Personnel Management Staffing activities of management are known as personnel management, also called human resource management (HRM). It is obvious that success is dependent upon the type of people employed by the organisation. This management deals with the activities from manpower planning to retirement of employees. Mainly, it involves acquiring, utilising and maintaining human resource. Personnel management deals with the following aspects: 1. Manpower planning or determining needs of human resource 2. Recruitment, selection, and induction of employees 3. Training and development activities 4. Wage and salary (or compensation) administration 5. Employees’ welfare activities 6. Grievance handling activities

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7. Establishing and maintaining relations inside and outside the organisation 8. Preparing a suitable organisation structure for personnel department

MANAGEMENT AND BUSINESS ENVIRONMENT The only certain thing about the environment is that it is uncertain. Every manager has to perform managerial functions within a broad framework of business environment that is composed of everchanging variables, factors or forces, both internal and external to the organisation. These variables are interdependent and interconnected. Ability of a manager to ineract effectively with the environment determines the organisation’s survival and growth. However, it is more relevant to discuss the external environment as it has tremendous impact on business performance.

Definition Let us examine the definitions of business environment. Chester I Barnard defines the term ‘environment’ in a comprehensive manner. He states: “Environment consists of atoms and molecules, agglomeration of things in motion, alive, of men and emotions, of physical and social laws, social ideas, norms of actions, of forces and resistance. Their number is indefinite and they are always present; they are always changing.”17 In simple words, we can define environment as: Environment comprises various factors (forces, circumstances, conditions, or influences) that affect the functioning of the organisation, and each of the managerial decisions. It offers both opportunities and threats. Business environment can be defined as: Business environment refers to the relevant forces that affect managerial decisions. It mainly includes external and uncontrollable forces like political, legal, economical, socio-cultural, technological, and competitive forces on which a manager has no control.

Factors Affecting Business Environment Environment may be internal/controllable or external/uncontrollable. However, business environment generally indicates external environment. The uncontrollable factors in the external environment include:

1. Economic Factors Economic factors mainly include: 1. Economic system 2. National income and its distribution 3. Economic growth rate 4. Interest rates and inflation rate 5. Functioning of stock market and commodity markets 6. Industrial and agricultural policies

32 7. 8. 9. 10. 11.

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Fiscal and monitory policies Raw materials and supplies Export-import policies Liberalisation, globalisation, and privatisation processes Government’s long-term planning and investment in infrastructural facilities

2. Socio-cultural Factors Socio-cultural factors include: 1. Cultural norms, values, beliefs, and rituals 2. Social classes, castes, creeds, and racial aspects 3. Social traditions, customs, habits, and superstitions 4. Family and reference groups 5. Age and life cycle stage 6. Role of women 7. Religious events and festivals, etc.

3. Legal and Political Factors Legal and political factors include: 1. Political organisation (system) 2. Political philosophy 3. Political and legal reforms 4. Government approach to different sectors 5. Political stability 6. Acts or legal provisions (or framework) related to business operations and recent amendments 7. Working of judiciary and administrative machineries

4. Competitive Factors Competitive factors include: 1. Number and types of competitors 2. Competitors’ strengths and weaknesses 3. Competitors’ response/reactions and strategies 4. Competitors’ attitudes and so on.

5. Technological Factors Technological factors include: 1. Suitability and availability of technology 2. Pace of technological change 3. Replacement costs 4. Opportunities for innovation

Introduction to Management

5. 6. 7. 8.

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Research and Development (R&D) budget Government’s role in developing and/or importing new technology Regulations affecting technological change/reforms Technological transfer among nations

6. Demographic Factors Demographic factors include: 1. Total population and population growth rate 2. Age groups and gender distribution 3. Geographical (areawise) concentration of population 4. Proportion of rural versus urban population 5. Literacy rate and level of education 6. Population mobility (geographical shift) or migration rate 7. Family system and household pattern 8. Occupation-based classification of population

7. International Factors International factors include: 1. Working of international agencies and organisations (World Bank, UNO, etc.) 2. Functioning of multinational companies (MNCs) 3. Export-import policies of different nations 4. Availability of global aid and assistance 5. Global peace versus conflict 6. Liberalisation, privatisation, and globalisation pace across the world 7. International agreements among countries 8. Political stability in dominant countries 9. International business norms and values

8. Ecological Factors Ecological factors include: 1. Availability and use of natural resources 2. Pollution and pollution control measures 3. Contemporary legal provisions and restrictions regarding environment 4. Ecological awareness and use of eco-friendly products 5. Contribution of corporate world towards environment 6. Working of national and international agencies/organisations for protection of environment 7. Worldwide efforts for protection of environment

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9. Stakeholder-related Factors Stakeholder-related factors include: 1. Suppliers 2. Customers/market 3. Middlemen 4. Others including social organisations, local bodies, financial institutions, facility providers, workers, etc.

10. Natural Calamities Natural calamities include: 1. Floods 2. Heavy rains 3. Epidemics 4. Earthquakes 5. Tsunamis 6. Cyclones

Environment Diagnosis and Analysis Diagnosis and analysis are vital issues in the study of business environment. The term ‘diagnosis’ has been derived from medical science. It involves identifying the type of disease/ailment on the basis of signs and symptoms. Symptoms are the set of conditions that indicate the existence of a problem. For example, decreasing profit level is a symptom that indicates something is wrong with one or more departments of the organisation. Remember that a symptom itself is not a problem, it indicates existence of a problem. The term ‘analysis’ indicates detailed and systematic study of each aspect related to the organisation. Analysis is based on diagnosis. It involves dividing a subject/issue into small pieces and studying each piece in detail. A manager can suggest action on the basis of diagnosis and analysis of the business environment. Diagnosis and analysis help to identify the overall health of the organisation and form the basis for corrective action. Environment diagnosis and analysis are critical in formulation of a plan. Besides the current environment, the future trends should also be considered for planning. Environment diagnosis should concentrate on finding the factors (problems, opportunities and most critical threats) for the plan in relation to the organisation’s objectives. It only involves identification of the relevant aspects. Environment analysis is an attempt to study the relevant forces in relation to the company’s internal situation. The term ‘analysis’ refers to separating a whole into its elements or component parts; a statement of the results of this process.18 Thus, analysis is aimed at detailed study of the factors comprising the (internal/external) environment to show a meaningful picture of the same. It guides the organisation about the amount and manner of efforts required to solve the problem. Thus, both diagnosis and analysis are indispensable for formulating a business plan/strategy.

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The Environment and Manager Environment plays a vital role in determining the degree of success of the organisation. The organisation can realise its objectives to the extent the environment favours. It survives and grows by constant interaction with its external environment and dies if it stops interacting. A business unit has to constantly adjust and readjust with dynamic business environment by changing and modifying its internal environment. A manager needs to have a thorough understanding of the environmental forces and should be responsive to them. He can find opportunities and can face threats depending upon the capacity of its internal environment (firm’s strengths) and favourableness of its external environment. This involves response in term of imports from and exports to the environment. Diagnosis and analysis help in assessing the organisation’s strengths and weaknesses in relation to the outside forces. A business enterprise can respond effectively to its external environment only when it is internally capable and fit. Therefore, it is essential that internal forces, constituting organisational climate, should also be diagnosed and analysed. Internal environment consists of the following factors: 1. Resource ability 2. Basic policies and procedures 3. Organisational structure 4. Sales forecasting 5. Capital investment 6. Degree of cooperation among departments 7. Employees’ morale and loyalty

Managerial Implications Business environment has following implications for practicing managers: 1. Environment is complex; a manager needs to analyse it carefully. 2. A manager can find opportunities and threats depending upon the organisation’s ability to interact with the environment. 3. Environment affects management process (planning, organising, staffing, directing, and controlling) on one hand and functional areas (production, marketing, finance, and personnel) on the other hand. 4. Due to high degree of environmental variability, all forces, at a given time, are not equally relevant to the business enterprise. A manager needs to assess the environment. 5. A manager needs to use internal resources to respond, react, adjust, and readjust with the environmental forces. 6. A business firm has to accept the dominance of the environment, and has to act accordingly. Managers need to try and change the organisation to adjust with the environment. 7. Strong liaison with stakeholders can help an organisation adjust comfortably with the environment. A manager needs to build healthy relationship with the stakeholders.

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8. Modern trend indicates that an organisation can function effectively within the given environment by concentrating on the global trend, corporate restructuring, new design of organisation, advanced information technology, changing job profiles, changing workforce (employees) profile, woman employees, knowledge management, etc. A manager needs to keep abreast of the latest trends.

PROFESSIONALISATION OF MANAGEMENT The earlier part of the chapter discusses whether management is a profession. In this section, we verify how far Indian management is professional. Pure professional management, similar to progressive management, is difficult to observe even in developed countries. In India, at present, managements satisfy the conditions of professionalisation in varying degrees. It is gradually moving towards professional status. India’s Professionally Managed Business Groups Hindustan Unilever Limited, Tata Iron and Steel, Indian Oil Corporation, Oil and Natural Gas Commission, TELCO, NTPC, L&T, M&M, LIC, SBI, and many others are—in both public as well as private sectors—India’s most professionally managed business groups. LIC, SBI, HUF, ITC, M&M, Nirma Chemicals, Tata Group, Reliance Group, etc., have their own well-equipped training institutes to train managers. They design their own indigenous training programmes to train professional managers and foster their cultural values. Their professional skills make them continuously progressive in turbulent business environment.

Concept of Professionalisation of Management The term ‘professional’ means related to formal education and training, and other professional norms. Professional managers indicate properly qualified, adequately trained, and efficiency oriented competent and sophisticated persons who can strive for excellent performance. They also show professional etiquette in terms of appearance, professional knowledge and skills, professional thinking and professional behaviour. Professionally managed firm implies professional norms in practice and it strives for excellence in performance. Besides business activities, professional management can also be applied to other fields of human activities, like education, politics, government offices, and even philanthropic (religious and social) activities. However, our discussion is limited to business management. L.M. Prasad19 has suggested seven conditions to justify professional management, as follows: 1. Commitment to professionally defined knowledge and techniques 2. Application of relevant modern management tools and techniques 3. Team approach in managing rather than emphasis on personal style, whims, and prejudice 4. Preparedness to accept change and to apply the principles of change management 5. Preference for competence rather than birth as the basis for movement in the organisation ladder

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6. Optimisation-oriented decision-making expected to optimize the benefits to the organisation and its constituents 7. Responsiveness to society and respect for national policies

Conditions to Test Professionalisation Based on the above seven conditions, professionalism can be tested on the basis of the following conditions/criteria: 1. Separation of management from ownership 2. Requirement of professional education and training for managers 3. Professional management principles, norms, or ethics followed 4. Membership of professional association 5. Professional thinking (i.e., manager must think in terms of optimum result, excellent performance and his decisions must be free from emotions, and personal likes and dislikes) 6. Responsiveness to society and respect for nation 7. Professional etiquette (in terms of appearance, professional knowledge and skills, professional thinking, and professional behaviour) 8. Professional competence based on education, training, and experience (not related to birth) 9. Professional rewards (managers are paid fees, salaries or pay packages) 10. Professional objectives If these conditions are satisfied, it can be said that the firm is professionally managed. In practice, in India, all conditions are not fully satisfied. Ours is not purely professional management, it is moving toward it. Note that professionalisation cannot be actualised only by employment of professionally qualified and trained managers. They must apply professionalism in thinking and decisionmaking. The acid test of professionalisation of management is professional thinking and professional responsiveness.

Reasons Leading to Professional Management in India Let us examine the reasons that have helped Indian management move towards professional status:

1. Role of the All India Management Association Establishment of All India Management Association with a large number of regional chapters has made a significant contribution in promoting professional management in the country. The association organises national and international seminars, conferences, workshops, and training programmes related to modern management theories and practices. 2. Growth of Business Enterprises Rapid growth of big business enterprises, both in public and private sector, has promoted professional management in India. Large business organisations

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attempt to practice professional management and other firms imitate them, leading to acceptance of professional management in our country.

3. LPG Policies

Liberalisation, privatisation and globalisation policies, and functioning of MNCs in different sectors have made professional management an effective way to manage business affairs. MNCs play an important role in rapid spread of management knowledge (or fundamentals) across the world, including India.

4. Growth of Education and Training Facilities Rapid growth of management education and training institutes in India (IIMs and other autonomous and affiliated institutes), and easy availability of professionally educated and trained managers have paved the way for professional management. Also, foreign and Indian management writers have made significant contribution towards disseminating and popularising management knowledge. 5. Role of Indian Business Tycoons Corporate management training programmes by reputed companies (including TISCO, ITC, M&M, HUL, LIC, SBI, SAIL, etc.) have contributed positively towards popularising and operationalising professional management in India.

6. Changing Mentality of People People hold professionally managed firms in high esteem. They strongly believe that professional management can positively contribute towards operational efficiency and is more responsive to social responsibilities. Hence, it is beneficial to society. This mentality has helped popularise professional management in India.

7. Changing Government Attitudes The government has recognised the need for appointing professional managers to improve the performance of public sector enterprises. This has resulted in rapid acceptance of professional management.

8. Competition and Complexities Increasing competition and complexities, large size operations, and other contemporary business challenges have necessitated professional management for enterprises. Also, professional management is considered an important input (or formal requirement) for national and international standards, awards, and certificates. TQM and professional management have a number of similarities.

9. Improved Performance Professional management leads to better outcomes in terms of higher competitiveness, rapid growth, profitability, effective utilisation of resources, and better operational efficiency. This has attracted businessmen towards professional management to turn around poorly performing firms. Entrepreneurs, though not professionally qualified and trained, try to apply professional management norms in managing their business activities. 10. Increased Attraction for Small and Medium Units

Small and medium size business firms prefer to send their managers to reputed national and international institutes for training to acquire professional management knowledge and skills. This trend helped penetrate professional management in all types of business activities.

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11. Extended Applicability Extended applicability of professional management to every type of human activities, including service industry, agribusiness, social, religious and missionary activities, health and education, politics, cooperative sectors, etc., has widened the scope of professional management.

Basic Reasons for Lack (Slow Rise) of Professional Management in India The main reasons responsible for slow pace of professionalisation of management in India include:

1. Inadequate role of professional associations, bodies, and agencies Ironically, professional associations and many management education and training institutes are not professionally managed. Hence, they have not been able to fulfill their role of a catalyst in popularizing professionalisation. 2. Poverty, backwardness, illiteracy, and lethargic attitudes of people

These hinder professional management practices as most people are not comfortable with sophisticated professional management practices that demand regularity, sincerity, commitment, discipline, order, fact-based decisions (objectivity), and many such norms.

3. Uncertainty of outcomes For many reasons, professionally managed firms fail, partially or fully, to fulfill corporate and social expectations. Poor performance of these firms in terms of efficiency, profitability, and social welfare refrain businessmen applying professional management.

4. Negative role of trade unions It is one of the most powerful reasons for slow professionalisation of management. In some cases, trade unions force management to observe nonprofessional norms and traditions. 5. Spiritual norms and country culture

These may act against professionalisation of management. Many people perceive professional management to be exploitative in nature. The concept of ‘fate and chance’ might restrict the applicability of professional management amongst business communities.

6. Too much diversity in Indian population This makes it difficult to develop and practice common professional norms throughout the country.

7. One-sided business goals and poor social support

It has been observed that some companies prefer to earn economic gains at the cost of social welfare. There is imbalance between economic objectives of the company and social justice. In such a situation, professionalisation is difficult to actualize.

8. Small sized operations and poor resource capacity Normally, professionally qualified and trained managers expect high pay and more facilities that small organisations cannot afford.

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9. Changing (or instable) government policies

Some political parties with socialist ideology, directly or indirectly, act against professional management. They assume that professional management leads to capitalism, which is against the interests of common man.

10. Management style of public sector enterprises Public sector units are generally managed by government nominees and bureaucrats, and not professionally qualified and trained managers. Also, top (non-professional) bureaucrats/politicians influence major business decisions. Therefore, compared to private sector units, the pace of professionalism is much slower in these enterprises. Fortunately, the situation is rapidly changing.

11. Existence of a large number of family-based and traditionally managed firms

These limit overall applicability of professional management. This is the reason why corporate retailing has failed to replace local retailers in India.

12. Exceptionally performance of traditionally managed firms Some business units perform exceptionally well without professional management. They restrict its pace by demonstrating that professional management is not always necessary to improve business performance.

13. Impact of ownership on business management Pattern of management depends on type of ownership. Owners mostly dominate management and they may not follow professional management norms. Even in case of public companies, pattern of management depends on business philosophies of original founders or promoter groups. 14. Lack of well-defined and well-developed business standards These are generally followed by the Western countries. In the absence of uniform common standards, professional management is interpreted differently, and its practical applicability becomes difficult. Situation is changing rapidly. The factors stated above are losing their grip, and gradually, large business units are moving towards professional management. Days are not very far to realise widespread professional management in India.

IMPACT OF FAMILY, CULTURE AND SITUATION Professional management norms differ from company to company, and country to country. Professional norms for Indian management are, to some extent, similar to western management style. Family-effect (effect of founder on firm’s management style) and cultural values do not restrict the process of professionalism. Professional norms must coincide with specific culture and situation. So, family-effect cannot be fully abolished even in highly professionally managed firms. Though global business environment also shapes the pattern of professional management, it may not have same implications at all times, at all places. Contemporary norms of professionalism at a particular place determine its degree. However, some family-based firms are managed by professionally qualified and trained family members and managers. Therefore, ownership has nothing to do with professional thinking or philosophy. Every professionally managed business firm has its own original

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culture and climate. Firms can successfully practice professionalism in different cultures, ownerships, and situations. Impact of Family Culture Indian companies such as Reliance Group, Tata Group, Adani Group, Birla Group, Infosys Technologies, Wipro, ITC (Indian Tobacco Company Limited), Nirma Chemicals Ltd, etc., and foreign companies like Hindustan Unilever (HUL), Philips India, Sony Electronics, Colgate Palmolive, Procter and Gamble (P&G), Hero Honda Motors, Life’s Good Electronics India (LG), etc., who have a strong presence in India, are not completely free from their original business philosophies. Public sector companies are managed as per the political philosophy of the respective governments (the ruling parties). Cultural values have a huge impact on business philosophy and they not only govern internal organisational climate, but its response to external environment as well. How far is Indian management professionalised? In the absence of rigorous research base, it is difficult to arrive at an exact conclusion. Indian management falls between two extremes—completely professional management and completely traditional (or family-based) management. However, Indian companies are moving towards professionalisation to meet the external challenges.

SUMMARY Management is the brain of business. It is the prime determinant of business. Experts, at different intervals of time, have defined ‘management’ differently. To some experts, it is an art of getting things done; some assume that management is a group of functions, including planning, organising, staffing, directing, and controlling while some treat it as an entrepreneurial task. Management is both an art and a science. However, it is an inexact science. With reference to profession, management is an emerging profession. Modern thinkers and managers treat management and administration as same. Management can be applied to any field of human activities for achieving respective objectives. Business management contains three levels – top, middle and bottom level. Position holders performs relevant functions at each level. Importance of management can be assessed in terms of its positive contribution to company, employees, and society. Managing people at work is a real challenge for today’s management. Modern CEOs and managers have to perform multiple roles to manage business operations effectively. Environment is a source of both problems as well as opportunities. Managers are required to diagnose and analyse business environment while taking decisions. Professionalisation of management is a vital issue across the globe. Management in India is gradually moving toward professional status. Due to impact of family, situation, and culture, pure professional management is difficult to find anywhere in the world.

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KEY TERMS Management Art Science Profession

Administration Management Functions Management Levels Managerial Role

Business Environment Professionalisation

EXERCISES Objective Type Questions A. Answer the following: 1. Write the five main functions of management. 2. State the sub-functions (or tools) of directing. 3. ‘Management means what a manager does.’ Who gave the definition? 4. Write any contributing disciplines to Management. B. Choose the correct option (MCQs): 1. Who gave the definition, ‘Management is what a manager does’? (a) Peter F. Drucker (b) Louis Allen (c) Henry Feyol (d) F. W. Taylor 2. Which managerial function is referred to as ‘commanding? (a) Planning (b) Controlling (c) Staffing (d) Directing 3. Which statement is not true? (a) Management is both an art and a science. (b) Management is decision-making. (c) Management is a group of functions. (d) Management is a pure profession. 4. Which statement is true? (a) According to modern management practices, management and administration are completely different. (b) Management as a practice is not universal. (c) Business environment doesnt affect managerial decision.

5. State four main functional areas of business management. 6. Mention three position holders at top level management. 7. How do modern experts view management and administration?

(d) Managers are born, but cannot be prepared. 5. Which one of the following statement is more acceptable? (a) Management is above administration. (b) Administration is above management. (c) Administration and management are completely different. (d) Both include same functions and are treated as more or less same. 6. Who is not included in middle level management? (a) Marketing manager (b) Financial manager (c) Production manager (d) Functional supervisor 7. Which statement is not true? (a) Coordination is the soul of management (b) Coordination is the outcome of systematic managerial functions. (c) Coordination is a separate function of management. (d) Coordination is not a function of management, but is an outcome of management.

Introduction to Management

8. Planning and controlling are: (a) Independent functions. (b) Interdependent functions. (c) Planning is part of controlling. (d) Controlling is part of planning. 9. In which category does management fall? (a) Management is not a profession. (b) Management is an established profession.

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(c) Management is an emerging profession. (d) Management is a marginal profession. 10. Which of the following is not included in Henry Mintzberg’s Managerial Roles? (a) Interpersonal Roles (b) Informational Roles (c) Professional Roles (d) Decisional Roles

Descriptive Questions 1. What is management? Discuss its main characteristics. 2. “Management is both a science and an art.” Do you agree? Why? 3. Write a descriptive note on the management process. 4. ‘Management is the prime determinant of success of a business enterprise.’ Elaborate the statement in relation to the role/importance of management. 5. Write a detailed note on managerial levels and their functions. 6. Define the term ‘business environment.’ What is the significance of environmental diagnosis and analysis?

7. “Management is goal oriented.” Explain. Describe the basic objectives of business management. 8. Explain the views of Mintzberg on managerial roles. 9. Write an explanatory note on the scope of management. 10. What do you mean by professionalisation of management? How far is management professionalised in India? Give reasons for lack of professionalisation in India.

Assignments 1. Students are asked to observe managerial practices adopted in local industrial units. They are assigned the task to visit industrial units and talk to managers. They have to find out how far the theory taught in the classroom differs from real practices.

2. Ask students to judge how far local industrial units are professionally managed, and what are the reasons restricting professional management.

REFERENCES 1 2 3 4 5 6 7 8

Frederick W. Taylor, Scientific Management, Harper Brothers, New York, 1911 Peter F. Drucker, Management Tasks, Responsibility and Practices, Harper & Row, New York, 1974 Louis Allen, Management and Organisation, McGraw-Hill, New York, 1978 John F. Mee, ‘Management Philosophy for Professional Executives,’ Business Horizons, December 1965, p.5 Koontz and Weihrich, Management – A Global and Entrepreneurial Perspective, Tata McGrawHill, New Delhi, 2008, p. 4. F. W. Taylor, op. cit. Henry Feyol, op. cit. Peter F. Drucker, op. cit.

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9 Oliver Sheldon, The Philosophy of Management, Sir Issac Pitman, London, 1923 10 William R. Spiegel, Principles of Business Organisation and Operation, Sir Issac Pitman, London, 1957, p. 548 11 E. F. L. Brech, Principles and Practice of Management, Pitman, London, 1972, p. 29 12 Henry Mintzberg, The Nature of Management Work, Harper & Row, New York, 1973 13 David A. Whetten and Kim S. Cameron, Developing Management Skills, Harper Collins, New York, 1991, p. 8 14 Michael J. Marquart and Dean W. Engel, ‘HRD Competencies for a Shrinking World,’ Training and Development, May, 1993, pp. 62 – 64 15 David A. Whetten and Kim S. Cameron, op. cit, p. 9 16 Fred E. Luthans, Organisational Behaviour, McGraw-Hill, New York, p. 597 17 Chester I. Barnard, The Functions of Executives, Cambridge, Mass, Harvard University Press, 1968 18 Webster’s New Dictionary 19 L. M. Prasad, Principles and Practice of Management, Sultan Chand & Sons, New Delhi, India, 2005, p. 21

ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. 2. 3. 4. 5.

Planning, organising, staffing, directing, and controlling Leadership, motivation, communication, and supervision Louis Allen Economics, Psychology, Sociology, and Mathematics Production management, marketing management, financial management, and personnel management. 6. Position holders are chairman, chief mentor, and chief executive officer 7. Management and administration are same B. 1. (b), 2. (d), 3. (d), 4. (b), 5. (d), 6. (d), 7. (c), 8. (b), 9. (c), 10. (c)

CASE True Story of Successful CEOs Late Dhirubhai Ambani of Reliance Group and Gautam Adani of Adani Group started their journey with nothing, and built huge business empires. Both were neither graduates nor professionally trained, but they possessed the extraordinary art of reading India’s political mindset correctly. It is clear that huge funds and high profile managerial skills do not always lead to success. One requires skills to deal with bureaucrats and politicians. They both believed that entrepreneurs needed the consent of bureaucrats and politicians even if what they aimed to achieve was legal. Even powerful businessmen like Ratan Tata and Laxmi Mittal have, on many occasions, faced extraordinary delay due to bureaucracy. Gautam Adani, founder of Adani Group, started dealing in diamonds in Mumbai in 1980. He is worth of Rs. 30,000 crore in a matter of three decades. The company, funded with capital of Rs. 5 lakh in 1988 to trade, now manages ports, develops real estates, produces electricity, trades

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in agriculture commodities, and explores oil. In a matter of months, it raised Rs. 5500 crore. He did not make money from a fancy 21st century business, like software or telecommunications. His success can be attributed, not to massive funds or great technical knowledge, but to skills to persuade the bureaucrats to allot land and guide politics. From trading commodities, the company started making ships and building ports. It is the only company that recruits graduates of Art discipline also. Gautam Adani stated in a recent interview, ‘‘The BJP Government came out with a white paper on ports, formulated the port policy, and in 1998, they allowed us and we started construction.’’ The execution was not that simple. He had no knowledge of building a port and there were no construction companies specialising in the work at that time. He said, ‘‘I had no experience to even build a home.’’ He needed 5,000 acres of land for the port which seemed scandalous to the bureaucrats in the Gujarat Government who knew that the biggest port in the state, Kandla was built on 500 acres. However, 5000 acres was the key for the entire future plan. Convinceing the bureaucrats was a Herculean task and he almost gave up the idea, when he had a brainwave. He gathered a group of officers and flew them over the barren land in Mundra. He told them, ‘‘You lose nothing by giving this land to me. There are only gains.’’ His trick proved successful and he got the land. One official in the Adani empire said that Gautambhai was able to understand the government and could see what lay ahead. He had remarkable ability to deal with the government. Now, Mundra is Adani’s province. They command 7,000 hectare of special economic zone, three terminals to handle cargo, and two power units of 330 MW each. The arid land is now a port from where Maruti Suzuki exports thousands of cars. Now, Mundra has everything. The group struggled every time. But it followed the path cleared by Dhirubahi Ambani. Dhirubhai, a quarter century ago, had said, ‘‘The most important external environment is the Government of India. You have to sell your ideas to the government… for that I’d meet anybody in the government. One thing you won’t find in me is ego.’’ Apart from the extraordinary skills to convince bureaucrats and politicians, Guatam Adani exerted a great deal of courage and fearlessness during threat to life. He was in the Taj Hotel, during the terrorist attack on Mumbai. He didn’t fear when he was kidnapped by the underworld don, Anees Ibrahim for a ransom in 1999. He later said, ‘‘I was playing cards with that fellow who kidnapped me. Whatever has to happen will happen, and nothing can be done about it.’’ Today’s students, teachers and Indian businessmen can learn many lessons from the Ambanis and the Adanis. However, business ethics are another side of the story. (Source: ‘True story of Two Gujarati Midas’, The Economic Times, Ahmedabad, 21st July, 2010, p.1)

Questions for Discussion 1. “Huge funds and professional skills cannot run the business.” Comment on the statement in relation to the case. 2. “Difficulties and hardship make the man strong.” Explain the statement in relation to the life story of Gautam Adani. 3. Why was it difficult to acquire 5,000 acre of land from the Gujarat Government? What did Mr. Gautam Adani do to convince the bureaucrats?

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4. What is the significance of political liaison in business? What, accordingly to you, does a businessman have to do for sound political and bureaucratic liaison? 5. How would you evaluate the working style of Dhirubhai Ambani and Gautam Adani with reference to business ethics? 6. Apart from managerial skills and abilities, what else do today’s CEOs need? 7. In the context of the Indian business environment, state five key qualities that a CEO needs.

CHAPTER

2

Schools of Management Thought Learning Objectives Upon completing this chapter, you will be able to: Explain the meaning of ‘management schools’ and ‘management thoughts,’ and classify various management schools Discuss scientific management and administrative management Comment on the Human Relations (Neo-classical) school Discuss modern schools of management–the System School of Management, Social System School and Social Technical School, and the Contingency School Provide elementary idea on other schools of management

INTRODUCTION From the time human beings started living in groups, efforts are being made to increase effectiveness of group efforts, and hence, efficiency. Writers, experts, and scientists, throughout the ages, have propounded ways and methods to manage people and realise objectives. The different views on management propounded by experts, practitioners, and management scientists— in terms of concepts, ways, methods, functions, processes, principles, and theories—are known as management thoughts, or management theories/approaches, and the teams of persons—human relations experts, behavioural scientists, management, practitioners writers, and contributors—who develop the thoughts are known as schools of management.

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Management theories increase our awareness of business environment, show alternative ways to suit a situation, guide managerial actions, and are indicative of the best practices in leading companies of the world. However, generalisations to theories are being developed by management practitioners from their routines in relation to the changing business environment. India’s Schools of Management and their Thoughts Modern Indian management practitioners including late Dhirubhai Ambani, the founder of Reliance Industries, Narayan Murthy—founder and chief mentor—of Infosys Technologies, Anand Mahindra of M&M, Ratan Tata of Tata Group, Rahul Bajaj of Bajaj Group, Indra Nooyi of PepsiCo, Harsh Marwala of Marico, Adi Godrej of Godrej Industries, Gautam Adani of Adani Group, Karshanbhai Patel of Nirma Chemicals, late Aditya V. Birla and Kumar Mangalam Birla of Birla Group of companies, and many others, most of them from India, are modern management GURUS. They were prudent enough to make their path glorious by evoking and applying specific management theories. Many of them have dared to apply indigenous and the innovative management styles and marketing approaches. They were mighty enough to teach managers globally. These all modern mentors, leaders, chairpersons, CEOs, and key managers constitute the schools of management; and the facts they follow, the ideas they emphasize, and lessons they teach are known as management thoughts. Each school of management thoughts is based on certain assumptions and contemporary situations, and explains management theory and practice in a unique or distinct way. While classical school emphasises on production efficiency and specialisation, neoclassical school gives importance to human relations and behaviour.

CLASSIFICATION OF SCHOOLS OF MANAGEMENT THOUGHTS Schools of management thoughts can be classified into four groups, as shown in Figure 2.1. However, we will discuss classical, neoclassical, system and contingency schools in detail, and gain only elementary idea of other schools.

CLASSICAL SCHOOL OF MANAGEMENT The main contributors to the classical school of management include Frederic Winslow Taylor, Henry Feyol, Frank Gilbreth, Lillian Gilbreth, Henry Gantt, H Emerson, Lyndall F Urwick, Oliver Sheldon, Mooney and Reiley, and many others. Frederic Winslow Taylor’s contribution in scientific management and Henry Feyol’s in administrative management are worth noting. Therefore, the former is recognised as the father of scientific management, and the latter as the father of administrative management. Thus, it can be said that classical management comprises of scientific management and administrative management. The contributions of other classical thinkers were on conceptual basis only, and were relevant to understand managerial problems.

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FIGURE 2.1

Scientific Management The real development of management thoughts began with the scientific management approach/theory propounded by F W Taylor1 and others. F W Taylor (1856–1915) was the founder of, and chief contributor to, scientific management. Other contributors may include Henry Gantt, Frank Gilbreth, Lillian Gilbreth, Robert Owen, Charles Babbage, and many others. They particularly emphasised on making human factor effective at shop or production level. Henry Gantt2, mechanical engineer and management consultant, was a follower of Taylor and believed that scientific management could be applied to every aspect of an organisation to improve efficiency. He is known for his contribution in the form of Gantt charts. The Gantt charts are graphical presentation of duration of task against progression time. The charts are useful for scheduling multiple overlapping tasks to manage the project effectively. Apart from the Gantt charts, he also stressed on proper motivation and reward system. His views are important for designing the wage system. He also focused on leadership qualities and managerial skills for effective organisation. Frank Gilbreth and Lillian Gilbreth, the husband-wife team, also made notable contribution in scientific management. They were supporters of Taylor. Lillian Gilbreth, a psychologist, focused on promoting workers’ welfare. They emphasised on work method in terms of motion and time aspects (i.e., motion study). They suggested designing work methods in a way that time could be estimated in advance. They drew a symbol of operator chart to explain various elements of work, called graphical

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symbols. Frank Gilbreth wrote Motion Study (1911) and the couple wrote Applied Motion Study (1919). Lillian Gilbreth authored The Psychology of Work. Due to his valuable contribution, Frank Gilbreth is known as the Father of Time and Motion Study. Robert Owen, a manager in cotton textile mill (1800–1828), laid more emphasis on labour welfare and working conditions. He appealed to the owners to change their attitude toward workers. According to him, man should not be treated as a machine or as inferior to machine. On the other hand, Charles Babbage, a British mathematician at Cambridge University (1828–1839), studied working conditions of factories in England and France, and made multiple contributions in scientific management in terms of good management, division of labour, time study techniques, mutual interest between employees and employers, incentives, quality control, profit sharing, Operations Research, preventive maintenance, and research and development. He suggested using of science and mathematics for solving a factory’s problems. F W Taylor defined scientific management as: ‘‘Scientific management is concerned with knowing exactly what you want men to do and then see that they do it in the best and cheapest way.’’3 His contributions mainly aimed at improving productivity of workers (at shop level). That is, he was on production side. He was the first to define managerial problem in a scientific way. Therefore, he is recognized as the Father of Scientific Management and his contribution is labeled as ‘Principles of Scientific Management.’ Taylor joined Midvale Steel Company in U.S.A. as a worker, continued his study, and acquired Master of Engineering degree, and, finally, he reached the position of chief engineer in the company. His rich experience as an apprentice, worker, foreman, master mechanic, and chief engineer gave him ample opportunity to understand nature and problems of work and workers. His most popular book, Scientific Management, published in New York, contains his entire contribution. His contribution can be divided into two parts: 1. Elements of Scientific Management 2. Principles of Scientific Management

Elements of Scientific Management

Basic elements of scientific management can be sum-

marised as:

1. Separation of Planning and Doing According to F.W. Taylor, planning and doing should be separated. A supervisor should perform planning task and workers should perform real work. This would help resolve a number of problems and productivity would improve. He developed the concept of functional foremanship in which eight persons are involved in directing activities of workers on different aspects. Out of them, four persons, route clerk, instruction card clerk, time and cost clerk and disciplinarian are concerned with planning, and the other four including speed boss, inspector, maintenance foreman, and gang boss are concerned with doing aspects. 2. Job Analysis

Taylor opined that the job to be performed should be scientifically studied to find the best way of doing things. Frank Gilbreth and Lillian Gilbreth also made valuable contribution in terms of the time and motion study. According to Gilbreth, job analysis includes:

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a. Time Study: Time study deals with the time aspect of the job. It determines appropriate time to complete the job. b. Motion Study: Motion study is concerned with the study of motion/movement of worker, parts, materials, and machines. It eliminates unnecessary movements and possibility of accidents. c. Method Study: Method study is concerned with issues related to methods to complete the job, and it helps find the best methods to perform work. d. Fatigue Study and Rest Study: Fatigue study and rest study are concerned with the study of physical exertion that a job requires, and the need of rest after a particular time. They determine how many hours an average labourer can work without fatigue and the time of rest he needs at different intervals to make him work with full capacity. The rest study shows the amount and frequency of rests the workers require for completing the job effectively.

3. Differential Wage System Many contributors, including Taylor, advocated differential wage system to improve workers’ productivity. He associated the wage system with productivity. Differential wage system involves the payment of higher wages to more efficient workers to encourage them to surpass previous performance. Those who are capable can earn wages without limit. Taylor was of the opinion that efficiency could only be improved if workers were benefitted from increased productivity. He suggested piece-based wage system.

4. Standardisation All the inputs, like instruments and tools, period of work, raw materials, working conditions, amount of work, methods, and so forth, should be standardised to improve productivity. The standards for these aspects should be fixed in advance through proper job analysis.

5. Scientific Selection and Training of Workers

The selection of workers should be on scientific basis, taking into account their education, work experience, aptitude, physical fitness, etc. Similarly, they should be trained properly to make them more effective and efficient.

6. Mental Revolution

Scientific management emphasises on bilateral mental revolution. There should be mutual cooperation between management and workers. They should work for co-existence, and should behave as trustees of the organisation.

7. Financial Incentives Taylor suggested that workers should be given financial incentives to encourage them to put maximum efforts and to achieve better performance. He recommended differential piece rate system. 8. Economy Taylor emphasised on achieving economy in operations. He stressed on higher production efficiency by reducing costs and eliminating wastage.

Principles of Scientific Management Taylor developed certain principles of scientific management. The main principles have been discussed below:

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1. Replacing Rule of Thumb with Science He advised replacing the rule of thumb (i.e., belief, guess, or estimate) with scientific precision. Job aspects, like day’s fair work, standardisation, time, rates of payment, etc., should be measured precisely and scientifically.

2. Harmony in Group Action, not Discord He emphasised on harmony in group actions. There should be mutual give and take situation based on proper understanding. Harmony in group action can maximise contribution. 3. Cooperation, not Chaotic Individualism Cooperation between management and workers should be developed. Mutual confidence, cooperation, and goodwill can make them friends.

4. Maximum Output, not Restricted Output

Scientific management is based on continuous increase in production and productivity. To him, restriction on output is the worst crime. He strongly recommended that workers and management concentrate their attention on increasing production until the size of surplus became the source of quarrel over how to divide it.

5. Development of Workers According to scientific management, all workers should be developed to the fullest extent, for both their benefits and company’s prosperity. Scientific selection and training are necessary for the purpose. Evaluation Despite wide applicability and outstanding results, scientific management suffers from a number of limitations. They are listed below: 1. There is no guarantee of voluntary redistribution of increased profits by management. Improved productivity may lead to employees’ exploitation. 2. Scientific management was appropriate when it was propounded. Due to tremendous changes, it cannot be applied directly. 3. This approach has overlooked social and other needs of workers. 4. Scientific management has missed desire for job satisfaction. 5. Overemphasis on specialisation may lead to monotony or tediousness, and it may affect productivity adversely. 6. This approach does not consider impact of informal relations and group dynamics. 7. It shows partial views, i.e., only production aspect and production problem. 8. It is doubtful whether standards of time, motion, fatigue, and rest are applicable universally.

Administrative Management Henry Feyol (1841–1925) was the chief contributor to administrative management. Henry Feyol’s contribution was first published in French in 1916, titled ‘Administration Industrielle at Generale.’ His work was translated in English, titled General and Industrial Administration, and published in London and United States of America in 1949. Feyol was French mining engineer and industrialist. He is recognised as the Father of Modern Management Theory.

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Other contributors in administrative management include Max Weber4 (in terms of bureaucracy), Oliver Sheldon5 (in terms of ethics and social responsibility), Mooney and Reiley6, executives at General Motors USA, (in term of principles like coordination principle, scale principle, functional principle, etc.), Lyndall F. Urwick7 (in terms of integrating various views into a unified whole), etc. Max Weber’8 has made significant contribution to administrative management. He carefully analysed functioning of church, government, military, and business organisation and suggested bureaucratic structure for all organisations. In his view, bureaucratic structure is the most rational means to exercise control over human beings at work. The system is directed to coordinate efforts of many people in the large organisation. In India, government offices are managed as per bureaucratic system till date. Max Weber emphasised on following key features of bureaucracy: 1. Administrative class (i.e., full-time paid employees) 2. Specialisation (or division of work) 3. Hierarchy of authority 4. Official rules 5. Impersonality (or impersonal relations) 6. Trained employees 7. Official records However, there are many problems associated with the bureaucratic pattern. They include poor efficiency, overemphasis on rules and procedures, lack of clear responsibility, rigidity, slow decisions, goal displacement, impersonal approach, evils of nepotism and favouritism, lack of professionalism, and so forth.

Elements of Administrative Management Henry Feyol and other contributors highlighted the problems of managing an organisation from the top-level management point of view. His administrative management can be equally applied to commerce, industry, religion, philanthropy, and the government. Basic elements of administrative management are briefly discussed in four parts as under: 1. 2. 3. 4.

Classification of Business Activities Managerial Qualities General Principles of Management Elements of Management.

FIGURE 2.2 Henry Feyol’s Division of Work

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1. Classification of Business Activities/operations Henry Feyol classified operations of industrial organisation in six groups, as shown in Figure 2.2. i. ii. iii. iv. v. vi.

Technical activities are related to production Commercial activities are related to buying, selling or exchange Financial activities are related to raising and utilising funds Security activities are related to protecting property and persons Accounting activities are related to keeping records of various business transactions Managerial activities are related to planning, organising, commanding, coordinating, and controlling

2. Managerial Qualities Henry Feyol was the first to identify various qualities the manager should possess for effective performance. He describes these qualities in six groups as under: i. Physical Qualities: Health and vigour ii. Mental Qualities: Ability to learn and understand judgment, mental vigour, and capability iii. Moral Qualities: Energy, firmness, and willingness to accept responsibility, initiative, loyalty, tact, and dignity iv. Educational Qualities: General acquaintance with matters related to general functioning of the organisation v. Technical Qualities: Acquaintance with the functions being performed vi. Experience Qualities: Experience arising from work

3. General Principles of Management

Based on vast practical experience, Henry Feyol derived certain common principles of management. According to him, use of these principles may lead to improved managerial performance. He only described the principles he had followed on most occasions. His fourteen principles are as follows: i. Division of Labour: He advocated division of work to take advantage of specialisation. According to him, specialisation leads to efficient work and can be applied to all levels in organisation. ii. Authority and Responsibility: Formal authority is derived from the manager’s position and personal authority is derived by qualities, such as intelligence, experience, moral worth and past service. Responsibility arises from assignment of work. He stated that there should be parity (balance) between authority and responsibility. iii. Discipline: Members need to respect the rules and agreements that govern organisation. According to Feyol, discipline is the result of good leadership at all levels. It may be commanded or self-imposed. The former is imposed by organisation and the latter is spontaneous response to the skillful leader. Formal discipline can be imposed by sanctions in the form of remuneration, warnings, suspension, demotion, or dismissal. Experience and ability to understand circumstances while imposing sanctions are important. iv. Unity of Command: Unity of command indicates that a person should be ordered and instructed only by one superior. Lack of unity of command may lead to conflict and confusion. It is an important principle for organisational efficiency.

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v. Unity of Direction: This principle suggests that the operations with same objectives should be directed by one manager using one plan. Unity of direction provides better coordination among different activities of the organisation. vi. Subordination of Individual to General Interest: In any organisation, individual interest should be subordinated to general interest. The common goal of organisation should be communicated to all the members clearly. vii. Remuneration of Personnel: Remuneration of employees should be fair to both employer and employees. It should be equal to level of performance, and should be flexible. However, he doesn’t advocate profit sharing. viii. Centralisation: Feyol believed that a manager should retain the final authority, but should delegate to his subordinates enough authority to do their jobs. Depending upon circumstances (like characteristics of a manager, subordinates’ reliability, business conditions, and so forth), a manager should decide the extent to which authority needs to be centralised. ix. Scalar Principle: There should be scalar chain of authority and communication from top to bottom in the organisation. This is also known as hierarchy. Line of authority/responsibility and communication should remain unbroken from top to bottom. x. Order: This principle is related to the arrangement of things and people. There should be a place for everything and everything should be in its place. Right man should be at the right place. xi. Equity: Equity is combination of justice, fairness, and kindness. Manager should be friends with and fair to his subordinates. He requires good sense, experience, and good nature to apply equity. xii. Stability of Tenure: There should be stability in staff. Unnecessary turnover should be reduced. Employees should be given reasonable security of jobs. Staff stability can contribute to efficiency. xiii. Initiative: Within limits of authority and discipline, a manager should encourage his employees to take initiative. They should be given reasonable freedom to conceive and carry-out plans. Initiative skill is important for development of the organisation and it promotes employees’ zeal and energy. xiv. Esprit de Corps: This principle is concerned with promoting team spirit. A manager should encourage esprit de corps among his employees. It gives a sense of unity. The principle explains ‘unity/union is strength.’ Feyol suggested that managers should use oral/ verbal communication to promote team spirit. Some of these principles have practical value till today. Some of them—initiatives, equity, remuneration, subordination of individual to general interest, unit of direction and command, discipline, division of labour, esprit de corps, order, and so on—are part and parcel of management practices at India’s leading business groups. Tata Group, Bajaj Auto, TVS Motor, HUL, Infosys, Wipro, HP, Birla Group, et al., have been practicing some of these principles in one or other forms for excelling their balance sheet performance and improving market image.

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4. Elements of Management According to Feyol, management should be viewed as a process. Management process consists of five elements, also regarded as functions of management. These elements are planning, organising, commanding, coordinating, and controlling. Planning is the most important managerial function. Organising concerned with creation of formal structure. Commanding is similar to direction and is necessary for executing the plan. Coordination ensures working together for the same purpose, and controlling verifies whether everything is proceeding according to plan. Feyol believed that these functions are required at all levels of management and in all types of organisations.

Evaluation Henry Feyol’s views are important for practicing managers to perceive managerial problems in the right perspective. His work can be appreciated on the grounds of division of business operations, managerial qualities, principles of general management, and elements of management. He was the first to evoke fourteen principles, and most of them are valid till date. Similarly, he was the first to identify elements of management in a systematic way. His valuable contribution has not only increased total knowledge of management, but has also contributed to improving managerial performance. Henry Feyol’s contribution has remained dominant in the field of management. However, his approach has been criticised, especially, on practical validity and universal applicability of the principles developed many decades ago. Some critics argue that, alike scientific management, administrative management is also one-sided approach that stresses only on administrative problems. It has sidetracked informal needs, group dynamics, job satisfaction, and many such issues, which are considered vital in modern management theory and practice. It describes what administrative management is, but has failed to show the ways and means to improve managerial performance. Environmental forces and contingency variables, that affect business operations, have not been considered.

NEOCLASSICAL SCHOOL OF MANAGEMENT OR HUMAN RELATIONS MOVEMENT Neoclassical school is relations- or behaviour-based school of management and is also known as Human Relations School. Other names used for the school are Psychological Theory School, Leadership Approach, and Sociological School. It came to be recognised after 1920. It involves the study of various social sciences used to study individuals and groups. Some writers differentiate between human relations school and behaviour school. However, they are closely related. Human Relations School was later on recognised as Behaviour School of Management. Actually, the root of behaviour approach lies in human relations movement initiated by the pioneer staff of Harvard Business School, led by Elton Mayo and his colleagues, at Hawthorne Plant of Western Electric Company, America during the period 1920 to 1932. Elton Mayo and his associates conducted a series of experiments, known as Hawthorne Experiments at the plant during the period (for more details, refer to Hawthorne Experiments, Chapter 15). This approach recognises importance of human factor in the organisation. It also emphasises on complex nature of the human beings at work. Moreover, it helps practicing managers to study, understand, predict, and improve human behaviour. It is concerned with individual and group

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behaviour. It assumes that organisation is a social system and people are not rational. It is aimed at making employees better human beings and more responsible. In relation to human behaviour, a new discipline came into existence, known as Organisational Behaviour. Apart from Elton Mayo9 and his colleagues, E J Roethlisberger, Douglas McGregor,10 Charis Argyris,11 P F Drucker,12 Chester Barnard13 and others (including William J Dickson, Keith Davis, and David A Buchanan) were among the chief/prominent exponents of human relations school. They also directly contributed to the behaviour school. With reference to behaviour approach to management, the work of Chester Barnard is worth noting. He stated, ‘‘An organisation is a system of consciously coordinated activities or forces of two or more persons. For efficient operations and, in fact, for the very survival of the organisation, a balance between inducements (sum total of financial and non-financial rewards available to employees) and contribution (the efforts put in by the employees in accomplishment of objectives) is essential.’’ This approach has discarded the simplistic assumption that money (or rewards, including pay, incentives, security, etc.) makes a man to work. It assumes that a man at work is very complex and difficult to predict and understand. It is not possible to establish direct cause (managerial treatment) and effect (behaviour or response of employees) relationships.

Main Areas of Neoclassical School Neoclassical school was later recognised as organisational behaviour (OB). The second section of this book deals with different aspects or areas of OB. Neoclassical school mainly considers the following areas: 1. Interpersonal relations and inter-group behaviour are main determinants of employees’ performance at work. Managerial performance and group effectiveness depend on interpersonal skills of a manager. He should maintain amicable work climate through healthy relations with employees, and should also ensure such relations among employees. 2. Learning, perception, attitudes, and personality are used for analysing individual behaviour while anthropology, sociology, social psychology, and political science are used for analysing group behaviour. (For more details, Refer Chapter 17.) 3. Transactional analysis and ego states. (For more details, refer Chapter 18.) 4. Change and conflict management. (For more details, refer Chapters 22 and 23.) 5. Group dynamics and informal groups. (For more details, refer Chapter 18.) 6. Work design and organisational climate. (For more details, refer Chapters 16 and 26.) 7. Directing techniques, including leadership, motivation, communication and supervision to generate, shape, modify, and maintain desirable human behaviour. (For more details, refer Chapter 10.)

Managerial Implications It is practically not possible to discuss contributions of all behavioural scientists individually. We briefly summarise, in general, the key implications of these contributors: 1. Behavioural or human relations school guides the manager to treat human beings as valuable assets. Human beings should be placed in the centre of any decision. The school

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accepts complex nature of human element; it avoids simplistic assumption about man at work. It emphasis on understanding, predicting, and improving human behaviour at work. Human Relations Efforts at HP Modern companies attempt consciously to keep their manpower satisfied. Their HRM policies tend to be more informal than formal. A leading IT company HP (Hewlett-Packard India) has adopted many innovative methods to keep its employees happy at workplace. Across HP, flexible time is rigorously followed depending on the convenience of the employees. Every attempt is made to provide excellent opportunity for vertical growth of employees. There are family days, annual picnics, kids’ days and dial-a-chocolate day, wedding gifts, subzi-on-wheels, car serving facilities and much more to make employees live throughout the year. The company has created family-like climate and exemplified the best human relations efforts. Corporate world tries to do everything possible to keep their employees satisfied. Satisfied employees sincerely strive for company’s well-being. 2. Authority alone cannot change, generate, or improve human behaviour. Authority, if not accepted, cannot make people work. Participation, decentralisation, or relaxation is necessary to make people respect and accept authority. This school advocates participation, recognition, and acceptance of personal importance as some effective techniques. 3. It gives more attention to human side of the organisation as it is the only powerful factor to improve productivity. Main task of manager is to solve human problems and keep employees happy; other problems would be solved automatically. Human being is a cause, and a solution as well, for any problem in the organisation. 4. Organisation is not merely a formal structure of functions, relations, and activities. It is affected by social factors. Human beings, working as employees or workers, determine the final output. It emphasis the importance of human factor in the formal organisation. 5. Informal groups are more powerful and uncontrollable, having tremendous effect on performance and relations. Informal group, informal communication, and informal supervision are extremely important to understand and improve behaviour. Manager should accept the existence of informal groups and should manage them as carefully as formal groups. 6. Leadership, motivation, communication, and supervision (directing techniques) are given more emphasis to generate and improve the desired behaviour. 7. The school assumes that the behaviour can be generated, studied, shaped, modified, or controlled by appropriate treatments to human beings. A manager should sincerely try to create and maintain desirable behaviour of people. 8. It emphasises on proper work climate. A manager should try to create and maintain conducive work environment to elicit desired response from employees. 9. It also stresses the role of psychology, including perception, learning, motivation, attitudes, and personality, for analysing individual behaviour. Anthropology, sociology,

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political science, social psychology, etc., can help in analysing and improving group behaviour in the organisation. 10. It advocates scientific study of individual and group behaviour for effective management. Handling human factor needs special skills, knowledge, and expertise. Organisational Behaviour, a new discipline, has been developed to assist managers.

MODERN SCHOOLS OF MANAGEMENT These are contemporary schools of management. Modern schools focus on contemporary situations—problems, environmental forces, and opportunities. They mainly include three schools: 1. System School of Management 2. Social System School and Social Technical School 3. Contingency School of Management

System School of Management Classical school failed because of its narrow vision towards managerial problems, and its inability to suggest integrated views for improving overall performance. System theory is an attempt to consider management as a whole. Though it is of recent origin, it has attracted considerable attention of thinkers and practitioners, who analyse various issues of management. It has been in practice since late 1950s. It avoids partial views and promotes totality/comprehensive views.

FIGURE 2.3 Management System.

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Definition of System

System is a set or assemblage of things connected, or interdependent, so as to form a complex unity, a whole composed of parts, in order to achieve some scheme or plan.14 It consists of integrated parts and sub-parts. It can be defined as: A system consists of interrelated, interdependent, and interconnected variables interacting continuously; these variables form a complex unity. The system is combination of various parts, elements known as subsystems, arranged in the most efficient way. Each subsystem consists of variables interacting within and with outside environment. A system is a combination of subsystems. Management system combines subsystems as shown in Figure 2.3. The system approach to management attempts to view the organisation as a unified and purposeful system of interrelated parts. It tells that activities of any segment affect other segments, and vice-versa. Chester Barnard15 was the pioneer of system approach to management. He explained the approach to management in his book, The Functions of the Executive (1938). Another contributor to this theory was C W Churchman.16 In addition, some other contributors to system school of management may include E L Trist, Bamforth, Jay Galbraith, Beer, Daniel Katz, and R A Johnson, etc.

Features of Management as a System The points stated below explain how management can be called a system: 1. A system is a combination of parts, known as subsystems. Management system also consists of parts or subsystems, like financial management, marketing management, personnel management, and production management. 2. Parts and sub-parts are mutually related to each other, some more, some less; some directly, some indirectly. It is equally true with management as it contains various parts that interact continuously. 3. System generates synergy. Synergy indicates that whole is greater than the sum of its parts and sub-parts. In relation to management, synergy implies that all parts working as a system can contribute more than if each of them works independently. In synergy, 2+2 = 5 instead of 4. 4. The system needs to be adaptive. Being an open system, it has to be adaptive in order to survive and exist. Management has to be adaptive in order to adjust with internal and external needs. 5. A system needs to be open system because it has to interact with outside environment to export/import materials, information and other things. Management is not free to decide on its own, but has to work within the framework of its environment. A close system does not interact with its environment. 6. Management is a dynamic system because it has to absorb changes as per the demand of the external environment, and also attempt to achieve equilibrium in the organisation. A static system fails to respond to its environment. 7. Management system is probabilistic and not deterministic. The results determined by using any specified forecasting model are not predicted with complete accuracy. Only probability (not certainty) of happening can be assigned to them. Since a manager has to work in a dynamic environment, he has to face uncertainty of results.

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8. Management is multivariate and multidimensional system as a large number of variables need to be considered simultaneously while taking a decision. There is no simple cause-effect phenomenon. Moreover, variables are interdependent and interrelated which increase the complexity of management. 9. Management is cooperative and socio-technical system because it combines the forces of social system and technological system. 10. Management is multidisciplinary system. It derives knowledge from different disciplines, and schools of thoughts. Main contributing disciplines include economics, psychology, sociology, anthropology, mathematics, statistics, operations research, etc. 11. Flows and feedback keep the system active and interacting. Business management system takes inputs (inflows) from environment; undergoes transformation processes (process flows) and generates products and services (outflows). Feedback is necessary to monitor, correct, and improve of these flows.

Evaluation System approach relies on integrated views for managing people. It considers management in its totality. It suggests that various parts and forces must be integrated for minimising adverse impact of outside environment on business operations. It avoids simplistic model for managerial analysis. It provides a framework for analysing environment-organisation interaction and facilitates balanced decision-making. System school of management has been criticised basically on its abstract nature and failure to guide a manager directly. Moreover, it is relevant to large organisations. Some critics argue that it makes managerial job more complicated and difficult as all organisations are not required to consider a large number of forces. In spite of limiting factors, the system approach tends to be more relevant in today’s complex nature of business and dynamic nature of environment.

Social System School and Social Technical School Original system approach to management has two branches, Social System School, and Social Technical School. Let’s discuss both branches separately.

Social System School In view of the Social System School, management is a social system. Though closely related to behaviour school of management, it is different because social system school is sociological study of management while behaviour school is psychological study of management. Vilfredo Pareto was the pioneer of the school. However, Chester Barnard17 presented Pareto’s ideas in a systematic manner. Therefore, Chester Barnard is known as spiritual father of social system school. In this school, more emphasis is given to social and cultural relations. The school assumes that goals can be achieved by cooperation-based management system. Cultural and social forces are key considerations to manage business effectively. Chester I. Barnard, in his famous book, The Functions of the Executive, has mentioned formal organisation as ‘Cooperative Social System.’ He stressed on the principle of cooperation. Herbert Simon,18 Harold Koontz,19 etc., have also contributed to this school. It must be mentioned that Bernard, along with March and Simon, restricts organisation system to only formal organisation. According to some writers, the approach must be considered in a wider sense, that is, both formal organisation and

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informal organisation should be taken into account. Accordingly, purposefully established behavioural interrelations among individuals and groups can be referred as social system.

Managerial Implications Social System School makes following managerial implications: 1. Social factors, relations, and cooperation play a vital role in formation of the organisation. Social forces affect the entire management process. These forces should be given proper emphasis to manage business activities. 2. Manager should consider cultural relations as they have tremendous effect on employees’ performance. 3. Cooperation has special role in management process. Management is based on cooperation. Goals can be actualised only by joint efforts of individuals and groups. The approach advocates cooperation-based coordination, and coordination-based management. 4. This approach stresses on the need for formal and informal communication. Communication is the key to create a social system. Communication keeps the organisation active and alive. Manager should set up and monitor suitable communication network for effective management. 5. Informal groups should be duly considered while assigning responsibility and delegating authority.

Social Technical School It is an extension of system school of management. Social Technical School assumes that management study and practice are not limited only to social issues or problems. Technology and production methods affect the social system within the organisation. Technology has its direct effect on attitudes, job satisfaction, and behaviour of employees.

Managerial Implications The School suggests following managerial implications: (a) If work satisfies employees’ needs, employees accept and support organisation to carry out activities. (b) Organisation is combination of two systems, the social system and the technical system. Both aspects should be considered for effective management of business. (c) Social system is influenced by type of technology adopted. (d) Technical system and social system should be complementary, should support one another. Proper match between the two contributes maximum in attaining goals. (e) Communication is an important element in getting work done through employees. (f) Employees accept any technical change as long as they enjoy the security and protection. They take technology as a source of career advancement.

Contingency or Situational School This school is more relevant to current management practice. Contingency implies dependency. It is based on the theme, ‘it all depends.’ Among important contributors to this school

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of thoughts are Joan Woodward,20 J A Lorsch and Paul Lawrence,21 and others (Hickson, Mintzberg, etc.). Though many experts have contributed to this approach, (for more details, refer Leadership Theories, Chapter 22) main contributions came from those managers, consultants, and researchers who have tried to apply the concepts of various schools of thoughts in real life situations. Contingency approach implies that management practices are purely situational. The best-fit approach in one situation may not be valid in another situation. According to the contingency approach, the basic task of a manager is to identify which technique can best contribute in attainment of goals in a particular situation at a given time. It is interesting to note that a manager must know particulars of different schools of management – including features, merits, demerits and applicability – on one hand, and must be able to exactly identify the situational variables on the other hand, so as to suggest the most suitable approach at a given time. He should understand that external environment is powerful and must be respected, and time factor is also critical. With a pace of time, a manager has to make necessary adjustments with environment on a continuous basis to survive and develop. These adjustments may consist of changing management approach, objectives, resources, and/or internal structure of the organisation. A manager practicing contingency approach is required to be more knowledgeable, experienced, and analytical compared to other approaches. This approach neither appreciates nor criticises any of the approaches/theories. It guides a manager that the managerial approach must suit both external and internal situation. The best example is that no physician can prescribe penicillin to all patients regardless of their ailment and level of health. In fact, contingency school is an extension of system approach. Both consider organisation as a system consisting of subsystems and that organisation is a part of a larger supra-system. Both views perceive the interdependence and interrelation among subsystems. In addition, both approaches hold that organisation has to interact with outside environment, and should be adaptive and dynamic. However, both approaches are not exactly same. The major distinction is that system approach focuses on total organisation system while the contingency approach only concentrates on specific/relevant variables and relationships among them, and also suggests the managerial actions in a given situation. Here, situation is more important than technique or method in determining effectiveness. It assumes that management is entirely situational. Due to various factors, no one method or way can be applied equally and directly.

Situational Factors Different variables determine the situation. The extent to which variables are favourable, determines the favourableness of the situation. A situation can be said to be favourable if manager has greater degree of freedom in making decision in given constraints. Main situational factors include: 1. Environmental Factors, including technology, culture, legal and political environment, economic conditions, international business environment, social constraints, availability of infrastructure facilities, etc. 2. Organisational Factors, including management philosophy, type of task, policies, rules, strategies, procedures, objectives, resources, leadership style, etc.

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3. Individual Factors, including type of people, qualities and qualifications, needs, attitudes, and other personality characteristics.

Managerial Implications Managerial implications of this school include: 1. Management is entirely situational and there are no universal principles. 2. No approach is suitable in all situations. Suitable design is one which is formulated in light of requirements of the organisation on one hand and environment on the other hand. 3. It guides that organisation interacts with its environment continuously. No system is free to take absolute action. Rather, action is subject to social, legal, political, technical and economic factors. 4. It stresses on dynamic nature of organisation, and manager is required to be flexible. 5. Time is a powerful determinant of effectiveness of any approach. A manager should respond to needs of time. No approach should be applied all the time. 6. Contingency approach advocates that proper training and development programmes are necessary to make the manager understand the ‘situation’. He must learn to obey situations as they cannot be changed.

Contribution of Peter F. Drucker Peter F. Drucker, a noted management thinker and consultant, made multiple contributions to management. His work can be included in neoclassical as well as modern schools of management. He revolutionalised management thinking in early 1950s through articles, books, and presentations at different places. The Practice of Management (1954), Managing for Results (1964), The Effective Executive (1967), The Age of Discontinuity (1969), and Management: Tasks, Responsibility and Practices (1974) are among the most popular books. He emphasised on decision-making task of managers, and stated that life of a manager is a perpetual decisionmaking activity. Whatever a manager does, he does only through decision-making. Decisionmaking power provides a dynamic force for managers to transform the resources of business organisations into a productive and cooperative concerns.22 He was the first to define business in terms of customer-orientation. He also defined business or marketing in terms of customer creation. Peter F. Drucker strongly believes that management is a profession, and at the centre of professional aspect of management are the attitudes of managers toward their work. He also expressed his views on universality of management and said that organisations with economic and non-economic objective need different types of skills, expertise, and abilities. According to him, management is not universal. He made his valuable contribution in clarifying the concept of goal, mission, and objectives. He developed Management By Objectives (MBO), a new management philosophy and approach in 1954.23 In brief, he made contributions in following areas: 1. Nature of management 2. Management as profession

Schools of Management Thought

3. 4. 5. 6. 7. 8. 9.

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Universality of management Manager’s job Management by objectives (MBO) Decentralisaiton Structure Decision-making Executive developement

BRIEF IDEA OF OTHER SCHOOLS OF MANAGEMENT THOUGHTS Remaining part of the chapter provides elementary idea about other schools of management developed so far. They include: 1. Empirical School of Management 2. Management Process Schools 3. Decision Theory School 4. Quantitative or Mathematical School (or Management Science Approach) 5. Human Resource Approach (Note: Decision Theory School and Quantitative School can/may be included in modern schools of management thoughts.)

Empirical or Custom School This is the oldest school of management. The empirical school emphasises on the role of managerial experience in managing business matters. This school considers experiences of successful managers to study and practice management. To enrich knowledge of students and new managers, and to increase their efficiency, requires teaching or describing past experiences of effective managers. Sometimes, key inferences are drawn or principles are developed from the past practice or experience to understand the present managerial situation. However, experiences can be used directly only if situation is similar to that in the past. Henry Feyol and F W Taylor’s contributions clearly reflect their own experiences. Dr. George Terry refers the school as ‘Management by Custom School.’ The school is based on the assumption that principles, procedures, methods, and techniques used by managers in the past to solve problems can be of better help to solve the current managerial problems. By avoiding errors committed by managers in the past, and by practicing their successful ways and methods, a manager can seek guidance in handling the present situation. There are two popular approaches to study and practice of this school:

(1) Case Study A case is a written description of past events. It may be based on real situations faced by the manager in a specific business enterprise, or may be imaginary in nature. Cases are discussed or debated to find out their implications. Analysis of cases can help understand and solve current problems. This is a popular and widely used method to prepare

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junior managers. It has proved an effective tool to teach and train students in management institutes.

(2) Comparative Study This approach includes systematic study of successful managers and entrepreneurs to seek managerial guidance. On the basis of this study, common guidelines are derived to teach managers. Certain principles can be developed by studying their lives and managing styles. The Birla Group has developed an audio-visual CD (Compact Disk) containing remarkable speeches and events in life of Aditya Birla, the founder of the company. The CD is made available to almost all the management institutions free of charge to promote Aditya Birla’s management philosophy. Recently, the Reliance Group has published a book that describes the corporate life of Dhirubhai Ambani, the founder of Reliance Group of Industries. Narayan Murthy, the chairman of Infosys Technologies, also wrote a book on his managing experience. Students, teachers, and managers can learn a number of things simply by studying the lifestyles and working approaches of successful managers and entrepreneurs. Evaluation Empirical or custom school advocates traditional approach to management. It assumes that managerial knowledge or skills can be acquired by study of actual work experience of managers. It is against scientific study. In case of changed business environment, the past experience cannot help to understand and/or solve the current problems. It is difficult to find exactly similar situations in different organisations. Too much emphasis on past experience, instead of solving, may multiply the problems. Past experience must be used carefully. Management Process School According to this school, management is a continuous process undertaken by specific groups of people to achieve specific objectives. The process essentially consists of functions, elements and activities, that must be performed in order or sequence. The order of functions is determined purposefully in a systematic manner as they are interrelated and interdependent. Right from determination of objectives to their realisation, a number of interrelated and interdependent functions are performed systematically in sequence. Main contributors to the school were Henry Feyol, Luther Guilick, Urwick, Koontz and O’Donnell, Earnest Dale, and George R Terry. Henry Feyol classified management functions as planning, organising, commanding, coordinating, and controlling. Luther Gulick described managerial functions in terms of POSDCORB. Each letter of this word denotes the initial letter of a managerial function planning, organising, staffing, directing, coordinating, reporting, and budgeting. In the same way, Lyndall Urwick gave seven functions, planning, organising, commanding, coordinating, communicating, forecasting, and investigating. Ralph C. Davis included three functions in management process, planning, organising, and controlling. E F L Brech considerd planning, organising, motivating, coordinating, and controlling as functions of management. In the same way, Koontz and O’Donnell included planning, organising, staffing, leading, and controlling. This process is observed in all types of organisations, may be with little variation. At present, experts consider five functions in management process, like planning, organising, staffing, directing, and controlling. The success of any individual function depends

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on other functions. (For more details, refer Management Process or Functions of Management Chapter 1.)

Assumptions

The school relies on the following assumptions:

1. 2. 3. 4. 5.

Management is a process. The study of management consists of analysis of the process. Management process is continuous and permanent. Process is made of different functions. Managerial function involves several activities, decisions, or elements. Management is dynamic process. It depends on place, persons, conditions, facilities, time, and other relevant variables. 6. Functions of management process are interrelated and interconnected. Management process is dynamic. Number, type, and order/sequence of steps in management process for any business unit depend on a number of relevant factors. These factors may involve objectives, managerial philosophy, time, type of work, types of workers, quality and quantity of facilities, and external business environment. However, generally, functions or steps remain identical in all units, but their practice differs. As per management process school, effective study and practice of management essentially includes following four phases: 1. Analysis of management process 2. Development of concepts 3. Identification of principles 4. Formulation of management thoughts

Managerial Implications

A practicing manager can derive valuable guidelines for improving practice. Systematic analysis of Management Process School essentially has following implications: 1. Manager must accept that management is permanent, universal, and dynamic structure made of functions. It is inclusive of all other schools of management thoughts. 2. Interrelation among functions is regarded as process, which is dynamic. This process is more than the sum of individual functions. 3. Management process is both an art and a science. Functions can be referred as science and practical use of the functions as art, as it needs skills and ability. 4. It establishes relationship between physical resources and human resource. Perception, needs, values, attitudes, beliefs, and other personal factors affect the process. 5. The process is the base for systematic study of management.

Decision Theory School It is one of the modern schools of management thoughts. According to this school, management problems, processes, and activities are related to decision-making. Decision-making means to select an appropriate alternative from available alternatives to solve the problems. It assumes that management is decision-making, and manager is decision-maker or decider. Herbert

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Simon, March, Cyert, Forrester, Koontz and O’Donnell, Chester Bernard, and George R Terry are among the main contributors to this school. Herbert A. Simon, the main contributor to this school, asserted that managing and decision-making are synonyms.24 Stanley Vance gave a more decision-oriented definition of management. He stated: “Management is simply the process of decision-making and control over the action of human beings for the expressed purpose of attaining predetermined goals.”25

Managerial Implications Important implications of the school are: 1. Management is decision-making. Managing means deciding. Decision-making process involves objectives, functions, activities, resources, and decision-making tools or methods. 2. Decision-maker is called as manager. His duty, rights, tasks, or activities are related to decision-making. His position and importance in the hierarchy is determined by the decisions he makes. 3. This school has its root in Economics. Consumers preference, utility, marginal utility, economic behaviour under risk and uncertainty, and other concepts of Economics are relevant to the school. 4. Decision-making ability makes the person a successful manager. He performs managerial functions by taking and implementing decisions. 5. Organisation is a decision-making unit, mechanism, or structure that facilitates the managers in making and implementing decisions. 6. Decision-making involves risk and uncertainty. Quality and timing of decisions affect overall efficiency of any organisation. 7. All factors that affect decision-making are the subject matter in the study of management. Decision-making approach takes into consideration psychological, social, economic, legal and political, and ecological factors. It has a wider scope. 8. Decisions are not always rational or logical. They are highly influenced by information, intuition, values, customs, personality and experience of decision-maker and other things. 9. Information system, decision-making process, and decision-making techniques are the core areas of the school. 10. The school rigorously advocates use of mathematical or statistical techniques, and computer and computer-based software to analyse data. Accurate, error-free, and speedy calculations of complicated relations among variables are possible through computer-based techniques. 11. This schools indirectly cover all other schools of management thoughts, like Mathematical School, Situational School, Human Behaviour School, System School, and so on, because each school affects managerial decisions.

Elements of Decision-making Decision theory school involves the following elements: 1. Decision: It is the selection of an appropriate alternative from many. The selection of an alternative is based on needs, resources, constraints, time, and so on.

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2. Decision-Maker: Decision-maker is a person who is capable or who has the right to make decision. He is a manager by virtue of his decision-making authority or power. 3. Information System: Decisions are based on information. A large number of data are required to analyse and evaluate alternatives. It needs a permanent setup (MIS – management information system) to avail necessary information on a continuous basis. 4. Decision Process: It involves steps to arrive at the decision. Process is dynamic. It also considers activities, objectives, people, and relevant factors. Process may be short and simple, or lengthy and sophisticated, depending upon internal and external situation/ environment. 5. Decision-making Techniques and Computer: Several mathematical and statistical models or techniques are used for analysing and solving problems. Use of computer and computer-based software is very common for speedy, bias-free, and accurate results. 6. Decision Implementation: To decide and to implement are two different aspects. Effective decision can contribute to the performance only if it is implemented successfully.

Quantitative or Mathematical School (Management Science Approach) Quantitative School is known by a number of names, such as Operations Research, Operational Analysis, Management Science Approach, Quantitative Techniques for Business Decision-making, and so on. This modern school emphasises on use of systematically organised (or scientific) knowledge based on facts, research and tests. Scientific characteristics of management are closely related to mathematical models or Operations Research (OR) techniques. This approach is known as quantitative school as it is based on the use of numeric (or quantifiable) data. In management, quantitative techniques facilitate speedy decisions with a high degree of accuracy. Such techniques help in dealing with complex business decisions. Therefore, for the last two decades, experts have been trying to connect Mathematics and Statistics for making effective managerial decisions in areas like production, distribution, and allocation and use of resources. According to the school, managerial problems, variables affecting the problems, managerial functions, and interrelations among them can be logically expressed and mathematically presented. We can study, analyse, and evaluate managerial problems by converting them into mathematical signs, symbols, equations, and processes. As per need, useful models (software/package/ programme) are developed for production, finance, accountancy, quality control, distribution, etc., areas of business operations. Various academic disciplines related to commerce, management, and professional courses have introduced Mathematics and/or Statistics (in the form of OR – Operations Research or QT – Quantitative Techniques for Business Decision-making) as part of their curricula to promote the use of quantitative techniques for better business decision-making. Today’s managers and experts strongly believe in this approach. Mathematicians, statisticians, managers, management experts, and computer experts have played a vital role in the development of this approach.

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Managerial Implications

Mathematical approach to management has the following les-

sons to teach the managers: 1. Managerial processes, functions, variables, and interrelations among them can be transformed into mathematical terms to determine managerial effectiveness. 2. Quantitative or management science approach is based on systematically developed knowledge. 3. Based on management functions, processes, and interrelations, one can develop mathematical models or equations to measure the effect of any change in one or more functions, variables, or units on the final output. 4. Mathematical School is aimed at maximisation of results (for example, profits, sales, and production) or minimisation of results (for example, costs, losses, and wastes). 5. Based on special need or situation, useful model(s) can be developed to facilitate forecasting, decision-making, and controlling of managerial activities. 6. Computer-based models or packages, such as Optimum Capital Structure, Break Even Analysis, Economic Ordering Quantity, Ideal Portfolio, and other such software, are useful for quality control, forecasting, planning, decision-making, or controlling with less time and high degree of precision. 7. The school is logical and scientific and can be applied universally.

Quantitative Techniques

Different quantitative techniques are used for managerial decision-making. Several methods/techniques used for analysing, understanding, and solving managerial problems have been shown in Table 2.1. TABLE 2.1 List of Quantitative Techniques used in Management Science Techniques for Forecasting 1. Index Number

Techniques for Decision-making and Controlling 1. Linear Programming

2. Time Series

Simplex Method

3. Input-Output Analysis

Graphics Method

4. Exponential Smoothing

Transportation Problem

5. Extrapolation-Extrapolation, etc.

Assignment Problem 2. Decision Theory and Decision Tree 3. Queuing Theory 4. Game Theory 5. Dynamic Programming 6. Integer Programming 7. Goal Programming 8. Sequential Analysis 9. Capital Budgeting Techniques 10. Inventory Control 11. Ratio Analysis 12. Network analysis, including PERT and CPM, etc.

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Human Resource Approach People (employees or human resource) are key element in the organisation. It is powerful determinant of overall effectiveness. Therefore, human element has drawn special attention, and has led to the development human resource approach to management. In fact, it is not a completely separate approach. It is part of every school of management. In today’s context, it is given more importance. In every organisation, human resource is acquired, maintained and managed by human resource department. (For more details refer Chapter 9.) Human resource approach emphasises on development of employees through training and development programmes. It focuses on developing capabilities and virtues that can support the organisation in realising its goals. This approach is mix of many human-oriented concepts and approaches. Qualtiy of work life (QWL), positive psychology capabilities, high performance work practices (HPWPs), work life balance (WLB), job design approaches, employee empowerment, employee participation, and many others are used to develop people at work. Most chapters of this volume directly or indirectly deal with improving managerial effectiveness through developing human resource. Various management schools (theories or approaches) discussed in the chapter contribute to total managerial knowledge. None of them is totally useless or useful. Each theory has some thing special to teach modern managers. Today’s managers should use implications of these schools with care so as to avoid mismatching between implications and the current situation.

SUMMARY Group of experts, writers, and practitioners who contributed to management knowledge are referred as schools of management, and their contribution in terms of concepts, functions, theories, principles, processes, etc., is referred as management thoughts. Classical management school consists of scientific management developed by F W Taylor, et al, which focuses on production problems, and administrative management developed by Henry Feyol, et al, which addresses administrative problems. Separation of planning and doing, job analysis, differential wage system, standardisation, scientific recruitment and selection, mental revolution, and such principles are key elements that constitute scientific management. Classification of business activities, managerial qualities, fourteen general principles of management, and elements of management are elements of administrative management. Neoclassical management school consists of human relations and behavioural approach to management. Modern schools contain the system school of management, the social system school and social technical schools, contingency school of management, management process school, mathematical schools, and so on.

KEY TERMS Schools of Management Classical Schools

Scientific Management Administrative Management

System School of Management

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Social System School and Social Technical Schools Contingency School of Management Empirical School of Management

Management Process Schools Decision Theory School Quantitative or Mathematical School

Quantitative Techniques Human Relations Approach

EXERCISES Objective Type Questions A. Answer the following: 1. What is the name given to F W Taylor? 2. By what name is the contribution of Henry Feyol known? 3. Who was the chief contributor to the System School of Management? 4. Who gave POSDCORB formula? B. Choose the correct option (MCQs): 1. Scientific Management School was developed by (a) Henry Feyol (b) Peter F Drucker (c) Frederic W Taylor (d) Elton Mayo 2. The school based on situation is known as (a) System School (b) Contingency School (c) Operations Research (d) Human Relations Schools 3. Which one of the following approaches has been developed from the findings of the Hawthorne Experiments? (a) Decision Theory Approach (b) Human Relations Approach (c) Quantitative Approach (d) Empirical Approach 4. Which one is not true? (a) Management is open system (b) Management is socio-technical system (c) Management is multidimensional system (d) Management is interesting system

5. What does the word ‘School’ in Schools of Management Thought indicate? 6. What do thoughts of management denote? 7. Name two modern schools of management. 5. Which school was developed by Chester Barnard? (a) Administrative School (b) System School (c) Human Behaviour School (d) Decision Theory Approach 6. Which one of the following approaches was later known as the behavioural approach? (a) System Approach (b) Human Relations Approach (c) Scientific Approach (d) Mathematical Approach 7. Who was the main contributor to decision theory school? (a) Herbert Simon (b) Koontz and O’Donnell (c) Chester Barnard (d) Earnest Dale 8. Whose contribution is known as Principle of Scientific Management? (a) Henry Feyol (b) F W Taylor (c) Chester Barnard (d) Earnest Dale 9. By what name is the contribution of F W Taylor labeled?

Schools of Management Thought

(a) Scientific Management (b) Administrative Management (c) System School of Management (d) Contingency Schools of Management 10. ‘Job analysis’ and ‘differential wage system’ are included in the contribution of

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(a) Henry Feyol’s Administration Management (b) F W Taylor’s Scientific Management (c) Chester Barnard’s System Theory (d) Elton Mayo’s Hawthorne Experiments

Descriptive Questions 1. Explain the terms ‘Schools of Management’ and ‘Management Thoughts.’ Show the classification of different schools of management thoughts with brief explanation. 2. Discuss key issues/elements of F W Taylor’s Scientific Management School. Also state its limitations. 3. Explain Henry Feyol’s Administrative School. 4. Write a descriptive note on the fourteen principles propounded by Henry Feyol in his Administrative Management. 5. What is a System? Which are the main elements (subsystems) of business system? Discuss the key characteristics of management as a system.

6. Discuss the Mathematics School of Management. Which are the popular qualitative techniques used for different purposes? 7. ‘Situation is the prime decider in managing people and business operations.’ Comment on the statement. Show classification of factors constituting a business situation. 8. What is decision-making? How is Decision Theory useful to practicing managers? 9. Explain four subsequent phases of Hawthorne Experiments. 10. Discuss: (a) Elements of Decision School Theory (b) Management Process School

Assignments 1. Students are asked to assess the relevance of different schools of management with modern management practices.

2. Students are assigned to conduct a survey of some managers to find out which approaches have more practical value.

REFERENCES 1 Frederick W Taylor, Scientific Management, Harper Brothers, New York, 1911 2 Henry Gantt, Work, Wage, and Profits, Engineering Magazine, New York, 1910; and Industrial Leadership, Hew Haven, Yale University Press, 1916 3 F. W. Taylor, op .cit. 4 Max Weber, The Theory of Social and Economist Organisation, Free Press, New York, 1947 5 Oliver Sheldon, The Philosophy of Management, Sir Issac Pitman, London, 1923 6 J D Mooney and A. C. Reiley, The Principles of Organisation, Harper and Row, New York, 1939 7 Lyndall F Urwick, The Elements of Administration, Harper and Row, New York, 1994 8 Max Weber, The Theory of Social and Economic Organisation, New York, Free Press, 1947 9 Elton Mayo, The Human Problems of an Indutrial Civilisation, The McMillan Company, New York, 1933 10 Douglas M. McGregor, The Human Side of Enterprize, McGraw-Hill, New York, 1967 11 Charis Aryris, Personality and Organisation, Harper Brother, New York, 1957

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12 Peter F Drucker, Management Tasks, Responsibility and Practices, Harper and Row, New York, 1974 13 Chester I Barnard, The Functions of the Executive, Harvard University Press, Cambridge, Mass, 1938 14 Oxford Dictionary 15 Ibid 16 C West Churchman, The System Approach, Dale Publishing, 1968, New York, p. 28 17 Ibid 18 Herbert A Simon, Administrative Behaviour, Free Press, New York, 1947, and Models of Man: Social and Rational, John Wiley, 1957 19 Harold Koontz, Cyril O’Donnell, and Heinz Weihrich, Management, McGraw-Hill, New York, 1998 20 Joan Woodward, Industrial Organisation: Theory and Practice, Oxford University Press, London, 1965 21 Jay A Lorsch and Paul R. Lawrence, Studies in Organisation Behaviour Design, Richard D. Irwin, Homewood, III, 1970 22 Peter F Drucker, op. cit. 23 Peter F Drucker, The Practice of Management, Harper and Brothers, New York, 1954 24 Herbert A. Simon, op. cit 25 Stanley Vance, Industrial Administration, McGraw-Hill, New York, 1959

ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. 2. 3. 4. 5. 6.

Scientific Management Administrative Management Chester Barnard Luther Gulick School means a team of experts Management thoughts include management concepts, principles, functions, processes, and theories 7. System School and Contingency school B. 1. (c), 2. (b), 3. (b), 4. (d), 5. (b), 6. (b), 7. (a), 8. (b), 9. (a), 10. (b)

CASE Dhirubhai Ambani, the True CEO of Reliance Group Late Dhirubhai Ambani, the founder of Reliance Industries, was a visionary. He started his career from nothing. His success can be attributed to his aggressive management style. He did anything that could bring him success. His definition of ethics was different. He played every game; broke all rules, gave nightmares to his rivals, and took reckless risks to get to the top. He was included in the Forbes’ list of billionaires. Experts opine that his greatest asset was his approach to people, government, investors, shareholders, and employees. He never forgot those who helped him during odd times. He never went to college or attended professional management training to learn management. He worked with common sense approach. He was never tired of

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work; he held high resilient power, hope and self-efficacy. Obstacles and uncertainties could not divert or defeat him. He used to work until midnight. His two sons – Mukesh and Anil – MBAs from Stanford and Pennsylvania Universities respectively, borrowed best practices from foreign companies, but they apply their knowledge and skills at domestic level. They both still follow the footsteps that their father inscribed. Late Dhirubhai said: ‘‘Our dreams have to be higher, our ambition greater, our commitment greater and our efforts greater.’’ He also, said: ‘‘The most important external environment is the Government of India. You have to sell your ideas to the government… for that I’d meet anybody in the government. One thing you won’t find in me and that is ego.’’ He had the art of correctly reading the mindset of India’s politicians. Though he was neither graduated or professionally trained, he had an extraordinary sense to get the work done from bureaucrats and politicians. He was the master of indigenous tactics to mold others to his plan. He knew how to maintain balance among the expectations of different stakeholders. Human capital and skills differentiate Reliance from its competitors. Informality is the key feature of Reliance. Human asset is an appreciating asset and employees’ skills are its competitive muscle. The company prefers young employees to foster its original Reliance culture. Employees hold task-based designation and status. Reliance has the policy to draw people from diverse academic backgrounds with sufficient combustion, enthusiasm, and resiliency to take, accept, and enjoy emerging opportunities along with the threatening challenges within and outside the nation. The group emphasises on inducting and nurturing fresh talent. Company recruits wellqualified employees, and then they are equipped with formal training to match them perfectly with their job profile. Management capabilities, focused strategy, speedy decision-making, speedier implementation of projects at lower costs, strong commitment, adaptive ability, able networking, prioritisation, ability to raise fund, organisational ability in system architecture, business and people processes and organisational design, special skills to deal with bureaucrats and politicians, and so forth, are indicative of Reliance’s strengths. Skills germinated and the culture fostered could place the group among most successful global business groups. Modern CEOs of India and abroad have much to learn and adopt from the life story of Dhirubhai Ambani. (Source: ‘True story of Two Gujarati Midas’, The Economic Times, Ahmedabad, July 21st, 2010.)

Questions for Discussion 1. Comment on the aggressive leading style of late Dhirubhai Ambani. 2. How would you evaluate Dhirubhai’s approach to get work done in relation to the present political and legal environment in India? 3. List a few human virtues that Dhirubhai possessed? 4. Highlight the key points of HRM practices at Reliance Industries. 5. Summarise the strengths of Reliance Group of Industries. 6. What qualities make a true leader? State Dhirubhai’s leadership qualities. 7. ‘Though professionally qualified, his two sons—Anil and Mukesh—prefer to follow their father’s footsteps.’ Comment.

CHAPTER

3

Introduction to Strategic Management Learning Objectives Upon completing this chapter, you will be able to: Define strategic management and explain its key features. Describe the process of Strategic Management (SM). Summarise the benefits of SM. Elaborate on Mckinsey and Company’s Seven’s model. Analyse Parter’s Five Forces of Corporate Strategy.

INTRODUCTION Management process contains five functions (or steps), like planning, organising, staffing, directing, and controlling. All these functions and some related issues have been discussed in comprehensive manner in the relevant units of the books. Strategic management is not completely different from simple management; it is a revised form of management. Increased complexity and sophistication in business decision-making, multifaceted internal activities, and firm’s immediate external environment have necessitated the use of strategic management. In case of strategic management, every function becomes strategic, i.e., strategic planning, strategic organising, strategic staffing, strategic directing, and strategic controlling.

STRATEGIC MANAGEMENT Strategic management involves: 1. Careful and minute search for better opportunities and options

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2. Being concerning with top level and long-term decisions 3. Consideration of all key operations of firm’s main departments 4. Conscious and well-calculated deployment of resources 5. Defining and achieving of long-term goals and objectives 6. Determining effective response to competitors 7. Determining reaction pattern to business environment 8. Prioritising survival and continuous development In strategic management, managerial decisions are taken by the top executive known as Chief Executive Officer (CEO). Other names used for the CEO include Managing Director (MD), Chairman, Executive Director, or President. He is also called the strategist or the strategy maker. He plays a key role in strategic management (strategy formulation, implementation, and evaluation and control). Indian Managers, the Indigenous Strategists Indian corporate groups have adopted many innovative ideas and techniques to improve business performance. CEOs of ITC, Hindustan Unilever, M&M, Wipro Corporation, PepsiCo India, Infosys Technologies, and many other leading company have developed innovative, indigenous management approaches and techniques that have yielded rich return in term of not only sound balance sheet performance, but also corporate image across the globe. Indigenous management approaches are indicative of their strategic orientation. Anand Mahindra led Mahindra & Mahindra Group has been using shadow board successfully since 2003. This innovative structure amplifies the ideas of young executives into the boardroom, and stimulates real-time management for young leaders preparing for the rigorous role ahead. Many shadow board members have become business heads. From 2004 to 2009, Mahindra Group had collected and implemented many innovative and winning ideas. Shadow board offers opportunity to members to work with people from different functions and with different mindsets and gives ample opportunity to improve confidence, communicability, and presentation power to young leaders. Shadow groups have number of strategic management implications. (Refer to the chapter-end case.) The concept of strategy is an ancient one. James Stoner explains the term in relation to military actions. The term ‘strategy’ comes from the Greek word strategeia, which means the art or science of being a General (military head). The Greeks knew the importance of generalship in winning and loosing battles. An effective General needs to define the purpose of leading an army, winning and holding territories, protecting area from invasion, wiping out enemies, and so forth. Each objective requires different deployment of resources, i.e., different programmes. Likewise, army’s strategy can be defined as the actual pattern of action that it takes in response to the army.1 Thus, strategy involves both planning and action components in light of the opposite party/enemy. (For more details on strategy, refer to Chapter 4).

MANAGEMENT AND STRATEGIC MANAGEMENT Strategic management involves managing (i.e., planning, organising, staffing, directing, and controlling) of activities with special emphasis on long-term goals, strong response

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to competitors, and effective interaction with business environment. Factually, today’s management is (whether prefix ‘strategy’ is used or not) always strategic management because every manager has to manage business operations and processes for long-term goals, and has to respond to competitors and interact with the dynamic business environment. Apart from business, strategic management is equally applicable to all other fields of human activities, like politics, education, religion, and so forth. All long-term decisions, like merger, acquisition, takeover, expansion, diversification, backward and forward integration, strategic alliances with other companies, outsourcing, etc., have strategic implications and, hence, are known as strategic options. Figure 3.1 shows some issues that make management a strategic management. This chapter describes key issues related to strategic management.

FIGURE 3.1 General Management and Strategic Management

DEFINITIONS Strategic management involves strategic decision-making, implementation, and control. It is concerned with strategic analysis of relevant environment, strategic choice, strategic implementation, strategic assessment (evaluation) and strategic control. 1. Gerry Johnson and Kevan Schole: “Strategic management is concerned with deciding on strategy and planning, and how that strategy is to be put into effect.”2 2. S. C. Certo and J. P. Peter: “Strategic management is a continuous, interactive, and crossfunctional process aimed at keeping an organisation as a whole appropriately matched with its environment.”3 3. Steiner, Miner and Gray: “Strategic management is primarily concerned with relating the organisation to its environment, formulating strategies to adapt to the environment, and assuring that implementation of strategies takes place.”4 4. John A Pearce and Richard B Robinson: “Strategic management is the set of decisions and actions resulting in formulation and implementation of strategies designed to achieve the objectives of an organisation.”5

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Organisational response to its environment is the key aspect of strategic management. It can be defined as: Strategic management concerned with defining and achieving long-term goals and objectives by effective interaction and adaptation with dynamic environment on a continuous basis within limit of given resources. It mainly involves strategy formulation, implementing, and control.

Dimensions of Strategic Management Strategic management involves strategy-related decisions (i.e., strategic decisions) and relevant actions. Strategic decisions have six identifiable dimensions:6 1. Strategic decisions (issues) require involvement of top level management. 2. Strategic decisions involve allocation of a large amount of company resources. 3. Strategic decisions are likely to have a significant impact on the long-term prosperity of the firm. 4. Strategic decisions are future oriented. 5. Strategic issues usually have major multifunctional or multi-business consequences. 6. Strategic decisions necessitate considering factors in the firm’s external environment.

CHARACTERISTICS OF STRATEGIC MANAGEMENT The definitions, dimensions, and levels show some basic features of strategic management that are listed below: 1. Strategic management is revised form of management. It involves well-considered, wellcalculated, well-prepared, and broad-based decisions. All managerial functions become strategic functions. 2. It mainly involves setting long-term goals and determining ways and tools to realise these goals. 3. Top level management takes strategic management decisions. 4. Strategic management closely relates with responding to competitors. 5. Strategic management involves three main facets; one, strategy formulation, second, strategy implementation, and, third, strategy evaluation and control. 6. Strategic management has deterministic role in survival and growth of business firm. 7. External environment plays a critical role in strategic management, and hence, is a key consideration in it. It is primarily concerned with diagnosis and analysis of external environment, and determining effective interaction with it. 8. Strategic management involves long-term, risky, and costly decisions. 9. Strategic management decisions have significant impact on the present and, particularly, the future operations and prosperity of firms. Such decisions have long-lasting impact on firm’s overall performance over time. 10. Strategic management decisions can be made at various levels, such as corporate level, business level, and functional level.

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11. Strategic decisions are innovative, future-oriented, sporadic, flexible, and well-thought in nature to adjust with dynamic nature of relevant environment. 12. Strategic management involves huge and long-term investment. 13. It is concerned with controversial decisions. It involves strategic change or adjustment 14. The SWOT analysis is prime determinant of strategic response to environment. It shapes firm’s strategic management. Strategy formulation, implementation, and evaluation depend on the SWOT analysis.

FIGURE 3.2 Relationship between Management, Components of Strategic Management, and Strategic Management Process

STRATEGIC MANAGEMENT PROCESS Strategic management consists of three main components, formulation of strategies, their implementation, and evaluation and control. The seven-step strategic management process

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incorporates three main components. Note that strategic management process is closely related to general management process. Figure 3.2 shows strategic management process, its components, and its relationship with the general management process. Process has been described below:

1. Determining Strategic Goals (Purpose or Mission) and Objectives Strategic management process starts with determining strategic goals and objectives. The step consists of: a. Formulating Mission Statement: Mission is declaration of organisation’s reason to exist, and it involves an enduring statement of purpose that distinguishes one organisation from other similar ones. It is based on such fundamental questions, as: What is our business? Business is description of products, activities, and market that the firm presently pursues. Why does the firm exist? It is indicative of firm’s long-term vision to be realised. Mission must be achievable, motivational, specific, clear, distinctive, indicative of major strategies and objectives, and reflective of main policies. Normally, mission statement is in written format. It is based on the themes including company’s products, markets, technology, organisational objectives, organisation’s core values, organisational self concept, and public image.7 b. Formulating Objectives: Goal or mission can be realised by firm’s objectives. Goal must be translated in to specific performance targets (i.e., specific ends or objectives). It is a critical step in strategic management process as it determines key areas and types of actions. Objectives are specific expected results to be achieved in defined period of time. Normally, a company wants specific results in certain areas, such as (1) profitability, (2) markets, (3) productivity, (4) innovation, (5) products, (6) financial resources, (7) physical facilities, (8) organisational structure and activities, (9) manager performance and development, (10) employee performance and attitudes, (11) customer services, (12) image or identity, (13) innovation, and (15) social/social responsibilities. These areas are indicative of key areas where the firm wants certain results. Micro-localisation—New Business Strategy of FMCG Companies FMCG companies are trying to expand it market by identifying and satisfying new customer groups. Recently (November, 2010), some Indian companies have evoked new business strategy, called micro-localisation that focuses on needs of specific buyers of specific localities. They also plan to introduce regional products to satisfy the peculiar needs and wants customers of specific regions, instead common products for all. Life Goods (LG), Godrej, and Future Group lead micro-localisation drive. They are lunching products with new features, formulation or ingredients that suit specific regions and communities. Micro-localisation is new buzz in the market. Hotel and hospitality industry has already introduced the same. Firms like Godrej and Dabur are undertaking microlocalisation in overseas markets, too. Film and serial makers do follow micro-localisation strategies successfully since many years.

2. Analysing or Assessing Business Environment Business environment is the source of opportunities and threats. Strategic decisions largely depend on the type of business environment; it may be favourable or unfavourable. Business environment consists of controllable and uncontrollable variables. It can be defined as: Business environment comprises of various factors

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(forces, circumstances, conditions, or influences) that affect functioning of the organisation and each of the managerial decisions. It offers both opportunities and threats. A strategist is required to analyse all economic, social, cultural, technological, and competitive variables. In the same way, internal environment must be taken into consideration. In short, the step deals with identifying and understanding of external and internal strategic factors to judge degree of favourableness of the environment. (For more details, refer ‘Management and Business Environment,’ Chapter 1). 3. Identifying Strategic Alternatives Strategic goals and objectives can be achieved by different alternatives. Alternatives consist of options, ways, methods, or strategies. Every option capable of contributing to the goal can be an alternative. The strategist has to identify different alternatives. The best alternative is selected and implemented for achieving objectives effectively, in time. In the context of today’s business, important strategic alternatives include new product development, product modification, turnaround, liquidation, expansion, merger, acquisition, takeover, diversification, backward and forward integration, intensifying promotional and sales efforts, strategic alliances with other companies, outsourcing, etc. Reliance’s Diversification Strategy The year of 2010 was that of merger and acquisition (M&A) across the world. Recently (i.e., September, 2010), Mukesh Ambani led Reliance Industries (RIL) has bought nearly 14.3% stake of luxurious hotel company EIH (Eastern Indian Hotel) Ltd., that runs the Oberoi and Trident chains. With this deal, the group officially entered in hotel and hospitality business. The sale made from Oberoi promoters’ holding which reduced to 32% from 46%. Now Oberoi-Ambani holding is 52%. RIL is likely to nominate Nita Ambani–wife of Chairman Mukesh Ambani to the board of EIH. She is closely involved with the company’s increased focus on services.

4. SWOT Analysis

Organisation’s SWOT (strengths, weaknesses, opportunities, and threats) analysis shows how far the organisation is capable of exploiting opportunities and facing challenges and threats in a given environment. A strategist attempts to determine firm’s strengths, (i.e., plus or strong aspects), weaknesses, (i.e., vulnerable aspects), opportunities, (i.e., prospects or better chances), and threats, (i.e., challenges, uncertainties, or risks). SWOT analysis indicates firm’s present position or state. It is a yardstick to measure firm’s overall health. Every firm differs significantly in term of SWOT. Strategic management depends on SWOT analysis. Figure 3.3 shows relevant aspects of SWOT.

5. Strategic Evaluation of Alternatives and Choice

All strategic options mentioned in the third step are not equally attractive. Also, all of them cannot be adopted and implemented. Only the most suitable ones make sense. SWOT analysis provides a strong base to evaluate various strategic options. All internal factors—marketing, finance and accounting, production and technical, human resource, and organisation of general management—which determine firm’s potential strengths and weaknesses, are considered to assess the available strategic options. Past performance of the company also is considered. In short, all those aspects that can assess costs-contribution and risk-prospect of alternatives are considered to find out the best strategic option to be selected. Management philosophy, values, past experience,

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and personal-psychological considerations can play decisive role in evaluation and choice of alternatives. Strategic option should suit the company’s competitive position in the market. Strategic options are taken as offensive and defensive actions to protect company’s interests against rival firms. Once strategic option is selected, the next step in strategic management process calls for strategy implementation.

FIGURE 3.3 SWOT Analysis

6. Strategy Implementation The strategy selected must be translated into concrete actions, and actions must be carefully implemented. Strategy implementation consists of operationalising and institutionalising the strategy.

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Operationalising Strategy It consists of three steps: a. Identifying/Determining Annual Objectives: Annual objectives show long-range aspirations of the firm in the year’s budget. Well-developed objectives provide clarity regarding what the strategy stands for. Market share, ROI, ROE, stock price, market penetration, etc., objectives provide guidance to assess the effectiveness of strategy implementation. b. Developing Specific Functional Strategies: Functional strategies are short-term game plans for key functional areas (like marketing, finance, R & D, personnel, and production/operations) within a company. Grand strategy is translated at the business level into action plans for different sub-units. c. Developing and Communicating Concise Policies to Guide Decisions: Policies are powerful tools for strategy implementation. They guide the thinking, decisions, and actions of managers and their subordinates in implementing the strategy. Suitable policies are formulated, and the same are clearly communicated to all those concerned with strategy implementation.

Institutionalising Strategy Institutionalising strategy means putting strategy in action, i.e., permeating (incorporating) the strategy into day-to-day life. Successful institutionalisation of strategy consists of considering the three elements: a. Structure of Organisation: Organisation structure plays a prime role in implementing a carefully formulated strategy. It involves arranging or organising activities, responsibilities, and interrelations. It provides overall framework for strategy implementation. Type of organisation structure depends on firm’s ownership, size, products, and number of activities. b. Leadership of CEO and Key Managers: Leadership is the key element in strategy implementation. Chief Executive Officer (CEO) is the catalyst in strategic management. CEO, on an average, spends upto 80 per cent of his time in developing and guiding strategy. In addition, firm’s mission, strategy, and key long-term objectives are strongly influenced by personal values and goals of the leader. Key managers’ role seems significant in strategy implementation. The right managers with right leadership qualities should be in the right position to implement strategy. c. The Fit between Strategy and Company’s Culture: Company’s (or organisational) culture affects strategy implementation. Right culture can be organisation’s strength. Cooperation, commitment, communication, decision-making, etc., are influenced by culture. Strategy should be fit with organisational culture; it should be incorporated with firm’s cultural values, beliefs, and traditions.

7. Strategic Evaluation and Control

The last step in strategic management process is concerned with controlling strategy. In the previous step, strategy was implemented in a changing environment. Evaluation and control seem inevitable if strategy is to be successfully implemented and adjusted to changing conditions. Strategic control implies tracking strategy as it is implemented, detecting problems, and making necessary adjustments. The step involves three dimensions:

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a. Establish Strategic Control System: Suitable strategic control system guides strategy execution. It should provide the basis for correcting actions and directions of the firm in implementing strategy in relation to environmental and internal situations. A suitable control mechanism should be set up that can steer strategy for several years. Normally, top executives play a key role in exercising control over strategy implementation. b. Set Operations Control System: Operations control system implies operationalising control mechanism. It involves (1) setting standards of performance, (2) measuring (monitoring or checking) on-going actual performance, (3) identifying deviations from standards, and (4) initiating corrective actions, or making adjustments. Normally, three types of operations control systems are used, such as budgets, schedules, and key success factors (or criteria). c. Set Reward System that Motivates Control and Evaluation: Rewarding and motivating managers for good performance are key ingredients of effective strategy implementation. In the same way, negative rewards and motivation are effective tools for controlling and adjusting poor performance. Appropriate reward and motivation must be linked with key managerial performance. MISSION OR VISION STATEMENTS OF SOME LEADING INDIAN COMPANIES Mission Statement of Tata Group The founder of Tata Group, Jamsetji Nusserwanji Tata (1839 – 1904), and his successors JRD Tata, Naval Tata, and the present chairman Ratan Tata, have kept the original values and ethics intact. Their actions have been guided by the mission statement of Tata Group of Industries which are stated below: To improve the quality of life in India through leadership in the focused sectors. To develop globally competitive skills to exploit emerging global opportunities. To focus on portfolio, management efforts, and investment priorities to achieve group synergy for delivering value to the customers. To preserve the Group’s heritage by invoking trust among consumers, employees, shareholders and the community. To leverage the unique name of ‘Tata’ through representing leadership with trust and unifying companies for long-term success and fair return to the shareholders. Thus, Tata Group is more committed to national interest and service to society. The group priorities economic excellence, customer-orientation, national services, developing and practicing high standard of behaviour, and protecting interest of various groups. (Source: www.tatagroup.com) Mission Statement of HUL Hindustan Unilever Limited (HUL) is India’s largest fast moving consumer goods (FMCG) company, touching the lives of two out of three Indians with over 20 distinct categories in Home & Personal Care Products and Foods & Beverages. The company’s Turnover is Rs. 17,523 crore (for the financial year 2009–2010) The mission that inspires HUL’s more than 15,000 employees, including over 1,400 managers, is to help people feel good, look good and get more out of life with brands

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and services that are good for them and good for others. This is the mission that HUL shares with its parent company, Unilever. Hindustan Lever emphasises on development of human capital. The HUL model of ‘Human Capital Development’ is built around three key pillars—leadership development, organisational readiness for the future, and broad-based talent development. (Source: www. hul.co.in) Mission Statement of Reliance Group The Reliance Group, founded by Dhirubhai H. Ambani (1932–2002), is India’s largest private sector enterprise, with businesses in the energy and materials value chain. The group’s annual revenues are in excess of US$ 44 billion. Reliance Industries Limited, the group’s flagship company, is a Fortune Global 500 company. Mission statement of the company is as follows: Growth through Commitments; we care about Quality, Research & Development, Health, Safety & Environment, Human Resource Development, Energy Conservation, and Corporate Citizenship We believe that ethical business practices are based on the nine core values of Honesty, Integrity, Respect, Fairness, Purposefulness, Trust, Responsibility, Citizenship, and Caring. We want employees to observe high degree of integrity and compliance with applicable laws. We adhere to these values under any circumstances, regardless of the goals we have to achieve. Excellent economic performance, rapid (revolutionarly) growth, integrity, R&D, energy conservation, corporate citizenship, diversification, high degree of resilience to achieve goals in any circumstances, and respect for law are important focal areas. (Source: www.ril.com)

THE SEVEN-S MODEL McKinsey & Company, the international management consultancy firm, has developed the Seven ‘S’ Model. The McKinsey’s Seven ‘S’ model is based on discussions with consultants, academicians, and business leaders. The model is particularly concerned with strategy implementation. This framework is indicative of change-identifying seven key factors. According to them, successful implementation of strategy requires concentrating on organisation structure that is influenced by seven key factors. Obviously, strategy implementation consists of some changes. Therefore, strategists have to transmit such changes to all key variables related to strategy implementation. Figure 3.4 shows seven interactive factors that determine the structure. Each factor begins with the letter ‘s’ (1) structure, (2) systems, (3) style, (4) staff, (5) skills, (6) strategy, and (7) superordinate goals. McKinsey’s consultants observed that neglecting any one of the seven key factors could make the efforts to change a slow, painful, and even doomed process.8

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These factors are interrelated and affect each other. Each of these factors is an important consideration for successful implementation of strategy.

1. Structure Organisation structure is one of the prime factors to be considered while implementing any strategy. The McKinsey consultants state that in today’s complex, large, and everchanging environment, an organisation should make temporary structural changes to cope with strategic tasks. Such changes should be made without abandoning the basic structure. 2. Strategy The Seven-S model assumes that strategy formulation is easier than strategy execution. While formulating strategy, all key factors should be duly considered. Its implementation involves economic difficulties and administrative problems. Minor and major changes in organisation structure can help solve problems related to strategy implementation.

FIGURE 3.4 The Seven-S Model (Based on the work of R H Waterman, T J Peters, and J R Philips, ‘Structure is Not Organisation,’ Business Horizon, June, 1980)

3. Systems

Organisation itself is a system that contains many subsystems. Systems indicate formal and informal procedures that allow the organisation to function, such as production system, capital budgeting system, Marketing Information System (MIS), HRM system, accounting system, marketing system, and so on. While implementing strategy, these systems should be modified as per need.

4. Style Style indicates a pattern of doing work or taking actions. It is symbolic of the actions taken by the top management. Style communicates priorities clearly and carries notable influence on performance. While implementing a particular strategy, the top management must use suitable style of executing the work. Style makes the people in an organisation follow the top management. 5. Staff Staff consists of organisation’s human resource. It is a decisive factor in strategy formulation and, particularly, in strategy implementation. A firm’s performance depends on type of people working in it. Therefore, staff must be nurtured, developed, and prepared. Care should be taken to develop new managers. New managers should be assigned jobs in the mainstream of the organisation. All possible steps are undertaken to prepare the staff to carry out responsibilities successfully.

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6. Skills The term ‘skills’ refers to ability, talent, proficiency or expertise. Skills enable the organisation to do the activities is in the best manner it is known for. A firm may hold specific skills in one or more areas, such as research and development, product management, brand equity, innovation and quality, customer services, public relations and market promotion, etc. Implementing (i.e., operationalising and institutionalising) strategy successfully demands specific skills. Strategic changes require an organisation to revise existing skills and/or to add one or more new skills.

7. Superordinate Goals

Superordinate goals enjoy highest priority. These serve a common purpose for the whole organisation. The goals incorporate departmental, group, and individual goals. They are the guiding concepts, values, and aspirations that unite an organisation in some common purpose. They are stated in the mission statement or are expressed in the form of a simple slogan. Superordinate goals give the organisation stability over time, even in presence of internal and external changes. New strategy requires certain changes, but they do not replace superordinate goals; strategy implementation must be within the limit of superordinate goals and should be complementary to them. McKinsey’s Seven-S Model assumes that effective organisation structure is a basic requirement for successful implementation of any strategy. It is a useful framework that guides the managers contemplating strategy implementation to consider a number of interacting factors that affect organisation structure. These factors are equally important and interact with each other. Overemphasis on any one of the factors adversely affects the change process. Making necessary adjustments in these aspects can increase chances of successful strategy implementation.

PORTER’S ‘FIVE FORCES’ OF CORPORATE STRATEGY Michael Porter9 developed a popular ‘Five Forces’ approach to corporate strategy. He studied a number of business organisations and proposed corporate strategies. The approach is a useful framework to formulate corporate level strategy. The framework is based on five competitive forces in the company’s environment. Porter states that an organisation’s ability to compete in a given market is determined by the organisation’s technical and economic resources, as well as five environmental forces. Porter’s ‘Five forces’ are (Figure 3.5): 1. Threat of new entrants 2. Bargaining power of buyers 3. Bargaining power of suppliers 4. Threat of substitute products 5. Rivalry among competitors Each of these forces threatens the organisation’s operations. Therefore, the strategic manager must analyse these forces and propose a programme to reduce the degree of threat to organisation’s interest. The forces show relationship between the managers at a given organisation and managers in other organisations. These factors play an important role in determining firm’s ability to compete in the market with given technical and economic resources.

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FIGURE 3.5 Michael Porter’s ‘Five Forces’ Corporate Strategy (Based on Michael E. Porter, ‘Competitive Strategy: Techniques of Analysing Industries and Competitors,’ New York, Free Press, 1980, p. 4)

Porter’s ‘Five Forces’ Michael Porter’s ‘Five Forces’ have been briefly discussed below: 1. Threat of New Entrants: The force is concerned with new companies within the industry. Organisation must remain alert to prevent of entry of new entrants. It must safeguard its all fronts when entry of competitors cannot be prevented. It should take precautionary steps to protect its interests. 2. Bargaining Power of Buyers: The force is concerned with the bargaining power the buyers possess within the industry. Bargaining power of the buyers forces the organisation to sell its product at low price. Organisation must concentrate on product differentiations and service variations to restrict bargaining power. 3. Bargaining Power of Suppliers: The force is concerned with the ability of suppliers to control issues like cost of materials in the industry. Suppliers’ bargaining power has direct impact on company’s performance. Company has to pay more or accept unfavourable conditions. An organisation must search for new suppliers to dilute bargaining power of the current suppliers. 4. Threat of Substitute Products: The force is concerned with products that might act as substitutes of goods and services that the company produces. Availability of substitute products weakens organisation’s competitive strengths. Organisation, in order to reduce threat of

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substitute products, must offer more varieties, modify the existing products, and search for new products on a continuous basis. 5. Rivalry among Competitors: The force is concerned with general level of rivalry among industry firms. Organisation’s corporate strategy should determine how to respond effectively to the current competitors. Formulating effective strategy, accurately predicting their response, deploying resources quickly at strategic points, constant innovation, and dynamism can help the company fight forcefully with its competitors. Understanding of these forces determines the competitiveness of the firm within industry. The analysis of five forces helps mangers to be more competitive. Michael Porter’s ‘Five Force’ approach to corporate strategy shows that availability of technical and economic resources is not enough to venture into the market. Impact of environmental forces must be carefully considered. Every force demands strategic response to minimise the threat on company’s performance. The model is a good guideline for practicing managers as it indicates where the organisation should focus and what it needs to do.

Porter’s Generic Strategies Porter suggested three strategies that can be adopted to improve competitive strengths.

1. Differentiation Strategy The strategy emphasises on developing goods and services that are perceived as unique, different, or superior in the industry. Successful differentiation enables the firm to charge premium prices. Differentiation may be in the form of brand image or design (for example, Rolex watches, and Coca-Cola), technology (for example, Honda’s vehicles), customer services (for example, HDFC bank), or features (for example, Mercedes-Benz).

2. Cost Leadership The strategy emphasises on producing and distributing products at cheaper rate than competitors. Company can attract price-sensitive customers and increase its market share. Ahmedabad-based Nirma Chemicals adopted cost leadership strategy and could challenge international giant Hindustan Lever.

3. Focus The strategy emphasises on targeting a specific regional market, product line or buyer group. It can limit its attention to one, or a few market segments to and can try to server them better than other organisations. For example, Titan jewellry watches are aimed at elite group of buyers only.

BENEFITS/ IMPORTANCE OF STRATEGIC MANAGEMENT Strategic management offers following benefits: 1. It makes organisation proactive. 2. It helps organisation to adjust with and influence the environment. It assists the organisation to identify, adopt, and implement changes without resistance. 3. It is systematic, logical, and rational approach to strategic choice. 4. It encourages decentralisation and employee empowerment.

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5. It promotes well-considered and comprehensive research studies to find facts. It leads to the fact-based decisions. Problems, opportunities, threats, and challenges are studied carefully. 6. It helps to foresee environmental changes and assists in preparing in advance. 7. It encourages favourable attitudes toward change. 8. It enhances organisation’s problem-preventive capabilities. 9. It promotes coordination among various departments and divisions. 10. It especially emphasis on HRD function. 11. It helps establish strategic alliance, outsourcing, and integration. 12. It ensures effective utilisation of resources. 13. It provides for clear objectives and direction for employees. 14. It makes managers think divergently and holistically. 15. It enables the organisation to gain more with little. 16. It helps organisation to survive amidst diversities and adversities.

SUMMARY Strategic management is not completely different from simple management; it is revised form of management. In case of strategic management, every function becomes strategic, i.e., strategic planning, strategic organising, strategic staffing, strategic directing, and strategic controlling. The term ‘strategy’ comes from the Greek word ‘strategeia’, which means the art or science of being a General (military officer). The Greeks knew the importance of generalship in winning and losing battles. An effective General needs to define the purpose of leading an army, winning and holding territories, protecting areas from invasion, wiping out enemies, and so forth. Strategic management is concerned with defining and achieving long-term goals and objectives by effective interaction and adaptation with dynamic environment on a continuous basis within limit of given resources. It mainly involves strategy formulation, implementation, and control. Strategic decisions are taken at top level, middle level as well as bottom level. Revised form of management, long-term goals, active involvement of top management, survival and growth, innovative, future oriented, sporadic, flexible, and well thought in nature, controversial decisions, unique adjustment with dynamic nature of relevant environment, and so forth, are key features of strategic management. Strategic management consists of three phases, strategy formulation, strategy implementation, and, strategy evaluation and control. Strategic management process consists of seven steps. The McKinsey’s Seven ‘S’ model consists of seven factors (1) structure, (2) systems, (3) style, (4) staff, (5) skills, (6) strategy, and (7) superordinate goals. Strategic management offers a number of benefits. With strategic orientation, the corporate unit can survive in the toughest situation.

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KEY TERMS Strategy Strategic Management Strategic Management Process

SWOT Analysis Seven-S Model Michael Porter ‘Five Forces’ Approach

Role or Benefits of Strategic Management

EXERCISES Objective Type Questions A. Answer the following: 1. Name the Greek word from which the term ‘strategy’ has been derived. 2. Write full form of CEO. 3. List the levels of strategy. B. Choose the correct option (MCQs): 1. Which is not included in the Seven-S model? (a) Strength (b) Structure (c) Style (d) Skills 2. With reference to SWOT analysis, which is not relevant? (a) Strengths (b) Weaknesses (c) Operations (d) Threats 3. From which language has the term ‘strategy’ been derived? (a) English (b) French (c) Latin (d) None 4. In relation to strategic management, find the odd one. (a) CEOs (b) Chief Mentors

4. Write the components of SWOT analysis. 5. What are the seven ‘S’s of the Seven-S Model. (c) Managers (d) NGOs 5. Which is not relevant to Strategic Evaluation and Control? (a) Establish strategic control system (b) Set operations control system (c) Set reward system that motivates control and evaluation (d) Strategic choice of alternatives 6. Who developed Seven-S model? (a) F. W. Taylor (b) Chester Barnard (c) McKinsey & Company (d) None of these 7. Who developed the ‘Five Forces’ of corporate strategy? (a) McKinsey & Company (b) Chester Barnard (c) Michael Porter (d) Peter F. Drucker

Descriptive Questions 1. ‘Strategic management and management are same.’ Do you agree? Why? 2. What is strategic management? Enlist its features. Explain its importance. 3. Describe the strategic management process. 4. Explain:

(a) SWOT Analysis (b) Strategy implementation 5. Discuss: (a) Environmental analysis (b) Strategic evaluation and control 6. Comment on the Seven-S Model.

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Assignments 1. Students are assigned different corporate groups and are asked to study their strategic orientation.

2. A group of students are required to prepare SWOT analysis of one or more companies.

REFERENCES 1 James Stoner and Edward Freeman, Management, Prentice-Hall of India, New Delhi, 1989, p.196 2 Gerry Johnson and Kevan Schole, Exploring Corporate Strategy, Prentice-Hall International, Englewood Cliffs, New Jersey, 1984, pp. 6–8 3 Samuel C. Certo and J. Paul Peter, The Strategic Management Process, Richard D. Irwin Inc., Chicago, 1993, p. 5 4 George A Steiner, John B Miner and Edmond R Gray, Management Policy and Strategy, McMillan, New York, 1982, p. 4 5 John A. Pearce and Richard B. Robinson, Strategic Management, AITBS Publishers & Distributors, New Delhi, India, 2002, p.6 6 Ibid., pp. 7-8 7 John A Pearce II, ‘The Company Mission as a Strategic Tool,’ Sloan Management, Fall 1992, p.2 8 James Stoner, Edward Freeman and Daniel Gilbert, Management, Prentice-Hall of India Private Limited, New Delhi, 2000, p. 290 9 Michael Porter, Competitive Strategy: Technique for Analysing Industries and Competitors, Free Press, New York, 1980

ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. 2. 3. 4. 5. B.

Strategeia Chief Executive Officer Corporate level strategy, business level strategy and functional level strategy Strengths, Weaknesses, Opportunities, and Threats Structure, systems, style, staff, skills, strategy, and superordinate goals 1. (a), 2. (c), 3. (c), 4. (d), 5. (d), 6. (c), 7. (c)

CASE Innovative Management Practices at Mahindra and Mahindra Group The week after the Mahindra Group acquired the troubled Satyam Computer Services, it initiated a 45-day long talent hunt at the Hyderabad based IT company. Initially, 300 bright young executives were shortlisted from 50,000 employees of the company. Eventually, nine top executives were selected from a group of 300 initially selected bright executives. This crack team of nine brilliant young executive was named as ‘shadow board’, which was to work closely with the statutory board. The shadow board was expected to deliberate strategic and operational issues and to present new ideas and alternative viewpoints.

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The concept of shadow board seemed incredulous (unbelieving) to Satyam’s employees, but this unique practice had remained an integral part of Mahindra Group since 2003. Today, shadow boards exist in 11 companies of Mahindra and Mahindra (M&M). The Group has adopted shadow board parallel to the formal Board of Directors. Shadow board contains young leaders and it carries big influence on management practice. Mahindra Group wanted to hear the voice of the young. In 2003—to give the young managers a voice at the highest level of decisionmaking—seven promising young managers, all below 35 years, were hand-picked in each Mahindra Company and asked to think as another management committee. They were asked to put forth recommendations. This innovative structure performs two functions – it amplifies the ideas of young executives into the boardroom, and stimulates real-time management for young leaders, preparing them for the rigorous ahead. Many shadow board members have become business heads. From 2004 to 2009, Mahindra Group collected and implemented many innovative and winning ideas. Anand Mahindra, Vice chairman of the group, asserted, “This team was to be a fresh source of ideas from the frontline of the business.” Rajeev Dubey, head of HR, M&M, stated, “Shadow boards evoked as part of a large talent-management process. It gives young people the liberty to engage with problems and aids lateral thinking.” Ramesh Iyer, the managing director, Mahindra Finance, quotes, “Often, top managements think they know it all. Shadow boards expose them to a young team that innovates and thinks differently. Shadow board offers opportunity to members to work with people from different functions and with different mindsets. It gives ample opportunity to improve confidence, communicability, and presentation power.” Other leading Indian companies have mixed opinions. Adi Godrej of Godrej Group, between 2000–2009, had a Young Executive Board (YEB). The Godrej YEB consisted of eleven talented employees, all below 30 years, chosen across functions from various groups. YEB members were rotated every two years. However, the company did not have satisfactory experience. Years ago, Unilever and General Electric had introduced the concept of shadow board, but they found it difficult to sustain as senior managers did not get involved. Rahul Bajaj, chairman of Bajaj Auto, says, “Shadow boards are pointless. We never had a plan to have shadow board… simply because we always had youngsters on board. It makes good sense to include young talent on the actual board. There is no governance involved and shadow boards are advisory in nature.” (Source: Based on ‘How Mahindra shadow boards works and what others companies can learn from them,’ The Economics Times, 15th June, 2010)

Questions for Discussion 1. 2. 3. 4.

How did Mahindra Group formulate shadow board for Satyam Mahindra Services? What is shadow board? Give outline of Mahindra shadow board. What is significance of the Shadow Board in M&M Company? Why is Rahul Bajaj not interested in shadow board? Summarise the experiences of Rahul Bajaj, Hindustan Unilever, and Godrej groups regarding shadow board practices. 5. How would you look at shadow group practices? Give your comments.

CHAPTER

4

Fundamentals of Planning Learning Objectives Upon completing this chapter, you will be able to: Define the meaning of planning and outline planning features Describe planning process and planning premises Explain importance of planning and discuss components of a plan Differentiate between strategic planning and operational planning Discuss process of strategy (or strategic planning) formulation Summarise key aspects of MBO Comment on basic constraints or limitations of planning

INTRODUCTION Management process starts with planning and ends with controlling. Planning consists of determination of course of action in advance for a specific period. There are two components of planning—forecasting, related to predicting occurrence of the future events, and decisionmaking, concerned with selecting an appropriate alternative. It shows the ways and means to reach the desired objectives by selecting the most promising option, often called the alternative course of action. It is the blueprint of future activities. 1

Note: Additional reading material related to this chapter is available on the companion website of this book.

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NEED FOR PLANNING In today’s business environment, managers must be armed with well-thought plans to operate in highly threatening situations. Technology, market composition, consumer taste and preference, competitive dynamics, global forces, and so forth, require the firm to seek constant adjustments. In modern business management, the need for planning can be justified by following facts: 1. Systematic plan is base for realising objectives. 2. Planning helps to cope with different types of changes. 3. It helps manager to be proactive. 4. It can be a preventive device. 5. It reduces uncertainties and risks inherent in business decision-making. 6. It is useful for better coordination. 7. It improves operational efficiency. 8. It is a base for controlling; without planning controlling is not possible. 9. It helps managers handle complexities. 10. It promotes creativity and innovation. Need for planning has been discussed in detail in the later part of the chapter under the ‘importance of planning.’

DEFINITIONS OF PLANNING Important definitions of planning have been stated below: 1. Lyndall F Urwick: “Planning is fundamentally a mental predisposition to do things in an orderly way, to think before acting, and to act in light of facts rather than of guesses.”1 2. Bill E Goetz: “Planning is fundamentally the choosing function and planning problem arises only when alternative course of action is discovered.”2 3. Koontz and O’Donnell: “Planning is decision in advance about what to do, why to do, when to do, where to do, how to do, and who is to do it. Planning bridges the gap from where we are to where we want to go.”3 4. M. E. Hurley: “Planning is deciding in advance what is to be done. It involves the selection of objectives, policies, procedures, and programmes from among alternatives.”4 Hence, we can define the term as: Planning is a function of management that determines what should be done before we act. It includes selecting of objectives, policies, procedures, strategies and programmes for the enterprise, and arranging means for achieving these objectives. Also, it can be said: Planning is an act of determining objectives of administrative efforts and devising means necessary to achieve them.

CHARACTERISTICS OF PLANNING From various definitions, we can derive certain common characteristics of planning. These characteristics explain the nature of planning, as stated below:

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1. Planning is a primary function of management. It precedes management process. 2. It is a thinking process. It is an intellectual activity. Actual work is performed in the future. It is a set of decisions related to the future activities. 3. It is a flexible. It involves adjustment. 4. It is a pervasive function. It can be applied everywhere, in all types of activities. 5. It is basically a choosing process. It involves choice of the right alternative from available alternatives. 6. It is goal oriented. It is directed toward achievement of goals. 7. It is concerned with the future activities. It is forward looking. 8. It is based on premises. It is prepared as per premises or expected conditions. 9. It is a continuous process. It is prepared and implemented repeatedly. 10. It is time-bound activity. It is always for a definite period of time. 11. It is integrated activity. It considers all activities of the organisation. 12. It is a base for controlling. Controlling depends on planning.

Planning and Plan Planning and plan, though closely related, are different terms. Planning is a process and plan is the end result of the process. The former deals with the process of taking decisions about what to do, why to do, when to do, where to do, etc., and the latter indicates decisions already arrived at. More clearly, when a manager is thinking and contemplating about making decisions, we can say that he is planning, he is moving toward decisions (plan). When decisions are taken, we can say that he has prepared a plan. Planning process ends with the plan. Plan involves selected objectives, time, place, people, policies, procedures, rules, etc. It is like a blueprint of an architect’s work. The future course of action is strictly directed as per the plan. IIM-A’s Plan to Introduce Cohort-based Placement System In the month of September 2010, Indian Institute of Management Ahmedabad (IIM-A) proposed a cohort-based placement system (plan) for both summers as well as final placement. This was the first-ever efforts made by B-schools to initiate talks on the sensitive issue of placements. Normally, each B-School had its own way of announcing and the success of the placement process. The cohort system was an experimental initiative taken by the IIM-A. The institute organised a “Recruiters’ Conclave” in Mumbai, on 1st October 2010, wherein recruiters and representatives of all IIMs and top private B-Schools discussed the issue related to placement process. (Source: Business News, The Economic Times, September 2010)

STEPS IN PLANNING PROCESS Planning process is dynamic. The number and type of steps involved planning process depend on analysis of relevant variables, like type of objective, size of activities, type of people involved, time available, financial capacity of the organisation, and so on. Sometimes, a lengthy and systematic process is followed while, at other times, a short and simple process is followed. However, normally for a large organisation, under normal conditions, planning process consists of eight steps, as shown in Figure 4.1.

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FIGURE 4.1 Typical Planning Process

1. Analysing Business Environment Actually, this is a preplanning process step. Before formulating any plan, a planner is required to analyse or scan the overall business environment. He should study the business environment to find out what type of opportunities are available in relation to company’s strengths and weaknesses. In the same way, he should also try to project the future challenges and threats. Here, it is not necessary to analyse business environment in detail; only bird-eye view suffices the need. This step calls for: (i) Primary study of business environment and opportunities available (ii) Estimating future challenges and threats during the plan period (iii) Overview of company’s strengths and weaknesses in light of these opportunities and challenges (iv) Collecting and analysing of relevant information.

2. Establishing Objectives A plan is prepared to achieve objective(s). Now, based on opportunities and company’s strengths and weaknesses, objectives are established. Objectives can be defined as the end expected results to be achieved during plan period. They reflect company’s vision to be realised. A planner should set objectives carefully as they guide the efforts of the entire organisation. The firm may have one or more objectives to prepare the plan, such as adequate profit, desired market share, product leadership, continuous development, consumer

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satisfaction, goodwill and reputation, competitiveness, and so on. In relation with setting of objectives, following points are worth noting: (i) Objectives should be free from personal bias. (ii) They should reflect long-term vision and impersonal need of the organisation. (iii) They should be realistic or feasible (achievable). (iv) They should be set for the entire organisation, and also for departments and groups. (v) They should be clearly defined and precisely stated. (vi) Long-term and short-term objectives should be decided separately. (vii) Primary and secondary objectives should be stated separately. (viii) They should be expressed in quantitative and qualitative terms.

3. Setting Planning Premises Once objectives are determined, the next step is to set planning premises. Planning premises are planning conditions. All managerial plans are based on certain assumptions, estimate or projection of the future occurrence of events. They are essentially the planning limits. Planning premises are indication of movement or trend of various variables during the plan period, and accordingly, the manager can plan to minimize the adverse impact of these variables. Success of planning depends on the ability of the manager to set premises correctly and accurately. Planning premises are of two types—external planning premises and internal planning premises. External planning premises are external to organisation and are more influential while internal premises are internal conditions, and are relatively controllable. Table 4.1 shows main planning premises: TABLE 4.1 Types of Planning Premises: External Planning Premises

Internal Planning Premises

(i)

Political stability

(i)

Resource abilities

(ii)

Government policies

(ii)

Basic policies, procedures, etc.

(iii)

Government approach toward business

(iii)

Organisational structure

(iv)

Demographic factors

(iv)

Sales forecasting

(v)

Socio-cultural changes

(v)

Capital investment, etc.

(vi) (vii)

Technological factors

(viii) Demand forecasting (ix)

Natural calamities

(x)

Competition, etc.

4. Identifying Alternatives After predicting the future environment, a planner tries to search for possible and feasible alternatives. It is obvious that the objective can be achieved in variety of ways. Different ways, solutions, methods, or options used to achieve a particular objective can be said to be alternatives. For example, profit is one of the primary objectives, which can be

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achieved by various alternative actions, such as developing a new product, increasing sales, reducing costs, making distribution effective, and so on. This step calls for undertaking the following two sub-steps: (i) Searching for Alternatives: A manager, by using possible and affordable sources of information, tries to find feasible alternatives through which goals may be achieved. In short, a comprehensive list of alternatives is prepared. (ii) Scrutinizing of Alternatives: Number of alternatives is reduced by using appropriate preliminary criteria (or standards) so that the most promising alternatives can be retained for detailed analysis. The preliminary criteria may be demand, investment required, technological requirements, location, government rules and restrictions, etc. Irrelevant alternatives are rejected at the initial stage and the planner concentrates only on remaining promising alternatives. This can save time, efforts, and money.

5. Evaluating Alternatives This step deals with evaluation of alternatives. Attempts are made to evaluate the contribution of each alternative to the achievement of objectives in light of resource capacity and constraints. It is quite obvious that each alternative has its plus and minus points. Analysis requires relevant, adequate, and reliable data regarding alternatives under consideration. A manager has to analyse a large number of factors to measure attractiveness of each alternative.

Criteria or Factors Most common criteria or factors used for evaluation include: (i) Demand (ii) Profitability (iii) Availability of other inputs (iv) Degree of risks and uncertainties (v) Capital investment (vi) Technology (vii) Gestation period (viii) Competition (ix) Government rules regulations, and restrictions Note that the step involves only detailed analysis, and not the selection of alternatives. Suitable statistical techniques and models are used for the purpose. Recently, computer-based packages (software or programmes) are also available for analysis of alternative courses of action.

6. Selecting Best Alternative(s) In this step, comparison is made among alternatives to judge which alternative has the maximum capacity to contribute in actualizing the firm’s objectives. Various mathematical and statistical techniques are available to facilitate selection of the suitable alternative. At present, the use of computer is very common for multiple calculations. Professional experts may be consulted for selection of the alternative. Sometimes, two alternatives produce the same results. In that case, the manager can select any one on the basis of further research and analysis, or by using common sense. Past experience of manager plays a crucial role at this stage. Selected alternative is considered as plan.

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7. Formulating Secondary Plans Prior to implementation of the plan, secondary or supportive plans are also formulated. They are also known as derivative plans. They support in implementing the main plan. These secondary plans may include: (i) (ii) (iii) (iv) (v)

Purchasing of necessary equipments and raw materials Recruitment and training of required staff Making contracts with other parties Making provision for long-term capital and working capital Formulating policies, rules, procedures, and so on.

8. Implementing of Plan and Reviewing of Results Now, the plan is put into practice. Virtually, planning process ends with the selection of an alternative course of action. But, an effective plan has no value unless implemented. Therefore, implementation of plan can be treated as an integral part of the planning process. Sequence of activities is established for effective implementation. Implementation includes one or more of the following activities: (i) (ii) (iii) (iv) (v)

Communicating with all departments concerned Assigning of work and delegation of authority Allocation of resources and preparation of budgets Integrating and directing efforts Monitoring, measuring, and correcting performance

Review of results calls for verifying whether the plan has been formulated and implemented successfully. At the right interval, the plan is reviewed against expected contribution. If it is observed that the plan has been implemented successfully and is achieving objectives, further actions are not necessary. But, in case of serious deviation between what is and what aught to be, necessary actions are to be taken.

PLANNING PREMISES Planning is based on premises. Planning premises are planning conditions under which planning activities can be undertaken. Planning premise can also be called planning assumptions. They refer to the estimates or projections of the future occurrence of events.

Types of Planning Premises Planning premises are of two types—internal planning premises, and external planning premises. Internal planning premises are internal to the organisation and relatively controllable. They include organisation’s policies, its structure, resources, and ability of organisation to stand in external environment. On the other hand, external planning premises represent external uncontrollable forces including political, social, technological, competitive, etc. They are concerned with external business environment. They tend to be more uncertain, difficult to control, and have tremendous impact on performance of business enterprise.

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Internal Planning Premises The main internal premises are discussed below: 1. Resource Abilities: Planning is a tool to achieve the desired goal by using available resources. Resources include all inputs and facilities, like money, land, time, technology, human skills, and so on. Quality, quantity, and availability of resources have direct impact on the plan. Manager has to think about resource condition for the plan period while formulating the plan. 2. Basic Policies, Rules, and Procedures: Policies, rules, procedures, etc., are designed to facilitate achievement of objectives. Here, the important question is whether the current policies, procedures, rules, strategies, etc., continue in the same form. If they are to be changed, to what extent they would undergo change. Plan must be prepared to fit basic policies, rules, and procedures. 3. Organisation Structure: Organisation structure consists of interrelationships among various positions in both directions—horizontal and vertical. Planning process and organisational structure are both closely related. Entire planning and its implementation are affected by type of organisational structure. On one hand, planning must be prepared to suit the current structure of organisation. On the other hand, if any change is expected in the structure during plan period, plan must incorporate the change. Besides, informal organisation is also an important issue in this regard. 4. Sales Forecast: Sales forecast limits planning. Especially, short-term plan is prepared on the basis of sales forecast. Sales forecast shows estimates of production, sales, costs, revenue, and profits. All these aspects are critical in plan formulation. However, exact forecast is not possible. 5. Capital Investment: Long-term investment restricts every decision. Capital investment is irreversible decision. Money is blocked as long as the investment lasts. Capital invested in patents, plants and machinery, and other long-term investment limits planning activities. Plan must be prepared to suit long-term investment.

External Planning Premises

The important external planning premises are discussed

below: 1. Political Stability: This is a powerful factor affecting planning. The manager must plan keeping in mind the degree of political stability. Each political party has its own philosophy and approach toward business community. This may create threats or offer opportunity. Any type of expected change in political scenario must be reflected in the plan. 2. Government Policies: Government’s economic policies, like industrial policies, agriculture policies, export-import policies, and fiscal and monetary policies, are important considerations. Plan should be prepared as per the existing government policies. In the same way, any change that is expected to take place during the plan period should be considered. 3. Government Approach towards Business: Government, approach toward business reflects to what extent the government facilitates business activities, how far industry is given priority over other sectors. In case a particular industry is given priority, businessmen find it comfortable to run that business and vice versa. So, the plan should be prepared as per government’s approach toward business.

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4. Demographic Factors: Demographic factors are related to population. They includes population growth rate, mobility rate, general trend, density, education, composition, social classes, and so on. Population trends affect business in a variety of ways. 5. Socio-cultural Changes: Any business unit has to operate within the society. Hence, overall social and cultural environment is an important consideration while planning. Socio-cultural environment involves a number of social and cultural factors, such as social classes, family system, fashion, life styles, religions, customs, beliefs, values, and so on. These factors affect business operations tremendously. Plan must be formulated in light of socio-cultural environment. 6. Inflation or Price Rise: Price rise affects both inputs and outputs of business. Plan should be prepared differently during inflationary and deflationary situations. Inflation affects purchasing power of market on one hand, and costs of production on the other hand. It is powerful factor determining profit margin. 7. Technological Factors: Technological factors mainly include current technology, its availability, rate of technological innovation, degree of technological transfer among nations, etc. Technological factors affect favourably or unfavourably depending upon the ability of the organisation. Plan should be formulated keeping in mind overall current and future technological picture. 8. Market Trend: Market-related factors are extremely important to consider while planning. They include industry demand, degree of product differentiation, market share, competition, innovation, distribution system, infrastructure, availability of raw materials, fashion, consumerism, legal restrictions, and so on. These factors must be fully reflected for the plan to be effective. 9. Natural Calamities: Natural calamities, like heavy rains, floods, tsunami, draughts, earthquakes, epidemics, etc., create both opportunities as well as threats for the company. Plan must be prepared in such a way that adverse impacts of the calamities are minimised, and opportunities, if any, materialised. Likewise, man-made calamities, such as communal riots, war, strikes, and sabotages have notable effects on planning. In short, plan should be formulated in light of natural and man-made calamities. 10. Other External Premises: There can be more factors limiting planning activities. Alongwith the main factors discussed above, the manager has to keep in mind other minor factors listed below: (a) Competition (b) Global economic conditions (c) National income (d) Availability of natural resources (e) Capital availability (f) Local administration, etc.

COMPONENTS OF PLAN OR TYPES OF PLAN Types of plan are also referred to as elements, parts, or components of plan. Each component is an individual plan. They jointly constitute the broad plan. They can also be called sub-plans.

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Plans may be standing plans (used repeatedly), also known as multi-use plans, or may be ad hoc plans (used only for once), also known as single-use plans. Objectives, strategies, policies, rules, and procedures are multi-use plans. They are longterm plans and are related to the entire organisation. They fit with any type of situation and work. On the other hand, programmes, budgets, schedules, projects, methods, etc., are single-use plans. They are non-recurring in nature. They are short-term plans and are related to specific aspects of the organisation. Figure 4.2 depicts main components of a plan.

1. Objective

Objective is the most basic type of plan. All other plans depend on it. Normally, a company has more than one objective. Several objectives can be arranged according to their relative importance/priority. It can be defined as the end expected result to be achieved within the definite time period. Every objective can be expressed in relation to time. It is to be achieved at the end of the plan period. Other terms closely related to objective are mission, goal, purpose, aim, and target. Though not exactly similar, they have same implications.

FIGURE 4.2 Components of Plan Planning is objective-oriented. It shows the way and direction to apply efforts. Objective may be profitability, service to society, consumer satisfaction, market leadership, or employees’ loyalty. It may be long-term or short-term, organisational or departmental, for a group or an individual, financial or non-financial, or may be quantitative or qualitative. It is concerned with the ‘why’ aspect of planning process.

2. Policy

Policy is also a plan. According to Koontz and Weihrich: ‘‘Policies are general statements or understandings which guide or channel thinking, in decision-making, of subordinates.’’5 More clearly, it can be defined as: A general statement that guides thinking and action in decision-making. It is standing or multi-use plan. It is a general guideline that subordinates

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have to follow while working and responding. Objectives are to be achieved within the policies specified. Policy defines and confines the limit of employees’ behaviour. Employees are bound to work within the framework of policy. It is a ready-reference to any problem. Policy allows discretion as different people may interpret a particular policy differently. Each organisation has its policy on recruitment, promotion, sales, quality, authority, delegation, reward and punishment, and so on. Policies must be carefully formulated and strictly implemented. Overall performance depends on sound policies as they facilitate quick decision and modification. They are used to maintain uniformity of actions and coordination of efforts among employees. Sound policies promote creativity by permitting efficient people to apply their innovative ideas.

3. Procedure Procedure is a multi-use plan that establishes methods for carrying out future activities. George R Terry defines: ‘‘A series of related tasks that make up the chronological sequence, and the established way of performing the work to accomplish objectives.’’6 Thus, it specifies the way or manner to perform work in relation to time. It shows chronological sequence or order of actions required for achievement of objectives. Procedure guides how and when work can be performed. In this sense, it is operational guideline. It shows the way to implement policy. But, it is more specific and does not allow discretion. A firm formulates procedures for purchasing, selection of employees, conducting meetings, grievance handling, and solving customers’ and dealers’ problems. It is concerned with ‘how’ and ‘when’ aspects of planning process. Procedure is important for control as well as coordination. It is a planned chronological sequence of steps to a perform repetitive work in a uniform and consistent way. Note that method is not equal to procedure. It is a part of procedure and it specifies the mechanical way to carry out the operation.

4. Rule

Rule means order. Work cannot be done against rules. It is prescribed or specific guideline, which is compulsory to be followed without discretion or judgment. Rule allows no difference, deviation or desecration. Rules are more specific (definite) and rigid. For example, ‘no smoking,’ ‘uniform is compulsory,’ ‘no entry without permission’ are rules that are applicable to all and have specific implications. Thus, rules are specific guidelines for action. They involves element of authority (force or compulsion). They provide definite actions to be taken with respect to situation. Rules are essential for controlling behaviour of employees. Note that rules contain provision of punishment in case people fail to comply. Every organisation makes general rules and each department can make its own rules within limit of general rules. Rules should be carefully formulated and should be fully communicated to the employees. They are not meant for punishing others, but are aimed at maintaining regularity, discipline, and order. Rules once formulated and implemented must undergo necessary modifications from time to time as according to the situations.

5. Strategy

Strategy is a military term. It is also frequently used in sports and games. It is forward looking and its formulation is duty of top management. With reference to business, it is used to tackle competition and complexities. Strategy is concerned with taking actions against opposite army (in business, against competitors). Business strategy can be defined as a

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broad programme/plan for defining and achieving objectives and organisation’s response to the environment over a time.’ Thus, strategy covers two broad aspects; the first is defining clearly the goals and the ways to achieve them, and the second is to determine response pattern (action plan) of organisation with outside business environment, especially with competition. Strategy is a long-term plan that determines survival and growth of any business concern. In today’s competitive business environment, sound strategy has critical role to play. This term has been described later in the same chapter under the title ‘Strategy Formulation.’

6. Budget Budget is a plan or statement showing expected or estimated results expressed in numerical terms for the definite future period. It is ad hoc or single-use plan. It contains anticipated operating results over some future period of time. It provides a base for measuring, comparing, and controlling performance. And, hence, it is used for planning, coordination, and controlling purpose. Budget may be prepared for entire organisation or part thereof. Similarly, it is prepared for functions or activities. It may be in terms of time, money, units, or otherwise. Budget is planning as well as controlling technique. Larson and Toubro ’s Annual Budget for Social Projects Larson and Toubro (L&T) spends around Rs 5 crore annually on various social projects, such as healthcare, birth control, mother and child care, and camps for tuberculosis and leprosy. L&T runs the Life Line Express, the world’s first-ever hospital on rail. It also extends assistance to source seeds, improves social quality, encourages dairy and poultry development, and promotes afforestation, biogas plants and smokeless chullahs. Most of the leading Indian companies prepare their annual budget for social welfare.

7. Schedule Schedule is concerned ‘when’ and ‘how long’ aspects of planning. It specifies the time period to complete the work and achieve the objective. It shows when to start the work and when to end. It is a tool for time management. It is a process of establishing a time sequence for the work to be performed. It is a time-table for work to be completed. It ensures continuity and regularity, and avoids unnecessary delay. Different schedules are prepared for different types of works. It is also a useful tool for coordination and control.

8. Project Project is also a single-use plan. It is in form of special assignment and calls for temporary arrangement to complete specific task, or to achieve specific objectives within the given time. It is designed and executed in a distinct pattern. It specifies definite purpose, functions, resources, and time limit to complete the specific work. A number of projects are undertaken during long-term plan. For example, to develop a new product is treated as a project. In the same way, to integrate/connect different branches and offices by computer network is also project. Normally, project is separated from normal-routine (day-to-day) work and separate arrangements are made. Effective coordination, close supervision, and strict control of several integrated activities determine success of any project.

9. Programme

Programme is concerned with integrated actions containing entire range of activities designed to realise a predetermined objective. It is a broad scheme to deploy all the resources for a specific purpose. A programme is prepared with reference to other components of plan. Thus, a programme is combination of objectives, rules, policies, procedures, budgets, etc., because it is prepared in the context with these components. Programme specifies:

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(i) Target to be achieved (objectives) (ii) Task to be performed (type of activities or projects) (iii) Guideline to be followed (policies) (iv) Definite norms to be observed (rules) (v) Steps to be followed, methods and tools to be used, resources to deployed (procedures) (vi) Firm’s long-term reaction patterns with environment (strategies) (vii) Time limit to complete the work (schedules) (viii) Fund to be spent (budget) In this sense, programme is a major type of plan that incorporates all sub-plans. All these plans ensure coordination among various departments. Programme is, to some extent, similar to project. A project is distinct bunch of functions and facilities for definite purpose and specific time. Separate, special, and temporary arrangements are made for completion of any project in given time.

IMPORTANCE (NEED) OF PLANNING Importance of planning has increased manifold in today’s complex, large, dynamic, and uncertain business environment. The organisation can interact with its environment successfully with the help of efficient planning. It is due to planning that a manager is wellequipped (or well-prepared) to meet any kind of challenge. Following points explain direct contribution of planning:

1. Basic Function Planning provides a base for other functions of management. Every function is affected by type and nature of the plan. The entire process of management depends upon planning. Similarly, success of each function largely depends on planning. Thus, it is the primary function of management.

2. Focus on Objectives Planning primarily focuses on objectives and directs actions to achieve them. It defines objectives more meaningfully with clarity and precision. Due to clarity in objectives to be achieved and actions to be taken, the organisation can enforce managerial actions successfully. 3. Reduced Uncertainties and Risks

Planning is proactive. Actions are taken before things happen. This reduces risks and uncertainties. Since planning is based on systematic estimates of the future occurrence of events, a manager can reasonably project the future trend. Accordingly, he can devise the means and take precautions in advance. Manager is in position to take actions more accurately and precisely. It has direct positive impact on overall performance of the organisation.

4. Better Coordination

Coordination is the soul of management. Higher coordination is the fundamental condition for satisfactory performance of any business enterprise. It ensures meaningfully integrated efforts towards achievement of goals. Planning integrates all the activities and resources of the organisation; the various departments are made to work as per

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overall plan. Well-considered overall planning brings unity among interdepartmental activities. As planning considers all the departments of the organisation, estimates their needs, and prepares general policies and rules for the entire organisation, it automatically leads to better coordination. In the same way, it also helps to coordinate efforts of organisation with external events and processes.

5. Improved Operational Efficiency

Efficiency implies ability of the organisation to achieve objectives with fewer efforts, less costs, and within time. Planning can also contribute directly to improve overall efficiency. It focuses on objectives, establishes priority, achieves goals within given resources, ensures maximum contribution of each of the units, and maintains balance among various activities. Analogously, planning brings exactness in every operation. These positive outcomes of planning can result into improved operational efficiency.

6. Easy Implementation of Change

Planning is important for identifying and implementing essential changes. By constantly responding to business environment and welcoming the desired changes, the organisation can enjoy attractive opportunities. This is necessary for growth and development on a continuous basis. Planning is based on the future estimates, forecasting depends upon scanning of future environment. Advance knowledge provides enough time and freedom to prepare for forthcoming changes. Manager finds enough time to prepare for tomorrow’s challenges and threats. In short, planned intervention is fundamental way to bring about the change successfully.

7. Base for Controlling

Planning and controlling are interrelated and interdependent. Planning is the base for controlling. Controlling involves measuring and comparing actual results with the planned results (often known as expected results or standards) which are determined during planning. Planning states standards, on which controlling function can be performed. Controlling without planning is not possible.

8. Others Apart from the points mentioned above, the role of planning can also be described with reference to the additional points stated below: (i) Planning ensures smooth and undisruptive functioning of organisation by making required provisions in advance. (ii) It brings economy by economic use of resources, avoiding duplication, minimising mistakes, reducing wastages, proper examination of all activities, etc. (iii) It provides clarity and precision (exactness) in authority, responsibility, status, rules, and so on. (iv) It maintains balance and consistency amongst all activities. (v) It helps tackle increasing complexities. (vi) It encourages creativity and innovation. Planning formulation permits people to apply their creative skills and capabilities. (vii) It increases competitive strengths of the organisation.

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STRATEGIC PLANNING What is Strategy? The concept of strategy is an ancient one. James Stoner explains the term in relation to military action. The term ‘strategy’ comes from the Greek word ‘strategeia’, which means the art or science of being a general (military head). The Greeks knew the importance of generalship in winning and loosing battles. An effective general needs to define the purpose of leading an army, winning and holding territories, protecting areas from invasion, wiping out enemies, and so forth. Each kind of strategy requires different deployment of resources and different programmes. Likewise, an army’s strategy can be defined as the actual pattern of action that it takes in response to the opposite army.7 Thus, strategy involves both planning components and action components in light of the opponent/enemy.

Definitions of Strategy Strategy has been defined as under: William F. Glueck: “A strategy is unified, comprehensive, and integrated plan relating the strategic advantages of the firm to the challenges of the environment. It is designed to ensure that the basic objectives of the enterprise are achieved.”8 James Stoner: “Strategy is the broad programme for defining and achieving an organisation’s objectives, and determining organisation’s response to its environment over a time.”9 The definition has two perspectives. First, strategy is a broad programme for defining and achieving organisation’s objectives and its implementation. Broad programme indicates active, conscious, and rational role of the manager in formulating strategy. Second, strategy is concerned with a pattern of organisation’s response or reaction to its environment. It shows organisation’s interaction with its environment. Further, we can define business strategy as: A broad plan (including defining and achieving of objectives and determining reaction to competition) prepared in light of the current and likely—the future—competitors can be referred as strategy or strategic plan.

Definitions of Strategic Planning

Thus, strategy is a specific plan prepared to respond effectively to the firm’s competitors. A long-term plan prepared to deal with competitors is strategy or strategic plan. It involves conscious, active, and rational programme to define and achieve objectives, and determining response to its environment. Active strategy formulation can be called strategic planning. In other words, strategy formulation is similar to strategic planning. Strategic planning and operational planning are different. In fact, operational plans are undertaken in light of strategic plans. Koontz and Weihrich: “Strategic planning means to analyse the current and expected future situation, determine the direction of the firm, and develop means (resources) for achieving the mission.”10 In simple words strategic planning can be defined as: The process consisting of determining long-term objectives of the business enterprise, and preparing broad programmes to achieve these objectives. Thus, finally, we can state: Strategic planning involves long-term, conscious, active, and rational programme to define and achieve objectives, and determine response to the environment. The active

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strategy formulation can be said as strategic planning. Strategy formulation is similar to strategic planning. Alike strategy, strategic planning has two perspectives. The first perspective is the strategy involves broad programme for defining and achieving organisation’s objectives and its implementation. Broad programme indicates active, conscious, and rational role of a manager in formulating strategy. The second perspective is concerned with a pattern of organisation’s response or reaction to its environment. It shows interaction of organisation with its environment. This task is performed by the top-level management.

Features of Strategic Planning Strategic planning comprises the following features. 1. It is the function of top-level management. 2. It is based on long-term future premises. 3. It is a broad or comprehensive programme that takes into account a large number of the past, present and future variables. It is concerned with the entire organisation. 4. It involves defining and achieving long-term objectives. 5. It determines company’s survival and growth. 6. Environmental analysis is the key consideration in strategic planning. 7. Strategic planning determines organisation’s response to its environment. 8. This plan is prepared in relation to competitors or rivals. 9. It is a base for preparing operational plans. Operational plans are prepared to support strategic planning. 10. It is prepared on the basis of resource ability of the organisation.

Strategy Formulation or Strategic Planning Process Clearly, strategy it is not simply decision-making, but it is also implementation of decisions in context with the environment. James Stoner and Edward Freeman11 have suggested nine steps in strategy formulation. With a little modification, steps have been described below:

1. Goal Formulation Goal formulation is a vital step in initial process of strategy formulation because the goals selected require the large resources and control over the activities of the orgainsation. It includes reviewing and understanding the organisation’s purpose, defining mission, and establishing the objectives that translate the mission into current terms. Goal setting is the responsibility of top management. At this level of strategy formulation, a manager should try to balance management values and social responsibility. Goals must satisfy the needs of the organisation without sacrificing society’s long-term interests and welfare. 2. Identification of Current Objectives and Strategy Once organisation’s goals have been defined and translated into concrete objectives, the next task is to verify existing or current objectives and strategy. It is essential to find out if newly defined goals and objectives are

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similar to the existing ones. It guides about the extent to which changes are to be implemented. It implies that there is need to study what we are doing (i.e., current strategy) and what we aught to do (i.e., new proposed strategy). The step is more relevant to existing business enterprises.

3. Environmental Analysis This step calls for scanning or analysing of relevant environment. On the basis of knowledge of goals and existing strategy, it is easy for a manager to scan different aspects of business environment. Environmental analysis helps the manager to predict indirect influence of economic, technological, socio-cultural, and political/legal environment on the organisation, and the ways in which competitiors, suppliers, customers, government agencies, and others can directly influence it. All these factors determine organisation’s strengths and weaknesses. A manager should prepare a list of critical factors using reliable sources, like customers, suppliers, trade publications, trade shows, research agencies, and so forth. On the basis of environmental analysis, reasonable prediction of early changes is possible. Hence, the manager finds it easy to propose an action plan in advance. 4. Resource Analysis First three steps provide a framework (a base) for analysing the resources. Resource analysis is necessary to identify the organisation’s competitive advantages and disadvantages. It determines the strengths and weakneses of the organisation with reference to the present and future competitors. Typically, following four steps are suggested for analysing resources: (i) Developing Resource Profile: Develop a profile of the organisation’s principal resources and skills in three broad areas, such as financial resources, physical, organisational and human resources, and technological resources. (ii) Determining Resource Requirement: Determine the key success requirements (what and how much resources are required) of product/market segment in which the organisation competes or might compete. (iii) Comparing Resource Profile with Requirement: Compare the resource profile to the key success requirements to determine the major strengths on which strategy can be based and the major weaknesses to be overcome. (iv) Comparing Resource Capacity with Competitors: Compare the organisation’s strengths and weaknesses with those of its major competitors to identify which resources and skills are sufficient to yield competitive advantages.

5. Identification of Strategic Opportunities and Threats

Steps second, third, and fourth pave the way for the manager to identify of strategic opportunities and threats. Opportunities and threats arise from constant change in environment. It is essential to predict opportunities and threats by analysing business cycle and current business trends. Forecasting has a long way to contribute in this context. A manager needs intuition, creativeness, and ability to probe the future to estimate about market trends, technological changes, and legal and political movements. Strategic plan is prepared to exploit these opportunities and to tackle the threats. A situation can be an opportunity or a threat depending upon the firm’s objectives and overall capabilities. If needed, external management experts or consultants may be consulted for their comments.

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6. Determination of Extent of Required Strategic Change

This step deals with forecasting the results of existing strategy. On the basis of such forecasted results, a manager can decide whether or not to modify the strategy or its implementation. The decision should be based on level of performance gap. Performance gap can be referred as: The difference between the objectives established in the goal formulation process and the results to be achieved if the existing strategy is continued. If existing strategy is followed, what is the possibility that desired result can be achieved? When there exists no gap, or a negligible gap, no major change is made in the existing strategy and its implementation, and vice versa. The gap exists when: (i) (ii) (iii) (iv) (v)

More difficult objectives are selected Strong reactions or response of competitors Unexpected change in business environment Loss of key resources Failure to implement strategy

7. Strategic Decision-making Obviously, when performance gap is considerably more, a change in strategy appears necessary, even inevitable. This step consists of three sub-steps: (i) Identification of Strategic Alternatives: There are various alternatives capable of closing the performance gap, like entering a new market, reduction in costs, improved quality, effective promotion and distribution, and so on. Depending upon the level of change to be made, alternatives should be identified. Only compatible alternatives should be included. (ii) Evaluation of Strategic Alternatives: The strategic alternatives identified are evaluated to find out which are more promising. Evaluation consists of measuring the advantages of each of the alternatives over competitors. Various standards are set for the purpose. (iii) Selection of Strategic Alternative(s): A manager should select such alternatives that are best suited to the organisation’s capabilities. Successful strategic plans utilise the existing strengths of the organisation. It is advisable that the alternatives that work within resources are selected.

8. Strategy Implementation Once strategy has been selected, it must be incorporated in the daily operations of the organisation. It must be translated into tactical plans, programmes and budgets. LM Prasad notes: “Strategy implementation is a process through which a chosen strategy is put into action. It involves the design and management systems to achieve the best integration of people, structure, processes, and resources in achieving organisational objectives.”12 The foremost requirement is to communicate various aspects related to strategy implementation to the departments whose active role is necessary. All concerned departments and personnel should be prepared for successful implementation and their efforts must be integrated. Strategy implementation requires following actions: (i) Putting strategy into operations (ii) Creating proper organisational climate (iii) Formulating tactical or operating plans

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(iv) Developing suitable organisation structure (v) Monitoring and periodical review of strategy

9. Measurements and Control of Progress

Now, a manager must check the progress against strategic plan periodically, or at critical states, to assess whether the organisation is moving towards its strategic objectives. Two issues are important to stress; the first is to see whether the strategy implemented is as per plan, and the second is, whether the strategy implemented is achieving intended results. It is critical to monitor ongoing performance. If it is observed that everything is going as per plan and the organisation is doing well in relation to the objectives, there is no need do anything except to continue. But, in case, if it is found that performance is not as desired, it is a serious concern and immediate necessary actions should be directed to avoid further deterioration.

CORPORATE PLANNING Planning can be undertaken at various levels of the organisation. It may cover the entire organisation, or part of it. Corporate planning is prepared by top level management and it covers the entire organisation. It is common plan for all departments (functions), divisions and sections of the organisation. In common parlance, we can define it as: Corporate planning is undertaken at organisation/corporate level. It is prepared by top level management that focuses on long-term objectives. It must be clarified that, though conceptual difference exists, in management literature, corporate planning, strategic planning, long-range planning, and, even, strategic management are closely related, interdependent, and can be used interchangeably. All these plans focus on long-term objectives and response to the environment. Strategic plan may be prepared for any area of the organisation; corporate plan is always for the entire organisation. Strategic management implies observing strategic elements in every function of management. Mostly, corporate plan is based on the long-term strategic considerations. David Hussey defines corporate planning as: “Corporate planning includes the setting of objectives organising the work, people, and system to enable those objectives to be attained motivating through the planning process and through the plans, measuring performance and controlling progress of the plan, and developing people through better decision-making, clearer objectives, more involvement, and awareness of progress.”13

Characteristics of Corporate Planning:

The characterstics of corporate planning have

been listed as under: (i) Corporate planning is prepared for the entire (covering all divisions, departments, and sections ) organisation. (ii) It s a long-term planning. (iii) It is prepared comprehensively, incorporating all relevant internal and external aspects. (iv) It specifies the ways to implement planning. (v) It is prepared by top level management with due discussion with departmental heads.

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(vi) It involves a huge outlay. (vii) It follows a systematic and lengthy process. (viii) Functional plans are prepared in connection with the corporate plan.

OPERATIONAL PLANNING Operational planning also known as short-term or tactical planning is usually prepared for one year and is concerned with routine or operational activities. It is prepared to carry out day-to-day activities of the organisation. However, it is prepared in accordance with strategic planning. Virtually, strategic planning involves a number of operational plans. Such plans are used by the executives working at operating level of the organisation. Operative managers prepare operational plan to achieve annual objectives. LM Prasad defines operational planning as: “Operational planning is the process of deciding the most effective use of the resources already allocated, and to develop a control mechanism to assure effective implementation of the actions so that organisational objective are achieved.”14 There are various types of operational plans. The examples of operational plans are single-use plans like budgets, programmes, projects, methods, etc.

DIFFERENCE BETWEEN STRATEGIC AND OPERATIONAL PLANNING Strategic planning differs from operational planning in a number of ways. The key differences between them are given in Table 4.2. TABLE 4.2 Difference between Strategic Planning and Operational Planning Key points

Strategic Planning

Objective long-term goals.

Operational Planning Objective is to carry out routine or day-to-day activities effectively.

Duration

It is long-term planning. It is usu- It is obviously short-term planning. ally for more than one year. The duration may be one year or less.

Scope

It covers the entire organisation. It has limited scope. It is prepared It covers all key aspects of the or- for particular aspects or functions ganisation which have long-term to support strategic planning. implications.

Need of environmental analysis It requires a detailed analysis of No need to scan overall business broad business environment. environment. It is prepared as per strategic planning. Costs

Strategic planning is compara- Operational planning is less extively expensive, it involves huge pensive. outlay.

Contd.

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Operational Planning

Responsibility

It is the responsibility of top-level It is the responsibility of middle management and special staff. level management, and is prepared by operating managers with the help of staff.

Type of Environment

It is prepared in light of broad ex- It is prepared in light of internal orternal business environment. ganisational environment.

Action

This plan is aimed at determining This plan is aimed at effective use organisational response to its ex- of organisational resources. It supternal environment over time. ports strategic planning.

Nature

It is complex in nature and uses It is simple in nature and uses simsophisticated techniques. ple techniques.

Resources

Strategic plan considers existing Mostly, it considers existing reand future resources. sources only.

Proactive

Strategic planning is always pro- Operational plan may or may not active. be proactive.

MBO—MANAGEMENT BY OBJECTIVES MBO is an important concept and is primarily concern with planning function of the management. MBO is objective-based management system and is treated as management philosophy as well as approach. Many Indian companies have attempted to test the philosophy in practice. (For more details, refer Chapter 13, part II: ‘New developments in Management’.

Limitations of Planning Planning is a primary function of management. Success of a business enterprise depends on planning. However, manager cannot prepare and execute plan successfully due to certain practical problems. These problems can be referred as planning limitations, obstacles, barriers, or constraints. A manager must be aware of such barriers to take necessary precautions against them. Taking into account the views of LM Prasad,15 with little modifications, major limitations to effective planning have been discussed below:

1. Problem of Rapid Change

External business environment is complex and tends to be dynamic (rapidly changing). Exact estimates of the future trends seem impossible. If we don’t know what will happen, we cannot take planned actions successfully. In such a situation, possibility of committing serious errors cannot be ruled out.

2. Problem of Setting Premises Planning depends on the future estimates (premises) of happenings of a large number of environmental events. Despite making all possible efforts, planning premises cannot be accurately set. Due to unstable and uncertain environment, to estimate the future trend seems not only difficult, but impossible. It is, particularly, true in case of long-term planning that requires probing the distant future. If premises turn different

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than estimated, planning cannot serve the purpose. All future problems cannot be perfectly predicted. For example, Reliance’s gigantic refinery project at Jamnagar (in Gujarat) was seriously damaged due to stormy rain (i.e., unexpected natural calamity) in 2003-4.

3. Problem of Internal Inflexibilities

Organisation’s internal conditions (variables) or settings can create practical problems in plan formulation and its implementation. In order to exploit the future opportunities and to face the challenges, internal conditions need to be changed. Planning suffers to the extent such rigidities prevail in the organisation. Major internal inflexibilities include: (i) Psychological Inflexibilities: They include emotional problems of employees. In order to cope with the estimated changes, employees need to change. Due to the future uncertainties and their personal inabilities, they may exhibit strong resistance to change. They may not compromise with their needs and priorities. Plan has to be prepared to suit the psychological state of the employees. Consequently, planning task has become increasingly difficult. (ii) Structural Inflexibilities: Structural inflexibilities include current policies, rules, procedures, budgets, authority relations, etc. Once they are established and implemented, they cannot be easily changed (modified or replaced). People are accustomed to work as per the current organisational setup and leave limited scope for necessary alterations. (iii) Capital Investment: Capital investment is long-term in nature. It is irreversible. Once the huge fund is invested in fixed assets, inflexibilities continue for a long period of time. Any attempt to switch such investment to cope with the future changes results into heavy losses.

4. Problem of External Inflexibilities External inflexibilities are uncontrollable and, hence, they constitute a major planning constraint. Obviously, a manager has no control over economic, social, political, and technological variables. Amidst external inflexibilities, it is a challenge for a manager to formulate and implement the plan effectively. These inflexibilities demand more efforts and resources, and pose more uncertainties. Followings are the main factors that generate external inflexibilities for the organisation: (i) Political Climate: Political climate may create favourable or unfavourable situation for an organisation. Political stability and attitudes of ruling political party have tremendous impacts on organisation’s forthcoming operations. Government’s overall economic policies generate inflexibilities. Therefore, a planner has to plan amidst a lot of adversities. Impact of Politics on Business Plan (or Decisions) Tata Motors planned to start its ambitious Nano Car Project at Sigur in West Bengal. But, due to severe protest by NGOs and environmentalists, and political interference, Tata Motors’ project ‘Nano Car’ was inevitably shifted from Singur in West Bengal to Sanand in Gujarat. Legal and political environment does affect business decisions. A planner must analyse legal and political environment to estimate positive and negative impact of such environment on business performance. (ii) Trade Union: Trade unions restrict a planner’s freedom. He has to formulate the plan within restrictions laid down by trade union(s). In some cases, he has to compromise

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with unions’ demand, and has to forgo some promising options and compromise with priorities. Rigid attitude of trade unions blocks progressive plans. (iii) International Business Forces: In the era of globalisation, every manager has to consider global forces and adjust with them. International forces include relations among nations, functioning of international agencies, pace of liberalisation, ecological issues, and so forth. He has to prepare and implement the plan in accordance with international business environment. Manager finds it difficult to incorporate the present and the future global factors while planning. (iv) Technological Inflexibility: Once specific technology is adopted, organisation has to work with the same for a long time. When technology changes, organisation faces a number of problems. It cannot change its technology so frequently and cannot continue with the old technology due to high cost and low competitiveness. It cannot adopt a new one to replace the existing one due to heavy investment and/or liquidation issue. Planner finds no option but to plan within limit of existing technology, which restricts the utility of the plan. Even for a capable firm, it is difficult to forecast technological changes accurately.

5. Problem of Time and Cost Systematic planning consumes considerable time. Manager requires more time for forecasting, searching for the alternatives, evaluating alternatives and selecting the best one, preparing supporting plans, and other planning-related activities. There are two problems. The first is, due to overemphasis on planning preparation, manager cannot perform other functions, and the second is, due to considerable time gap, plan becomes irrelevant in changed situation, i.e., opportunities might have gone or problems might have been solved. Another problem is that planning is costly. Company has to appoint extra staff, pay to other internal and external experts, and make provision for other facilities. However, an organisation cannot spend beyond a limit. Therefore, experts often assert that planning consumes more than what it contributes.

6. Other Constrains Apart from the above limitations, there some minor constraints in planning. They include: (i) Possibility of subjective/biased planning (ii) Problem of top management philosophy, a planner has to plan in accordance with such philosophy (iii) Problem of overprotective approach or aggressive approach to planning (iv) Lack of suitable organisation climate (v) Fear of uncertainties and lack of protection to planner (vi) Difficulty in scaning the environment due to enormous number of variables (vii) Problem of complete consensus among people involved in planning Manager faces a number of practical problems while planning. This doesn’t mean that effective planning is not possible. Proper organisational climate, training to staff, involvement of employees in planning procedure, provision of incentives, continuous (not plan-based or need-based) study of business environment, etc., can help overcome planning limitations to some extent. A dynamic manager must equip himself to formulate and implement the plan in any type of situation.

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SUMMARY Management process starts with planning and ends with controlling. Planning consists of determination of course of action in advance for a specific period. Forecasting and decisionmaking are two components of planning. Planning plays a vital role in achievement of organisation’s objectives. Koontz and O’Donnell define planning as: “Planning is decision in advance about what to do, why to do, when to do, where to do, how to do, and who is to do it. Planning bridges the gap from where we are to where we want to go.” Primary function, thinking process, flexible, pervasive function, choosing process, goal-oriented, future activities, based on premises, continuous process, time-bound activity, integrated activities, and base for controlling are key features of planning. Planning process is a dynamic function. The process consists of eight steps: (1) analysing business environment; (2) establishing objectives; (3) setting planning premises; (4) identifying alternatives; (5) evaluating alternatives; (6) selecting best alternative(s); (7) formulating econdary plans; and (8) implementation of plan and reviewing of results. Planning premise can also be called planning assumptions or planning conditions. There are two types of premises, internal premises and external premises. Internal premises include controllable factors, such as organisation’s policies, its structure of organisation, resources, and ability of organisation while external planning premises represent external uncontrollable forces, like political, social, technological, competitive, etc. Objective, Policy, Procedure, Rule, Strategy, Budget, Schedule, Project, and Programme are key components of the plan. The components are also known as types of plan. Suitable plan plays a critical role in today’s business activities. It contributes to organisation progress in several ways. Modern business plans seem to be strategic in nature. Strategic planning is a process of formulating a broad plan (including defining and achieving objectives and reaction to competition) in relation to current and future competitors. It determines company’s survival and growth. Strategic planning process consists of nine steps, goal formulation, identification of current objectives and strategy, environmental analysis, resource analysis, identification of strategic opportunities and threats, determination of extent of required strategic change, strategic decision-making, strategy implementation, and measurements and control of progress. Corporate planning is undertaken at organisation/corporate level. It is prepared by top level management that focuses on long-term objectives, whereas operational planning is short-term or tactical planning, and is concerned with routine or operational activities. It is prepared to carry out day-to-day activities of the organisation. Plan is not a full-proof tool. It suffers from some obvious limitations. Managers must be aware of these limiting factors.

KEY TERMS Plan and Planning Planning Process Planning Premises Internal Planning Premises External Planning Premises

Objective Policy Rule Procedure Strategy

Budget Project Strategic Planning Corporate Planning MBO

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EXERCISES Objective Type Questions A. Answer the following: 1. Which are the two important facets of planning? 2. Write five internal premises. 3. State five external premises. 4. Mention five criteria for evaluating alternatives.

5. State any five key components of a plan. 6. What is corporate planning? 7. State any four limitations of planning.

B. Choose the correct option (MCQs): 1. Which of the following statements is true? (a) Planning is a thinking process (b) Planning is a thinking and doing process (c) Planning is a doing process (d) None of the above 2. Planning and controlling are (a) Unrelated functions of management (b) Interrelated and interdependent functions of management (c) Non-managerial functions (d) Similar functions of management 3. What does pervasiveness of planning indicate? (a) Planning is top-level activity (b) Planning is the first function of management (c) Planning can be extended to all levels and every type of activity (d) Planning is the future activity 4. Polices and rules are same. (a) The statement is true (b) The statement is false (c) The statement is confused (d) The statement is interesting 5. Which is an external premise? (a) Organisation structure (b) Organisation’s resource ability (c) Political stability (d) None of the above

6. Which is an internal premise? (a) Structural inflexibilities (b) Political climate (c) Trade union (d) Technological inflexibility 7. Which element of the plan answers ‘why’ aspect? (a) Rule (b) Procedure (c) Schedule (d) Objective 8. Which is referred as the general statement that guides the action? (a) Schedule (b) Rule (c) Policy (d) Procedure 9. Which of the following is concerned with both the ‘how’ ‘and when’ aspects of planning? (a) Procedure (b) Objective (c) Rule (d) Policy 10. Which aspect of plan does the schedule concern? (a) When (b) Where (c) What (d) How

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Descriptive Questions 1. What is planning? What is the difference between planning and plan? Discuss its main characteristics. 2. Describe the planning process. 3. ‘Planning is pivotal in management.’ Comment the statement in relation to importance of planning. 4. Define planning premises. Write a note on external premises. 5. Briefly discuss the main components of a plan. 6. What is strategy? Explain the strategy formulation process.

7. Define strategic planning and operational planning. Differentiate between the two. 8. ‘Planning doesnt always contribute positively.’ Comment on the statement with reference to limitations of planning. 9. Explain: (a) Inter planning premises (b) Procedure 10. Explain the following terms: (a) Budget (b) Objectives (c) Schedule (d) Programme

Assignments 1. The students are assigned to meet managers and find out how they plan their work. Which steps do they follow in actual practice?

2. Students are assigned the project to find out the role of bounded rationality in decisionmaking. They are asked to design a questionnaire and discuss with practicing managers.

REFERENCES 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Lyndall F Urwick, The Element of Administration, Harper & Row, New York, 1944 Billy E Goetz, Management Planning and Control, New York, McGraw-Hill, 1979, p. 229 Harold Koontz and Cyril O’Donnell, Essenitals of Management, TMH, New Delhi, 2001, p. 62 M E Herley, Business Administraion, Prentice-Hall of India, (P), Ltd, New Delhi, 1977, p.198 Heinz Weihrich and Harold Koontz, Management, McGraw-Hill, New York, 1993, p. 145 George R Terry and Stephen G Franklin, Principles of Management, AITBS, New Delhi, 2000, p. 178 James Stoner and Edward Freeman, Management, Prentice-Hall of India, New Delhi, 1989, p.196 William F Glueck, ‘A Fresh Look at Strategic Management,’ Journal of Business Strategy, Fall, 1985 James Stoner and Edward Freeman, op. cit, 198-204 Harold Koontz and Heinz Weihrich, Essentials of Management, McGraw-Hill, New York, 1990, 108 James Stoner and Edward Freeman, op. cit, 198–204 L M Prasad, Principles and Practice of Management, Sultan Chand & Sons, New Delhi, India, p. 203 David Hussey, Corporate Planning: Theory and Practice, Oxford: Pergamon Press, 1982, p. 6 L M Prasad, Business Policy: Strategic Management, Sultan Chand & Sons, New Delhi, India, 2000, p. 29 Ibid., p.156

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ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. Forecasting and decision-making. 2. Resource abilities, basic policies, procedures, organisational structure, sales forecasting, and resource abilities. 3. Political stability, government policies, government approach towards business, demographic factors, and socio-cultural changes. 4. Capital investment, technology factors demand, profitability, availability of other inputs, and degree of risks and uncertainties. 5. Objectives, policies, rules, procedures, and budgets. 6. Corporate planning is undertaken at organisation/corporate level that focuses on long-term objectives. 7. Problem of Rapid Change, Problem of Setting Premises, Problem of External Inflexibilities, and Problem of Time and Cost. B. 1. (a), 2. (b), 3. (c), 4. (b), 5. (c), 6. (a), 7. (d), 8. (c), 9. (a), 10. (a)

CASE ‘Be innovative or get ready to perish’ Company must understand its valued customers and work to meet their expectations. Noted academician and management guru, Peter F. Drucker once said, ‘Innovation and marketing are the only two functions in business.’ According to him, a businessman must understand what his consumers want and keep that innovating on products and methods to satisfy the identified needs. The company that fails to do so cannot survive. Every company needs to peep into the future; estimate the future trends and prepare a systematic plan to incorporate emerging opportunities and tackle challenges and threats. Till the 1980s, there were four major brands of men’s readymade shirts in India. They add at high premium. They were more expensive than stitched shirts with finest Vimal fabrics and by the best tailor in the city. Then, in the 1990s, a number of new brands, like Arrow, Louis Philippe, Van Heusen, and others, entered the Indian market. They changed the dynamics of men’s readymade clothing industry with superfine, non-ironing, multi-ply cotton shirts, priced at more than four times their traditional Indian rivals who were still following their ancient strategies of selling polyester shirts at nominal prices as compared to the new brands. For example, Cambridge shirts were available for a price range of Rs. 500–750 while Louis Philippe shirt cost Rs. 2000 onward. Today, most of the old Indian brands are not perceived as premium brands and are sold at very low price. Another example is of HMT watches. The company failed to implement customer orientation and suffered due to this. HMT watches ruled the Indian wrist watch market almost single handedly till Titan watches arrived on the horizon. HMT watches were sold remote corners of the markets in shops that sold all other brands of watches, cassettes, and so many other items, including electrical appliances. Today, what is the position of HMT watches? HMT made rugged watches of excellent quality but was that what the consumers wanted? Titan could understand the pulse of the consumers. They offered them ornamental watches, or rather bracelets, which would also show time. Obviously, an ornament cannot be sold at a low price. The consumer

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happily pays the higher price and also buys a number of watches to suit his dress, function or mood. Watches, according to Titan, are fashion accessories. Nirma Chemicals is another major success story of the last century. It is not easy to compete against a big and aggressive player like Hundustan Lever (now Hindustan Unilever (HUL)). Nirma made a lowcost detergent and offered it to the rural and semi-urban consumers who were ready to buy an affordable detergent. Still one more example is Tata Nano, major success of this decade. In January, 2008, Tata Motors opened a new chapter in the history of Indian automobile industry. Tata Motors Ltd., India’s one of the largest automobile companies created a history when it launched their dream car ‘Tata Nano’. Ideally called the ‘people’s car’ it was made available for Rs. 1,00,000. It is a small, affordable, rear-engined, four passenger car targeted primarily at the Indian middle class consumers who are presently using a scooter or a motor-bike for family transportation. The chairman of Tata Group, Mr. Ratan Tata dreamt building a small, easily affordable and fuel efficient car for the Indian middle class family. He was inspired by a family of four riding a scooter – the man driving scooter and the wife sitting side saddle holding a little kid and the other kid standing in the front. To him, it seemed a dangerous form of transport as the family was exposed to many kinds of risks. The product concept was, ‘Can we offer an affordable and safe transport for a family of four.’ The rest is history. What lessons can we learn from these stories? Why were these companies so successful in creating history in their fields? The answer is simple. They innovated and offered the consumer what he wanted. Continuous innovation, for example, is the core of Titan’s marketing strategies. It has accepted the fact that the only way to sustain the fashion accessory perception in consumers’ mind is by continuously coming out with new collections. A shining example of Titan’s innovation is Edge – the slimmest watch in the world. These wafer-thin quartz watches, with a thickness of only 3.3 mm, were the result of over four years of development at Titan’s R&D centre. Edge was launched in India in early 2002, and attracted a thunderous response from the market. Peter F Drucker, believed in the statement, ‘innovation drives the company ahead’. Marketing is no more treated like a function but is considered an organisation-wide philosophy that believes that the customers must be at the core of the business. Ability to plan and implement innovation continuously can give the firm lifelong competitive edge. (Source: ‘Be innovative or get ready to perish,’ Article by Prafulla Agnihotri, IIM-C, The Economics Times, Ahmedabad, 6th August, 2010, p.4)

Questions for Discussion 1. What is the role of innovation in today’s business environment? 2. Describe what happened to established readymade shirt producers when some companies entered with good quality apparel at low price? 3. What lessons do we learn from HMT and Titan? 4. Describe the success story of Titan wrist watches? 5. Explain the strengths of Nirma Chemicals? 6. Comment on Peter F Drucker’s quotation in the beginning of the case. What is your advice to today’s managers?

CHAPTER

5

Forecasting and Decision-making Learning Objectives Upon completing this chapter, you will be able to: Define forecasting and explain its features Describe forecasting process Differentiate between forecasting and planning Outline the importance and limitations of forecasting Define decision-making and describe its process Examine some decision-making techniques State key decision-making problems Comment on decision-making approaches and rationality in decision-making

INTRODUCTION Planning involves forecasting and decision-making. While forecasting is concerned with estimating the future events (or making assumption), decision-making is concerned with choosing an appropriate alternative from many alternatives. This chapter describes basic issues related to business forecasting and decision-making.

FORECASTING Forecasting is the process of predicting future happening of events related to relevant business operations. More clearly, it is the process of estimating/projecting behaviour (occurrence)

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of specific future events. It depends on analysis of the past and the present events. Thus, forecasting is an act of looking forward. It is a part of planning because future estimates provide the basis for planning.

DEFINITIONS OF FORECASTING We can define the term as: Forecasting is a process of predicting (estimating or projecting) the future happening of events relevant to business operations by analysing the present and the past data. More specifically: Business forecasting refers to statistical analysis of the past and the current movements of events in a given time to obtain idea about the future pattern of those movements. Thus, we can say, Forecasting is an act of getting the future estimates on the basis of analysis of the past and present data.

CHARACTERISTICS OF FORECASTING The key characteristics of forecasting are listed below: 1. Forecasting relates to the future. 2. It is an estimate of future occurrence of events. 3. It forms a base for planning. 4. It depends on analysis of occurrence of the past and the present events/data. 5. It can lead to assumptions, but can not provide an accurate picture of the future happening of events. It only shows possibility. 6. It is not decision-making, but is a base for it. 7. Statistical tools and techniques are used for establishing relations between the past and present movements of events. 8. Computers and computer-based software are used for estimating the future accurately and speedily. 9. Personal observation plays a significant role in forecasting the future happening of events.

FORECASTING PROCESS Forecasting is the process of obtaining the future estimates based on analysis of the past and present behaviour of relevant events. Normally, the forecasting process involves following steps:

1. Recognising the Need for Forecasting The first step involves deciding on the objective of forecasting.There should be clarity about the need for forecasting and the type and period of required information. 2. Systematic Investigation and Collection of Information Adequate, relevant, and reliable data help in estimating the future events accurately. As per requirement, qualitative and quantitative data are collected from relevant sources using suitable methods.

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3. Forecasting the Events Statistical and non-statistical tools, techniques, and models are used to establish relations between the past and present data. Popular statistical techniques used for the purpose are Regression Analysis, Time Series, Input-Output Analysis, etc. Survey, opinion poll, expert opinion, etc., are the non-statistical techniques of forecasting. If needed, external professional experts are also consulted.

4. Reviewing and Regulating Forecasting Accuracy in forecasting can be judged by comparing the actual and forecasted results. In case of vast deviation between the forecasted and actual results, reasons are detected and necessary actions are taken.

DIFFERENCE BETWEEN FORECASTING AND PLANNING Though forecasting and planning are closely related, there are differences. Table 5.1 shows the key differences between the two. TABLE 5.1 Differences between Planning and Forecasting Planning

Forecasting

1. Planning involves taking advance decisions about Forecasting involves getting the future estimates objectives, task, person, time, place, and method. on the basis of analysis of the past and present data. 2. Planning involves both forecasting and decision- It is a part of planning. It is relatively a narrow making. It is a wider term. term. 3. 4. It involves making advance decisions in several ar- It involves only estimating the future occurrence eas. of events. 5. It is the outcome of forecasting.

It is a base for planning; which is prepared as per the future estimates.

6. It is the task of top level management.

It is the task of middle level management.

7. It involves only company’s top executives.

It may involve outside experts.

8. It contains commitment of action.

It does not contain any commitment.

IMPORTANCE OF FORECASTING Forecasting plays a crucial role in the management process. Most managerial actions are directed toward the future results. Information obtained through forecasting is a key input in planning. Contribution of forecasting in an organisation are discussed below:

1. Promoting the Organisation During the inception stage of the organisation, forecasting is essential. The type and number of activities to be performed to achieve the specific objective depend on the expected outcome of those activities. Expected outcomes depend on the future events. Forecasting provides projected trend of the future environment over a period of time and helps the promoters in decision-making.

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2. Base for Planning Forecasting provides the future estimates (assumptions), often, referred to as the premises. A plan is prepared on the basis of these premises. It projects the future trend, conditions, and circumstances under which a business enterprise has to work. In fact, without forecasting, a plan cannot be prepared. 3. Tool for Coordination and Control

Forecasting is also useful in coordination and control. It is concerned with the internal activities of all departments. It, indirectly, combines efforts of all the departments and helps to establish interdependence among them. In the same way, it is useful for controlling. It provides information to set standards (expected results) against which actual results are compared and deviation is detected. Based on this, corrective actions are taken.

4. Reduced Risk Every business enterprise has to work under the future uncertainties and risks. Though such uncertainties and risks cannot be eliminated completely, accurate forecasting can reduce them. If a manager knows what will happen during a given period of time in the future, he is in a better position to prepare well in advance. Due to advance preparations, adverse impacts of challenges and threats can be minimised.

LIMITATIONS OF FORECASTING Though forecasting is essential for planning, it suffers from certain limitations. 1. Forecasting is based on assumptions. If assumptions are wrong, the estimates are also wrong. 2. Overemphasis on forecasting may be misleading due to the dynamic nature of the environment. Future may not be identical to the present and past behaviour of events. 3. It doesn’t provide absolute truth. It merely indicates projected trend. 4. It involves considerable time and cost. 5. It suffers from personal bias. Objectivity is always doubtful. 6. For a new business, forecasting is difficult because current and historical data are not available. 7. Forecasting may restrict vision of management.

METHODS/TECHNIQUES FOR FORECASTING A number of techniques are used for business forecasting. These techniques can be classified into two broad categories—quantitative, and qualitative. Quantitative techniques include the use of statistical tools for data analysis. Such techniques are used only when quantitative data (in terms of figures or numbers) are available. When quantifiable data are not available, we have to opt for qualitative methods for forecasting the events. Some important quantitative and qualitative techniques have been listed in Table 5.2.

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TABLE 5.2 A List of Forecasting Techniques Quantitative Techniques

Qualitative Techniques

1. Time Series Method

1. Historical Analogy

2. Index Number

2. Business Barometers

3. Exponential Smoothing

3. Panel Consensus Method

4. Extra Polation–Intra Polation

4. Delphi Method

5. Regression Analysis

5. Morphological Analysis

6. Input-Output Analysis

6. Expert Opinion Method

7. Econometrics Models

DECISION-MAKING Planning involves forecasting and decision-making. A planner has to decide on various aspects , like what to do, how to do, when to do, and so on. So, planning itself consists of a bundle of decisions. When more options/alternatives are available, a decision-maker selects the most suitable alternative as the course of action. Note that planning involves a number of decisions, whereas decision-making is related to individual decision. And, this is the reason why we find a lot of similarities between planning and decision-making. It is also interesting to note that decision is not an end result, but it is an attempt towards a desired outcome.

DEFINITIONS OF DECISION-MAKING Decision-making has been defined as under: 1. Harold Koontz and Heinz Weihrich: “Decision-making is a selection of a course of action from among alternatives; it is the core of planning.”1 2. George R. Terry: “Decision-making is a selection of an alternative from two or more alternatives to determine a course of action.”2 3. Kenneth R. Andrews: “Decision-making is a process involving information, choice of alternative actions, implementation, and evaluation that is directed towards achievement of certain selected goals.”3 In simple words, we can define decision-making as: Decision-making is an act of selecting the suitable solution to the problem from various available alternative solutions to guide actions toward achievement of desired objectives.

CHARACTERISTICS OF DECISION-MAKING From systematic analysis of the above definitions of decision-making, the following characteristics can be identified: 1. It is a conscious human process. 2. It is an intellectual process.

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It is basically a selecting process. It is an all level activity. It is both an individual and a group process. It is based on assumptions. It is a part of planning. It is a complex process. It is dynamic in nature. It is not the end result; it is a tool to reach the end.

DECISION-MAKING PROCESS Like planning process, decision-making process is also affected by various relevant factors. The decision-making process may be lengthy and systematic or short and simple, depending on analysis of factors like type of problem, type of people involved in decision-making, time available, etc. Assuming that the problem is routine and conditions are normal, (with a little modification of L. M. Prasad’s views) the seven-step decision-making process can be advocated as shown in Figure 5.1.

FIGURE 5.1 Typical Decision-making Process

1. Objective Specification

Any activity in an organisation is goal-directed. Each decision is targeted toward achievement of the objective. So, the first step in decision-making is to specify the objective of the decision. A decision-maker must know why the decision is to taken. However, many organisations do not consider objective specification as a first step. But it is advisable that a manager has knowledge of organisational objectives so that every decision can be taken in light of the objectives.

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2. Problem Identification In fact, the decision process starts with identification of the problem. A problem is a felt need. It is the indication that there is something wrong with organisation. It shows the gap between the present condition and the desired condition. Every decision is a problem-solving technique, i.e., a decision is taken to solve the problem in hand. Therefore, existence of problem is precondition for decision-making. An organisation may face a variety of problems, such as decreasing sales, reduced profits, employees unrest, etc. Problem identification consists of two phases—diagnosis and analysis. Diagnosis is a process of identifying the disease (or problem) from signs and symptoms. Symptoms are set of conditions that indicate the existence of a problem. For example, decreasing profit level is a symptom that indicates there is something wrong with one or more departments of the organisation. A symptom itself is not a problem, but indicates the existence of a problem. Thus, diagnosis concerns with finding the problem in relation to objectives. Analysis is concerned with analysing or studying every aspect of the problem, identified by diagnosis, in detail. Thus, attempts are made to gain a complete insight into the problem by answering the following questions: What is the problem? Where is the problem? Who will take decision? How much money and time is available to solve the problem? How old is the problem? How many people/departments are involved? What type of information is needed to solve it? How serious is the problem?

3. Search for Alternatives The previous step gives an idea about the problem and situation in which it exists. The third step involves finding solution for the problem. Obviously, every problem can be solved in several ways. Here, the decision-maker searches for possible solutions. It should be noted that if only one alternative is available, the decision-making problem does not arise. While searching for alternatives, a manager should consider only those that are feasible and affordable. Certain preliminary criteria, such as investment, time, control, etc., are set to find suitable alternatives. There are various sources for identifying alternatives, like past experience, practice followed by others, research and analysis, using creative techniques, and so on. 4. Evaluation of Alternatives After discovering sufficient alternatives, the next task is to evaluate them. Each alternative is evaluated according to the chosen criteria. The step consists of two issues. First is, scrutiny of the list of alternatives to avoid irrelevant alternatives right from the beginning to minimise unnecessary cost and time. Those alternatives that fail to meet minimum standards are put aside. The second issue involves a detailed evaluation of remaining alternatives. Each alternative is evaluated in light of its contribution to objectives. Various tangible and intangible factors are considered to evaluate alternatives.

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Tangible factors include cost per unit, investment required, output, technology, human factor, location, etc., whereas intangible factors include psychological problems arising from something new or different, resistance to change, and other similar issues. Thus, necessary information is generated with reference to the tangible and intangible factors.

5. Choice of Alternative(s) Evaluation of alternatives provides a clear picture regarding contribution of each towards achieving the objective. Now, comparison is made among these alternatives to select the best. Generally, selection of alternatives is based on: Past experience of decision-maker Expert advice Experimentation or testing of each alternative Research and analysis This step involves a lot of calculations, and usually, computer-related services are used. Apart from real contribution of alternatives, personal values, beliefs, perception, and personal interest play a vital role. In fact, decision-making is the process of translating personal values and aspirations into action.

6. Action or Implementation of Decision

In this stage, the decision taken is put into practice. In reality, decision-making process ends with selection of the alternative. But, being a continuous process, the decision taken must be successfully implemented to achieve objectives. And, therefore, implementation of decision is an integral part of the decision-making process. Implementation requires the following actions: Communication with subordinates Getting acceptance of subordinates Seeking cooperation of other departments Deciding on time and ways to implement the decision Training and preparing the employees Provision for required resources

7. Measurement of Results and Review of Decisions

Implemtation of decisions leads to results. Based on results, one can easily say whether the objectives are being achieved. If results are satisfactory, there is no need to take further action. But, when results deviate significantly, it is a serious concern and appropriate follow up actions need to be taken. Follow up actions include measuring actual deviation, investigating causes responsible for the deviation, and modifying objectives, or decision, or both.

TYPES OF DECISIONS On the basis of criteria like, strategic consideration, time, scope, repetition, complexity, and decision-maker, different types of decisions can be made. Figure 5.2 gives the classification of decisions.

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FIGURE 5.2 Types of Decisions

1. Strategic and Operational Decisions Strategic decisions are long-term, non-repetitive, risky, integrated, and more comprehensive in nature. Such decisions are closely related to company’s mission and objectives, and they have a significant effect on the company’s survival and growth. These are related to one or more aspects of the company’s activities. Strategic decisions are made by top level executives. For example, diversification, new product development, and merger and acquisition are considered as strategic decisions. Operational decisions are concerned with the organisation’s day-to-day operations. Such decisions tend to be simple, less-risky, short-term, and repetitive in nature. 2. Major and Minor Decision Major decisions are closely related to company’s overall policies, strategies, and operations. They are significant non-frequent decisions that the top management takes. As against major decisions, minor decisions are related to departments and divisions. They are repetitive and less significant, and are taken by middle management. For example, decision related to technology is a major decision while decision related to purchase of raw materials is a minor decision.

3. Programmed and Non-programmed Decisions Programmed decisions are taken as per company’s plan or programme (i.e., according to the policies, rules, schedules, budgets, and procedures). They are closely related to routine operations. Decisions related to promotion, wage, training, etc., are programmed decisions. Non-programmed decisions, on the other hand, are concerned with non-repetitive operations. For example, developing a new product is a non-programmed decision. These decisions tend to be novel, risky, non-frequent, complex, and more crucial. Strategic decisions are non-programmed decisions.

4. Simple and Complex Decisions Simple decisions involve few variables while complex decisions involve many variables. Most business decisions are complex, and modern/advanced

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techniques are used to make such decisions. For example, increasing the price is a complex decision while announcing a holiday on a significant national event or festival is a simple decision.

5. Long-term and Short-term Decisions Long-term decisions constitute the long-term plan. Normally, they have long-lasting impacts on company’s operations. Short-term decisions have short run impact on company’s operations. For example, entering into international market is a long-term decision while overtime wage decision is short-term. All strategic and major decisions are long-term in nature.

6. Individual and Group Decisions When a decision is taken by an individual employee or a manager, it is an individual decision. Mostly, all simple, routine, short-term, and programmed decisions tend to be individual decisions. When decision-making involves a group of persons, it is a group decision. Mostly, all strategic, risky, long-term, and major decisions are taken by a group.

GROUP DECISION-MAKING As already stated, a group decision-making involves a group of decision-makers. Most decisions in today’s business organisations are taken by a group. They take decisions jointly by sharing their views, ideas, experience and expertise. It is a type of participative decision-making. However, degree of participation depends on many factors, such as experience and expertise of group leader and members, degree of difference in their views, organisation climate and culture, nature of decisions, freedom to employees, and so forth. Group decisions are based on majority rule, truths, status-quo, etc. The Delphi Technique and Brainstorming Technique are popular group decision-making techniques. The benefits and limitations of group decisionmaking are listed below:

Benefits Group decision-making offers following benefits: 1. 2. 3. 4. 5.

Group decisions seem to be more balanced as against individual ones. Group decision-making promotes creativity. It offers the benefit of synergy. It involves members’ commitment of decision acceptance and implementation. It facilitates better coordination.

Limitations Group decision-making suffers from the following limitations: 1. When one person (leader or head) dominates the entire decision-making process, creativity is lost. 2. It consumes more time. 3. It may lead to conflict among members. 4. Indecision is a frequent issue in this type of decision-making process.

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5. In many cases, group of decision-makers behave in irresponsible manner. 6. It is difficult to fix responsibility.

DECISION-MAKING TECHNIQUES A number of decision-making techniques are available. The techniques can be classified into three groups (1) individual-based or group-based techniques, (2) qualitative or quantitative techniques, and (3) simple and complex/sophisticated techniques. A manager may use one or more techniques while making a decision. But, like forecasting techniques, decision-making techniques can also be classified into two broad categories—Quantitative Techniques and Qualitative Techniques. Choice of decision-making technique(s) depends on a number of factors, like nature of problem, time and cost factors, quality of decision, decision-making climate (supportive v/s competitive), legal restrictions/provisions, facilities available, and personality/personal factors related to the decision-maker.

FIGURE 5.3 Decision-making techniques are used for taking decisions in different areas of business management, such as production, finance, human resources, and marketing. Similarly, techniques contribute in one or more stages of the decision-making process. More clearly, they assist in collecting/generating information, searching for alternatives, evaluation or testing of alternatives, and choice of a suitable alternative. Decision-making techniques may be classified into two groups—Quantitative Techniques and Qualitative Techniques. Figure 5.3 outlines basic decision-making techniques.

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Quantitative (or Operations Research) Techniques Today’s business problems are complex, involving many variables and a large volume of data. Managers employ quantitative data (i.e., figures or numbers) to analyse and interpret the problems when relevant data is available. Quantitative techniques are used to handle a large volume of data. A set of quantitative techniques/tools used for decision-making in different areas is popularly known as Operations Research (OR). It is used to make decisions with precision under conditions of risk or complete uncertainty. It also involves several computerbased models or packages.These techniques have been accepted widely after World War II. Most OR techniques are used in planning (including forecasting and decision-making) and controlling. Mathematicians, statisticians, managers, management experts, and computer experts have played a vital role in development of OR techniques.

Definitions

OR can be defined as follows:

According to C. W. Churchman, “OR is the application of scientific methods, techniques and tools to operations of systems with optimum solution to the problems.” Thus, we can say: OR consists of quantitative methods/tools through which relevant elements of the problems can be expressed in numerical forms, the meaningful relationships are established among these elements, and decisions are made (problems are solved) on the basis of analysis of such relationships. Operations Research is a collection of mathematical models used for business decisionmaking. From this view, OR can be defined as: OR is concerned with the use of mathematical tools or techniques for defining the problem, establishing the logical relations among variables of the problem, and seeking rational and scientific solution to the problem. It is a mathematical approach to management. Popular quantitative techniques (OR) have been discussed below :

1. Linear Programming Linear Programming (LP) is used for optimum allocation (maximisation or minimisation) of resources in the organisation. Resources, including money, time, materials, machines, space, etc., are limited, and are available in specific quantity only. It is important to utilise these limited resources in an optimum manner to ensure their maximum contribution towards achieving objectives. The term ‘linear’ means strait line relations and ‘programming’ means making decisions systematically. Thus, linear programming means taking decisions systematically by establishing and analysing linear relationships among variables. Conditions of LP

We can apply LP to any problem under certain conditions. LP depends

on four conditions: i. Objective Function: It is concerned with defining a problem in relation to the objective. Here, objective is expressed quantitatively in the form of maximisation of gain (profit) or minimisation of loss (cost or wastage). ii. Constraints: Constraints are restrictions imposed on decision variables. They may be in the form of restricted availability of resources. They must be expressed mathematically (less than, less than equal to, greater than, or greater than equal to).

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iii. Non-negative Conditions: Linear Programming works only when value of each variable is either positive or zero. It cannot work with negative values. iv. Linear Relationship: The relationships among variables must be linear. The proportion change must be equal, i.e., additional input must produce output of same proportion. For example, one salesman generates sales of 10 units, two salesmen generate 20 units, three salesmen generate 30 units, and so on.

Linear Programming Methods LP problems can be solved either by simplex method or by graphical method. Both methods have been briefly discussed below: i. Simplex Method: Simplex method is used to solve complicated problems involving a number of variables. Algebraic equations are used to express relations among variables. Use of computer and computer-based packages is very common to analyse multiple equations. ii. Graphical Method: Graphical method consists of expressing the linear relationship among two variables graphically, in term of graph and curves. The method can be used conveniently when a problem contains two decision variables. LP is a short-cut and sophisticated technique to solve business problems within a few hours. Computer-aided LP can help solve the problem speedily with greater precision. LP is widely used in all types of activities.

2. Decision Tree Some decisions involve a series of steps. Moreover, outcomes of each step is uncertain and depends on the previous step. This type of decision problems can be solved by the decision tree method. Decision tree is a graphical presentation of different steps involved in the problem. It is used (1) to identify alternative actions, (2) to estimate probabilities of chance events, and (3) to calculate resulting expected payoff. Due to graphical presentation of steps in the problem, the decision-maker can view major alternatives and resulting outcomes. A complex problem can be presented easily as information presented in graphical form is easy to understand. For example, a firm wants to develop a new product. It has to select one out of three alternative products, product ‘A’, product ‘B’ and product ‘C’. Each alternative requires different amount of investment, Rs. 2 crore, Rs. 1.8 crore, and Rs. 2.5 crore for A, B, and C, respectively. Each product has different probability events (chance of success), probability of success is 0.5, moderate success is 0.3, and failure is 0.2. Even, probability of competition can be linked with the problem, such as chance of competition is 0.8, and no competition is 0.2. Finally, payoff (outcomes) can be calculated by multiplying the probability of events with expected payoff, Rs. 10 lakh, Rs. 9 lakh, and Rs. 11.5 lakh for A, B, and C, respectively.

Construction of Decision Tree It starts from the last probability (chance) events and moves upwards to main alternatives. For example, we start from the last step, the probability of competition and no competition; the second step from the last is probability of success, moderate success, and failure; the third step is estimating profits for every alternative product; the fourth step from the last is calculating payoff (returns for each of the main alternatives by multiplying expected profits with probabilities); and the fifth step from the last is taking decision or selecting the best alternatives on the basis of payoff of alternatives. Normally, square symbol ‘ ‘ is used to denote main alternatives and round symbol ‘O’ is used to denote

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chance events. Branches flowing from chance events are indicated by (—) line. When chance events are many, decision tree becomes large and calculation becomes complicated. Computer is used to calculate compounding probabilities. Basic data are summarised in a payoff matrix in a table format. The table shows conditional values for each alternative. It shows all values. A decision tree can be used to make decisions under uncertain situations. Particularly, it is used when the situation is complex and the outcome of the later situation depends on the outcome of the former situation. The decision-maker can view major alternatives with subsequent chance events. Hence, the problem can be presented effectively as all outcomes are expressed graphically in quantifiable terms. It is widely used in business decisions. However, the decision-maker must be aware of its limitations. Complexity is a major problem in decision tree. In the same way, assumptions about happening of events (probabilities) seem inconsistent. Also, decision tree is time consuming. It can be applied only to major decisions. However, the use of computer has simplified its application.

3. Transportation Problem Transportation Problem (model/method) is a quantitative method used for business decision-making. It is a special case of linear programming. (We can express and solve transportation problem as LP problem). It is used for optimum utilisation of transportation facilities. The objective function of transportation problem is minimizing total transportation costs. It satisfies the requirements of warehouses (markets or destination points) within given production capacity. Transportation problem arises in case of physical movement of goods from plants to warehouses, warehouses to warehouses, warehouses to retailers, and retailers to customers. It is also applicable to movement/transfer of any type of resources (men, goods, materials, etc.). It helps in determining how many units need to be transported from each supply origin to each demand destination so that demand of all destinations can be satisfied with minimum total costs associated with transportation. For example, a manufacturer has three factories, A, B, and C, situated at different places, manufacturing the same product. Each factory has limited supply capacity. He is required to transport the product to three warehouses, W1, W2, and W3. Each warehouse has a specific demand. Each factory can transport to each warehorse, but transportation costs vary considerably for different combinations. Here, the transportation problem is to determine the quantity each factory should transport to each warehouse in order to minimise total transportation costs. Thus, we can match between production points and destination points with minimum transportation costs.

Solution Procedure for Transportation Problem (using LP) i. Defining objective function to be minimised with the constraints ii. Setting up transportation table with ‘m’ rows representing plants/factories and ‘n’ columns representing the destinations (warehouse, markets, or stores) iii. Developing an initial feasible solution to the problem iv. Examining whether the initial solution is feasible v. Testing whether the solution obtained in former step is optimal

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vi. If the solution is not optimal, modifying the shipping schedule by including the empty cell whose inclusion results largest savings vii. Repeating steps 5 and 6 until an optimum solution is obtained Popular methods for finding initial solution (step 3) include North West Corner Method (NWCM), Least Cost Method (LCM), and Vogel’s Approximation Method (VAM). Popular methods used for testing optimality (step 5), i.e., whether the initial solution is optimal include Stepping Stone Method, and Modified Distribution Method (MODI). Transportation problems can also be used for maximization of profits (instead of minimizing transportation costs). Here, the problem can be formulated with maximisation function. In a real life situation, we have to find optimum solution to unbalanced transportation problem in which the production capacity and requirements of destination are not equal. In the same way, we have to consider prohibited and preferred routes for transportation, too.

4. Assignment Problem Assignment problem is another special class of linear programming problem. The problem is related to deciding the allocation of items to receivers. It can be defined as: “Assignment problem is a special case of linear programming problem where the objective is to minimise the cost or time of completing a number of jobs (activities) by a number of persons (resources) in such as way that only one resource is assigned to one activity.”4 It is used to match resources (men, machines, etc.) with different activities (referred to as jobs). The problem of assignment arises due to the fact that available resources have varying degrees of efficiency for performing different activities, i.e., cost, time, or profit of performing different activities are not same. More clearly, the problem is: ‘How should the assignments be made to optimise the given objective (to maximise profits or minimise costs)’ or ‘Which assignment should be made to whom?’ Assignment problem is very common in management. A superior has to decide which job should be assigned to each subordinate so that the jobs can be completed effectively in time. The assignment problem can be applied to several areas, such as: i. Sales Force Management: Assignment of sales territories to sales people (salesmen). ii. Transportation: Assignment of vehicles to routes. iii. Construction: Assignment of construction sites to development engineers. iv. Education: Assignment of teaching-related works to teachers. v. Special Taskforce: Assignment of special projects to taskforce/team. vi. Production: Assignment of machines to workers. Note that assignment problem is special case of transportation problem. The rows represent the people, and the columns represent the jobs/tasks to be assigned. Cells in the table represent cost, time, profit, etc., associated with each assignment. Objective function in the assignment problem may be minimisation of cost, time, wastage, chances of accident, etc., or maximisation of payoff, profit, effectiveness, and so on. Solution methods of assignment problem include (1) Completer Enumeration Method, (2) Simplex Method, (3) Transportation Method, and (4) Hungarian Assignment Method (minimisation case).

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We can also find optimal solution of unbalanced assignment problem in which jobs are not equal to workers. In the same way, restrictions on assignment (assigning or not assigning a particular job to a particular person) can also be included in problem formation.

5. Queuing Theory or Waiting Line Theory We all have experienced the pain of standing in a queue for obtaining service. We have three options: (1) Waste precious time to get service by standing in a queue, (2) Seek services elsewhere, or (3) Manage without services. But, most of the times, we have to work with the first option. Queuing theory is useful in easing waiting problems. The objective of queuing analysis to find a way to minimise total costs associated with idle time of facility versus the waiting time costs of customers. Queuing Theory, also known as Waiting Line Theory, is concerned with the mathematical study of ‘queues.’ A queue is a group of items waiting to receive service, including those receiving services. Queues are commonly observed at booking windows, school and college admission, museums, hospitals, service stations, product dispatch centres, etc. It is observed that at a particular point of time, there may be a long queue waiting for service; while at another point of time, services may be waiting for persons to serve! Waiting line situations arise under two types of situations : i. In case of too much demand for the facilities, in which case we may have excess waiting time or not enough service facilities, or ii. In case of too little demand for the facilities, in which case we may have too much time or there are many idle facilities. Queuing line theory is used to balance between costs associated with waiting time and idle time. Excessive waiting results in loss of customers, while idle facilities remain unutilised. Queuing theory helps decide provision for optimum facilities so that the problem of excess demand and excess facilities can be solved and we can effectively minimise waiting time. Waiting line theory considers several criteria to arrive at the balance. These criteria include: i. Average arrival rate ii. Average service rate iii. Average length of queue iv. Average waiting time v. Average time spent in the system We, by using queuing theory, can easily decide on: i. Number of service facilities ii. Number of servers at service facilities iii. Efficiency of servers iv. Timing decision for services v. Arrangement of servers Queuing theory helps in deciding the optimum use of resources. The waiting line problem can be solved easily if there are limited number of services and servers. Queuing problem is converted into mathematical equations for optimum solution. In case of a large number of items, waiting line model used.

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6. Game Theory Game Theory is useful in making decisions under competitive situations. A game consists of a set of rules. The word ‘game’ denotes a conflict between two or more parties. Therefore, game theory is basically ‘science of conflict.’ The individuals who want to play or win the game are known as parties or players. In business, players may be businessmen, managers, or divisions. In competitive situations, outcome of one player depends not only on his own efforts/actions, but also on actions of others. Each player faces the same problem of choosing rational action. The rules of the game specify clearly the type of actions a player has to take under certain conditions. Rules also specify the amount of information each party can receive. A game may be finite or infinite. In a finite game, each player has a finite number of moves and finite number of choices for each move. The situation is different in case of an infinite game. Note that game theory does not suggest optimum solution, but provides a set of general rules regarding strategic response under a competitive situation. A competitive situation is a game if it satisfies the following conditions: i. Conflict of Interest: There is conflict of interest between two or more parties/players. Each party/player tries to serve its interest at the cost of others. ii. Reciprocal Effect: Strategies adopted and actions taken by each party affect the outcome of the game. iii. Confidential Move: Each player can choose his strategy in a confidential manner. No player knows about the opponent’s choice. iv. Rational Behaviour: Players in a game act rationally. They are well-informed, and adopt intelligent actions. Each tries to maximise his gain at the cost of the opponent. v. Gain, Loss or Draw: A game ends with one of three possible outcomes—a gain, a loss, or a draw. Any player may be the winner or the looser, or may be both winner and looser. Basically, game theory was developed for use in wars. It is used to determine effective actions of the army in relation to actions of opposite army. But, it can be widely used in business, profession, election, advertising, marketing, and sale management.

7. Replacement Theory Replacement theory is used to decide about replacing things, tools or men and is also used for decisions about alternatives or proxy for existing items (machines, goods or techniques). The theory can be applied to any field of human activities. We need to replace when the existing items have outlived their effective lives and are not economical to use anymore, or when items have been destroyed. Replacement situations occur due to time, usage, obsolescence, non-availability of staff, etc. Operations Research provides suitable methodology for solving different replacement problems. The procedure involves three steps: i. Identify items to be replaced ii. Collect necessary data on cost and time iii. Select suitable OR modes based on data

8. Sequential Smoothing/Analysis Sequential smoothing or analysis is used to decide on the right sequence (order) of doing the job. It can be applied to any field where a job is to be

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done on a finite number of service facilities in some well-defined chronological order. Here, the objective function (purpose) is optimizing efficiency by minimising elapse time (time between the start of the job on the first machine and completion of the last job on the last machine), idle time or overall costs. Sequential problem depends on the following assumptions: i. The processing times on different machines are independent of the order of the job. ii. Only one job can be processed on a given machine at a given time. iii. Time taken by the job in moving from one machine to another machine is very negligible, and is almost equal to zero. iv. Once the job starts on a machine, it is to be performed up to its completion. v. The machines to be used are of different types. vi. All jobs are known and are ready for processing. vii. Processing times are given and do not change. viii. The orders of completion of the jobs are independent of the sequence of jobs. Sequential analysis can be applied to decide on processing of one or more jobs on different machines. The sequential problem can be formulated using necessary data and optimal solution (the right order) can be determined. (Note: For more details, refer any book on Operations Research.)

9. Investment Analysis or Capital Budgeting Techniques

Capital budgeting decisions are related to capital investment in long-term projects. The technique involves investment of a large sum of money whereas benefits are realised at different intervals of time in the future. Such decisions are long-term and non-flexible with high degree of risk. They have significant impact on firm’s profitability. Investment analysis involves the following steps: i. Making a list of investment proposals (investment opportunities) ii. Collection of information about proposals iii. Applying suitable evaluation techniques iv. Taking decision or selecting an appropriate proposal v. Implementing the project or investing funds vi. Measuring and evaluating outcomes of implemented projects Capital budgeting techniques may be used to select the best alternative to invest funds. Most widely used capital budgeting techniques include (1) Pay Back Period Method, (2) Accounting Rate of Return (ARR), (3) Internal Rate of Return (IRR), (4) Net Present Value Method (NPV), (5) Profitability Index, and (6) Risk Analysis. For using these methods, qantitative data on expected sales and profits, cash flows, various costs, tax rates, and expected rate of return are required along with certain assumptions. (For more details, refer any book on Financial Management.)

10. Ratio Analysis Ratios are used to express proportionate relation between two variables. It is used as part of most quantitative techniques. We can calculate average or percentage by calculating the ratio between two values. Analysis of various ratios provides a base for taking decisions on production, sales, costs, profit margin, credit and borrowing policies, and

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other financial, production, and marketing issues. Popular ratios used for making decisions are current ratios, debt-equity ratios, profit ratios, cost ratios, etc.

11. Network Analysis Including PERT and CPM Network analysis is both a decisionmaking and a controlling technique. (Note: For more details, refer to Chapter 11 on controlling.) 12. Other Quantitative Techniques Apart from the techniques discussed above, other quantitative techniques are: i. ii. iii. iv. v. vi. vii. viii. ix.

Dynamic Programming Simulation Risk Analysis Inventory Control ( EOQ and ABC techniques) Integer Programming Break-even Analysis Marginal Analysis and Break-even Analysis Cost-benefit Analysis Goal Programming

Qualitative Techniques Normally, qualitative methods for decision-making are used when quantitative information is not available. Most qualitative techniques are group-based techniques, which involve more than one person. Some qualitative techniques have been discussed below:

1. Brainstorming Brainstorming is a common group-based technique for decision-making. It is widely used in education, politics, business management, and many other areas. It is, actually, an idea generating technique. It stimulates/encourages new ideas on the topic under consideration. Osborn defines: “Brainstorming consists of using the brain to storm the problem.” Dictionary meaning seems more comprehensive. According to Webster Dictionary: “Brainstorming is a conference technique by which a group attempts to find a solution for a specific problem by amassing (generating) all the ideas spontaneously contributed by its members.” For brainstorming, a group normally comprises 10 to 15, or may be more, persons. The members may belong to different disciplines, but must have sufficient details of the problem. Brainstorming takes place in following ways: i. Exploring the Problem: First, the problem must be explained clearly and precisely to all participants so that they are able to concentrate on it. ii. Idea Generation: Next, each member is asked to generate ideas to solve the problem. Brainstorming session must be supported by free, frank, and relaxed environment to generate maximum ideas, irrespective of quality. During the session, nobody is permitted to comment or criticize idea of any participant. There must be an appropriate system to register/record the ideas.

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iii. Applying Ideas to the Problem: Participants are asked to put their ideas for solving the problem without limitations (such as financial, technological, procedural, legal, etc.) iv. Evaluation of Ideas: Brainstorming session ends with collection of ideas. Criticism, comments, and judgments are strictly prohibited. Ideas are later evaluated by managers to select the best ones. Hence brainstorming provides a list of possible alternatives for decision-making. Brainstorming method can be applied successfully when the problem is well defined and well communicated. It promotes creativity and competitive spirit among members. If used carefully, brainstorming can be a sound base for tackling difficult problems.

2. Delphi Method ‘Delphi’ is a Greek word meaning a shrine (holy place) where ancient Greeks prayed for information about future events. Under this method, a panel of experts, unknown to each other appointed; they do not have direct, are face-to-face interaction with each other. They are asked to give suggestions or express opinions on the issue anonymously. Their opinions are collected and analysed. Revised result is again sent back to experts for further comments. The process is repeated till a consensus (agreement or harmony among them) is arrived. Practically, the decision is arrived through written communication in the form of filling of questionnaire through mail. A team of experts is assigned the task to deal with the solution to the problem. The team formulates the questionnaire, and sends it to external experts for their response. The results collected and tabulated, and are used to develop a revised questionnaire. The revised questionnaire is again sent to the same experts for subsequent response. The process is repeated till the consensus is reached. The method is useful when the decision needs to be taken by subjective judgment of experts because face-to-face discussion is not possible. Quality of decision improves as views of a large large number of experts can be collected. Additionally, experts are free to state their opinion in subsequent stages. However, it is a time consuming techniques.

3. Expert Opinion Method At the outset, it may be stated that decisions are always taken by experts, both internal and external to the organisation. Top level authority and managers are internal experts; management consultants, academicians, and executives of other firms are external experts. However, for this method, external experts are more relevant. Obviously, expert have more knowledge and rich experience. Professional experts can make significant contribution in making decisions as they work for many firms and deal with varied situations. Additionally, they employ competent staff to help them. Since they are external to the organisation, their decisions would generally be without bias. 4. Experience

It can not be a separate or distinct method of decision-making because the element of experience is, more or less, directly or indirectly, common in all methods of decisionmaking. Naturally, the method indicates the use or application of past experience for decisionmaking. Both self-experience and experience of others have definite impact on every stage of the decision-making mechanism. In this method, the decision-maker gives more importance to experience than other factors. He tries to suit the problem and related situation with his past experience. In most cases, in dynamic business environment, the situation may not be identical to the past. He has to use his experience with care. However, the method makes a sense

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when decision is repetitive or routine in nature. The method has its pros and cons. However, if used carefully, past experience can be a potentially valuable input in decision-making.

5. Follow the Leader

In management, a leader is characterised by dominant position in the market in terms of competitive strengths, market share, and effective strategy. Executives of small and medium sized firms normally follow this method. Sometimes, small firms have no option but to be followers of market leader. Actually, in today’s business world, market leadership is considered as one of the important factors in decision-making. The method is based on the notions: “Leader is always right.” “One is a successful leader because one is right.” The manager tries to imitate his close and strong competitors. Nevertheless, to follow the leader blindly is always not the right path to pursue. The decision-maker must consider the situation in terms of the objectives, resources, strengths, and weakness. He should take leaders’ strategies as the base and try to make the decision according to his own situation.

6. Experimentation

This is a common method used in almost all areas of business management. Experimentation implies trying or testing the variable (thing) before taking a decision. It can be a sole method of decision-making if it is taken as a base for deciding. Experimentation is also widely used in personal decisions. In marketing, it indicates: ‘Try the thing before you buy it.’ We prefer to test or try the (durable, non-durable, or edible) product before buying. The manager tries the option before it is selected or executed. In relation to business decision-making, experimentation indicates manipulation (alteration or change) of independent variables (such as, price, motivation tools, product features and qualities, advertising, sales promoting techniques, etc.) to measure the impact of the manipulation on dependent variables (such as sales, profits, market share, employees’ morale and satisfaction, etc.). For example, if a manager has to decide on price hike, he may go for market test. He may raise the price by certain per cent and try to map the reactions of customers and dealers. Based on the reactions of the market, he may take the final decision. Experimentation can be applied in other business areas, too. While conducting experiments, impact of extraneous (uncontrollable) factors must be considered. It can be used as a complementary method to other methods. Additionally, a decisionmaker must be aware of the limitations of experimentation. The methods discussed do not represent the complete list of decision-making methods. Decision-maker may develop his own method to arrive at a decision. Similarly, classification in terms of qualitative and quantitative methods is also not perfect. It is interesting to note that quantitative methods produce quantitative outcomes/data, but decisions are taken by managers using a qualitative base. No method can be considered as purely quantitative or purely qualitative. In every method, we find both the quantitative and qualitative implications. Decision-maker must use a consistent method suitable to his situation.

KEY PROBLEMS IN DECISION-MAKING There are certain practical problems in decision-making. While some are related to decisionmaking, others are related to its implementation. Let’s briefly discuss some common problems in decision-making:

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1. Lack of Decision (Indecision): In certain cases, though enough data are available, the decision-makers are unable to take decisions. Inability, lack of time, fear of unexpected results, matter of habit, etc., may be the main causes for indecision. 2. Rigidity of Decision-maker: A decision-maker may adopt a rigid stand in the form of overemphasis on past experience, over insistence on specific technique, prejudice, and so forth. He may fail to understand the dynamic need of the situation. Ultimately, he makes erroneous decisions. 3. Urgency: In certain situations, the manager may be required to take decisions immediately. He may find less time to collect and analyse relevant data. Due to time pressure, even capable managers fail to take the right decision. Too much hurry increases possibility of errors. 4. Overemphasis on Past Events: Some problems need a fresh outlook. However, some managers are not able to visualise the drastic changes in the present situation from their past experience. They try to match the situation with the past events. This leads to serious mistakes in decision-making. 5. Clashing/conflicting Priorities: In many cases, a decision-maker may have to decide between clashing priorities. For example, profit maximisation and consumer satisfaction are two priorities that are opposite to one another. He may fail to take the right decision in such a situation. 6. Overemphasis on a Specific Method: Some decision-makers insist on using only a particular decision-making method(s) irrespective of the situation (type of problem, objective, data available, time limit, and so forth). The method may be inconsistent with the situation. Inconsistent method produces inconsistent results that lead to erroneous decisions. 7. Time Limit: Identifying problems, collecting data, analysing data, discussing with relevant parties, etc., may take considerable time. Even, the implementation may exceed the time limit. Delayed decision may complicate the problem. 8. Lack of Cooperation/support: At times, a decision-maker is unable to solicit the necessary support from both his superior as well as subordinates. Lack of support results in poor decisions, or ineffective implementation of decisions, or both. 9. Failure to Implement Decision: Practical value of decision depends on its effective implementation. Sometimes, the right decisions (taken by managers) are not implemented successfully and the whole procedure of decision-making results in wasteful exercise. There are many reasons why implementation fails, such as resistance from people in the organisation, lack of necessary support from top authority, insufficient resources, fear of uncertain outcomes, and likewise. 10. Subjectivity: Subjectivity implies the presence of personal bias or absence of objectivity. Right from defining the problem to implementation of decision, the whole process of decision-making is influenced by personal values, needs, perception, and attitudes. Pure objective (rational, neutral, impersonal, and fact-based) decisions are difficult to observe in practice. Subjectivity affects adversely the quality of decision-making.

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11. Assumptions: Most decisions are taken under conditions of uncertainty. A decisionmaker has to make assumptions about occurrence of the future events. All assumptions may not turn true. Especially, long-term assumptions are more difficult to set. To the extent the assumptions turn false, decisions suffer. 12. Personal Risk: Uncertainty of outcomes is a common problem in decision-making. Risk is an integral part of decision-making and its implementation. When a decision-maker is not insulated (protected) with sufficient security for the decisions and the resulting outcomes, he hesitates to take decisions. A manager does not prefer to take decisions on his personal risk. 13. Impact of Extraneous Factors: Despite taking all possible precautions to ensure the prudent decisions, a decision-maker may fail due to the adverse impacts of many extraneous (external uncontrollable) factors. Government policies, international business environment, natural calamities, market trend, competition, etc., affect the outcome of decision-making. 14. Lack of Facilities: A decision-maker needs reasonable support facilities, like staff, stationary, computer with internet, money, support from top authority, and so forth, to take decisions in time. Scanty facilities hinder the decision-making process. 15. Problems Related to Information: Information is the basic input in decision-making. A decision-maker needs adequate, reliable, relevant, and timely information to decide on any issue. Poor information leads to poor decisions.

System of Successful Decision-making (Guidelines for Effective Decision-making) In the former part of the chapter, we have discussed some practical problems related to decision-making. Based on the problems some guidelines or guiding principles have been evolved. They are : 1. Setting objectives carefully 2. Extending of moral support by top management 3. Evaluating situation correctly 4. Understanding the problem thoroughly 5. Protecting the decision-maker 6. Ensuring needed resources 7. Using appropriate techniques 8. Availing accurate information 9. Preparing for accepting outcomes 10. Applying flexibility and creativity 11. Ensuring effective implementation

DECISION-MAKING APPROACHES The decision-making mechanism is affected by many factors, such as decision-maker’s personality, his initiative skills, the present situation, human qualities, etc. Accordingly,

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decision-makers follow different approaches while making decisions. Major decision-making approaches have been briefly discussed below:

1. The Rational Decision-making Approach This approach is also called the analytical or logical approach. A decision-maker is intelligent and rational in searching, evaluating, and selecting alternatives. He keeps in mind all relevant aspects and decides objectively. It is factbased decision-making, and his personal needs, emotions, attitudes, and values do not affect his decisions. Decisions under this approach seems to be logically consistent and practically applicable. It is considered as the most relevant decision-making approach. However, pure rational decision-making is hardly possible. There is limit to rationality in decision-making. This issue has been discussed later under heading ‘rationality in decision-making.’

2. The Emotional Decision-making Approach

Emotional decision-making approach is quite opposite to the first one. This approach is also called intuitive (insightful or spontaneous) approach. Here, emotions, intuitions, gut-feelings (guessing or hunching), inner feelings, etc., but not facts, play an important role in the decision-making process. The approach assumes that management is an art. This approach has its plus and minus points.

3. The Political Decision-making Approach An organisation is a political arena and the decision-making process is affected by organisational politics. A decision-maker plays politics (or takes diplomatic stand) to make decisions. He uses his power, relations, and political skills while deciding. His behaviour tends to be more politically oriented. Mutual negotiation, consultation, and political games are used under this approach. This approach has been discussed in Chapter 24 under the heading ‘Power and Politics’.

4. The Satisfying Decision-making Approach A rational decision-maker tries to make optimising decisions. But, there is a limit to rationality in decision-making. Decision-makers, therefore, try to follow the satisfying approach instead of the optimising one. They choose the alternative that can satisfy their present as well future aspirations reasonably. Due to incomplete and limited knowledge of alternatives available, choosing the best alternative is not always possible. They select the alternative that meets minimum standards of satisfaction. Insted of ‘perfect,’ a ‘fair’ alternative is accepted.

RATIONALITY IN DECISION-MAKING (Bounded or Restricted Rationality in Decision-making) The concept of rationality is defined in terms of objectives and intelligent actions. If appropriate means are devised to reach desired ends, the decision can be said to be rational. Rationality can be justified on several grounds. In this context, Herbert A. Simon observes: “A decision may be called objectively rational if, in fact, it is the correct behaviour for maximising given values in a given situation. It is subjectively rational if it maximises attainment relative to the actual knowledge of the subject. It is consciously rational to the degree that the adjustment of means to ends is a conscious process. It is deliberately rational to the degree that the adjustment of means to ends has been deliberately brought about (by the individual or by the organisation).

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A decision is organisationally rational if it is oriented to the organisation’s goals; it is personally rational if it is oriented to individual goals.”5 In simple words, rational means purely logical, free from emotions, personal values, perception, and attitudes; rational means objective rather than subjective. When any decision is based on impersonal needs, the decision may be said to be rational. In other words, if a decision is taken as per the requirements of the organisation, based on solid facts, figures, and actual realities, it is a rational decision. Rationality may be personal, or organisational. The rational decision is impersonal decision and always reflects what aught to be done. But, in practice, decisions are not always fully rational. The issues related to rational/irrational decisions may be said as bounded rationality. A decision is rational if it satisfies the following conditions: i. When decision-making focuses on objectives of organisation, not on personal needs ii. When decision-making is free from personal characteristics of the decision-maker like values, attitudes, personality characteristics, etc. iii. When decision-making is based on factual information collected deliberately from relevant sources iv. When all alternatives and their consequences are known v. When the situation is assumed to be stable or normal vi. When the decision-maker has enough freedom, he is free from interference of superiors vii. When decision-making remains same despite the decision-maker being changed. Ratan Tata, the Rational Decision-maker Ratan Tata, the chairman of Tata Group of Industries, told to shareholders at the annual meeting of Tata Chemicals (October, 2010). “The Tata Group is an Indian group and we should not be looking (at it) a Parsi group. The successor should be the right person and not anti-Parsi or pro-Parsi.” In fact, the Tata Group which is controlled by the Parsi community through various charitable trusts has always chosen to talk less about its ties to the religion. The trusts own equity stakes in Tata Sons, the group holding company, and hence form an integral part of the decision-making. Ratan Tata, who is scheduled to retire in December, 2012 seems more rational decision-maker. In relation to Committee formulated to search the right successor, he said, “The committee members are as concerned as you are to make sure that the company will remain in good hand. The right person will come and leadership will continue. 10 years back I had made a provison—to have a committee for succession. This is there in the article of Tata Sons.” He said that the Group needed an experienced person who could peruse growth amidst the challenges of the global economy. The selection of right person would be made from within the Tata Companies, other professionals within India as well persons overseas with global experience. He said that he would stay off the committee to provide full freedom to take the right decision. He decides everything neutrally and transparently. His decision-making style seems more rational (i.e., decision is free from emotions, personal needs, nepotism, and favouritism). Purely rational decisions seem impossible even in case of highly professional managers. Personal needs, educational and social background, relations, and attitudes are key factors that prompt them to restrict rational decisions.

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In reality, rationality has limited role as most of the decisions are not based only on logic or facts. In each stage of decision-making, the manager’s subjective role along with objective role is essential. Similarly, organisations also react irrationally to preserve their values and customs/traditions. So, decision is both rationality bounded and irrationality bounded. Irrationality indicates the role of personal needs, organisational values, and personality characteristics.

Limits to Rationality In practice, decisions are rarely made in a way that is fully consistent with the demand of rationality. According to H.A. Simon, the situation is called ‘bounded rationality.’ He states: “The capacity of human mind for formulating and solving complex problems is very small compared with the size of the problems whose solution is required for objectively rational behaviour or even for reasonable approximation to such objective rationality.”6 The bounded rationality (limit to rationality) exists because of the various factors described below :

1. Decision-making Mechanism A rational decision has certain assumptions, like all alternatives are known, consequences of all alternatives are known, and information available is perfect and up-to-date, and so on. These assumptions are seldom fulfilled in practice. It is impossible to know the exact outcomes of the decision before the things actually happen. In the same way, situations are dynamic, changing constantly. To the extent uncertainty prevails, there is limit on rationality.

2. Human Factor in Decision-making The main factor restricting rationality in decisionmaking is the human being, the decision-maker. Decision-making differs from manager to manager in the same situation. Similarly, choice depends on various personalised and qualitative information and its interpretations. This is the reason why decisions alter significantly when the decision-maker changes. Evaluation of alternatives and choice of the right alternative are affected by personal factors listed below: i. Personal value system ii. Perception and learning iii. Time constraints iv. Motivation (needs and motives) v. Attitudes vi. Experience vii. Personality characteristics viii. Political and power behaviour 3. Role of Creativity in Decision-making Creativity is a vital element (or input) in decision-making because of the dynamic nature of the organisation. Creativity is concerned with doing something new, or thinking in a new way. It is an original or unique way to decide. Creativity is required to develop alternatives, set premises, and evaluate and select alternatives. When a problem is new or non-repetitive in nature, creativity plays a major role because there is no precedent (established base or pattern) to the problem and hence the manager has to think of a novel way to deal with it. Creativity, being personal ability or skill, may not be consistent with the rationality aspects of decision-making.

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SUMMARY Forecasting is a process of predicting (estimating or projecting) the future happening of events relevant to business operations, by analysing the present and the past data. Forecasting process consists of four steps—recognising need for forecasting, systematic investigation and collection of information, forecasting the events, and reviewing and regulating forecasting. Forecasting is just a part of planning; it is a base for planning. Forecasting involves estimates; planning involves taking decisions in advance. Forecasting is useful in many ways, such as promoting the organisation, providing base for planning, tool for coordination and control, and reduction in risk. Assumption-based estimates, uncertainty, lack of absolute truth, time-consuming, expensive, non-availability of data, restricting vision, and so forth are key limitations of forecasting. Linear Programming, Decision Tree, Transportation Problem, Assignment Problem, Queuing Theory, Game Theory, Replacement Theory, Sequential Smoothing/Analysis, Investment Analysis, Ratio Analysis, Network Analysis, including PERT and CPM, etc., are quantitative techniques, while Brainstorming, Delphi Method, Expert Opinion Method, Experience, Follow the Leader, and Experimentation are some qualitative techniques. Decision-making process involves seven steps—objective specification, problem identification, search for alternatives, evaluation of alternatives, choice of alternative(s), action or implementation of decision, and measurement results and review of decisions. Successful decision-making is based on certain conditions, such as setting objectives carefully, moral support by top management, evaluating the situation correctly, understanding the problem thoroughly, protecting the decision-maker, adequate resources, use of appropriate techniques, accurate information, accepting outcomes, flexibility and creativity, and effective implementation. Decision-making mechanism, human factor in decision-making, and role of creativity in decision-making put limit on rationality in decision-making. Rational decision means purely logical, free from emotion, personal values, perception, and attitudes; rational means objective rather than subjective.

KEY TERMS Forecasting Forecasting Process Role of Forecasting Decision-making Decision-making Process Decision-making Techniques Qualitative and Quantitative Techniques Linear Programming

Decision Tree Analysis Transportation Problem Queuing Theory or Waiting Line Theory Game Theory Assignment Problem Replacement Theory Sequential Smoothing/ Analysis Investment Analysis or Capital Budgeting Techniques

Ratio Analysis Network Analysis – PERT and CPM Brainstorming Delphi Expert Opinion Method Experience and experimentation Bounded Rationality

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EXERCISES Objective Type Questions A. Answer the following: 1. Suggest any four decision-making techniques. 2. Write four quantitative techniques for forecasting. 3. “Both self-experience and experience of others have definite impact on the decision-making mechanism.” Do you agree? B. Chosse the correct option (MCQs): 1. What type of relationship exists between forecasting and decision-making? (a) There is no relation between forecasting and decision-making. (b) Forecasting is useful in decisionmaking. (c) Decision-making is above forecasting. (d) Decision-making is part of forecasting. 2. Which one is not true? (a) Forecasting is concerned with future estimates. (b) Forecasting is based on analysis of past and present data. (c) Forecasting involves estimating the future occurrence of events. (d) Forecasting always provides accurate results. 3. ‘Planning involves forecasting and decision-making.’ (a) The statement is completely false. (b) The statement is not clear. (c) The statement is completely true. (d) The statement is partially true. 4. In relation to the role of forecasting, find the odd one. (a) Forecasting is base for planning. (b) Forecasting is profit making technique. (c) Forecasting reduces risks. (d) Forecasting is tool for coordination and control.

4. Give one basic feature of rational decision. 5. “In today’s business, pure rational decision is hardly possible.” State whether the sentence is true.

5. Which one is not a forecasting technique? (a) Linear Programming (b) Index Number (c) Delphi Method (d) Input-Output Analysis 6. ‘Planning involves a number of decisions while decision-making deals with a single decision.’ The statement is (a) Completely false (b) Completely true (c) Not clear (d) Partially true 7. Decision-making is an act of (a) Solving business problems (b) Analysing business environment (c) Choosing the most suitable alternative from a list of alternatives (d) Giving orders and instructions 8. Which one of the following techniques is not a quantitative technique? (a) Assignment Problem (b) Transportation Problem (c) Experience Method (d) Game Theory 9. What does a rational decision imply? (a) Rational means subjective decision. (b) Rational means purely logical and objective decision. (c) Rational means personal needbased decision. (d) Rational means outside decisions.

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(c) Partially rational or irrational (d) Free from rationality

Descriptive Questions 1. Define the term ‘forecasting.’ Discuss the process of forcasting enumerate its features. Also explain its importance in business management. 2. What is forecasting? Discuss forecasting process. 3. Explain systematic decision-making process. 4. What do you mean by decision-making? What is the relationship between planning and decision-making? 5. What is ‘rationality’ in decision-making? Discuss factors limiting the rationality in decision-making. 6. ‘Decision-making is not an easy game to play.’ Discuss the statement in the connection with practical problems

7.

8.

9

10.

in decision-making? Briefly state the guidelines for improving the decisionmaking process. What do you mean by qualitative techniques? Explain the main qualitative techniques for decision-making. Explain the following terms: (a) Expert opinion method (b) Experience-based decision-making (c) Brainstorming (d) Experimental method Explain: (a) Assignment Problem (b) Transportation Problem Discuss: (a) Decision Tree (b) Linear Programming

Assignments 1. Students should recall their last important decision (for example, selecting a specific discipline as a career) and describe the same in terms of the steps they followed, the factors that affected, and the people who contributed towards it. Was it rational?

2. Students are assigned a project on practical decision-making system. They are required to meet practising managers and find out steps they normally follow while making decisions.

REFERENCES 1 Harold Koontz and Heinz Weihrich, Essentials of Management, McGraw-Hill, New York, 1990, p. 108 2 Geroge R Terrry, Principles of Management, Richard D. Irwin, Homewood, Illinois, 1968 3 Kenneth R Andrews, The Concept of Corporate Strategy, Jones-Irwin, Homewood, III, 1971, p. 28 4 V. K. Kapoor, Operations Research, Sultan Chand & Sons, New Delhi, 2006, p. 6.25 5 Herbert A. Simon, Administrative Behaviour, Free Press, New York, 1976, p. 65 6 Herbert A. Simon, Model of Man, John Wiley and Sons, New York, 1957, p. 198

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ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. Linear Programming, Decision Tree, Transportation Problem, and Assignment Problem 2. Time Series Method, Index Number, Exponential Smoothing, and Extrapolation-Extrapolation 3. I agree; it is true. 4. Rational decision is logical and impersonal in nature. 5. True B. 1. (b), 2. (d), 3. (c), 4. (b), 5. (a), 6. (b), 7. (c), 8. (c), 9. (b), 10. (c)

CASE Dr. R. R. Pandit, a professor of strategic management, proposed a topic for group discussion to be discussed on the next day. The topic was ‘Rationality in Business Decision-making.’ As per schedule, Dr. Pandit introduced the topic and asked the students to proceed. First Student: I think, in professional management, most decisions are rational. When professional managers are responsible to take decisions for impersonal needs, and when decisions are based on facts and processed information, decisions tend to be rational. Second Student: No, this in not always the case. Professional managers are human beings. Their personality traits are always reflected in the decisions they make. They are required to apply their creativity and talent. As a result, there is limit to rationality in decision-making. Decisions can never be purely rational. Third Student: You are right. The decision-making mechanism does not permit rationality. Decisions can be made rationally if we remove human organism from the decision-making mechanism. This is impossible. Fourth Student: I think the need of creativity and active involvement of human factor in decision-making restricts pure rational decisions. Evaluation and selection are based on decisionmaker’s motivation, perception, personality, and learned experience. In addition, choice of the alternative depends on personalised and qualitative information and its interpretations. In addition, our decisions are significantly affected by others. Fifth Student: Decisions need to be rational. They can be rational if some conditions are fulfilled. It seems impossible. Pure rational decisions are not possible. However, the decisionmaker must follow certain principles for successful decision-making. Maturity level of the decision-maker and his commitment to organisational objectives can make a difference. Other students did not contribute to the group discussion. Professor Pandit concluded, ‘You are all right in your own way.’ The professor left the conference room and the discussion ended.

Questions for Discussion 1. According to you, what is a rational decision? 2. Why is pure rational decision-making not possible?

Forecasting and Decision-making

3. 4. 5. 6. 7.

Why did other students not participate in the discussion? State three dominant factors that restrict rationality in decision-making. Which are the main personal factors that affect rational decisions? What, according to you, can make a decision successful? Comment on the professor’s concluding remark.

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Fundamentals of Organising and Organisation Theories Learning Objectives Upon completing this chapter, you will be able to: Clarify the meaning of the terms ‘organising’ and ‘organisation’ Explain the steps involved in systematic organising process State the role of sound organisation in managing business activities Discuss important principles or features of sound organisation Describe organisational chart and manual Describe classical, neo-classical, and modern organisation theories

INTRODUCTION This chapter is divided into two parts, the first part deals with the fundamentals of organisation while the second part describes elementary aspects of organisation theories.

ORGANISING Everything in business is changing rapidly. What was ideal yesterday is outdated today; what is best today will be thrown away tomorrow. The three aspects of management that have experienced tremendous reforms in particular are organisation design, directing task, and style, and HR policies. Every business unit needs to maintain reasonable pace with the drastically

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and rapidly transforming global business management philosophy and practice. Need of restructuring, suitability of classical principles, new forms and their suitability, managerial behaviour, key considerations (factors), need for freedom, and the right type of organisation climate are some focal areas relevant to organisation design. Management experts emphasise on converting strict hierarchical structure into family-like structure, a home-like organisation design. They overweigh on the role of key position holder in creating work design and internal culture. Organising is the second function of management. Organisation is a basic framework made of men, tasks, authority-responsibility, communitcation, etc., that facilitates the manager in making decisions. It is mainly concerned with formulation of deliberate structure of organisation through establishing formal authority relationships among people. Organisation structure is a complex network of interrelated or interconnected parts that provides a base for implementation of plans and other related activities. The structure facilitates division and assignment of work, delegation of authority, communication, and many such issues. Every business enterprise attempts to formulate a suitable structure of organisation for effective achievement of desired goals. Organising and organisation are both closely related terms. However, organising is a process, and organisation is a structure; organisation is the end result of the organising process. Let us define both terms.

DEFINITIONS OF ORGANISING AND ORGANISATION The term ‘organising’ can be defined as: 1. Louis Allen: “Organising is the process of identifying and grouping of the work to be performed, defining and delegating responsibility and authority, and establishing relationships for the purpose of enabling the people to work most effectively together in accomplishment of objectives.”1 2. George R Terry: “Organising is establishing of effective authority relationships among selected works, persons, and work places in order to make the group work together efficiently.”2 With reference to the organising process, the term can be defined as: Organising is a systematic attempt (1) to divide work into activities, (2) to group these activities on the basis of specialsation, (3) to assign activities and delegate authority to the people, (4) to define and establish relationships among groups and departments, and (5) to harmonise and coordinate efforts of the people to achieve desired results effectively. Organising involves systematically arranging of activities. Thus, it can be defined as: To organise means to harmonise, coordinate, or to arrange activities in a logical and orderly manner. It is an act/process of systematically arranging and grouping of interdependent parts and activities. Organisation is the end result of the organising process. Let us examine the definitions of organisation: 1. John Pfifner and Frank P. Sherwood: “Organisation is essentially a matter of relationships of man-to-man, job-to-job, and department-to-department.”3 2. Koontz and O’Donnell: “Organisation is a structural relationship by which an enterprise is bound together, and the framework in which individual effort is coordinated.”4 3. Chester Bernard: ‘Organisation is a system of cooperative activity of two or more persons.”5

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Based on the above definitions, we can say: Organisation is a structure, mechanism, setup, arrangement or framework made of men, tasks, authority, and responsibility to facilitate coordination necessary to achieve specific purposes. It is matter of formal relations among people, jobs and departments. Proper analysis of the definitions reveal the following characteristics of organising: 1. Organising is a process. It consists of steps to be followed to prepare the structure of the organisation. 2. It is goal-oriented. 3. It includes grouping of activities and division of work. 4. It involves assignment of responsibility and delegation of authority. 5. It is aimed at creation of structure, framework or setup that facilitates managerial actions. 6. It is an act of establishing formal relationships and defining status and positions of each of the employees. 7. It is a coordinated and integrated activity. 8. It creates a stable structure. 9. Human being is in the centre of organising. 10. It can be applied to the whole organisation, or part thereof.

ORGANISING PROCESS Organising process consists of a sequence of steps to be followed to prepare a formal structure of the organisation. The process depends on a variety of variables, like size of the organisation, objectives, type of people, type of work, etc. Ideally, the organising process contains seven steps, as depicted in Figure 6.1.

1. Specifying of Objectives Organisation is deliberate and conscious creation of structure for a specific purpose. The organisation process starts with specification of objectives. A manager who is in charge of formulation of the organisation structure needs to have knowledge of the objectives to be achieved. He must know the long-term and the short-term objectives as well as individual, departmental, and general objectives. Clarity of objectives gives the direction to work.

2. Enumerating of Activities (or Determining of Activities to be Performed) The next step is to prepare a list of activities required to achieve these goals. A list of activities is prepared comprising of main functions of the organisation. For example, production activities, marketing activities, personnel activities, and financial activities are main activities of a business enterprise.

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FIGURE 6.1 Typical Organising Process While determining activities to be performed, care should be taken so that the list of activities becomes exhaustive or complete. Similarly, there should be clear and precise definition of each activity.

3. Classifying or Grouping of Activities In the third stage of the organising process, the activities listed are classified or grouped on the basis of specialisation (i.e., on the basis of nature). Grouping of activities is based on similarity, functions, and common purpose. The group of activities is also called a function; each function comprises of similar activities. For example, marketing function consists of only marketing activities. While classifying the activities, human and material resources should also be considered. Similar activities are grouped into a section, division, or department. For example, activities related to marketing (function) are grouped into marketing department. Likewise, activities related to human resources are grouped under personnel department. Hence, similar activities are performed only in a particular department under a specific function. The manager should be careful to avoid unnecessary duplication or repetition of activities in more than one group.

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4. Assigning of Responsibility (or Fitting Individual with Function) Once departments or groups are prepared, the next step is to assign each department (or a group of activities) to a person. Thus, a person is fitted with a function. A qualified and experienced person is assigned the duty of performing each group of activities. Thus, job is assigned and responsibility is created. Moreover, designation is also defined, and role and position (status) are clarified. As a result of assignment of job, various positions come into existence, like marketing manager, sales officer, financial manager, and so forth.

5. Delegating of Authority When assignment of task is over, respective superiors delegate authority to different position holders to enable them to carry out activities. This is a vital step. Delegation of authority creates various levels and positions. In fact, assignment of duties and delegation of authority go hand to hand. Delegation refers to granting or offering of legitimate power to subordinates to enable them to take decisions independently. It is an authorisation to make decision, to order, or to command the people working under him. While delegating authority, care should be taken that there is balance between responsibility and authority. Authority must be equal to responsibility.

6. Establishing Interrelationships This step concerned with establishing relationships among various position holders. These relationships are established in both directions—horizontally and vertically. At this stage, the relationship and line of authority between the superior and subordinate is made clear. Statuses are fixed to facilitate higher and lower positions. The entire network is defined in terms of functions, positions, levels, communication, and interrelationships among various positions.

7. Preparing Organisation Chart and Manuals The structure so prepared is now depicted in the form of a chart or a diagram that shows various relations, positions, and levels in the organisation. An organisational chart can be defined as: A diagrammatic presentation of formal relationships among people in the organisation. The chart shows details regarding number and type of functions, levels of management, various positions and designations, direction of communication, and so forth. The chart is prepared either on function basis or job title basis. Generally, two types of charts are prepared, a master chart and a supplementary chart. A master organisation chart is also known as the grand chart or general chart. It shows a general picture of organisational structure, consisting of all functions, levels, and people. Supplementary chart, on the other hand, shows detailed relationships within a specific function or area, for example, supplementary organisation chart of marketing department shows only marketing activities and various position holders. Organisation chart can be prepared in three forms— vertical chart, horizontal chart, and circular chart. Among the three, vertical chart is the most popular and widely used chart. Organisation chart is a useful tool for many purposes.

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Along with the organisation chart, organisation manual is also prepared to guide the interrelations. An organisational manual is a small booklet that describes objectives, authority, status, and responsibility of each of the positions. It also explains the nature of work, powers, position, status, etc., of each position holder.

SIGNIFICANCE OF ORGANISATION In order to put the plan into action, a manager needs a formal structure of the organisation. Every business unit, irrespective of the objectives to be achieved, type and nature of work to be performed, and size of operations to be carried out, needs an organisation structure. It facilitates establishing formal relations among employees and defining statuses and positions. It also helps in carrying out work effectively and efficiently as multiple activities are grouped into classes. Suitable organisation is a tool for achieving better coordination and integration among various activities. Authority delegation and responsibility assignment are vital tasks of the organising process. Proper organisation helps in establishing effective authority relationships. Every company tries to create the most suitable structure of organisation to direct efforts effectively toward achievement of goals. The American industrialist, Andrew Carnegies, said about the significance of organisation: “Take away our factories, take away trade, revenues of transportation, our money, and leave nothing to us but our organisation, and in four years, we shall have established ourselves.” The following points elaborate the significance of organisation.

1. Tool for Management Action Organisation is a tool for managerial action. It facilitates direction, coordination, and control. Organisational structure is a base to implement managerial plans effectively.

2. Achievement of Objectives Efficiently Organisation is the basic requirement for achieving objectives with minimum wastage and within limit of given resources and time. It provides a base for implementing and operating of various activities. The formal structure facilitates implementation of the plan, and directing and controlling of actions. A business unit can, thus, achieve its objectives in the most efficient and effective manner. 3. Provision for all Activities

Organisation ensures that all required activities have been identified and accounted for. It minimises the possibility of missing or overlapping of important activities.

4. Benefit of Specialisation Organisation helps in reaping the benefits of specialisation. Capable and qualified persons perform the specialised activities of the departments they are trained for. Such arrangement leads to overall efficiency. 5. Effective Assignment of Work and Delegation of Authority

Proper assignment of job and delegation of authority are key aspects for smooth functioning of operations. Suitable organisation serves as the base for effective assignment of work and delegation of authority.

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Significance of Organising Skills: An Experience from the CWG Organising skills are key inputs in the success story of any event. The Commonwealth Games (2010) was fairly successful (amidst a lot of man-made and natural challenges) due to effective organising. Though public-private partnership was not permitted in the CWG, private sector talent and organising skills made a significant contribution to make the event successful one. In the 19th CWG, there were 6081 athletes and thousands of team officials and other invitees from 71 countries participated in 272 events of 17 sporting disciplines. It took 18 months to plan for the opening and closing ceremony. The Commonwealth Games Village was a state-of-the-art facility designed to provide unmatched comfort and hospitality standards to the participating teams. India made a massive investment of Rs. 60,000 crores to organise the 12-day sporting event. Organising skills from five star hotels including ITC Hotels, Oberoi Group, GMR Group, Sahara Group, etc. helped maintain the games village, given their experience and expertise in handling hospitality and hygiene. India Inc extended their help to the Commonwealth Game Organising Committee with logistics and hospitality issues in and around the beleaguered Games Village. Senior executives of ITC hotels visited the Village personally to ensure that hospitality standards at the village meet global 5-star standards. They did all these on voluntary basis. To make the mammoth-sized event successful, the Commonwealth Game Committee members, politicians, bureaucrats, hospitality experts, and private sector skilled staff played crucial role. It was the real test of our managerial (planning, organising, staffing, directing, and controlling) skills. High profile organising and coordinating skills were the key input in success story of the event. Our joint organising efforts could fetch satisfactory outcomes. (Sources: www.CWGDelhi2010.org, related websites, and news from media)

6. Clarity and Reduced Conflict A good organisation always clarifies the status of different position holders, management levels, degree of authority and responsibility, and relations. High degree of clarity and precision prevents or minimises possibility of conflict. 7. Promotion of Healthy Relations

Healthy relations with employees ensure smooth and undisruptive functioning of business operations. Proper organisational structure leads to improved industrial relations. It prevents unexpected events, like strike, lockout, etc. Sound organisation helps maintaining healthy relations.

8. Promoting Creativity Suitable structure stimulates creativity in a well defined area of work. Every one tries to evolve superior way of working. Organisation places people where they actually required and where they fit best. Each employee gets a chance to utilise his maximum potentials.

9. Optimum Use of Resources

Suitable organisation ensures effective use of valuable resources. It maximises the contribution of each of the resources in achievement of goals.

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10. Better Coordination

Coordination is the soul of management. Since performance is based on coordinated efforts of various departments, right coordination is inevitable. A good organisation promotes better coordination.

11. Reputation and Goodwill in the Market

Effective organisation can contribute in establishing and maintaining reputation and goodwill in the market. A company, by the virtue of good reputation, can transact with others at profitable and favourable terms and conditions.

12. Facility for Expansion, Development and Diversification Suitable organisation can facilitate further expansion, development and diversification of the business. 13. Flexibility and Balancing

Organisation enables management to adopt changes emerging from dynamic business environment. It helps in adjusting with changing requirements. Capable organisation can absorb major strokes and restore comfortable state on a continuous basis.

14. Employees’ Satisfaction and High Morale Organisation is the basis for job satisfaction. Since every employee is assigned the task of his interest and ability, there is well-defined area of work, clarity in superior-subordinate relationships, smooth flow of communication, and desired level of flexibility, it leads to job satisfaction. And, job satisfaction further promotes employees’ loyalty and morale. High morale leads to improvement in work performance and relations. 15. Base for Other Managerial Functions

It is to be noted that appropriate structure of organisation is also useful in carrying out other functions of management like planning, staffing, directing (motivation, leadership, communication and supervision), and controlling.

FEATURES OF GOOD ORGANISATION OR GUIDING PRINCIPLES FOR EFFECTIVE ORGANISING Qualities of a good organisation are also referred to as principles, features or requisites of good organisation. Every business unit tries to set up a suitable organisation that helps achieve its goals. An ideal organisation is one that suits the current situations and requirements. It is natural that each business unit has different opportunities, challenges, and resource capacity. Therefore, concept of suitability is a relative term. Main qualities of good organisation have been described below:

1. Simplicity

The structure of organisation must be simple to understand and apply. It must be free from unnecessary sophistication or complexity. Simplicity facilitates effective communication and coordination.

2. Flexibility

A good organisation is one that is flexible, free from rigidity. Organisation structure must be capable of coping with the ever-changing business environment, without

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disturbing the basic framework of the organisation. A manager should easily be able to make necessary changes to adjust with internal and external needs, or to meet challenging and absorb opportunities. PepsiCo India’s Flexible Organisation Food and beverages major PepsiCo India has issued a list of do’s and don’ts for its employees, specifically during the CWG, 2010. The company had also given options such as work from home, flexi-hours, recommended commuting by the Metro, and put in place an alternative route plan for its employees. It has also asked the employees not to arrange too many meetings during the games. Company initiated every possible action to make employees avoid extra stress during the Commonwealth Games events from 3rd to 14th October, 2010.

3. Stability or Continuity Organisation must be stable and serve for a longer period. It may undergo minor changes, but the basic structure should be of permanent nature. 4. Suitability For maximising contribution of each individual of every department, the organisation structure should be suitable to the particular business unit. Suitability principle suggests that the structure should be suitable to the overall conditions of the business unit. More clearly, organisation must suit with objectives, size, nature, resources, activities, and other relevant criteria of the business unit. 5. Provision for Top Management Top level management is essential to guide, supervise, coordinate, and control efforts of all departments. It is the apex body in the business organisation. Therefore, there must be provision of top level management for effective working of the entire organisation. 6. Importance of Human Element

Organisation must accept the important role of the human element. It should be the prime consideration and should be placed at the centre while deciding every aspect of the organisation. The structure should be capable to meet human needs, motivate them, and control their behaviour. In short, organisation must be capable of getting the work done through people in an effective way.

7. Specialisation (or Division of Work) The principle of specialisation suggests that similar type of activities be performed under one function or department. Similarly, each specific function or set of activities must be carried out by qualified, experienced, and capable manager. Specialisation results into high degree of efficiency. Marketing manager, for instance, perform all the relevant activities of marketing. 8. Clear and Unbroken Line of Authority (or Scalar Principle)

This is similar to scalar principle. The principle guides that line of authority from top to bottom should be clear and remain unbroken. Every employee should know clearly to whom he has to report and who report(s) to him. This facilitates speedy action and better coordination.

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9. Unity of Direction and Command This is an important principle. Unity of direction implies that similar types of activities should be directed by one manager under one function/ head. On the other hand, unity of command guides that every subordinate should get orders, instructions, and guidelines only from one superior and be responsible to that superior only. It suggests that one subordinate have one boss. It leads to order, discipline, and clarity. 10. Balance—Authority and Responsibility Principle of balance guides a balanced approach between responsibility and authority. It suggests parity of authority and responsibility. Authority should neither be more nor less than responsibility. It should be just equal to the responsibility. 11. Application of Absoluteness of Ultimate Responsibility The structure of organisation should be such that the ultimate responsibility can be fixed for the final outcome. Authority can be delegated, not responsibility. Superior may delegate to subordinates, but would be responsible for the final performance of his subordinates.

12. Proper Emphasis on Staff Function Staff means a team of experts. For effective performance of various activities, there must be provision of proper staff function. Staff members guide the line managers in making decisions. Proper use of staff can contribute to overall efficiency. 13. Minimum Possible Levels As far as possible, there should be minimum levels in an organisation. Minimum levels in management facilitate smooth communication and speedy actions. Complexity is also minimised. 14. Proper Span of Control

Span of control, also referred as span of management, indicates how many subordinates can be effectively directed and controlled by one superior. In fact, no superior should be asked to supervise more subordinates than he can effectively manage. Span of control depends on a number of factors. However, in most instances, 6 to 9 subordinates are considered as ideal span of control.

15. Other Principles

Some minor principles or qualities of a good organisation have been

listed as under: (a) Clarity and Precision (b) Economy or Efficiency (c) Objectivity – Bias-free Structure (d) Coordination (e) Provision of Feedback or Review (f) Facility for Training and Development The list is not complete. Every manager, while dealing with day-to-day work, develops such principles. All principles are not equally relevant to all organisations. A manager should have knowledge of these principles and should apply relevant principles for better performance.

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ORGANISATIONAL CHART AND MANUALS Organising process ends with preparation of organisational charts (and manuals). Organisation chart is graphical or diagrammatical presentation of authority relationships. It is a picture, a blueprint, or a diagram that depicts formal relationships among various position holders in the organisation. It helps to understand the complete picture of organisation.

Organisational Chart Organisation chart has been defined as: 1. Koontz and O’Donnell: “Organisational chart is nothing more than an indication of how departments are tied together along their line of authority.”6 2. Herbert Hicks: “An organisational chart is a statement of relationships and activities we would like to have in the organisation.”7 Thus, organisational chart can be defined as: Organisational chart refers to the diagrammatic presentation of formal relationships—horizontally and vertically—within an organisation. It shows the entire structure with all levels and positions. Organisation chart is like a blueprint of an architect and it can be explained as: Organisation chart is a picture, a blueprint, or a diagram that depicts formal relationships among various position holders in the organisation. In connation with the details the chart provides, it can be said: Organisational chart shows details regarding number and type of functions, levels of management, various positions and designations, direction of communication, etc. The chart is prepared either on function basis or job title basis.

Details on the Chart Normally, organisational chart reflects following aspects: 1. 2. 3. 4.

Channel of formal (superior-subordinate) relationships Levels in management, and respective staff constituting each level Major functions of organisation and the relationship among them Channel and direction of communication

Types of Organisational Chart Organisational chart can be classified on the basis of scope, presentation, and positions as shown below:

1. On the Basis of Scope On the basis of scope, there are two types of charts—master (or general) chart and supplementary chart. i. A master organisation chart is also known as the grand chart or general chart. It shows a general picture of organisational structure, consisting of all functions, levels, and people. ii. Supplementary chart, on the other hand, shows detailed relationships in a specific function or area, for example, organisation chart of marketing department depicts only marketing details.

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2. On the Basis of Presentation On the basis of presentation, there are three types of organisational charts – vertical chart, horizontal chart, and circular chart. i. In vertical chart, positions or levels are presented vertically, i.e., from top to down. Extreme top position shows the highest authority. Authority, responsibility, status, etc., reduce as the position descends from the top. It is a popular and widely used chart. ii. Horizontal chart, on the other hand, shows formal relations in horizontal direction, i.e., from left to right. At the extreme left, the highest position holders are placed. Authority, responsibility, status, etc., reduce when we move from left to the right. It is infrequently used. iii. Circular chart shows formal relations in circular pattern. Naturally, the highest position holder is placed at the centre. Authority, responsibility, and status reduce when we move from the centre to outside. It has no practical value.

3. On the Basis of Positions

On the basis of positions, there are two types of charts— function-based chart and title-based chart. i. Function-based chart shows the functions of the organisation. Functional chart shows different units, subunits, and sections engaged in different functions (for example, marketing department). ii. Title-based chart show the title or label of the person performing a particular set of activities, for example, marketing manager. Alike function based chart, title based chart, too, shows different levels, various positions in each level, and their relative significance in the organisation.

Uses of Organisational Chart Organisational chart is an important managerial tool. Carefully prepared organisation chart serves many purposes. Koontz and O’Donnell opined: ‘‘Charts are not only evidences of organisation planning, but also road maps for decisionmaking and training devices for those who would learn how a company is organised.’’ Its importance has been discussed below: 1. Management Tool: It shows complete picture of the organisation. Manager can easily understand status, position, role, and functions of different position holders. It helps in decision-making. 2. Clarity: It avoids overlapping, duplication or repetition as all functions are included, no function is missed, and no function is duplicated. It shows clearly the various positions and their interrelations. 3. Conflict Resolution: It serves as a ready reference for conflicts arising out of structural ambiguities, like status, position, authority-responsibility, etc. 4. Detecting Problems: Careful study of the chart and manual helps in detecting structural deficiencies, communication problems, overlapping or duplicating of positions, improper span of control, and other related problems. 5. Details to Outsiders: It shows complete structure of the organisation. Outsiders can easily get an idea about the type of structure, levels, positions, departments, etc., in the organisation.

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6. Base for Modification: Organisational chart is taken as a base for modification. Minor or major modifications are made in the existing chart to adjust with changing situations. 7. Aid to Training: Organisation chart, along with manual, is used for induction and training of newly appointed employees. They can learn about levels, functions, positions, and other relevant aspects, along with necessary details.

Limitations Organisational chart may create some problems. However, problems are related to its preparation and interpretation. Following are some possible problems: 1. Inflexibility: Organisational chart leads to excessive formalisation. Work has to be completed as per formal rules, policies, and procedures. It may bring inflexibility and create unnecessary delay. 2. Partial Views: Obviously, organisational chart (and manuals) only shows formal relations, but does not tell about informal organisation. In fact, informal relations have considerable effect on coordination, and, hence, on overall performance of people in the organisation. 3. Inadequate Description: It only shows higher or lower authority-responsibility, but not its degree or quantum. 4. Psychological Problems: The chart, probably, hurts feeling of some employees working at lower positions. Superiority-inferiority complex creates problems and increases unnecessary gap between the higher and the lower position holders.

Organisational Manual Organisational manual is a small booklet that describes the chart. It provides additional details about the chart. While the chart shows only functions, the manual provides details about each function. Normally, it shows objectives, authority-responsibility, functions and activities, direction of communication, and other relevant aspects. It may be prepared either for the whole organisation, or for a part thereof.

ORGANISATION THEORIES: AN OVERVIEW Organisation theory describes how an organisation should be created and what type of design a business enterprise should select. Let us first define three related terms: ‘organisation’ and ‘theory,’ and then ‘organisation theory.’ Organisation is a formal structure for executing work. Theory is a systematic grouping of interrelated principles (facts, laws, or guidelines). Organisation theory implies the study of structure and design of organisation. It describes how organisations are created and gives suggestions on how to formulate organisation structures to improve organisational effectiveness. Organisation theory is summarised as: 1. Organisation theory is a set of systematically interrelated principles dealing with different issues related to organisation structure.

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It explains how organisation is created, and how it should be created. It describes relevant variables in organisation. It shows how the structure affects human behaviour and organisation effectiveness. Every theory is based on some postulates or assumptions. Each theory has varying degrees of usefulness. Each organisation theory is based on contemporary problems and opportunities. Many contributors contribute to a particular theory of organisation.

CLASSIFICATION OF ORGANISATION THEORIES Organisation theories are classified into three types: 1. Classical Organisation Theory 2. Neo-classical Organisation Theory 3. Modern Organisation Theory

Classical Organisation Theory Classical means traditionally acceptable or long established. The theory is the beginning of systematic study of organisations. Classical writers view the organisation as a machine and human beings as different component of that machine. It only focuses on input-output relationship. The theory is labeled as ‘machine theory,’ ‘structure theory,’ or ‘physiological theory.’ Classical organisation theory is based on Scientific Management of F W Taylor,8 Administrative Management of Henry Feyol9 and Bureaucratic System of Max Weber.10 Other classical thinkers, including Urvick, Oliver, Mooney, and others, also make contributions in classical organisation theory.

Elements of Classical Organisation Theory It is difficult to explain the elements of classical organisation theory as different contributors have given different views on how the organisation structure should be created. However, major contributions focus on following four areas, said to be the elements or pillars of classical organisation theory: 1. Division of Labour or Specialisation

Division of labour suggests that work should be divided into different parts on the basis of specialisation. For division of work, various activities should be identified at each level in the organisation. Activities should be differentiated into tasks that can be handled by different individuals at the same time, or by the same individuals at different times. Capable individuals should perform specific tasks (sets of activities). The organisation should have different individuals for different tasks. The theory assumes that specialisation leads to higher efficiency as it improves performance of people.

2. Scalar and Functional Processes Scalar and functional processes are key aspects of classical organisation theory. The theory suggests that there should be clear and unbroken chain

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of command/authority from top to bottom. There should be someone at the top to exercise authority to make the final decision. Scalar process generates superior-subordinate relationships in the whole organisation. Every person is connected with the line of authority. It shows vertical growth of the organisation. Functional process implies the division of organisation into specialised parts and regrouping of parts into compatible units. Each unit in the organisation should be functionally different than others. Scalar and functional processes contain five components. a Departmentation: Departmentation is the process of dividing the work of the organisation into units or departments. It involves grouping of tasks into individual administrative units and grouping of units into large units and departments. Top level department exercises control over other departments. b Coordination by Hierarchy: Coordination among people at different levels can be achieved through the chain of command. It implies that every one from bottom to top level should have a superior to whom he is accountable. Individuals in the organisation are linked through well-defined line of authority. c Unity of Command: The principle of unity of command suggests that each person (at any level) in the organisation should receive orders and instructions from only one superior. It solves the problem of conflict in instructions. d Delegation of Authority: Along with assignment of work to subordinates, authority should be delegated to enable them to carry out their respective work. Delegation is authorisation to an individual for making decisions. Through the delegation and redelegation process, authority is distributed at various levels in the organisation. e Line and Staff Relationship: Classical theory advocates establishing line and staff relations. Line relationship exists between superior and subordinates. Superior directs and controls his subordinates through this relationship. The subordinates are obliged to carry out the order. Staff relationship involves offering advice to line managers. The line managers are, however, not obliged to follow advice.

3. Formal Structure

Classical thinkers suggest that there should be logical and rational structure of the organisation. The structure should show formal relationships among tasks, activities, and people. This can contribute to individual and organisational efficiency. The key element in the structure is the position. Every position is made of a number of expectations that others hold in form of appropriate behaviour from the position holder. Various positions are grouped in horizontal and vertical ways. Each position holder is given certain amount of authority to perform functions. Depending upon distribution of authority, the structure may be centralised (authority is concentrated in the higher positions) or decentralised (authority is delegated till the lowest positions in the organisation).

4. Span of Control Span of control refers to the number of subordinates that can be effectively supervised and controlled by a superior. According to classical thinkers, the span of control should be limited. For more details, refer to ‘span of control,’ in Chapter 7.

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Evaluation The classical theory of organisation gives a number of practical guidelines (principles) to design organisation structure. Many of these principles are valid even today and provide useful guidelines to design the organisation. However, practicing managers should be careful while taking clues from classical theory. In this regard, William Scott notes: ‘‘It would not be fair to say that the classical school is unaware of the day-to-day administrative problems of the organisation. Classical organisation theory gives relevant insights into the nature of the organisation but the value of this theory is limited by its narrow concentration on the formal anatomy of the organisation.’’11 However, classical organisation theory has been severely criticized on several fronts. 1. The motivation assumptions of classical theory are incomplete and inadequate. Assumptions regarding human beings seem unrealistic. 2. Classical theory treats human being as a machine. It is not justifiable in modern management theory and practices. 3. The theory is inadequate in dealing with complexities in organisation structure and functions. 4. Classicists treat the organisation as a close system, mechanist pattern. They assume that environment has no impact on the organisation and human beings can be manipulated like machines. The assumptions make no sense in practice. 5. Organisation theory is criticised on static views of the organisation. Classicists assume that once the organisation is created, it will work for ever, there is no need to change it. This is not true. Static structure seems meaningless in today’s context. 6. Classical thinkers put too much emphasis on classical pillars—division of work, scalar functioning processes, structural arrangement, and span of control. In today’s context, classical pillars are no longer applicable. 7. Principles of organising lack universality. Researches conclude that no one principle is universally applicable. 8. Most of classical principles and concepts are based on personal experience, and they lack sound research base. 9. Excessive specialisation leads to monotony and affects employees’ performance adversely. 10. Hierarchical structure is based on authority. It is suggested to supervise and control employees on continuous basis. Thus, in today’s situation, it has no relevance. Horizontal organisation, network organisation, virtual organisation, and free-form organisation have thrown away authority based structure.

Neo-Classical Organisation Theory Main contributors to neo-classical organisation theory include Douglas McGregor,12 Charis Argyrich,13 Rensis Likert,14 and all those who contributed to human relations school (including Elton Mayo, P. F. Drucker, Chester Barnard, William J. Dickson, Keith Davis, David A. Buchanan, etc.). Human element was the most ignored area of classical organisation theory, while human factor is the focal point of neo-classical organisation theory. Most neo-classicists

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emphasised on the role of human element and human relations to make the organisation structure work effectively. According to them human factor should never be neglected. Flexibility and less authorisation are key elements of neo-classical theory. Most views of neoclassical thinkers are ‘human centric,’ as against ‘authority centre’ of the classical organisational theory. They emphasised on employee consideration and satisfaction, leadership, motivation, free communication, informal organisation, interpersonal behaviour and relations, fixation of responsibility, decentralisation, social aspects of organisation, and specific structure of organisation. Note that neo-classical organisation theory is an improvement over the classical theory. In designing organisation structure, human variable is more important than physical and mechanical variables. The Hawthorne Experiments by Elton Mayo and his associates initiated neo-classical approach to organisation design. The essence of the neo-classical theory contained in two points: one, organisation situation should be viewed in social as well as economic and technical terms, and, two, the social process of group behaviour should be understood while organising the structure. In relation to neo-classical views, Douglas McGregor says that fulfillment of workers’ desire for recognition and satisfaction is essential for more efficiency. They should be given more independence and larger role in decision-making. Charis Argyris argues that organisation design should be such that it better meets human needs and increases satisfaction. Rensis Likert emphasises on subordinate-management relations and dynamic need of leadership.

Propositions

The main propositions of neo-classical theory of organisation are:15

1. The organisation is a social system. 2. The social environment of the job affects people and is also affected by them, and not by management alone. 3. Informal organisation also exists within the formal organisation and it affects, and is also affected by, the formal organisation. 4. Human being is not totally rational and his behaviour can be predicted in terms of social and psychological factors. 5. Human being has diverse motivational patterns and tries to fulfill different types of needs. 6. Often, there is a conflict between individual and organisation objectives, which increases the importance of integration between individuals and organisation. 7. Communication is necessary as it carries information necessary for organisational functioning and conveyes the feelings and sentiments of people who work in the organisation. 8. Team work is essential for cooperation among people. This is not achieved automatically but has to be achieved through behaviour approach.

Neo-classical Theory and Organisation Design Neo-classical theory suggests that organisation design should be prepared in such a way that it can meet the basic postulates (propositions) of the theory. Elements of neo-classical theory have been summarised as under:

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1. Flat Structure Neo-classical theory advocates flat structure instead of the tall structure. To neo-classical thinkers, tall structure is against human beings. Tall structures create problems that include: Communication problems owing to increase in distance between decision-makers and implementers Lack of motivation in people It is expensive because of too many levels are added in the organisation As against tall structure, the flat structure with wide span of control is more suitable for motivating human beings in the organisation. It shortens communication chain, is less expensive, and is free from hierarchical control.

2. Decentralisation

Neo-classical theory recommends decentralisation in the organisation structure. Decentralisation is closely related to flat structure as wide span of control results in horizontal expansion. Decentralised structure offers many benefits and suits the basic characteristics of human beings.

3. Informal Organisation Informal organisation is the major departure of neo-classical theory from the classical theory. Neo-classical theory recognises that an informal organisation exists with formal organisation. Informal organisation comes into existence because formal organisation cannot fulfill the members’ social and psychological needs. It has tremendous effect on behaviour of people. Since a manager has no control over informal organisation, he should make the best use of it in achieving the objectives. 4. Other Aspects

Neo-classical theory of organisation emphasised on some other important aspects while designing organisation structure. The aspects that determine organisational effectiveness include: a. b. c. d. e. f.

Informal leader and employee-oriented leadership Group norms, irrational behaviour Non-economic motivation Employee participation Interpersonal relations New concept of authority and responsibility

Evaluation Undoubtedly, neo-classical thinkers gave new dimensions to the design of the organisation. Neo-classical organisation theory must be appreciated for its contribution in terms of informal organisation, informal leader, interpersonal behaviour, non-financial motivation, participative management, et al. These factors, almost absent in classical theory, are important for designing organisational structure and understanding organisational behaviour. Major limiting factors have been summarised as under: 1. The theory seems merely a modified version of classical theory. It is fit for organisational modification and is not useful for organisational transformation.

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2. Most of the suggestions made by neo-classical thinkers are not practical. It is not possible to satisfy everybody. Views are more philosophical than practical. 3. Excessive human-centered organisation seems more ideological. It does not make sense at all places and in all situations. Humanistic organisation structure has its own limitations. 4. Various structures and formats suggested by neo-classicists are not applicable in all situations. 5. Organisation is an economic endeavour and it cannot concentrate on employees’ satisfaction at a cost of economic excellence. 6. Classical theory is more mechanical while neo-classical theory is excessively humanistic. Excessive emphasis on one variable at a cost of others can never yield better results. All factors affecting organisational functioning must be dully considered. 7. Informal communication, participative management, informal leadership, and some other ideological issues make sense only when employees are mature. They cannot work satisfactorily in all situations. 8. The theory failed to suggest clearly the best structure of the organisation. It only suggests what factors should be considered. 9. Non-monetary rewards do not work effectively. They make sense only when supplemented with monitory rewards. 10. Dynamic need of environment requires contingent structure, leadership, and motivation. Ideological views have limited practical value.

Modern Theories of Organisation Modern theories have been developed to remove the limitations of the traditional theories. They suggest sophisticated and scientific ways of explaining and designing complex organisation structure. Modern organisation theories consist of two approaches: 1. System Approach to Organisation Design, and 2. Contingency approach to Organisation Design Before the emergence of the contingency approach, the system approach was treated as the modern approach. Some experts have treated both approaches as synonymous.

System Approach to Organisation Design

System approach to organisation design is also called system organisation theory. Concept of system, its features, implications, and relevant aspects have been discussed in the ‘system school of management,’ Chapter 2. Here, only relevant aspects of the system approach to organisational design have been presented. In contrast to the traditional organisation theories, the system theory of organisation focuses on totality views. System organisation theory has recent origin, i.e., after 1950s. However, system views have been developed and used in natural and physical sciences for years. Main contributors to system

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organisation theory include, William G. Scott,16 Chester Barnard,17 Richard A. Johnson,18 and some others. In relation to system approach to organisation, Chester Barnard views the organisation as a system of consciously coordinated activities of two or more persons. The theory is an attempt to view the organisation as a purposefully unified system composed of interrelated parts or subsystems, like technical system, social system, production system, marketing system, and so forth; the subsystems are mutually dependents and interrelated to create a force to reach the common goals. It advocates an integrative approach to organisation and considers the organisation in its totality. The theory is analytical and not descriptive. Not one, but all parts or subsystems can make a meaningful design of the organisation.

Subsystem in Organisation As per system views, organisation is a system and is made of several interdependent subsystems. Every subsystem is constituted by variables, such as objectives, processes, roles, structures, and norms of conduct. Any change in any of the subsystems affects other subsystems. In the same way, if any subsystem fails to function properly, it affects other subsystems and, hence, the total organisation is affected. All functional areas, like marketing, finance, production, and personnel, may be treated as subsystems; each unit or department may be treated as a subsystem. Even, subsystems can be classified into physical and human subsystems, or technical and non-technical subsystems. Johan Seiler19 identified four subsystems (components) in the organisation system, like human inputs, technological inputs, organisational inputs, and social structures and norms. Interaction of these components makes an organisation. Kast and Rosenzweig20 have identified five subsystems, like goals and value subsystem, psychological subsystem, technical subsystem, structural subsystem, and managerial subsystem. Carzo and Yonouzas21 have identified three subsystems, like technical subsystem, social subsystem, and power subsystem. The totality of these subsystems with their interactions makes up the organisation system. Hence, we can say that the assemblage and interactions of the following five subsystems make an organisation system: 1. Technical Subsystem: The subsystem consists of techniques, methods, and processes used for transforming inputs into outputs. People perform various technical activities. Behaviour of technical subsystem is controlled by rules, procedures, policies, and other provisions. 2. Social Subsystem: The subsystem is made of interactions of individuals and groups. During interactions, people develop informal relationships that constitute the social system. The system offers psychological satisfaction to members. This cannot be controlled by formal provisions. 3. Power Subsystem: Power is one’s ability or personal capacity to influence others to achieve the desired results. Power subsystem contains both formal and informal power. Formal power is called authority. Power is a key variable to make decisions and command others. People acquire power through position, expertise, personal characteristics, coalition with others, and likewise. 4. Structural Subsystem: It refers to physical settings of the organisation in which work is performed. It is the pattern in which people are interrelated in such a way that they can make maximum contribution to objectives.

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5. Managerial Subsystem: Managerial subsystem leads all other subsystems towards realisation of objectives. Management is responsible for ensuring proper operations of subsystems, and their review and control. How are parts interlinked to compose the organisation system? The subsystems should be properly linked so that the organisation can work as a unified entity. Various parts/subsystems are interlinked by certain activities, known as the process. There are three linking processes: i. Communication Process: Communication works as the coordination and control mechanism. Various parts interact among themselves through communication. ii. Decision-making Process: Decision-making is concerned with selection of the right alternative based on certain criteria. It provides uniformity in the working of various subsystems. iii. Balance Process: It refers to an equilibrium mechanism whereby several subsystems can be maintained in a harmonious structured relationship to each other. These interlinking processes jointly affect the functioning of individual subsystem as well as the whole organisation system.

Implications

System organisation theory puts following implications for organisation

design: 1. Totality Views: System organisation theory suggests that all important parts and variables are important to determine effectiveness. A manager must consider and coordinate all parts to create synergy. It incorporates views of other theories. 2. Strategic Parts: The approach advises that an organisation should identify strategic parts and critical variables to form the organisation structure. Individuals, groups, tasks, formal organisation, informal organisation, status and roles, and all subsystems and their variables are considered as strategic parts. 3. Nature of Mutual Dependency: An organiser should decide on how far the subsystems are interdependent. Interference results in easy integration. 4. Linking Processes: The three main processes used to link subsystems, decision process, communication process, and balance process, should be used effectively to integrate parts into the whole. 5. Modern Organisation Models: It recognises that there are many problems in managing a large and complex organisation. Modern models are required to solve problems. It suggests that an organisation needs flexible and adaptive structure. It recommends matrix, project, taskforce, and network designs. 6. Active Interaction: Organisation system needs to be actively interactive with the outside environment for inputs and outputs. It has to be adaptive with the environment to absorb opportunities and tackle threats and challenges. Organisation’s subsystems should be coordinated to be effective in responding to the environment. 7. Lateral Relationship: The approach advocates lateral (sidewise) relationship among people in the organisation. A lateral relationship facilitates effective coordination by eliminating hierarchical control.

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8. Cybernetics: System organisation theory implies that the organisation should develop an effective information system to exercise control over complex organisation. It should use sophisticated Management Information System (MIS) to integrate, regulates, and control parts of the organisation. 9. Suitable Feedback Procedure: Management should review the processes of various subsystems individually and jointly and should then provide feedback. Feedback is used to make the whole system effective.

Contingency Approach to Organisation Design

Contingency means situational, based on situational variables. Contingency theory is an extension of the system theory of organisation. Actually, there are many aspects in system theory that have contingency implications. The central theme of the theory is: There cannot be a specific organisation design which is appropriate for all situations. Ideal organisation design depends on internal need of the organisation and nature of external environment. As such, there is no ideal or the best fit organisation structure that can be advocated to all type of business firms. Contingency theorists argue that system theory (though it has emphasised on organisation interaction with outside environment) doesnt adequately consider precise relationship between organisation and external environment. Contingency approach fills this lacuna. It recommends tailor-made structure that fits with the situaton.

Some thinkers differentiate between contingency theory and situational theory. According to them situational approach merely implies that managerial actions are dependent on a given situation. Contingency theory, on the other hand, implies an active interrelationship between the variables in a situation and the managerial solution (or actions). Thus, contingency approach takes into account not only the given situation, but also the influences of the given solution on behaviour pattern of the organisation. However, they are, more or less, similar, and we treat them as same. Main contributors to contingency organisation theory are Henry Tosi and Clay Hammer22 and Fremont E. Kast and James E. Rosenzweig23 and other management practitioners. Situational theory suggests that effectiveness of organisation depends on the type of situation in which a manager has to operate, and the type of managerial actions and adaptation in relation to the situation.

Situational (or Contingency) Variables

Organisation structure should suit the prevailing situation. A situation is made of the following three types of variables: 1. Environmental Factors i. Technology ii. Cultural, legal, and political environment iii. Economic conditions iv. International business environment v. Social constraints vi. Availability of infrastructure facilities

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2. Organisational Factors i. Management philosophy ii. Type of tasks iii. Size of operations iv. Policies, rules, procedures, and strategies v. Organisation’s objectives vi. Resources vii. Leadership style 3. Individual Factors i. Types of people ii. Qualities and qualifications iii. Abilities and expertise iv. Needs and expectations v. Attitudes vi. Other personality characteristics However, environment, strategy, technology, size and people are the most crucial situational variables.

Implications Managerial implications of this school include: 1. Organisational structure is entirely situational, and there is no best fit organisation design that can be recommended to all types of organisations. 2. No approach is suitable in all situations. Suitable design is one that is formulated in light of requirements of the organisation on one hand and environment on the other hand. 3. It states that an organisation should interact with its environment continuously. No system is free to take absolute action. Rather action is subject to social, legal, political, technical, and economic factors. 4. It stresses on dynamic nature of the organisation, and states that a manager is required to be flexible. Any change in situational variable should be reflected in the structure. 5. Time is a powerful determinant of effectiveness of any approach. A manager should respond to the needs of time. No approach should be applied all the time. 6. Contingency approach advocates that proper training and development programmes are inevitable to make the manager understand the ‘situation.’ He must learn to obey situations as they cannot be changed.

SUMMARY Organising is the establishing of effective authority relationships among selected works, persons, and work places in order to make the group work together efficiently. Organisation is the formal structure and organising is the process to formulate the structure.

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Normally organising process consists of seven steps: specifying of objectives, enumerating of activities, classifying and grouping of activities, assigning of responsibility, delegating of authority, establishing relationships, preparing of organisation chart and manuals. Organisation is base for implementing the work. Its significance is measured in terms of its contribution to organisation’s overall effectiveness. A good organisation is one which can serve the purpose. Simplicity, flexibility, stability or continuity, suitability, provision for top management, importance of human element, specialisation (division of work), clear and unbroken line of authority (scalar principle), unity of direction and command, balance between authority and responsibility, and some others are important qualities or principles of a good organisation structure. Organisational chart refers to the diagrammatic presentation of formal relationships, horizontally and vertically, within the organisation. It shows the entire structure with all levels and positions. It serves many purposes and also suffers from a few practical problems. Organisation theory describes how an organisation is created. In addition to behaviour of people and their interaction, it explains different dynamics of organisational design and structure. There are three classes of organisation theories—classical organisation theory, neo-classical theory and modern organisation theory. Division of labour or specialisation, scalar and functional processes, formal structure, and span of control are key elements of classical organisation theory. Neo-classical theory of organisation is improvement over the classical theory. The theory recognises the significant impact of human factor on structure of the organisation. Flat structure, decentralisation, informal organisation and some other aspects are key elements of neo-classical organisation theory. Modern theories suggest sophisticated and scientific ways to explain and design complex organisation structure. It contains (1) System approach to organisation design, and (2) Contingency approach to organisation design.

KEY TERMS Organising and Organisation Organisation Process Delegation of Authority Assignment of Responsibility Organisation Chart Organisation Manual Situational Variables

Significance of Organisation Importance of Organisation Chart Principles/Qualities of Good Organisation Organisation Theory Classical Organisation Theory

Neo-classical Organisation Theory ModernOrganisation Theory System Organisation Theory Sub-Systems Situational Theory

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EXERCISES Objective Type Questions A. Answer the following: 1. Which are the key constituents of organisation structure? 2. How is organisation chart presented? 3. What is organisation manual? 4. What is organisation chart? 5. Write four elements of classical organisation theory?

6. How is human being treated in classical theory? 7. State four subsystems of the organisation system. 8. State two approaches of modern organisation theory.

` B. Choose the correct option (MCQs): 1. The term ‘organisation’ indicates many aspects, except the following one: (a) Process (b) Structure (c) Group of people (d) Production process 2. What does delegation of authority indicate? (a) Decision-making (b. Assigning responsibility to subordinates (c) Granting legitimate right of deciding (d) Decentralising activities 3. Which type of chart is not practically used? (a) Horizontal chart (b) Vertical chart (c) Circular chart (d) Departmental chart 4. What does organisation manual describe? (a) It describes authority, status and responsibility of each position (b) It describes functions of organisation (c) It describes organisation process (d) It describes organisational climate

5. What does ‘Unity of Command’ principle imply? (a) There should not be control over subordinates (b) One subordinate should have one superior (c) One boss should guide only one subordinate (d) All employees should work in unity 6. Classical organisation theory treats a human being as (a) Valuable asset (b) Machine (c) Employee (d) Business partner 7. Which one is a core aspect of Neo-classical organisation theory? (a) Human relations and human behaviour (b) Production efficiency (c) Technical excellence (d) Situational variables 8. Which type of organisation design do the neo-classicists suggest? (a) Tall structure (b) Complex structure (c) Flat structure (d) Departmental structure

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9. Informal organisation is an important element of (a) System theory of organisation (b) Contingency theory of organisation (c) Classical theory of organisation (d) Neo-classical theory of organisation

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10. What does the contingency theory of organisation imply? (a) Organisation is a social system (b) Organisation is technical system (c) Organisation structure is based on internal and external factors (d) Organisation is a system of authority

Descriptive Questions 1. What is organising? How is it different from organisation? State its characteristics. 2. Write an explanatory note on organising process. 3. Explain important principles/qualities of good organisation structure. 4. ‘Designing organisation structure requires a lot of considerations.’ Explain

the main factors affecting design of organisation structure. 5. What is organisation chart? Show the classification of organisation chart. What is its practical utility? 6. Write notes: (a) Importance of sound organisation structure (b) Uses and limitations of organisation chart

Assignments 1. Students should prepare an organisation chart and manual for an imaginary medium size company manufacturing five products for the whole country, and also abroad.

2. Students are assigned to study organisation structure of two companies and prepare a report comprising of the type of chart, positions, levels, functions, process, and qualitie in the organisations.

REFERENCES 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Louis Allen, Management and Organisation, McGraw-Hill, New York, 1950, p. 57 George R Terry, Principles of Management, Richard D. Irwin, Illinois, 1968 John Pfifner and Frank P Sherwood, Administrative Organisation, Prentice-Hall of India, 1968 Harold Koontz, Cyril O’Donnell and Heinz Weihrich, Management, McGraw-Hill, New York, 1988 Chester Barnard, The Functions of the Executive, Mass, Harvard University Press, Cambridge, 1968 Harold Koontz, Cyril O’Donnell, and Heinz Weihrich, op. cit. Herbert G. Hicks, The Management of Organisations, McGraw-Hill, New York, 1972 Frederick W. Taylor, Scientific Management, Harper Brothers, New York, 1911 Henry Feyol, General and Industrial Management, Sir Issac Pitman, London, 1949 Max Weber, The Theory of Social and Economist Organisation, Free Press, New York, 1947

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11. William Scott, ‘Organisation Theory: An Overview,’ Journal of Academy of Management, April 1961, pp. 7–26 12. Douglas M McGregor, The Human Side of Enterprize, McGraw-Hill, New York, 1967 13. Charis Aryris, Personality and Organisation, Harper Brother, New York, 1957 14. Rensis Likert, The New Pattern of Organisation, and The Human Organising, McGraw-Hill, New York, 1967 15. L M Prasad, Principles and Practices of Management, Sultan Chand & Sons, New Delhi, 2005, p. 289 16. William Scott, The Theory of Organisation, Handbook of Modern Sociology, Rand McNally, Chicago, 1974 17. Chester Barnard, The Functions of Executives, Cambridge, Mass, Harvard University Press, 1968 18. Richard A Johnson, Fremont Kast, and James Rosenzweig, Theory and Management of Systems, McGraw-Hill, New York, 1973 19. John Seiler, System Analysis in Organisation Behaviour, Richard D. Irwin, Homewood III, 1967 20. Fremont E Kast and James E Rosenzweig, Organisation and Management: A System Approach, McGraw-Hill, New York, 1974 21. Rocco Carzo and John Yanouzas, Formal Organisations: A System Approach, Richard D Irwin, Homewood, III, 1967 22. Henry Tosi and Clay Hammer, op. cit. 23. Fremont E Kast and James E Rosenzweig, Contingency Views of Organisation and Management, McGraw-Hill, Chicago, 1973

ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. 2. 3. 4. 5. 6. 7. 8. B.

Men, tasks, authority, and responsibility. Organisation chart is presented horizontally, vertically and circularly. Organisational manual is a small booklet that describes organisational chart. An organisation chart is the statement of relationship and activities we would like to have in the organisation. Division of Labour or Specialisation, Scalar and Functional Processes, Formal Structure, and Span of Control. Human being is treated as a machine. Technical Subsystem, Social Subsystem, Power Subsystem, and Structural Subsystem. System Approach and Contingency Approach. 1. (d), 2. (c), 3. (c), 4. (a), 5. (b), 6. (b), 7. (a), 8. (c), 9. (d), 10. (c)

CASE Reforms in the Mindset are More Important than Formal Restructuring of the Organisation Restructuring of organisation structure is the prime focus of management reforms efforts. However, restructuring is not always beneficial; it is not free from dangers. Hasty and revolutionary actions may invite countless troubles. The Vision Institute of Management Training

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(The VIMT) helps business enterprises design and redesign their organisation structures. The VIMT frequently organises workshops and training programmes to help managers organise their activities. On 25th August, the VIMT organised a one-day conference to teach modern managers how to design their respective activities. M.M. Tushar, 60, an expert, addressed managers. Mr. Tushar has worked for many national and international companies as manager for two decades, has travelled extensively to many countries to participate in management training programmes, and has been invited as the keynote speaker in many international seminars and conferences held in India and abroad. Since the last decade, he has been working as chief management trainer. Mr. Tushar said: ‘‘To organise work is the basic duty of managers. Sound plan and rich resource base can contribute only if the company is capable of organising its efforts meaningfully toward goals. Sound organisation contributes positively in a number of ways. However, while restructuring organisation design, one must not overlook ground and even, underground, realities. Type of work, number of activities, goals, type of employees, organisation culture and climate, resources availability, top management philosophy, and overall national and international management practices are some of the basic factors to be focused upon. Excessive emphasis on ideology or sophistication can prove fatal. Work design and organisational structure must be compatible. Modern, advance, and sophisticated designs do not make sense in all situations.’’ While mentioning the recent management philosophy and practices, he continued: “Now the distance between top management and the bottom is on the decline. I am not the exaggerating when I state that existence of middle level management is in danger!! Companies increasingly prefer more decentralised work structure. Organisations are no more formal hierarchical structures; they are being converted into family structures.’’ M.M. Tushar continued commenting on several issues related to organisation structure and managing efforts for two hours. Some excerpts of his speech have been summarised below: Superior-subordinate relations must be transformed into elder-younger relations in a family. Employees need freedom and job satisfaction. Not the structure, but the climate or the culture that the company’s CEOs or mentors create is more critical, and can be the decisive factor. How people are treated is more important than how people are connected by authority and responsibility. Status and position distances have been considered as powerful damagers. Perhaps freedom is more preferable than strict disciple, tight work schedule, and observing status significance. Strict discipline, close supervision, and direct control are outdated; have limited applicability. Freedom is more powerful than a force to foster employees’ efforts in pursuit of company’s goals. Social orientation, friendly climate, family programme, stress coping strategies, informal meets, casual work climate, involvement, freedom, and fact-based actions foster employees desire to work for the organisation. Pure line, pure functional, pure line and staff, pure committee, pure project, pure matrix, and many other pure structures are found only in books. In real practice, we find combinations of these structures. For example, developing a new building or a product does not always require project organisation. Network, project, matrix, virtual designs, etc., are directly or indirectly part and parcel of today’s organisation design. Principles propounded by classical thinkers and modern practitioners are too general and must be applied with due care. Recently evoked new organisational designs, like virtual organisation, network organisation, virtual office, free-form organisation, and others are conceptually rich, but cannot be

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recommended to all types of business enterprises. Nature of business, size and area of operations, local culture, and types of people are some key areas that need to be focused on while deciding suitability of organisation structure. Corporate units have a lot to learn from the distinct home-like organisation climate created by the Tatas, Infosys Techologies, Wipro Corporation, Google India, and many others. These practices can be gradually applied in any company. Indian managers are now mighty enough to teach at the global level how to organise and manage. However, it’s a slow process that solicits continuous efforts patiently. A firm must appoint a team leader instead of a manager; it should appoint a coordinator in place of a controller. Not only the managers, but the managed, too, should be made aware of recent management practices to change their mindset.

Questions for Discussion 1. Comment on today’s business environment. 2. What important factors should an organiser consider while structuring or restructuring organisation design? 3. ‘Over ideological approach in organising efforts may prove fatal.’ Explain the statement. State the factors affecting organisation design. 4. Discuss ‘freedom factor’ in relation to modern organisation design. 5. How is organisational climate more important than formal structure? 6. ‘Formal managers have to be leader and coordinator instead of boss.’ Give your opinion. 7. On the basis of the case, enlist five important suggestions that an organiser must consider.

CHAPTER

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Delegation and Decentralisation Learning Objectives Upon completing this chapter, you will be able to Define the terms ‘authority’ and ‘responsibility’ Differentiate between authority and power Explain the meaning of delegation and decentralisation, and difference between them State the meaning of departmentation and explain forms of departmentation Discuss Peter Principle and Parkinson’s Law

INTRODUCTION Delegation and decentralisation are two closely related and important issues while it comes to designing formal organisation structure. Obviously, a formal structure comes into being only due to delegation and re-delegation. Delegation implies granting decision-making rights to subordinates while decentralisation permits greater degree of freedom to decide and work independently at lower levels of management. Decentralisation is the result of systematic delegation from top to bottom and it offers a number of benefits. For example, Mr Gopal Varma who centralized all key decisions related to marketing at the regional office faced many practical problems which consequently affected the company’s image as well as balance sheet performance. Finally, he realised his mistake and decided to adopt reasonable decentralisation to speed up work, build regional managers’ morale, and finally improve consumer satisfaction and profits. However, decentralisation is not advisable for all kinds of decisions.

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This chapter describes relevant issues regarding the topics given below: 1. Authority and responsibility 2. Delegation of authority 3. Decentralisation 4. Departmentation 5. Span of control (or management) 6. Peter Principle 7. Parkinson’s Law

AUTHORITY AND RESPONSIBILITY Authority and responsibility are two crucial concepts in the organising process, and also in management, in general. Most management schools and approaches contain various issues related to authority and responsibility. Authority and responsibility go hand to hand. Authority is delegated as per the responsibility assigned.

Authority The term ‘authority’ is used in various contexts. For example, a person with superior knowledge and skills in a particular field is called an authority, a master or an expert. People occupying higher positions in universities, government offices, etc., are known as authorities. Similarly, the word ‘authorised’ means legal, legitimate, or who has certain rights and privileges. Even in organising, it is used in various ways because one can acquire authority from various sources, such as position occupied or personal competence. However, we need to define the term more precisely in relation to organisation and management. Obviously, a manager does not perform actual work, but gets it done through, and with, others. To make people work, a manager must have the right to order, instruct, reward, or punish. This right is known as authority. It is the legitimate power or right to decide or to make people work. It is interesting to note that a person is called a manager by the virtue of authority. Various levels and positions are created due to delegation of authority. Authority is a key concept in the organisation and is mainly related to positions. Every manager receives the authority from his superior by the delegation process.

Definitions of Authority The term ‘authority’ may be defined as: Herbert Simon defines the term as: “Authority may be defined as the power to make decisions which guide the actions of others. It is a relationship between two individuals, one is superior and the other is subordinate. The superior frames and transmits decisions with the expectations that the subordinate will accept the decisions. The subordinate executes such decisions and his conduct is determined by them.”1 Authority is the right to make decisions and order others. In this reference, the term ‘authority,’ can be defined as: Authority is the special rights granted (by superior) to position holder in

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the organisation. Such rights enable him to decide, to get the decision executed, to command (direct), and to allocate resources. More precisely, in a comprehensive manner, we can define authority as: Authority is the authorisation to decide. Authority enables a manager to function effectively and independently. He can get the work done by virtue of authority. A person is a manager due to possession of authority; authority enables a man to be manager.

Features of Authority The basic features of authority have been listed below: 1. Authority is legitimate or legal (i.e., position-related and granted by superior) power or the right to decide and/or to order. 2. The limit of authority (i.e., how much and in what way he can use authority) is determined in advance. One has the authority doesn’t mean he is authorised to do anything. He has to use the authority as per policies, rules, regulations, and norms prescribed. 3. Authority is based on responsibility or assignment of work. Along with authority, responsibility is also given. One can use authority to carry out responsibility. 4. It is position-bound. The right is given to a specific position holder. He enjoys authority as long as he occupies that position. 5. It is a relationship between superior and subordinates, in which the superior can exercise authority over the subordinates. 6. Authority is offered or given by one’s superior. No one can be authorised without superior’s consent. 7. Authority is a key to managerial action. Without it, superior cannot direct and control subordinates’ actions. 8. The primary purpose of use of authority is to get the work done through others. It is basic element of management. 9. Authority is also a link to integrate several parts/levels in the organisation. All parts in the organisation are connected via authority. It also a means (or tool) for coordination. 10. Authority is given objectively but can be used subjectively. Use of authority depends upon personality factors of authority holder. 11. Authority, in the context of organisation, can be permanent or temporary, and it can be increased, decreased, or even withdrawn. 12. Authority is meaningless (i.e., has no value) if it is not exercised. It must be exercised by making decisions, taking action, and controlling behaviour of subordinates.

Authority and Power Authority and power—though both are used to influence others’ attitudes, actions or behaviour—are different. Power is personal ability or capacity to influence others. It is not related to position; a person with power can influence or impress any (higher or lower) position holder. Unlike authority, power is neither delegated nor withdrawn. It is acquired through rigorous study, training, observation, and experience. Power may be God gifted. It is expressed

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or measured in terms of expertise, knowledge, and specific way of working with others. Manager needs power along with authority to influence the subordinates effectively. Note that authority can be denied, not power. Power is always accepted and respected. Power related issues have been adequately discussed in Chapter 24. Power seems more influential than authority, but cannot change or replace authority. Table 7.1 explains the difference between authority and power. TABLE 7.1 Difference between Authority and Power No.

Key Points

Authority

Power

1.

Meaning

Authority is the ligitimate right to Power is the personal capability do something (to decide or com- to command. It is the ability to do mand). something. It may not be legitimate.

2.

Source/Origin

It is institutional and positional. It It is personal, free from institute originates from the highest position and position. It is inbuilt personal holders. capabilities.

3.

Location

Authority resides in the position.

4.

Tenure

One holds authority as long as he Power is permanent. It cannot be occupies the position or post. taken back as it has not been given.

Power resides in the person.

5. may fail.

fetches the result as it is always accepted by others.

6.

Degree of Acceptance

Authority may or may not be ac- Power is always accepted and recepted and respected. spected.

7.

Reciprocal Effect

Authority cannot affect the power. on authority. Power may dominate others can be diluted by using authority.

8.

Level

Level of authority depends on the Power doesn’t follow the position. position in organisational hierar- It depends on personal capabilichy. ties. Even, lower position holder may have more power.

9.

Visibility

Authority centres (location or points) can be portrayed (visible) in the formal structure of the organisation and are shown in the organisation chart.

10.

Direction

Power centres cannot be portrayed (visible) in the formal structure. Organisation chart doesn’t show power centres.

delegated from higher level position low level position holder can exerto lower level position. cise power on higher level position holder. 11.

Decision-making

12.

Reward ment

and

Authority enables the person to take Power doesn’t enable a person to a decision and get it implemented. decision and its implementation.

punish- Authority can reward or punish oth- Power cannot offer reward or imers. pose punishment. However, it can increase or decrease its level or degree.

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Responsibility Another important term often used in management literature, along with authority, is responsibility. According to some authors, it is defined as the duty, task or activity assigned to a subordinate. Note that authority moves downward—from top to bottom, from superior to subordinate—while responsibility moves upward—from bottom to top, from subordinate to superior.

Definitions

Responsibility has been defined as:

1. Louis Allen: “Responsibility refers to the mental and physical activities which must be performed to carry out a task or duty. That means every person who performs any kind of mental or physical efforts as an assigned task has responsibility.”2 2. George R. Terry: “Responsibility is the obligation of an individual to carry out assigned activities to the best of one’s ability.”3 3. Morris B. Hurley: “Responsibility is the duty to which a person is bound by reason of his status or task. Such responsibility implies compliance with directives of the person making the initial delegation.”4 In other words: Responsibility is a duty or an obligation of subordinate to perform the task assigned to him by his superior. Some management writers have defined responsibility in a more comprehensive way and treat it as the obligation of an individual to perform the activities or duties assigned to him. Thus, it is not merely duty that is assigned but an obligation that the duty is to be performed. It comes into existence when a person with authority requires assistance from another and delegates authority to him for the performance of specific work. The acceptance of the obligation by the subordinate to perform the work creates a responsibility.

Responsibility and Accountability

Another word used in relation to responsibility is accountability. According to some experts, responsibility consists of two phases, the obligation to secure results, and to accountability to a superior who delegated him authority. In relation to these three terms, Robbins clarifies: ‘‘Authority is the right to act, responsibility is the obligation to carry out delegated authority, and accountability establishes reliability for proper discharge of duties delegated to the subordinate. Responsibility and accountability may seem similar, but are different.’’5

More clearly, we can say: To carry out the assigned work (for benefit of any of the parties) is responsibility, and to carry out the assigned work to meet expectations of superior (who assigned task and delegated authority) is accountability. Accountability is concerned more with obligation toward superior while responsibility concerned more with basic duty or dedication towards work. Obviously, accountability is a narrow concept and cannot be separated from responsibility. It can be treated as part of responsibility. In fact, the difference seems less significant. It is, therefore, advisable to consider responsibility, accountability, liability, answerability, duty, and obligation as similar terms, having same indication.

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The basic question is: Can responsibility be delegated? The answer depends on the type of responsibility, ultimate or operating. Ultimate responsibility, related to total task, cannot be delegated. However, operating responsibility—the extent to which the subordinate is responsible for assigned task—can be delegated. Thus, the subordinate is responsible to the degree he is assigned work, but not for the entire work.

Characteristics of Responsibility Let us discuss important characteristics of responsibility: 1. Responsibility is the result of delegation of authority. When a subordinate is delegated authority by his superior, he becomes responsible to his superior for the performance of the assigned task as well as use of authority. 2. Responsibility and accountability are closely related, but are different. Responsibility is one’s obligation to complete the work, it indicates faithfulness towards duty for general interest; while accountability is one’s obligation towards the superior, and it indicates faithfulness toward the superior. 3. Responsibility arises due to superior-subordinate relationship. Superior assigns responsibility to his subordinate, or subordinate receives responsibility (along with authority) from his superior. 4. Responsibility is human activity. It can be assigned by human being (superior) to human being (subordinate). 5. Responsibility is assigned in relation to the authority delegated. It tends to be parallel (or commensurate) to authority. 6. It is a broad term. It is an obligation of the subordinate to carry out the assigned task. It includes accountability or answerability. 7. Responsibility may be continuous or confined (for limited time), may be general or specific. 8. Responsibility may be fixed in terms of functions, activities, goals, or targets. Standards are fixed in order to judge whether responsibility has been carried out successfully. 9. Proper direction (including leading, motivating, communicating, and supervising) is necessary to enable the subordinate to perform responsibility successfully. 10. Responsibility cannot be delegated. Subordinate remains responsible to his boss for the work assigned to him, irrespective of the ways and methods used to get the work done. 11. Responsibility must be accepted by the subordinate. He must deliberately accept the obligation towards the superior.

DELEGATION OF AUTHORITY Delegation of authority is one of the important aspects in the organising process. It is concerned with offering or granting of authority by superior to subordinates. A person who delegates authority to subordinates becomes their immediate superior. A person who delegates (offers or grants) authority is known as the delegator, who receive(s) the authority is the delegatee or delegant, and the process of granting authority is the delegation. Superior and subordinate are relative positions. From any particular position, immediate higher level position-holder who

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delegates authority is the superior, and immediate lower position-holder who is delegated is the subordinate. Delegation refers to assigning task to others and giving them authority to do it.

Definitions

Delegation (of authority) can be defined as:

1. George R. Terry: “Delegation means conferring authority from one executive or organisational unit to another in order to accomplish particular assignments.”6 2. Louis Allen: “Delegation is the process a manager follows in dividing the work assigned to him so that he performs only that part which he can perform effectively, and so gets others to help him with the remaining work.”7 We can define the term as: To delegate means to grant or confer. Delegation of authority means conferring (giving or awarding) authority from superior to subordinate in order to carry out particular assignments. By delegation of authority, a manager can extend his area of operation. Further, we can say: Delegation of authority refers to a process by which superior grants the decision-making right (i.e., authority to decide and act) to subordinates for certain defined tasks to enable the subordinates to work independently.

Characteristics of Delegation The main characteristics of delegation have been listed as follows: 1. It is authorisation to a manager to work independently. By virtue of such authorisation, one can decide, direct, and control independently. 2. Delegation enables a person to work within the defined limit. It fixes the limit of his working or behaviour. 3. Superior delegates authority only from what he possesses. 4. Superior delegates certain authority; he still remains with authority. He cannot delegate authority fully as he cannot work without it. 5. Delegation of authority does not result into delegation of responsibility. Delegator is responsible for the ultimate result. He cannot escape from the final outcome of his subordinates. Delegation doesn’t mean an abdication of responsibility. 6. Delegation may be specific or general, written or oral, formal or informal, temporary or permanent. Delegation process moves downward. 7. Authority once delegated can be enhanced, reduced, or withdrawn depending upon situations. 8. It is position-bound. One can exercise authority as long as he occupies a particular position. Authority delegated is recovered fully when he is moved from his position. 9. The degree or extent to which authority is delegated depends on a number of factors, including management philosophy, type of work, precision required, time available, capacity of subordinates, trust in subordinates, past experience, and so forth. 10. Delegation is an art as it involves personalised decisions based on skills, creativity, practice, and result orientation.

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Delegation—The Need of Time Bajaj Auto, India’s prestigious and leading automobile company, believes in the motto: “Tomorrow’s CEO must be today’s empowered managers.” Rahul Bajaj delegated to his two successors systematically. He delegated to his two qualified and capable sons, Mr. Rajiv Bajaj (manufacturing) and Sanjiv Bajaj (marketing), to carry out work smoothly. Mr. Mathur, Rahul Bajaj’s cousin was made the in-charge of HR functions and began to represent Rahul in meeting. Over the past two decades, Mr. Rahul Bajaj took charge of every critical areas of the traditional family-managed company and took many bold decisions to reform the business empire. Rahul Bajaj, the CEO of the two-wheeler giant Bajaj Auto, personally continued overseeing all operations for over two decades (1968–1990). He assumed complete change in production system, finance, design, and labour relations. He never realized need of delegation of authority and decentralisation of responsibility. He never allowed others the required freedom to take even simple decisions independently. But, now he prefers to delegate liberally to some capable successors to find time to justify other positions. Rahul Bajaj also holds a key position in Indian Airlines (now Air India). CII, AIMA, and other organisations also forced him to create second line of command in his absence. He gradually, started distancing himself from his followers, too. Liberal delegation rewards the company with many benefits.

Benefits of Delegation A single executive at the top, of whatever capability, cannot manage (i.e., direct and control) all activities due to obvious physical and mental limitations. In order to justify different functions and to divide his total workload, he has to share responsibilities with his subordinates. Along with assigning to subordinates certain part of his total workload, the superior needs to delegate authority to enable them carry out the work. Every recipient of authority delegates to his immediate subordinates. The process of delegation starts from the extreme top and ends at the extreme bottom. Thus, delegation of authority is fundamental element of organising process. Organisation structure comes into existence due to delegation of authority from top to downwards. Several levels and positions are created by delegation and redelegation. The benefits of proper delegation include: 1. Fundamental Act: Delegation is a key to create the organisation structure. It is indispensable for creating levels and positions, and establishing formal authority (superiorsubordinate) relationships. 2. Reduced Burden: An executive at any level can divide his total workload and share responsibilities with others. Routine matters can be assigned to subordinates. He finds more time and energy to concentrate on more important policy matters. 3. Effective and Quick Decisions: Delegation of authority enables the manager to take decision independently within the confined area. So, quick decisions and immediate actions are possible.

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4. Source of Job Satisfaction: Delegation is the authorisation to work or get the work done, and the right to command and control others. The delegatees find opportunity to utilise their skills and knowledge. It is a source of status, position, responsibility, and recognition. 5. Healthy Relations: Clarity in authority and responsibility leads to better understanding between superior and subordinates. It promotes healthy relations. 6. Key to Integration: Delegation creates superior-subordinate relations from the extreme top to the extreme bottom. It integrates all levels and employees in each level. Integration is a base for efficient functioning of the organisation. 7. Benefits of Specialisation: Delegation takes place as per nature of job requirement. A superior delegates the authority and assigns specific task to qualified and capable person(s). Subordinates’ skills, knowledge, abilities, and aptitude are considered while delegating authority. As a result, every set of activities is performed by the expert in the respective area. Naturally, efficiency tends to improve. Organisation’s human resources can be effectively utilised. 8. Development of Managerial Qualities: Delegation offers the employees ample opportunities to work independently. They find a chance to develop their skills and qualities which qualify them for higher position in the organisation. It offers a platform to prove their proficiency. 9. Sense of Responsibility: Delegation creates a sense of responsibility. When one is given the right to decide, direct and control, he is more likely to work sincerely. He accepts the responsibility and tries to fulfill expectations of his superior. 10. Discipline and Order: Right from the extreme down to the extreme top, every employee is under the command and control of his boss. People in the organisation work as per policies, rules, and procedures due to a number of control centres.

Practical Problems (Factors or Barriers) Delegation is essential, even indispensable for effective functioning of the organisation. However, there are certain factors that hinder or restrict the delegation process. Some such factors have been briefly discussed below: 1. Fear of Loss of Power: The superior may feel that delegation would reduce his authority and the subordinates would become more powerful. This fear restricts degree of delegation. 2. Risk Avoidance by Subordinates: Subordinates may not like to accept authority as authority creates responsibility, and responsibility contains risk. They may want their leader to bear the risk. 3. Fear of Misuse of Authority: Some superiors may feel that their subordinates are not mature enough to use responsibility in a judicial way. They may, hence, restrict delegation. 4. Superiority Complex: Some managers become overconfident and feel they can do things better than their subordinates. As such, they limit the delegation of authority.

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5. Autocratic Leadership Style: Superior’s autocratic leadership style prevents him from delegating authority to subordinates. He tries to centralise all decision-making rights and prefers to delegate as little as possible. 6. Attitude of Top Management: Inappropriate attitudes of top management hinder delegation of authority at various levels.

DECENTRALISATION Centralisation, or decentralisation, is closely related to delegation of authority. It is concerned with degree and quantum of authority to be centralised or decentralised in a formal organisation structure. In modern context, decentralisation is treated as ‘more freedom,’ or ‘less authorisation.’ It is taken as both – a managerial philosophy and a technique. Decentralisation is result of delegation. Span of control (discussed later on) and decentralisation are closely associated terms.

Definitions

Decentralisation has been defined as under:

1. Louis Allen: “Decentralisation is the systematic efforts to delegate to lowest level all authority except that which can be exercised at central points. Decentralisation applies to the systematic delegation of authority in an organisation-wide context.”8 2. Koontz and O’Donnell: “Decentralisation of authority is fundamental phase of delegation.”9 On the basis of the above definitions, the term can be defined as: Centralisation is systematic and consistent reservation (or holding) of authority at the central points in the organisation, while decentralisation is dispersion (spreading or distribution) of decision-making authority down to the lowest level. It can be concluded: Decentralisation implies more power to persons and places away from the centre. It can also be said that decentralisation suggests taking a greater number of decisions at lower levels without prior permission of higher level authorities. Revamping Organisation Structure at Coca-Cola India Up to 2000, Coca-Cola India followed complete centralisation. Not a single paper at Coca-Cola India was passed without prior approval from its US parent. Every move was monitored and every strategy is checked at the company headquarters at Atlanta. This gross interference paved a way to its arch rival Pepsi to flourish. There was a need to tailored strategies to meet specific needs. To integrate 36 bottlers and 6000 people at different places in India was not easy task. Company had to take care of 36 wage patterns, unions, and management styles. It followed matrix system. Atlanta office decided to empowered individual markets to do business in their own way. Company’s decentralisation helped face competition and improve its market performance in term of volume and coverage.

Difference between Delegation and Decentralisation Decentralisation is a much wider and comprehensive term as compared to delegation. It implies delegation plus something. Decentralisation indicates several types of dispersions

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(not only decision-making rights). It denotes geographical, administrative (may be same as delegation), and functional dispersions. It involves decision-making responsibility rather than the decision-making right. It is to be noted that decentralisation results into total delegation of both authority and responsibility. Decentralisation creates separate departments, divisions or branches that work independently. Needless to say that centralisation is the opposite of this scenario. Practically, absolute centralisation or absolute decentralisation is not possible. Degree of decentralisation depends on many factors. Decentralisation at Wipro Corporation Decentralisation can offer a number of benefits over centralisation. Azim Premji of Wipro Corporation is known for empowering strategies. In the company, head of division or company prepares their own plans. Wipro Infotec, Wipro System, WiproGE, Wipro Finance, etc., prepare their own plans. Decentralisation could fetch sound results. Company could survive amidst tough domestic and global competition with decentralized plans. Decentralisation can speedup actions, improve employees morale, and, finally, contribute to firm’s overall performance. Decentralisation offers certain benefits, like fewer burdens to top management, facility for growth and diversification, encouragement to managers by providing opportunities, easy evaluation of results, promotion of healthy competition, effective control, reduced number of managerial levels, and so forth. Table 7.2 shows the key differences between delegation and decentralisation.

Benefits of Decentralisation Benefits of decentralisation are, to some extent, similar to that of delegation as decentralisation is the result of systematic delegation to the lowest level in the organisational hierarchy. Here, the main benefits have been listed: 1. Reduced workloads for top executives 2. Technique of management development 3. Effective supervision and control 4. Facility for growth and diversification 5. Source of motivation 6. Employee satisfaction and high morale 7. Improved communication 8. Reduced complexity 9. Speedy decisions and actions 10. More flexibility

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TABLE 7.2 Difference between Delegation and Decentralisation No.

Delegation

Decentralisation

1.

Delegation is an act or a process of delegating Decentralisation is the end result of systematic authority to subordinates. delegation to the lowest level. It is fundamental phase of delegation.

2.

It is a relationship between two individuals— It is a relationship between top management superior and subordinate. and various departments and divisions.

3.

Delegation process ends when one superior del- Decentralisation process ends when delegation egates to his subordinate. is made at all levels in the organisation.

4.

It is an essential process for an organisation. It is optional. One may or may not prefer this opWithout delegation organisation cannot be cre- tion. There may be centralised delegation. ated.

5.

Only authority (decision-making rights) and not Both authority and responsibility are delegated. responsibility is delegated.

6.

It involves dispersion of only decision-making Here, several types of dispersions take place, rights. like geographical, administrative, and functional.

7.

It is individual aspect as only individuals are in- It is departmental aspect. Departments and divivolved. sions are involved.

8.

Here, entire organisation is involved, and, therechanged easily as only two individuals are in- fore, major change cannot be made easily. It is volved.

9.

Control is exercised by the superior (delegator). Control is also delegated.

10.

It does not provide complete freedom.

11.

Delegation is concerned with dispersion of au- Decentralisation is concerned with dispersion of thority from superior to subordinate. authority to the ultimate level of organisation.

12.

It is a technique of management.

Complete freedom is given. Autonomous units are created.

It is managerial philosophy.

Disadvantages of Decentralisation Decentralisation is not always useful. In certain cases, it may be source of problems, and hence, may lead to inefficiency. Top executives should be aware of the possible disadvantages listed below: 1. Problem related to staff services (or loss of staff services) 2. Difficulties in coordination 3. Problem of overall control 4. Increased administrative costs 5. Problem during emergency 6. Uncertain outcomes 7. Possibility of conflict 8. Lack of uniformity

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9. Need for capable executives 10. Restricted communication Factors Affecting Decentralisation All organisations prefer certain degree of centralisation or decentralisation depending upon a number of factors. The list of such factors includes: 1. Nature of business or type of operations 2. Management attitude or philosophy 3. Need for specialisation 4. Economy 5. Local situations 6. Size of operations and dispersions of operations at different places 7. Degree of diversification 8. Line and staff functions, line functions are decentralised, but staff functions are centralisation 9. Need for flexibility 10. Availability of capable and experienced managers 11. History or past experience of organisation 12. Rate of change in organisation; fast developing unit prefers decentralisation 13. Government policies, rules, and restrictions 14. Pattern of planning

DEPARTMENTATION Departmentation simply means dividing and grouping the activities and employees of an enterprise into various departments and divisions. Each department or division performs certain functions or a specific group of activities. Thus, functions and sub-functions of the enterprise are grouped together into different work units either on the basis of similarity (or nature) or purpose of work. The work units so formulated are called departments, divisions, or units. The person appointed to manage various activities of a department is called the departmental head or the functional head. He is responsible for the performance of the particular department. Under each department, various positions are created for convinient and smooth functioning of the department. The basic purpose of departmentation is to take maximum possible advantages of specialisation as each department performs only a specific set of activities. Note that departmentation may be centralised or decentralised based upon the degree of freedom granted.

Benefits of Departmentation Delegation and decentralisation lead to departmentation. So, the advantages of delegation and decentralisation are also equally applicable to departmentation. Systematic departmentation offers several benefits, such as: 1. Benefits of specialisation 2. Fast expansion 3. Autonomy and job satisfaction

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Effective fixation of responsibility Easy evaluation of performance Better direction and control Tool for management development

Types or Bases of Departmentation (Bases for Organisation Structure) Departmentation may be of several forms based on the method followed to divide total work or activities. Each type of departmentation has its applicability, merits, and demerits. Bases used for departmentation involve:

1. Departmentation by Functions (Functional Organisation) It is a popular and widely used method for grouping of activities of an enterprise. Here, classification or grouping takes place in accordance with the main functions to be performed for achieving the desired goals. Functions depend upon the type of business. Service sector functions are different than manufacturing units. For a manufacturing company, the departments prepared are production, marketing, personnel, and finance. This type of departmentation is preferred by organisations that have large-scale operations situated at a particular place. 2. Departmentation by Territories (Geographic Organisation)

Departments are prepared according to localities, regions, states, or even countries. For each territory, separate arrangement is made. And, the person who is in charge of a particular territory may be called area incharge or area manager. Generally, each department is made independent or autonomous. This type of departmentation is advisable when a company has wide spread operations at distant places.

3. Departmentation by Products (Product Organisation) When a company has a few products and mass production, product-based departmentation is followed. In case of product wise departmentation, organisation structure is prepared on the basis of each product. For each product, a product manager is appointed who is responsible for necessary activities, like production, marketing, personnel, etc. 4. Departmentation By Process (Process Organisation) It is extension of departmentation by function. Particularly, it is applied to manufacturing units. Departments are created on the basis of different processes and use of equipments. Each department performs only a specific process. It is followed by manufacturing firms. For example, automobile companies create process based departments, such as components production department, assembly department, finishing department, inspecting and testing department, polishing and colouring department, storing and dispatching department, and so forth. In the same way, textile mills divide operations into ginning process department, spinning process department, weaving and dyeing process department, etc. 5. Departmentation by Customers (Customer Organisation) Sometimes, departments are made on the basis of customers. It is suitable when a company wants to treat different

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groups of customers in different ways. For example, departments are designed according to sex (male and female), age (adult and child), quantity (wholesaler and retailer), or according to classes of customers, in terms of income, education or domicile. For each group of customers, a full-fledged department is organised.

6. Departmentation by Numbers or by Time This type of departmentation follows number or time aspects. For a particular number, a head is appointed and he is responsible for performance of that group. It is not a very popular form of departmentation in business. Example of number based departmentation is the military in which groups are prepared as battalions, companies, brigades, etc. Similarly, time-based departmentation uses the time aspect to divide work. Examples are regular shifts or overtime shifts, morning shift or evening shift, day shift or night shift, etc. For each shift, a shift manager is appointed who is responsible for performance of the particular shift.

7. Departmentation by Strategic Business Unit

When a business group is working in diversified businesses, one chief executive cannot manage all businesses. For better strategic planning and implementation, strategic business units (SBUs) are created. A strategic business unit is created by grouping of subsidiary companies based on some important strategic elements, such as competition, market, product, strategic mission, global needs, technology, etc. Thus, related businesses are grouped into strategic units (i.e., strategic departmentation) for effective planning, direction, and control of diversified businesses. A qualified, capable, and experienced senior executive is appointed as the manager for each SBU. The CEO is responsible for strategic planning, implementation, and control. All executives work as corporate level managers and have to report to the CEO of the group. For example, Tata Group consists of more than eighty companies that operate in many diversified businesses that include iron and steel, automobile, communication, education, information technology, finance and insurance, salt, and many others. Companies are grouped into strategic elements, like market, mission, technology, etc., that facilitate better coordination and effective allocation of resources. Almost all large business groups follow this type of departmentation to improve strategic strengths.

8. Decentralised Business Structure

In strategic business unit structure, diversified businesses are grouped into strategic units on the basis of some strategic elements while in decentralised business structure, each business unit is treated as autonomous in all significant regards (production, marketing, finance, R&D, etc.). Each business unit is treated as independent profit centre and its performance is evaluated independently. The manager of each decentralised unit is given complete autonomy to operate and is fully responsible for the final outcome. Each business unit can formulate its own corporate strategies. Each business unit uses different bases, like products, geographic areas, and functions for organising operations. However, task of coordination becomes more complicated in a decentralised business structure. Degree of centralisation/decentralisation depends on top management’s business philosophy.

SPAN OF MANAGEMENT (OR CONTROL) Delegation, decentralisation, and span of control are closely related terms. Span of control— often referred as span of management or span of supervision—is an important principle that states

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that there should be a manageable number of subordinates under one superior. While grouping activities and creating departments, the basic issue is: How many subordinates should be placed under one superior, manager, or supervisor? However, span of management is more comprehensive as it involves not only supervision or control but also all managerial activities. The manager is responsible for all activities of subordinates working under him.

Definitions

The term can be defined as:

1. Span of management (or control) implies the number of subordinates a superior can manage (or control) effectively. It is a key determinant of complexity of manager’s job, the number of managers required, and the shape (or structure) of organisation. 2. Span of control (or management) refers to the number of subordinates who can be effectively controlled (or managed) by a superior. It also denotes the number of subordinates who report to a superior. 3. Span of control (or management) refers to the number of subordinates who directly report to the superior, or the number of subordinates that a superior can manage effectively. Span of control is a valid principle as any manager can effectively direct and control only a limited (or manageable) number of subordinates. However, experts do not agree on the specific number of subordinates who can be placed under one superior. Classical thinkers opine that ideal span of control ranges from three to eight subordinates. However, the number of subordinates depends on the level of management, for example, at lower level management, span of control widens. Davis10 calls managerial (higher) span of control as executive span and lower level as operative span. To him, span of control is three to nine for managerial level and as many as thirty for operative span. On the other hand, Urwick11 suggests that span of control for top management may be four, but for supervisory level it may be between eight to twelve. V. A. Graicunas,12 a French management consultant, suggested mathematical formulas to fix number of subordinates under one superior. He identified three types of relationships between superior and subordinates. They are: 1. Direct Single Relationships: Such relations arise from the direct individual contract of superior with subordinates. If there are three subordinates, there will be three direct single relationships. 2. Direct Group Relationships: Such relations arise between the superior and subordinates in all possible combinations. If there are three subordinates, there will be nine possible combinations. 3. Cross Relationships: Such relations arise because of mutual interactions of subordinates under one superior. If there are three subordinates, there will be six relationships. Graicunas gave following formulas to find out the number of relationships with n number of subordinates, which determine span of control: Direct single relationships = n Direct group relationships = n (2n–1 – 1) Cross Relationships = n (n – 1) Total Relationships = n (2n /2 + n – 1) Example: If there are six subordinates, the number of cross relationship will be 222, as calculated below:

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Number of total relations with six subordinates is = n (2n /2 + n – 1) = 6 (26 /2 + 6 – 1) = 6 (32 + 5) = 6 37 = 222 For any number of subordinates, total relationshis can be calculated using the given formula.

Factors Affecting Span of Management Span of management suggests the ideal number of subordinates that a manager can effectively manage. Span of management (number of subordinates under one manager/superior) depends on a number of factors. L. M. Prasad13 considers following factors that affect span of management: 1. Capacity of superior 2. Capacity of subordinates 3. Nature of work 4. Degree of centralisation 5. Degree of planning 6. Communication techniques 7. Use of staff assistance 8. Supervision from others 9. Other factors Ideal span of control is subjective judgment as it is bound to vary from manager to manager and from organisation to organisation. A wide span of management leads to flat structure in which levels of management tend to reduce. Flat structure promotes autonomy and more decentralised decision-making. On the other hand, narrow span of management leads to tall structure. Tall structure is characterised by more managerial levels and centralised decisionmaking. Both flat and tall structures have their relative strengths and weaknesses. Many research studies have been conducted across the globe to conclude which structure, tall or flat, is advisable. Conclusions of several studies have remained inconclusive. A manager should take the balanced decision analysing duly the relevant factors.

THE PETER PRINCIPLE This principle is closely related to delegation, decentralisation, and span of control. On evil effects of bureaucracy, and irrelevant promotion policies and practices Lawrence J. Peter developed a principle known as the ‘Peter Principle.’ In his book, The Peter Principle, 1969, London, he explained how people in an organisation tend to be incompetent. In every organisation, Peter claims, people try to reach the level of incompetence. And, as a result, there exists incompetence in almost all fields. There is incompetence in all organisations including public and non-public

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organisations, religious and social institutes, and commerce and trade activities. Most key positions in any setup are occupied by incompetent senior officers. He made a considerable study on the issue and drew some meaningful conclusions which are labeled as ‘The Peter Principle.’

Relevant Areas Peter Principle is closely associated with following areas of management: 1. Organisation structure and hierarchical relations 2. Evil impacts of bureaucracy 3. Job analysis and its importance in appointing employees 4. Promotion and training related issues 5. Performance appraisal

The Peter Principle Lawrence J. Peter developed the following principle: ‘‘In a hierarchy, every employee tends to rise to his level of incompetence.’’ Hierarchy refers to arrangement of members in an organisation accordingly rank, grade or class. Initially, an employee is placed at lower position in the hierarchy according to his capacity to perform the work. The employee, by promotion time-to-time, at last, reaches the level where is he is not fit to perform his work well. When he reaches the level of incompetence, he stops there as there is no further scope for promotion. How does it happen? Peter explains the phenomenon. In an organisation, people move from lower position to higher position on the basis of their competence. Their competence on the present position qualifies them for the next promotion. After certain number of promotions, employees stop at the level where they are not competent. Therefore, the final promotion is from the level of competence to the level of incompetence. With the assumption that there is enough time and there exist enough ranks in hierarchy, the employee tries to reach and remain at his level of incompetence. In a time, most positions are occupied by employees who are incompetent to carry out their duties. The work is accomplished by those employees who have yet not reached their level of incompetence.

Employees’ Classification Peter classifies employees in an organisation into five categories based on their competence level: 1. Super incompetent employees 2. Incompetent employees 3. Moderately competent employees 4. Competent employees 5. Super competent employees

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According to Peter, the two extremes cases of people—super incompetent and super competent employees—do not remain with the organisation as they do not fit within the organisation. Super incompetent are dismissed because they are useless for the organisation while super competent employees find the organisation useless. The remaining majority is represented by moderately competent people. They perform their work because they are competent for the positions; they have not reached the level of incompetence. They are promoted till they become incompetent. (They are promoted as long as they are competent).

Strategies for Promotion For promotion to higher position, Peter suggested two strategies:

1. PUSH Strategy The strategy is concerned with rigorous efforts and constant improvement. An employee must struggle for superior performance. He can push others to make way for the promotion. His better performance is the base for promotion to higher position in the organisational hierarchy. Comparatively, it is difficult. 2. PULL Strategy

It is a short-cut method. It involves taking help of superior to pull him to higher position. He suggests certain ways: i. ii. iii. iv.

Find a superior who can help you in promotion Behave in such a way that the superior tries to promote you If jump is not possible, bypass him If you think that superior is not capable for further promotion, find another higher position holder v. Make more superiors to take interest in you Peter Principle has a number of practical implications. Due to irrelevant evaluation and promotion, most positions remain occupied by incompetent employees. It shows that promotion policies and practices should be transparent. They should be free from nepotism, favouritism, and consideration. Employees should be promoted purely on the basis of their performance. While promoting an employee, not only his performance on the present job, but also the job requirements of the higher position and capacity of the employee should be considered. Proper job analysis, objective evaluation of performance, and need of training are important issues to be considered while promoting an employee to higher position.

THE PARKINSON’S LAW Dr. Cereal Northcote Parkinson, Major in British Military during World War II, on the evils of bureaucracy and impact of unnecessary administrative formalities, developed a law. His law (or rule) explains how work suffers due to bureaucratic rigidity. His work is labelled the ‘Parkinson law.’ He wrote a book titled Parkinson’s Law in 1957, (London).

Relevant Areas The Parkinson’s law is closely associated with following areas of management:

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Organisational design and structure Organisational behaviour—power and politics Job design and job analysis Performance appraisal and promotion

During his tenure as the Major in military, he was surprised to know that the number of employees and the amount of work had no relation. Amount of work was free from number of employees required to complete it. Once, during the World War II, a General, a Colonel, a Lieutenant (Lt.) Colonel, and the Major were working cooperatively on one cantonment point. The team of four members was dealing with the entire work. Once, the General went away to attend a meeting for a few days, 25% work was left; the Colonel also went on leave, again 25% work was left; even the Lt. Colonel was on leave on account of illness, still 25% work was left. The entire responsibility was shouldered by Major Parkinson alone. Surprisingly and interestingly, he completed the entire work within an hour. When all officers were present, the same work was hardly completed. Parkinson found out the reason. All officials were only conveying and directing letters and circulars and were finding faults with each other. They were busy in paper work only. He concludes that as the organisation expands, psychological forces within the organisation make the organisation expensive and inefficient. He made an intensive study and drew some laws. The most important among them is: ‘‘Work expands so as to fill the time available for its completion.’’ He explained that particularly paperwork is elastic in its demand on time. There is no relation between the work to be done and the size of staff. Lack of work doesn’t necessarily result into leisure or idleness. Work swells in importance and complexity in direct ratio with the time to be spent. So, the number of officials increases without really increasing in the work. He gives two factors to explain the phenomenon. One is that an official wants to multiply number of subordinates and not the rivals, and the second is that officials make work for each other. Due to such mentality/attitudes of officials, the entire organisation becomes ineffective. Without change in real work, the number of employees increases by 5% to 6%. As long as money is available, expenses continue to rise as there is economy only in thinking and not in practice. Parkinson has developed a formula to find the proportion of people that increase per year even when work doesn’t expand. Parkinson’s Formula m 1 X = 2K n where, X = Number of new staff required K = Number of staff seeking promotion through appointment of subordinates m = Number of man hours devoted to answering minutes within organisation 1 = Difference between ages of appointment and retirement

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As per Parkinson’s estimate, every year the number of new staff members increases at the rate of 5.17% to 6.56% irrespective of any variation in the work.

Reasons for Increase in Staff Members The law is a universal phenomenon. People have the tendency to want more subordinates. There are three reasons: 1. Power building is natural tendency of people as power is the base for resources and facilities. Power is based on a number of human resources. 2. Promotion criteria are based on number of employees in each unit. The more the junior positions, the more will be opportunities for promotion as senior people want more positions to be promoted. 3. The third factor is lack of suitable job analysis. When jobs are not analysed properly, it is difficult to ascertain correctly the number of persons required.

Remedies Based on the above conclusions and analysis, following points have been devised to help in effective manpower planning: 1. Devising suitable criteria for promotion 2. Proper work analysis 3. Allocation of resources on the basis of requirement, and not on the basis of number of employees

Other Laws Parkinson also developed some other laws. They are: 1. ‘‘In public sector, along with income, expenses also increase and will reach to the level of income.’’ 2. ‘‘As administration expands, complexities increase; as complexities increase, the organisation deteriorates.’’ 3. Principle of Committology: ‘‘When number of committee members touches to 14 or 23, committee becomes ineffective.’’ 4. A Thousand Law: “When any organisation exceeds 1000 employees for administration, it becomes self-reliant. They work for each other without production.” Parkinson’s Laws have a number of direct and indirect implications that are useful for designing organisation structure, job analysis, deciding on promotion, allocation of resources, understanding power and politics, and projecting general tendencies of superiors and subordinates.

SUMMARY Authority is the special rights granted (by superior) to position holder in the organisation. Such rights enable him to decide, to get the decision executed, to command (direct) and to allocate resources. Power is personal competence or ability, and is expressed or measured in terms of expertise, knowledge, and specific way of working with others. Responsibility is the obligation of an individual to carry out assigned activities to the best of one’s ability.

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Delegation is assigning the task to others and giving them the authority to do it. Level or degree of delegation depends on many factors. Delegation offers a lot of benefits, such as fundamental act, reduced burden, effective and quick decisions, source of job satisfaction, healthy relations, key to integration, benefits of specialisation, development of managerial qualities, sense of responsibility, and discipline and order. There are many practical problems related to delegation of authority. Decentralisation is the systematic efforts to delegate to the lowest level all authority except that which can be exercised at central points. Decentralisation implies to systematic delegation of authority in an organisation wide context. Departmentation simply means dividing and grouping the activities and employees of an enterprise into various departments and divisions. Each department or division performs certain functions or a specific group of activities. Departmentation is based on product, functions, territories or any other bases. Span of control (or management) refers to the number of subordinates who can be effectively controlled (or managed) by a superior. It also denotes the number of subordinates who report to a superior. Many factors determine the span of control. VA Graicunas, a French management consultant, suggested mathematical formula, n (2n /2 + n – 1) to fix the number of subordinates under one superior, i.e., span of control. The Peter Principle, states, ‘In a hierarchy, every employee tends to rise to his level of incompetence,’ and the Parkinson’s Law states, ‘Work expands so as to fill the time available for its completion’. They explain the evil of bureaucratic structure and sufferance of work.

KEY TERMS Authority and Power Responsibility and Accountability Delegation of Authority— Delegant, Delegator, Delegatee

Centralisation and Decentralisation Departmentation Span of Control

The Peter Principle The Parkinson’s Law

EXERCISES Objective Type Questions A. Answer the following: 1. What is authority? 2. Define responsibility. 3. What is power? 4. What is delegation? 5. State Parkinson’s Law. B. Choose the correct option (MCQs): 1. Which of the following is not a source of authority? (a) Position in organisation

6. Write Peter Principle. 7. Mention four factors affecting span of control. 8. Mention any four bases of departmentation. (b) Acceptance by subordinate (c) Extra-organisational relations (d) Personal competence

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2. Which of the following can be delegated? (a) Power (b) Responsibility (c) Accountability (d) Authority 3. Degree of decentralisation indicates (a) Degree of delegation of authority at the lowest level (b) Degree of responsibility (c) Degree of power (d) Degree of accountability 4. Which of these is a source of power? (a) Personal competence (b) Authority delegated by the superior (c) Position held by the person (d) Extra-organisational relations 5. Which is not true? (a) Authority once delegated can be enhanced (b) Authority once delegated can be reduced (c) Authority once delegated cannot be changed (d) Authority once delegated can be withdrawn 6. Find the odd one. (a) Departmentation by power and authority (b) Departmentation by function

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(c) Departmentation by territory (d) Departmentation by product Span of control implies the (a) Number of subordinates a superior can manage effectively (b) Number of subordinates who work in the organisation (c) Number of subordinates who take decision (d) Number of subordinates who have more freedom to work anywhere Who developed the formula n (2n /2 + n – 1) for calculating span of control? (a) George R Terry (b) Henry Feyol (c) Louis Allen (d) V A Graicunas The Peter Principle is not concerned with which aspect of the organisation (a) Organisation structure and hierarchical relations (b) Employee satisfaction and welfare (c) Job analysis and its importance in appointing employees (d) Promotion and training related issues Who was Parkinson? (a) An industrialist (b) A manager (c) A management expert (d) A Major

Descriptive Questions 1. What is authority? State its characteristics. Explain the difference between authority and power. 2. What do you mean by responsibility? How does it differ from accountability? Write its characteristics. 3. Define the term ‘delegation of authority’ and state its characteristics. Also, briefly describe benefits of delegation. 4. What is meant by decentralisation? Differentiate between delegation and decentralisation.

5. What is departmentation? Discuss its types. 6. ‘Decentralisation is delegation plus something.’ Do you agree? Why? Give a list of factors affecting decentralisation. 7. Write a detailed note on Parkinson’s Law. 8. Comment on Peter Principle? What is its practical significance?

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Assignments 1. To explain the concept of decentralisation, the students may be assigned some tasks and delegated authority to see how they work.

2. Students or trainees are required to collect details about how departments and divisions are created in medium and large size organisations of different industries.

REFERENCES 1 2 3 4 5 6 7 8 9 10 11 12 13

Herbert A Simon, Administrative Behaviour, McMillan Company, New York, 1977, p. 125 Louis Allen, Management and Organisation, McGraw-Hill, New York, 1958, pp. 156–158 George R Terry, Principles of Management, Homewood, III, Richard D. Irwin, 1988, p. 352 Morris B Hurley, Business Administration, Prentice Hall, New Delhi, 1980, p. 331 Stephen P Robbins, The Administrative Process, Prentice-Hall, New Delhi, 1978, p. 244 George R Terry, Principles of Management, Richard D Irwin, Homewood, 1988, p. 138 Louis Allen, op.cit., pp. 156–171 Ibid, pp. 157–58 Harold Koontz and Heinz Weihrich, Essentials of Management, McGraw-Hill, New York, 1990, pp. 262–269 Ralph C Davis, The Fundamentals of Top Management, Harper Brother, New York, 1971 Lyndall F. Urwick, ‘The Span of Control—Some Facts About the Fables,’ Advanced Management, November, 1966, pp. 5–18 VA Graicunas, ‘Relations in Organisation,’ Bulletin of the International Institute, International Labour Office, Geneva, 1993 L M Prasad, Principles and Practice of Management, Sultan Chand & Sons, New Delhi, 2005, pp. 328–330

ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. Authority is formal power or right to decide. 2. Responsibility is the obligation of an individual to carry out assigned activities to the best of one’s ability. 3. Power is personal ability or capacity to influence others; it is free from position or status. 4. Delegation of authority refers to a process by which a superior grants the decision-making right to his subordinates. 5. ‘Work expands so as to fill the time available for its completion.’ 6. ‘In a hierarchy, every employee tends to rise to his level of incompetence.’ 7. Capacity of superior, capacity of subordinates, nature of work, and degree of centralisation. 8. Function, product, place, and customer. B. 1. (d), 2. (d), 3. (a), 4. (a), 5. (c), 6. (a), 7. (d), 8. (d), 9. (b), 10. (d)

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CASE Need for Decentralisation Gopal Varma, 55, an electronics engineer and Chairman of Excellent Electronics, Indore based medium sized business unit, found it increasingly tough to manage all regional offices efficiently. His regional offices operated in four states of India, Madhya Pradesh, Maharashtra, Gujarat, and Rajasthan. He was busy whole day guiding regional managers who had only to implement what Gopal Varma ordered. Delay in decision was inevitable when geographically spread activities were centrally-managed. Mr. Varma took all decisions related to advertisement, sales promotion techniques, price discount, sales force management, and dealership issues from the head office at Mumbai. He strongly believed that centralisation was necessary for uniform management and better control. Due to his over-engaged schedule, Mr. Gopal Varma could not justify the divergent needs of the regional offices as customers and dealers in different states exhibited vast diversities. And, market situations were not identical and were rapidly changing. Every regional office expected different marketing strategies. Though capable, managers were not permitted to manage independently. Except broad policy guidelines, every area manager expected freedom to think and act independently. The issue was also discussed in the last meeting with the chairman. But Gopal Varma thought that decentralisation would affect the consistent pattern of management, and finally, the business performance. Over insistence on consistent pattern and delay in decisions started affecting the company’s sales and profits. In 2009, the first two quarter results were astonishingly poor. Gopal Varma called an urgent meeting to discuss the issue. All managers attributed the poor performance to excessive centralisation and stressed on reasonable decentralisation. But Varma blamed managers for poor performance. The meeting ended without any solid conclusion, except receiving resignation letters from two regional officers. Varma worried for the prospect of his established business. He realised that he could not work according to his theory. He was confused and decided to seek counselling from a management consultancy firm.

Questions for Discussion 1. Describe the centralised management of Excellent Electronics? 2. Which were the practical problems of excessive centralisation discussed by chairman and regional managers? 3. Why did Mr. Varma insist on centralized decision-making? 4. In case of Excellent Electronics, why did decentralisation seem essential? 5. Do you think the poor balance sheet result is the outcome of over-centralisation? 6. Mr. Gopal Varma requests you to counsel him to help him come out of poor market performance of the company. Can you help him?

CHAPTER

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Types of Organisation Structure Learning Objectives Upon completing this chapter, you will be able to: Discuss different forms of traditional organisation structures Outline modern organisation designs Enlist important contingency factors affecting organisation design Analyse the types of organisation structure Understand project and matrix organisation

INTRODUCTION Organisation structure is a specific design or blueprint that the business enterprise uses to perform a relevant task in pursuit of goals. The structure, in this sense, is an effective mechanism that helps coordinate employees’ efforts for accomplishing goals. Note that organisation structure is a means, not an end; it serves as the base for achieving objectives. Organisation structure reflects top management’s philosophy. Organisational design, structure, arrangement, blueprint, constitution, formation, plan, chart, diagram, etc., are closely related terms and are used interchangeably.1

KEY CONSTITUENTS OF ORGANISATION STRUCTURE While designing organisation structure, following constituents (factors, aspects, or considerations) should be duly considered: Note: Additional reading material related to this chapter is available on the companion website of this book.

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1. Company’s broad vision and goals 2. Objectives or targets 3. Main activities or operations 4. Decision-making 5. Formal relationships (both vertical and horizontal) 6. Communication pattern 7. Delegation and decentralisation 8. Formal organisation structure (span of management and management levels) 9. Organisational climate (including organisational culture) 10. Management (or leadership) styles 11. Physical facilities 12. Human resources (type and number of employees) An organisation structure may be either vertical or horizontal. The differences between the two have been discussed in the next section.

Vertical v/s Horizontal Organisation Formal organisation structure shows vertical and horizontal relations among members. Degree to which the structure is vertical (i.e., tall) or horizontal (i.e. flat) depends on a number of factors. Recently, business enterprises are increasingly perusing horizontal (or flat) structure. In a Vertical or tall structure organisations hierarchical chain of command is longer. Hierarchical chain of command refers to authority-responsibility relationships (in top-to-down or down-to-top direction). The structure represents more management levels. However, it is more suitable when the environment is assumed to be stable. In this structure, authority is more centralised. Vertical organisation has its merits and demerits over the horizontal organisation. Horizontal or flat organisation, on the other hand, shows increase in breadth (width) of organisation structure. Simply put, horizontal structure tends to be wider instead of taller. Obviously, the number of management levels in the organisation hierarchy are less (as against the tall structure). In a changed environment, vertical environment is not suitable. Particularly, advanced information technology, wide acceptance of employee empowerment, multi-professionalisation, and fast globalisation environment demand horizontal structure. Horizontal structure facilitates cooperation, processes, teamwork, and customer orientation. In this structure, authority tends to be more decentralised and span of control expands. Modern business enterprises prefer horizontal structure due to several advantages it offers, like quick decisions, low administrative costs, more freedom or autonomy, high employee morale, employees’ strong commitment to goals, improved performance, use of multiple competences, openness, speedy feedback, etc. (For more details, refer Chapter 16). Types of organisation structure discussed in the following part may follow vertical or flat structure as per prevailing internal and external situations.

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TYPES OF ORGANISATION STRUCTURE On the basis of size, functions, needs of specialisation, and distribution of authority, various types of organisation structures are possible. Most popular forms of organisation include: 1. Entrepreneurial Organisation 2. Line Organisation 3. Line and Staff Organisation 4. Functional Organisation 5. Committee Organisation 6. Project Organisation 7. Matrix Organisation 8. Other Modern Organisation Designs This chapter describes key issues related to each of these organisation structures.

Entrepreneurial Organisation Small business firms – (for example, sole proprietary and partnership firms) in initial stages of inception normally follow entrepreneur type simple organisation structure. It is applicable to manufacturing, trading, and service units. It is a special type of line organisation. The structure consists of an owner who works as head or manager and the employees. Employees support the manager to carry out relevant operations and perform multiple tasks. When small firms expand their operations, they adopt extended organisation structure that consists of dividing activities into groups. Professional manager and needed employees are appointed for each of the activities. Particularly, manufacturing and marketing departments are created. As per owners wish, the firm may be transformed into partnership or private limited company and can adopt any of the other organisation structures discussed in the later part of this chapter. However, entrepreneurial impact (i.e., impact of founder, promoter, or owner) continues dominating the entire structure over time. Simplicity, prompt decision, operational flexibility, etc., are some merits of the entrepreneurial structure. However, ownermanager cannot give professional touch to the firm’s management.

Line Organisation Line organisation is the simplest and the oldest form of organisation. It is generally used in the army. Therefore, it is also known as military organisation. Other names of line organisation are departmental organisation, scalar organisation, and vertical organisation. Note that it is the basic structure of organisation and other forms/types of organisation are created by modifying this structure. Here, organisation structure is based on authority and responsibility. The man in the top position in an organisation has the highest authority, and authority reduces at each successive level down the hierarchy. Its key feature is that authority descent’s from the top to the bottom remains unbroken. Every superior has authority over subordinates under him and can

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issue orders, instructions, guidelines, etc., to them. And, subordinates are responsible only to the superior who delegates them authority. While authority moves from the top to the bottom in line, responsibility moves from the bottom to the top in line. Hence, it is known as the line organisation. Here, ‘line’ indicates the line of authority. Employees are linked with unbroken line of authority (and responsibility). Figure 8.1 depicts the design of line organisation. In a line organisation, every person has a clear and well-defined role. Through delegation and redelegation, superior-subordinates relationships are established from the top to the bottom. Direct relationships between superiors and subordinates are called line relations. Naturally, in line organisation, there is vertical line of authority. The unity of command is an essential condition in this organisation. There are two types of line organisations—pure line organisation and departmental line organisation. In pure line organisation, all individuals perform same type of activities. Divisions are made only for facilitating effective supervision and control. In departmental line organisation, the chief executive is at the top. Under him, there are various departments, each headed by departmental head. Each of the departments performs different functions/activities. Pure line organisation has limited applicability, but departmental line organisation is popular.

FIGURE 8.1 Line Organisation for Production Department

Merits of line organisation Line organisation has following merits: 1. 2. 3. 4. 5.

It is much simple to understand and practice. Clear division and definition of authority and responsibility. It follows the unity of command principle. It facilitates effective supervision and control. It facilitates prompt decision and speedy actions. It is an economical (i.e., cost effective) structure. There is no need of specialist staff.

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6. It permits a greater degree of flexibility. 7. It offers better discipline. 8. It provides opportunity for development of skills. Executives can be made all-rounders as they have to perform a variety of functions. 9. It permits preservation of secrecy. 10. It is easy to fix the ultimate responsibility.

Demerits of line organisation There are some problems in applying line organisation. Main demerits have been listed below: 1. There is lack of specialisation; each executive is responsible for both planning and implementing of work. 2. Results in over burdening of a key man as one has to performed many functions. He may not perform all activities effectively. 3. It may lead to biased or subjective approach. It may result into autocratic control. 4. It has limited applicability. 5. It permits limited and one-way communication. Subordinates have no scope to express their views, suggestions, or problems. Their creative abilities may not be adequately utilised. 6. There is possibility of conflict among departments and difficulty in cooperation and coordination. 7. It may promote corruption, favouritism, nepotism, and misuse of authority. 8. There is possibility of complication in promotion and transfer cases. Shifting or promoting any position holder leads to severe disturbance as he has been managing many activities. 9. Line organisation may lead to instability as a few competent executives manage the entire organisation. To get the right successor is always an acute problem. 10. Planning and research works are neglected. Virtually, the manager is very busy with routine work and cannot spare time for planning and research.

Suitability of line organisation Line organisation can be advised in following situations: 1. 2. 3. 4. 5. 6.

When organisation is small in size When work is simple and routine When strict discipline and close control are required When top secret is to be preserved When there is no need for specialisation When a number of subordinates is small

Line and Staff Organisation Line and staff organisation is an extension, expansion, or improvement of line organisation. In a large and expanding organisation, pure line organisation is not suitable. Experts’ services are required to carry out activities effectively. This structure is based on F. W. Taylor’s ‘Functional Foremanship’ concept. Here, line of authority remains unbroken, but, at the same time, staff

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is also appointed to facilitate line persons. Staff means a team of experts. The staff assists line executives to perform their respective functions effectively.

Line and Staff Relationship Line positions in organisation structure are responsible for accomplishing primary objectives. They are closely related to main functions and objectives of the organisation. Line managers are empowered to take and implement decisions. However, they cannot work effectively without staff. Staff advice, assistance, counselling, and information help managers in attaining goals. The staff analyses the problems, collects and analyses information, develops alternatives, and helps line manages make the right decisions in time. The concept of line and staff relationship can be analysed by two approaches—authority approach and function approach.

FIGURE 8.2 Line and Staff Organisation for a Manufacturing Unit (with extension of only marketing department)

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Function Approach Louis Allen defines line and staff as: “Line functions are those that have direct responsibility for accomplishing the objectives of an enterprise and staff refers to those elements of the organisation that help the line to work most effectively in accomplishing the primary objectives of the enterprise.”1 Thus, function approach denotes different functions—line functions and staff functions. Line functions have direct responsibility for accomplishing firm’s objectives, and staff functions help the line (executives) in achieving the objectives. However, it is difficult to classify functions as line and staff as they depend on type and nature of business. Authority Approach According to this approach, line and staff are two types of authority. Line authority is direct authority that a superior can exercise on his direct subordinates to carry out orders and instructions. Authority always moves downwards. Staff authority, on the other end, is advisory in nature and is concerned with providing expert services (or advice) to line executives to carry out their respective works. Flow of staff authority may be upward, downward or horizontal, depending upon the need. Figure 8.2 shows line and staff organisation for a manufacturing company. There are four main functions, like production, marketing, finance, and personnel. Marketing and production are line functions (indicated by solid line) while finance and personnel are staff functions (indicated by dotted lines). There is line relationship between marketing manager and general manager while there is staff relationship between financial manager and general manager. However, line relation exists between financial manager and financial officer. Under marketing manager, marketing research manager and new product development manager have staff relations whereas advertising manager, sales manager, and distribution manager have line relations.

Merits of line and staff organisation Line and staff organisation has following merits: 1. Use of expert staff leads to better decision-making. 2. It is simple to understand and apply; involvement of staff does not complicate the structure. 3. Scale of economy can be achieved as a few experts perform a large number of activities for the entire organisation. 4. Provide relief to line executives so that they can concentrate more on their own line functions. 5. This type of organisation promotes coordination because the staff experts act as a link to establish coordination among various departments and employees throughout the organisation. 6. Speedy decisions and actions can be taken. Staff provides necessary information, but does not interfere in decisions. Line executive can take decisions promptly. 7. It permits greater degree of flexibility. Additional experts can be added or reduced easily. 8. By employing different types of staff (concurring, compulsory consultation, project, etc.), multipurpose use of staff is possible. 9. It is easy to fix the ultimate responsibility because line manager can be held responsible for the final result. 10. It leads to clarity and order/discipline.

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Demerits of line and staff organisation However, line and staff organisation suffers from following demerits: 1. Line and staff organisation is expensive form of organisation, and, hence, it is not applicable to small and medium size organisations. 2. There is possibility of evading responsibility by blaming the staff. It promotes escapism mentality. 3. It may result in confusion. Practically, it is difficult to clearly determine line and staff authority. Jurisdiction, authority, and responsibility are difficult to decide. Similarly, line and staff functions depend on type and nature of business. 4. Line and staff conflict spoils healthy relations in the organisation. Sometimes, old-senior line executives and junior dynamic staff officers face difficulty in working together. 5. Staff is not granted authority to influence decision-making. Sometimes, service of staff is not adequately utilised. They may also not work effectively as they are not responsible for the results. 6. Line and staff organisation may make line executives careless, dependent, and thoughtless because of the expert services of the staff. 7. Since departmental head is authorised to act independently within his department, it encourages departmental centralisation of authority.

Applicability of line and staff organisation

Generally, line and staff organisation is

applicable in following situations: 1. When organisation is large or medium in size 2. When expert knowledge is considered to be important 3. When company wants to utilize expert knowledge without violating line of authority and unity of command

Types of Staff

On the basis of decision-making rights and functions/services, different types

of staff are: 1. Project Staff: Such staff are appointed only for a specific project or mission. After completion of the project, the services of the staff are terminated, or they are shifted to other departments. 2. Personal Staff: Personal staff are experts who provide advice and services to the manager in carrying out his work. Personal staff may include personal assistant, personal secretary, executive assistant, etc. They work only for a particular position holder. 3. Advisory Staff: Advisory staff’s role is pure advisory in nature. Experts study the problems and offer suggestions. They prepare plans for line managers. However, line manager is not bound to follow the advice given by staff. Advisory staff can extend their services to many line executives at different levels. 4. Specialist Staff: The specialist staff render advice and service to all departments in the organisation. They are experts on several areas, like research, accounting, computers, human resources, etc.

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5. Compulsory Staff Consultation: In this type, the staff must be consulted before any action is taken. 6. Concurring Staff: Here, staff is granted the authority and his agreement or consent is must. The line manager can decide or take action only after staff permits it. 7. Control Staff: Control staff exercises direct or indirect control over certain operations of some departments. For example, auditing, quality control inspector, etc., have direct control over other operations. Such staff members affect line operations through policy making, interpretation, and procedural aspect.

Line and Staff Conflict There exists high potential for line and staff conflict in line and staff organisation. When any one or both fail to support one another and work in harmonious manner, it leads to conflict. Line and staff conflict affects the healthy climate in the organisation and, hence, has adverse impact on organisation’s performance. Normally, line people are senior, experienced, and non-specialised while staff people are young, qualified, and dynamic. Their mindsets differ significantly and, therefore, proper tuning is missing in thinking and acting. Both have different backgrounds that leads to improper understanding. Such conflict can be viewed from two perspectives, as described by L. M. Prasad.2 See Table 8.1. TABLE 8.1 View Point of Line Managers

View Point of Staff Managers

1. Lack of Responsibility: Staff managers enjoy 1. Lack of Proper Use of Staff: Line managers do authority without responsibility. In case things go not utilize their expertise in making decisions. wrong, they blame line managers. they cannot change, stop, or modify line managers’ decisions. 2. Encroachment (Violation) of Line Authority: 2. Resistance of New Ideas: Line managers are reStaff make unnecessary interference in their opluctant to accept their innovative ideas. erations. 3. Dilution of Authority: Staff members dilute line 3. Lack of Authority: They can contribute to objecauthority. Their authority to work independently is tive achievement, but do not have authority. Line adversely affected. managers hold most of the authority. Staff advice is not properly accepted and implemented. 4. Theoretical Bias: Staff people are experts in issuing advice, but their advice has little practical value. They are not aware of practical aspects.

Line and staff must work harmoniously for sound performance. Proper understanding between the two, adequate use of staff, clearly defined jurisdiction, open mindedness, suitable organisational climate, etc., can minimise possibility of conflict.

Functional Organisation Functional organisation, a popular and widely used form of organisation, is generally used in large and medium size organisations with limited products and mass production. Originally, this form of organisation was developed by F. W. Taylor3 in his Scientific Management Approach.

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The theme of functional organisation is based on the fact that there are many functions and these functions are performed to carry out business operations. Further, it is advisable that every function is performed by a specialised (i.e., qualified, capable, and experienced) person under a specific head. Functional organisation is created by grouping and classifying activities that are necessary to achieve objectives into functions. Classification is based on nature and importance of activities. Each group of activities is referred to as a function. Each function involves similar type of activities. In a manufacturing unit, at the top level, activities are grouped into four functions—production function, marketing function, personnel function, and financial function. Each functional head is incharge of performing activities for his respective function for the entire organisation. For example, purchase officer in production function is responsible for any kind of purchase for any department of the organisation. Each departmental head appoints needed subordinates under him, and assigns work and delegates authority. In this way, from top to bottom, various positions are created at each level.

FIGURE 8.3 Functional Organisation (with Extension of Production Function) Note that every function is under the charge of an expert executive. He is not only advisor (staff executive) but also administrator (line executive). He performs both line functions and staff functions; he is both an expert and a decision-maker. The expert is responsible for his department. He also bears responsibility of his function throughout the organisation for

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efficient running of the business enterprise. For example, personnel manager is responsible for his department plus all activities of human resources for the entire organisation. The same is applicable to other functional heads. As a result, many cross relations are created, and the principle of unity of command is violated. F. W. Taylor developed functional organisation at shop level or bottom level, in the production department to promote production efficiency. Every manager is required to offer services to other managers. Figure 8.3 shows simple functional organisation. At the operating level, in the production department, activities are grouped into eight functions, as stated by F. W. Taylor in his Scientific Management Approach. First four functions (or foremen) are concerned with planning the work, such as route clerk, speed boss, timekeeper, and disciplinarian. Whereas other four functions are concerned with doing aspects, such as gang boss, speed boss, inspector, and repair boss. In practice, production department may have more or less such functions at the lower level. Each worker has at least eight bosses, and receives orders and instructions from all the eight bosses for different aspects. It leads to a number of cross relations between subordinate and superior. If there are 100 workers under eight foremen, 800 cross relations are established. Management experts justify functional organisation on the following grounds: 1. Functional organisation ensures provision for all activities 2. No activity is missed or duplicated 3. Need to integrate all the activities for integrated efforts 4. Provision of specialised services for better performance

Merits of functional organisation Functional organisation has following merits: 1. Specialisation: The organisation is benefitted by specialised knowledge as a large number of activities under every function are performed by a qualified and capable executives. 2. Large-scale Production: Functional organisation is used in large organisation where massscale operations are carried on. Here, a large number of activities are performed by a few executives. As a result, benefits of scale of economy are available. It can reduce overall costs on one hand, and boost profits on the other hand. 3. Promotes Cooperation: Every departmental head has to depend on other functional heads for facilities and services; naturally, it promotes cooperation among various position holders. 4. Easy Expansion: When company wants to expand its operations, it does not need to expand the number of functional heads. With the existing setup, any expansion can be made. Thus, expansion is possible at lower costs. 5. Clarity and Order: It is obvious that functional organisation offers clarity as similar activities are grouped under specific functions. Hence, they are easy to earmark. Similarly, order is also ensured. 6. No Fear of Centralisation of Authority: Total authority is divided among various functional executives. Each executive is authorised only for his department. This provision prevents centralisation of authority in a few hands.

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7. High Efficiency: Each functional expert is only responsible for his area. He manages only a particular set of activities in which he has mastery. This leads to high efficiency. 8. Scientific Recruitment and Training: Like scientific management, each employee is selected on the basis of actual requirements of the job. Similarly, training is also provided objectively depending on job requirements.

Demerits of functional organisation Functional organisation suffers from following problems: 1. It is not applicable to small organisation because it is expensive. 2. It violates the unity of command principles. One subordinate may receive orders and instructions from more than one superior. 3. Ultimate responsibility cannot be fixed. Each functional head performs only a specific set of activities. It is practically difficult to identify who is responsible for the final results. 4. Slow decision is one of the major problems in functional organisation. Every department has to depend on others for services. 5. It may promote indiscipline and disorder in the organisation as every departmental head functions within his area independently. 6. It is a very complex form of organisation as there are a number of cross relations. At the lower level, every employee may receive conflicting orders from many more than one superior which may result in confusion. 7. It may create problems of coordination. Since every department functions within its own area of operations, it is difficult to coordinate efforts of various departments. Every departmental head tries to promote his own specialty and thinks more for his department than the need of the whole organisation.

Applicability of functional organisation

In following situations, functional organisation

can be advocated: 1. Large organisation with mass production 2. Limited products and large-scale operations 3. Need for specialisation

Committee Organisation Some business units follow committee type of organisation. There are various definitions of committee. It is clear that committee consists of a group of people. Every decision is taken by the committee, and not by an individual. Many persons (committee members) have equal (but not independent) authority to take decisions. The distinguishing feature of committee organisation is that there is a committee for particular function or department. For example, instead of marketing manager, there is marketing committee for marketing activities. In today’s management practices, a committee is widely used for many purposes. Committee form of organisation is very popular in non-business activities, such as political, social, religious, and academic activities.

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A committee consists of a chairman and members. Members may be experts in different areas. For example, production committee consists of production manager (chairman) and other members, including product design officer, quality control officer, production superintendent, purchase officer, and production engineer. In the same way, the marketing committee consists of marketing manager (chairman) and members, experts in their respective areas, such as sales manager, advertising manager, distribution manager, public relations manager, and marketing research manager. In the same way, personnel department and financial department are headed by personnel manager and financial manager respectively and the needed committee members. Figure 8.4 shows committee type of organisation for a manufacturing company.

Committee Organisation and Team Organisation A perfect committee becomes a team that consists of experts in diversified areas. Committee members constitute the team which performs relevant tasks through teamwork. For example, marketing committee consists of five members including marketing manager (team leader or chairman), sales officer, marketing research officer, sales and distribution officer, advertising and sales promotion officers, and a public relations officer. Team structure can be adopted as per company’s requirements. There project team, taskforce team, venture team, problem-solving teams, or any other team. (For more details, refer ‘Dynamics of Groups and Teams,’ Chapter 18.)

Definitions

Committee has been defined as:

G. R. Terry: “A body of persons elected, selected, or appointed to meet on organised basis for discussion or dealing of matter brought before it.” Theo Haimann: “A committee is a group of persons, either appointed or elected, who are to meet for the purpose of considering matters assigned to it.” In simple words, committee may be defined as: A group of people who function collectively (jointly) toward common purpose. Other words similar to committee are group, commission, team, board, and taskforce.

Characteristics of Committee

Careful analysis of different definitions of committee re-

veals the following characteristics: 1. Number of Persons (or Plurality of Persons): More persons are involved in committee. 2. Members are Elected or Selected: Members are elected or selected to form a committee. 3. Scope of Operations or Jurisdiction: Each committee has fixed and well-defined area of operations. 4. Authority Structure: All members of committee are given equal authority. Each member can exercise authority by casting a vote (one member one vote). 5. Time or Tenure: Committee works as per its tenure. Some committees are permanent while some are temporary. Similarly, membership of members may be time-based. 6. Universality: It can be applied for any purpose, for any type of work, and in any field. 7. Executive and Non-Executive Committee: Executive committee is responsible for execution of work while non-executive committee is not responsible for execution of work. Non-executive committee has the right to decide only.

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8. Working Patterns or Decision-Making: Discussion, deliberations, and majority rule are used for deciding the matter. 9. Need for Chairmanship: A committee cannot work without a chairman. Chairman facilitates procedure and coordination. 10. Flexible Structure: It is flexible in the sense that members can be changed, added, or removed as per need. 11. Decision-Making Time: It takes more time to decide because decision is taken by discussion and deliberations.

FIGURE 8.4 Committee Organisation Contribution of the Committee Indian government formulated the Commonwealth Game Organising Committee to handle logistics and hospitality issues in and around the Commonwealth Game Village spread in 63.5 hectors comprising five zones—the Residential Zone, the International Zone, the Training Area, the Main Dining and the Operational Zone. A committee comprising politicians, bureaucrats, private sectors executives, and hotel hospitality staff. Several sub-committees were formulated to manage several activities related to receiving the thousands of delegates and participants, and arranging for food, security, transport, and other activities. In the same way, committees were formulated in August 2010 to hunt for successors of Ratan Tata—chairman of Tata Sons, and Narayan Murthy—founder and chief mentor of Infosys Technologies—who were planning to step down in 2012 and 2011 respectively.

Merits of committee organisation Committee organisation enjoys following merits: 1. Balanced Decision: Quality of decisions improve as more experts are involved in decisionsmaking. Joint judgment leads to balanced, rational, and objective decisions.

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2. Better Coordination: As committee involves members from different divisions and departments, it is an effective technique to unify and integrate managers of different departments. 3. Involvement of Diverse Interest Groups: Representatives of diverse interest groups are involved in the committee. Such representation helps to minimise conflict among groups and improves groups’ cohesiveness. 4. No Fear Centralisation of Authority: Authority is decentralised among members of committee. So, danger of too much authority in a single individual can be avoided. 5. Improved Motivation: Involvement in committee and active participation can be effective techniques for motivating employees. 6. Management Development Technique: Deliberation, discussion, presentation, etc., in committee proceeding can help members in developing skills. 7. Reduced Conflict: It is a conflict-solving technique as it permits every disagreed group to express views. Since decisions are taken with majority rule, dissatisfaction among groups is reduced. 8. Flexible Form: Membership is flexible. As per needs, members can be increased, decreased, or changed. 9. Tool for Managerial Strategy: Committee can prove to be a tool for managerial strategy. Decisions can be temporarily avoided or postponed to gain enough time and information to deal with the problem. 10. Suitable for Critical Decisions: In case of very critical, long term and risky decisions, committee is more suitable. It prevents organisation making any irrelevant decision.

Demerits of Committee Organisaition

Committee organisation is not always useful. Following problems exist in committee organisation: 1. High costs: Direct costs are involved in conducting of meetings, and indirect costs result from suffering of routine work. 2. Slow decision-making or delay in decision making is a major problem associated with committee organisation. It takes a lot of time to take decisions. 3. Indecision is also one of the problems. Sometimes, several committee meetings end without any conclusion. 4. Splitting of responsibility or dividing of responsibility leads to evasion of responsibility and inefficiency. Responsibility is divided among members. Hence, no responsbility can be fixed for final outcome of wrong decisions of the committee. 5. Minority tyranny (minority has to suffer) as decision is based on majority rule. Minority views carry no weight simply because they are in minority. 6. Misuse of committee is a very common phenomenon. It is used to avoid decisions, to escape from responsibility, or to postpone any actions. 7. Disclosure of secrecy is one of the major issues in committee organisation. Facts must be disclosed before committee members to initiate discussion and deliberation.

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8. Success depends upon role of chairman. Sometimes, committee becomes the fiasco if it is headed by incapable chairman. 9. Suffering of regular work. To attend committee meetings, executives from various departments have to sacrifice their routine and regular work. 10. Possibility of conflict and deterioration of healthy relations. When committee fails to reach a consensus, members develop negative attitudes, hostility, and prejudice. 11. In order to reach the unanimity (unity or harmony) among members, a committee has to compromise with priorities or objectives. In such cases, committee decisions are not the best ones, but are merely acceptable decisions.

Applicability of Committee Organisation A committee organisation is suitable in following situations: 1. 2. 3. 4. 5.

When decision is very important or critical When management wants to involve diverse interest groups When management want to pool the knowledge of different people When management wants to use committee as a tool for management development When company has enough time and wants committee for temporary assignment

How to Make a Committee Effective?

Though committee organisation is effective in certain situations, it suffers from many practical problems. Most problems are concerned with its formulation and functioning. If certain precautions are taken, these limitations can be overcome. Following suggestions help to make the committee organisation effective: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

Suitable small size of committee Careful selection of members Capable chairmanship Nature of subject matter Circulation of matters (agenda and notes) in advance, well-planned meetings Promoting members’ active involvement in committee meetings Ensuring purposeful outcomes of meetings Cost consideration Effective time management Ensuring follow up or feedback Proper time scheduling for meetings to reduce disturbance in regular work Well defined purpose, scope, and authority structure

Types of Committee Committee organisation can be classified in several ways: 1. On the Basis of Time: Permanent committee and ad hoc committee 2. On the Basis of Functions: Production committee, marketing committee, financial committee, and personnel committee

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On the Basis of Formality: Formal committee and informal committee On the Basis of Execution: Executive committee and non-executive committee On the Basis of Status of Members: Line committee and staff committee On the Basis of Scope: Functional committee and general committee

Project and Matrix Organisation In order to suit various projects of different sizes and numbers, either project organisation or matrix organisation is used. They are made by combining one or more features of line, line and staff, and functional organisations. They are of hybrid form and can meet specific needs of the enterprises. Both forms have recent origin. Normally, project organisation is suitable when a company wants to execute a limited (small) number of large projects of long duration while matrix organisation is suitable when a company has many (a large number of) small size projects of short duration. Let us briefly discuss each of them.

Project Organisation Project organisation was developed after the World War II to overcome the major weaknesses of functional organisation, such as violation of unity of command, delay in decision-making, lack of coordination, confusion, and cross relations and complexity. It is an expansion (improvement) of the traditional functional organisation. It may be of temporary nature if company wants to complete the project(s) at once. It may be of permanent nature if company’s business involves executing projects on continuous basis, one-by-one. It is preferred when a company has a small number of large projects. Each project is considered as a separate and semi-autonomous unit, and all the necessary provisions are made for each of the projects. Each project seems self-reliant in all significant aspects (i.e., production, personnel, finance, etc.). A project manager is appointed to direct and coordinate various activities of the project and is responsible for its completion. The manager has to decide what, why, where, and when to do, and how much resources are required. Supporting employees are appointed under him as per nature of the project. Here, activities are designed/grouped on the basis of each project. It is more suitable to fix responsibility. Success depends on how the project manager organises and coordinates different functions of the project. Each project can use resources exclusively. Figure 8.5 shows simple project organisation. There are two basic types of project organisation structures applicable to any type of operations—temporary project organisation and permanent project organisation.

Merits of Project Organisation The project organisation has following merits: 1. 2. 3. 4.

It focuses on a specific project. It can meet specific needs of the project. Normally, the project organisation has well-defined goals and clear areas of operation. It can appoint well-trained and qualified staff to provide specialised services. Due to semi-autonomous arrangement, the project operations can be carried out smoothly. Speedy actions can be taken.

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FIGURE 8.5 Project Organisation 5. 6. 7. 8.

A project manager can be held responsible for the final outcome. It is more suitable for complex, non-routine, and challenging tasks. It is to be completed within given time limit. Any delay is taken very seriously. It offers greater flexibility to handle specialised projects.

Demerits of Project Organisation Project organisation suffers from following drawbacks: 1. There is more uncertainty as it is applied to complex, uncertain, risky, and non-routine tasks. 2. Coordination may be difficult due to various specialists from diverse fields. They have their own way of working and different interests. 3. There is possibility of unusual errors due to considerable time pressure to complete the project. 4. The project manager has to apply dynamic approach to control, motivate, and coordinate the staff. It may not be compatible with employees’ traditional expectations. Any conflict has a definite adverse impact on quality and completion of project in time. 5. Particularly, in case of temporary project, full-fledged division is difficult. When some employees are deputed to a specific project, regular work may suffer. After the project

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completion, employees may have difficulty in adjusting with traditional climate. It disturbs the entire setup. 6. Similarly, in case of permanent project staff, company may have difficulty in maintaining the staff when there are no projects in line. 7. Resources are used exclusively by each project manager. Possibility of misuse of resources/facilities cannot be completely ruled out.

Matrix Organisation The main difference between project and matrix organisations is: A project organisation is suitable in case of accomplishment of a small number of large projects while the matrix organisation is suitable in case of a large number of small projects. It is a hybrid grid structure made by combining key features of pure project structure and functional structure. Obviously, when a company has many small sized projects, it is not affordable to make separate arrangement for each project. Resources must be shared. In the same way, in order to complete the projects in time, there must be project managers for each of the projects. According to Stanley Davis and Paul Lawrence,4 “the matrix organisation is any organisation that employs a multiple command system that includes not only multiple command structure but also related support mechanism and an associated organisation culture and behaviour pattern.” They define: Matrix organisation = Matrix structure + Matrix system + Matrix culture +Matrix behaviour In matrix organisation, there is permanent functional structure. Besides, temporary project groups are created to handle some short-term small projects. A project manager is appointed to coordinate and control activities of the project. The required personnel are drawn from their respective functional departments. When the project is completed, (if further assignment is not given), the employees may return to their original departments. Naturally, functional staff has two bosses – the administrative/functional head (original boss) and the project manager. During the assignment to a project, they have to work under coordinative or joint command of project manager and functional head to perform certain activities. The subordinate may receive instructions from two bosses. So, every employee must coordinate instructions received from two bosses. Similarly, every matrix superior has to share the facilities with others. This organisation is also referred as ‘multiple command system,’ because it has two chains of command, one, functional command system and, two, horizontal command system. The functional command system has vertical flow of authority while horizontal command system is depicted by a project team, which is led by project manager, who is expert in his team’s assigned area of specialisation. Moreover, unlike project organisation, project manager has to share resources with the rest of the departments. It short, it is combination of pure project structure and functional organisation as shown in the Figure 8.6. Matrix form is applicable in aerospace, chemicals, electronics, heavy equipments, industrial products, and pharmaceuticals. It is also applicable in services like banking, brokerage, constructions, insurance, advertising, accounting, consulting, and law. Non-profit organisations like government agencies, universities, and large academic and training institutes may find this organisation fit for organising their activities.

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This form can offer following merits:

1. It is capable to adapt with need of dynamic environment. 2. Better utilisation of resources. Permanent functional setup facilitates many projects. It is economic way to utilise available resources. 3. It is comparatively more flexible. Necessary adjustments can easily be made. 4. It can help in training and developing of personnel. Deputation to different projects can improve their job performance and interpersonal skills. 5. It is based on professional competence rather than authority. 6. It is powerful source of motivation. Capable and dynamic people like to work in different/novel environment. Lower level functional employees are motivated and satisfied with their work as they are involved in decision-making. 7. Multiple command system and need of coordination lead to better communication. 8. It encourages cooperation, coordination, consensus building, and conflict resolution. 9. Both project manager and functional head contribute to planning of activities. Better planning is possible.

FIGURE 8.6 Matrix Organisation Structure

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Demerits of Matrix Organisation Main limitations of matrix organisation include: 1. It violates the principle of unity of command. It may promote unnecessary conflict in organisation. 2. It is very complex. Complex relations lead to confusion among the employees as there are two superiors to be obeyed. 3. It is difficult to coordinate efforts of employees drawn from different functional departments. In absence of direct line authority, the project manager finds it difficult to control heterogeneous groups. 4. It promotes heterogeneity as the employees are drawn from respective departments with different backgrounds and experiences. Morale of such groups tends to be low. 5. It leads to power struggle as every executive emphasises on his own area at the cost of common interest of the organisation. 6. There is high possibility of conflict between functional managers and project managers. 7. Success of matrix organisation depends on high degree of understanding and agreement among executives in the matter of sharing authority and resources. Willingness to extend cooperation by functional executive and project manager is the precondition. Practically, it is difficult.

Modern Organisation Designs Organisation forms discussed in the above sections are traditional in nature. Recently, new organisation designs have been developed and adopted worldwide to adjust with new situations. Modern organisation designs include: 1. Horizontal organisation 2. Network organisation 3. Virtual organisation and virtual office (For more details, refer to Chapter 16.)

CONTINGENCY FACTORS IN ORGANISATION DESIGN Various internal and external factors affect the organisation design and structure. Due to varying degrees of impact of these factors, every company follows a different structure of organisation. It is obvious that each business enterprise differs in terms of objectives, resource ability, and other situational variables. A manager should carefully analyse relevant factors to decide an appropriate form of organisation. These contingency factors themselves demand particular type of organisation structure which can best suit their unique requirements.

Contingency Factors Contingency factors are listed as under: 1. 2. 3. 4.

Objectives of organisation Type of employees Type, nature, and duration of work Past experience

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5. Management attitude and philosophy 6. Size of operations 7. Dispersion of activities at various places 8. Desire for specialisation 9. Number of products and size of production 10. Resource ability of organisation The list is not exhaustive. In real management practice, more factors need to be analysed. The organisation structure should be selected in light of relevant factors to gain maximum advantages.

SUMMARY On the basis of size, functions, need for specialisation, and distribution of authority, various types of organisation structures are possible, such as Line Organisation, Line and Staff Organisation, Functional Organisation, Committee Organisation, Project Organisation, Matrix Organisation, et al. Line organisation is the simplest and the oldest form of organisation. It is also known as military organisation. There are two types of line organisation – pure line organisation and departmental line organisation. It is very simple and has limited applicability. Line and staff organisation is an extension, expansion or improvement of line organisation. Here, line of authority remains unbroken, but, at the same time, staff is also appointed to facilitate line persons. Staff means a team of experts. This form offers certain advantages over line organisation, and also suffers from demerits. Functional organisation was originally developed by F W Taylor in his Scientific Management Approach. In this form, every function must be performed by specialised (i.e., qualified, capable, and experienced) person under a specific head. It offers many benefits, and also suffers from limitations. In committee organisation, each decision is taken by the committee, and not by an individual. A committee is a body of persons elected, selected, or appointed to meet on organised basis for discussion or dealing of matter brought before it. It offers many comparative advantages and disadvantages. Different committees are used for different purposes. To overcome limitations of pure line and functional organisations, project and matrix organisations have been developed. They have recent origin. Normally, project organisation is suitable when a company wants to execute a limited (small) number of large projects of long duration while matrix organisation is suitable when a company has many (a large number of) of small size projects of short duration.

KEY TERMS Organisation Structure Line Organisation Line and Staff Organisation Functional Organisation

Committee Organisation Project Organisation Matrix Organisation Horizontal Organisation

Network Organisation Virtual Organisation

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EXERCISES Objective Type Questions A. Answer the following: 1. In a line and staff organisation, what is meant by staff? 2. Which organisation is known as the military organisation? 3. Name the staff whose permission is compulsory before taking action. 4. Who originally developed functional organisation? 5. State the form of organisation that violates the unity of command principle? B. Choose the correct option (MCQs): 1. By which name is the line organisation known? (a) Pure line organisation (b) Departmental line organisation (c) Line and staff organisation (d) Military or army organisation 2. In line and staff organisation, staff implies (a) Top level executives (b) Office assistant staff (c) A team of experts (d) Functional heads 3. In which of the following organisation structures, unity of command principle is violated? (a) Functional organisation (b) Committee organisation (c) Line organisation (d0 Line and staff organisation 4. Which is not a contingency factor that affects organisation structure? (a) Type of employees (b) Type and nature of work (c) Management attitude and philosophy (d) Political stability 5. Matrix organisation is hybrid form of organisation, and is made of (a) Pure project organisation and functional organisation

6. Define committee. 7. Name any four types of committee? 8. When is project organisation is suitable? 9. Which organisation is also referred as ‘multiple command system’? 10. Name any two modern forms of organisation.

(b) Line and functional organisation (c) Committee and project organisation (d) Project and staff organisation 6. In which situation is the project organisation applicable? (a) When there a large number of small projects (b) When there are a few small projects (c) When there are a small number of large projects (d) When there is any type of project 7. How are decisions taken in a committee organisation? (a) Chairman takes all decisions (b) Senior committee members can take decision (c) Decisions are taken by majority rule (d) Committee requests top authority to take decisions 8. The line executive needs to take permission or approval while deciding from which staff type? (a) Advisory staff (b) Project staff (c) Concurring staff (d) Personal staff

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9. Which one is the latest form of organisation? (a) Line organisation (b) Line and staff organisation

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(c) Committee organisation (d) Virtual organisation

Descriptive Questions 1. Mention different types of organisation structures. Explain line organisation. 2. What is line and staff organisation? Briefly state its merits and demerits. 3. Write a note on functional organisation. 4. What is a committee? Write merits and demerits of committee organisation. 5. Explain: (a) Types of staff (b) Project organisation

6. What is matrix organisation? How does matrix organisation differ from project organisation? Write its merits and demerits. 7. ‘Selection of organisation structure depends on several factors.’ Comment. Explain factors affecting structure selection. 8. Discuss: (a) Guiding principles for making committee organisation effective (b) Merits and demerits of project organisation

Assignments 1. Students are assigned to verify practical applicability/utility of traditional organisation forms with reference to the present business management practices.

2. Students may be assigned the project to study basic aspects of virtual organisation practiced by one or two IT companies.

REFERENCES 1 Louis Allen, Management and Organisation, McGraw-Hill, New York, 1978, p. 150 2 L M Prasad, Principles and Practice of Management, Sultan Chand & Sons, New Delhi, 2005, pp. 401–403 3 Frederick W Taylor, Scientific Management, Harper Brothers, New York, 1911 4 Stanley M Davis and Paul R Lawrence, Matrix, Reading, Addison-Wesley, Mass, 1977, p. 18

ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. 2. 3. 4. 5. 6. 7.

Staff means a team of experts Line organisation Concurring staff F W Taylor Functional organisation Committee is a group of people who function collectively (jointly) toward common purpose. Permanent committee, ad hoc committee, executive committee, and staff committee. (Students can write any four types) 8. When there are a small number of large projects

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Management and Organisational Behaviour

9. Matrix organisation 10. Network organisation and virtual organisation B. 1. (d), 2. (c), 3. (a), 4. (d), 5. (a), 6. (c), 7. (c), 8. (a), 9. (d)

CASE CEOs Need to be Innovative in Organising Efforts Ram Manek, a bureaucrat, Devang Pandit, an assistant manager in a leading MNC, and V Vishwanathan, a management professor, close friends from school days, were travelling together in a train. They were going to attend a social function, a marriage reception party in Delhi. There was a heated discussion in the compartment. The topic was: What makes a modern CEO a successful leader? Ram Manek: “I think CEO is nothing more than a supervisor. He is just a translator of top management’s philosophy. In fact, a CEO has to be obedient to top authority to avoid any problem. He must protect his interests and should not do anything that displeases his boss. He is just a ‘Yes Boss’ of top authority. He is not a policy maker, only an implementer. To be innovative can be problematic. He needs to adjust into the existing structure of the organisation. He has limited scope to do anything different. Political philosophy of the ruling party confines our limit of thinking and doing. Take the example of Commonwealth Games. Politicians and bureaucrats dominated every issue. Once we adjust in the bureaucratic system, we find no space for fresh breath.” Devang Pandit (reacted with shock and surprise): “What a surprise! Do you know what are you saying? I don’t agree. Modern CEO cannot be of ‘Yes Boss’ mentality. He has to be mentor, caretaker, and leader. His role is as important as the General in the army. CEO cannot be the carbon copy of top authority; he has to be divergent and proactive; he has to be original every time. He is responsible for shaping the future his enterprise. He is the architect of his enterprise. Look at Ajim Premji, Narayan Murthy, Late Dhirubhai Ambani, Adi Birla, Gautam Adani, Ratan Tata, Anand Mahindra, and other successful business leaders. They dared invite and implement new philosophy, innovative structure, and humanitarian HR policies. They have exemplified what leaders must do. In today’s situation, the CEO needs to be master of marketing, HR, and OB. Besides, he needs to be a good human being first. Honesty, integrity, creativity, openness, discipline, positivism, and humanitarian approach are key inputs for a modern CEO. He must be a good communicator to influence people, both inside and outside the organisation. He should not hesitate to implement horizontal, virtual, network, or even free-form organisation design. He must be enthusiastic to protect his employees on all fronts. He is not only a leader of the company, but is a responsible citizen, too. He is not the translator of top management’s policy, he needs to be a visionary. Here, I like to site an example of Ratan Tata, the chairman of Tata Group that own more than 80 companies. He adopted new ideology, quite different from his predecessor. Re-organisation of the group was his first priority when he took over as chairman. He emphasised on homogenised and highly focused group in the globalised world. He played multiple roles to link companies in a single thread. He played the role of a promoter, an investor, a strategic advisor, a caretaker of workers, a social worker, and also a transformational leader. He offered wide range of power to the heads of different companies of the group.” He stopped. V. Vishwanathan (clapped with a smile): “Yes, you are right. Thanks for your useful lecture!! I absolutely agree with your observation. A CEO must be good teacher. He must learn and

Types of Organisation Structure

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teach management fundamentals. He needs to a visionary for the organisation, a guide for employees, and a responsible citizen for the nation. He must be aware of global management practices. He has to be active, alert, and adaptive to protect the interest of his enterprise. CEOs of leading companies must provide orientation to bureaucrats. I strongly believe that bureaucrats must learn lessons from dynamic CEOs. Indian School of Business (ISB), Hyderabad, has recently introduced a course for working executives in accordance with the trend of learning while working. I think bureaucrats, too, should join. Bureaucrats must change their mindset to improve their performance and meet social expectations. Many senior executives from private sector companies, including ITC Hotels, Oberoi Group and Sahara Group and GMR Infra, have significantly contributed to make Commonwealth Games (CWG) a grand and successful event. Active involvement of private sector talent and organising skills helped save the nation’s pride. Success of Commonwealth Games can be equally attributed to invisible hands of corporate leaders. Those who want to be successful must select their role models carefully and should follow them. I believe that rigid bureaucratic mentality is key issue to address while strengthening our global competitive edge. Professional mindset even in bureaucracy can help accelerate the pace of overall growth and development. I am ready to teach bureaucrats; are they ready to learn and change?” He laughed and ended his talk. The train stopped at a junction. Ram Manek decided to step down from the compartment for a few minutes. The discussion was postponed.

Questions for Discussion 1. ‘People view the things as per their area of work.’ How and why? Express your views. 2. How would you perceive the modern bureaucratic climate? What is the impact of rigid bureaucracy on operations of business enterprises? 3. According to Devang Pandit, what must the modern CEOs do? Express your views. 4. Summerise the views of the Assistant manager, Devang Pandit, regarding the role of modern CEO. What is your opinion? 5. ‘Assistant manager and management professor hold same views on the role of the modern CEO.’ Comment on the statement. 6. State five main qualities that modern CEOs must possess to lead their respective organisations. 7. ‘Bureaucrats must learn from dynamic CEOs of successful business enterprises.’ Give your comments, referring to the views of Professor V. Vishwanathan.

CHAPTER

9

Staffing (Human Resource Management) Learning Objectives Upon completing this chapter, you will be able to: Define HRM and explain its nature Discuss importance of staffing or HRM Give a brief outline of each of the functions of HRM Suggest some basic principles of staffing Discuss recent trends and some new issues in HRM practices Appraise usefulness of new issues in actual practice of HRM

INTRODUCTION Staffing, a separate function of management, is concerned with the human element in the organisation. It is the only function of management that is considered a separate subject or discipline. Staffing is also called Personnel Management, (Personnel Function), Human Resource Management (HRM) or Human Resource Development (HRD). Manager who performs this function is known as Personnel Manager or Human Resource Manager. Staffing or Personnel Management deals with administration and development of organisation’s human resource. HRM accepts importance of human element in organisation and treats human resources positively while HRD emphasis on development of human resource. However, by and large, it can be said: 1 Staffing = Personnel Management = HRM = HRD Concept of Human Resource: The term manpower (human resource, workforce, personnel, men at work, or employees) indicates the sum total of knowledge, skills, creative abilities, Note: Additional reading material related to this chapter is available on the companion website of this book.

235 talents, and attitudes of people employed in the organisation. It also indicates values, attitudes, and benefits of employees. Human resource is the most valuable asset of the organisation, and is the major determinant of the firm’s success. Human resource at work is complex due to considerable heterogeneity in terms of basic mental abilities, personality, motor abilities, interest, skills, intelligence, attitudes, aspirations, energy, life orientation, education, qualifications, training, experience, and overall behaviour. Their behaviour is affected by working conditions, welfare facilities and privileges available, recognition of their work, pay and incentives, respect, and other such aspects. Therefore, managing men at work is a challenging job. In relation to nature of human resource, Sophocles1 has rightly stated: “The wonder of wonders is Man, who has indefinite capacity to think, to develop, to create, to invest, to feel, to love, to give, to kill, to respect, and to hate, analyse, or destroy.” A manager has to perform staffing functions continuously. He is required to carry out staffing activities in three situations—when the firm is newly established, when it requires additional manpower, and when it replaces existing staff for any reason. Microsoft India’s Soft Staffing Policies Wipro Corporation, Infosys Technologies, Tata Constancy Services, Microsoft India, Google India, and other medium and small IT companies have adopted human centric HR policies and practices. Microsoft India’s HR policies aimed to maximize the value of human capital in achieving business growth by focusing on talent acquisition and development, leadership development, and management of the Microsoft culture. Human resources practices of Microsoft India focuses on Recruitment and Selection, Training and Development, Career Management, Flexible Work Timings, Employee Retention, Compensation and Benefits, Performance Management, Women’s Empowerment, and Work-Life Balance.

DEFINITIONS OF STAFFING Staffing function of management is also known as personnel management or HRM – human resource management. Let us define the term: 1. Koontz and O’Donnell: “Staffing is concerned with appointing the right individual for the post determined by the organisation to maintain people and activities related with this aspects.”2 2. George R. Terry: “Staffing is concerned with providing healthy and satisfied employees, and maintaining them.”3 3. Edwin Flippo: “Personnel Management is the planning, organising, directing, and controlling of the procurement, development, compensation, integration, maintenance, and separation of human resource to the end that individual, organisational and social objectives are accomplished.”4 In simple words, we can define staffing as: Staffing is concerned with all the activities related with appointing the right persons for the right posts, and maintaining them. In terms of the scope of staffing function, we can define: Staffing involves the procurement (manpower planning, recruitment, selection, and placement), development, compensation, integration, and maintenance of personnel in the organisation.

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CHARACTERISTICS OF STAFFING Salient features of staffing (personnel management) have been listed below: 1. Staffing is one of the function areas of management, but it is treated as a separate discipline/subject. 2. Other terms used for staffing are personnel management, personnel function, Human Resource Management (HRM), or Human Resource Development (HRD). 3. It is concerned with human resource in the organisation. It is the management of men (employees, workers, peoples, staff, or human resource) at work. 4. It involves acquiring, developing, and maintaining satisfactory human resource in organisation. 5. Staffing decisions mainly involve manpower planning, recruitment and selection, training and development, wage and salary administration, promotion and transfer, grievance handling and industrial relations, employees’ welfare, etc. 6. It is a continuous function. As per need, staffing activities are performed on a continuous basis. 7. It is supporting function to other departments. It performs human resource activities for all departments and divisions of the organisation. 8. It is major determinant of success of any business enterprise. 9. Staffing can be applied to all types of activities, such as economic (business), social, political, religious, and so forth. 10. A manager who performs staffing functions is known as personnel/human resource manager. 11. It is a challenging job as it deals with the human being, the complex man. Organisation behaviour is useful to understand, modify and control human behaviour.

IMPORTANCE OF STAFFING Peter F. Drucker states, “Man, of all the resources available to man, can grow and develop.” HRM performs all necessary activities to grow and develop organisation’s human resource. Human element in the organisation is a dominant ‘M’ among all the entire Ms’—money, materials, machines, means/tools, methods, etc. It is the most valuable asset of the organisation, and is the major determinant of a firm’s success. Effective utilisation or contribution of other physical resources depends on the type and ability of human resource. The following points describe the importance of staffing:

1. Management Means Staffing The fundamental task of management is to manage human resources. All functions of management—planning, organising, staffing, directing, controlling—directly or indirectly—deal with human beings. All principles of management are also directly concerned with managing human resource. Staffing determines the effectiveness of other functional areas, such as marketing, finance, and production, because their efficiency depends on human resource management. Hence, it contributes to attainment of economic objectives of business firm.

237 2. Related to Valuable Asset It can be said, Organisation fails when employees fail, and employees fail when HRM fails to perform its functions. Significance of HRM increases by manifold as it is directly concerned with the valuable asset (human resource) of the firm. Staffing is responsible for acquiring, improving, and maintaining this precious resource of organisation. 3. Complexity and HRM Most complexities, confusions, ambiguities, and problems in the organisation can be attributed to people in it. Human resource is the most complex, dynamic, and unpredictable facet of the organisation. By suitable management, these complexities can be reduced to a great extent. Human resource management tackles complexities prevalent in today’s organisation.

4. Right Employees for Right Posts Staffing function makes necessary provisions and carries out needed activities to ensure an exact matching between job requirements and employees abilities (qualities, skills, qualifications, attitudes, and experience). Due to systematic functioning of HRM, every post in the organisation is occupied by the right person who contributes maximum to organisation’s objectives. Efficiency improves, and organisation can survive and grow continuously.

5. Harmony and Cooperation

Effective HRM improves industrial relations which results in high degree of harmony and cooperation. Owing to this, unexpected events—strike, band, sabotage, lockout, mass leaves, and other forms of labour unrest—can be prevented, or, at least, minimised. Employees extend their full support in all situations and help the organisation in persuing its objectives without disruption.

6. Employee Satisfaction and High Morale An efficient HRM creates a healthy climate. People enjoy their work and have high morale. This is the master key to solve organisation problems. People exhibit regularity, sincerity, dedication to work, faithfulness, and other human qualities. Consequently, firm can achieve highest possible efficiency.

7. Economy and Efficiency Effective HRM positively affects every activity of an enterprise. All areas of business unit—production, marketing, finance, and HRM itself—operate effectively and efficiently. This enables the enterprise to observe economy and efficiency in its operations and meet its obligation. 8. Stability and Continuity HRM performs necessary human resource activities to hire and maintain satisfactory human resource. When employees are satisfied, they hold high esteem for their organisation. Experienced and capable employees prefer to continue with the organisation for a long time. 9. Handling or Provision of Necessary Activities

HRM manages all employee related activities for every department of the organisation. It takes care of hiring, development, and maintenance of human resource. It ensures sufficient and suitable manpower for carrying out important activities, thus, keeping the organisation active, alive, and functioning.

238 10. Advantage of Specialisation Staffing functions solely concentrates on human resource activities. Personnel department hires special staff for the purpose. All activities are performed by qualified, experienced, and capable executives, each responsible for a special set of activities. They acquire mastery over their respective areas. Organisation benefits from specialisation. 11. Social and Economic Significance of HRM HRM brings excellence in all economic and social aspects. It contributes to economic development of the nation and improves social standards. It not only improves employees’ life pattern, but also positively affects on progress of entire society. By balancing job-seekers with the jobs, utilising resources in optimum manner, ensuring overall operational efficiency, maintaining dignity of employees, providing maximum opportunities for personal development, ensuring healthy relations among different groups, promoting team spirit, developing skills, etc., it contributes towards development of society and improvement of living standard. 12. Development of Human Qualities HRM has potential to develop better human qualities. It makes efforts to impart good human qualities, like sincerity, regularity, honesty, faithfulness, commitment, confidence and capacity, dedication and devotion to work, patriotism, sensitiveness, empathy, sense of self-discipline, etc. Human virtues are beneficial for the organisation as well as for the whole society. Employees’ good virtues spread in the entire society.

13. Others

Apart from the above points, importance of HRM can be explained with reference to the following points: i. ii. iii. iv. v. vi.

Integrating people with organisation Creating sound organisation structure Ensuring internal and external coordination Effective utilisation of productive resources Prestige and reputation in market Global recognition of both company and country

FUNCTIONS/SCOPE OF STAFFING Normally, staffing function includes following (activities) decisions: 1. Manpower Planning 2. Recruitment and Selection 3. Training and Development 4. Wage and Salary Administration 5. Employee Turnover i. Promotion ii. Demotion

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6. 7. 8. 9. 10. 11. 12.

iii. Transfer iv. Absenteeism v. Separation vi. Deputation Performance Appraisal Grievance Handling Employees’ Welfare and Security Human Relations Industrial Disputes, Industrial Relations, and Working with Trade Unions Employee Morale Building Organisational Behaviour

These staffing/HRM functions have been briefly discussed below.

Manpower Planning Manpower (or human resource) planning is the planning of human resource in the organisation. It is concerned with determining adequate supply of right kind of manpower to meet organisation’s human resource needs for specific future period. Hence, manpower planning plays a significant role in today’s organisation.

Definitions Human resource planning has been defined as: Bruce P. Coleman: “Human resource planning is the process of determining manpower requirements and the means for meeting those requirements in order to carry out the integrated plan of the organisation.”5 Manpower planning is an act of determining the right number and kind of people for the right places, at the right time, to do the right jobs, to avail the organisation the maximum long-range benefits. More clearly, we can say: Manpower planning involves deciding in advance what, how many, why, when, where, how, and who aspects of human resources. It is concerned with two decisions—projecting the future manpower requirements and planning for implementing of the projection.

Human Resource Planning Process

Human resource planning process normally consists

of the following steps: 1. Deciding Organisational Objectives: The planner has to decide clearly why the human plan is to be prepared. 2. Estimating Manpower Requirements: It consists of determining the future manpower requirements in terms of number and types employees. 3. Job Analysis: Job analysis is systematic study of the job. It involves deciding on job requirements in term of qualities, qualifications and experience of employees. 4. Projecting Manpower Supply: It deals with determining availability of manpower inventory (or supply) from internal and external sources.

240 5. Developing Human Resource Plan/Programme: The step involves preparing a systematic programme (policies, rules, strategies, budgets, procedures, etc.) for recruitment, selection, training, transfer and promotion, compensation, and other relevant human resource activities. SAIL’s Manpower Planning (2010–11) Steel Authority of India (SAIL), the state-owned steel major, has planned (November, 2010) to hire 525 freshers from technical side to work on steel projects that undergo Rs. 70000 crore capacity expansion. Out of 525, 75 will be appointed for administration. Company offers a basic salary package (BSP) of 6.5 lakh per annum. The country’s largest steelmaker employs around 1.2 lakh employees, and its headcount sinks by an average 6000 to 7000 employees every year due to natural separation (i.e., retirement). During the current fiscal year (2010), SAIL’s total employee cost stood at Rs. 2011.71 crore which was double than the previous year. Human resource planning must be done carefully. It is like a double-edged weapon. Effective plan results in maximum utilisation of human resource, improved efficiency, increased job satisfaction, reduced absenteeism, reduced unnecessary labour turnover, and ultimately, reduced costs. On the contrary, defective plan leads to lower productivity, less job satisfaction, labour unrest, constant disturbances in organisation, and, finally, failure to achieve objectives in time. Suitable human resource planning is also essential for individual employees as they can develop and use skills and capabilities for better performance. Similarly, organisation can improve its efficiency and productivity.

Job Analysis (a Part of Manpower Planning)

Job analysis is an important area of human resource management and is treated as the part of manpower planning. Job analysis is systematic and detailed study of a job, and reporting of pertinent information relating to its nature. It consists of determination of tasks that make up the job, and the skills, knowledge, abilities, and responsibility required of workers for successful performance, which differentiate one job from all others. It includes job description and job specification.

Definitions: Job analysis can be defined as: Edwin B. Flippo: “Job analysis is the process of studying and collecting information relating to the operations and responsibilities of a specific job. The immediate products of the analysis are job description and job specification.”6 Thus, job analysis can be defined as: Job analysis is the process of determining/identifying the nature of specific job. It involves specifying task to be performed, skills and abilities required for successful performance of the job, tools and methods to be used, duties and responsibilities to be discharged, types of relations with other job holders, and the ways the job differs from other jobs. Job analysis includes job description and job specification.

Job Description

Edwin B. Flippo defines the term as: “Job description is an organised, factual statement of duties and responsibilities of a specific job. In brief, it should tell what is to be done, how it is to be done, and why. It is a standard of function, in that it defines the appropriate and authorised contents of a job.”7

241 Job description is an organised and factual statement/document that describes duties and responsibilities of a specific job. It relates with ‘what’ aspect of the job. It is a written statement that describes job title, tasks, duties and responsibilities, and other aspects of the job. Contents of Job Description: Job description mainly shows: 1. Job title 2. Location and position of job 3. Scope and nature of work 4. Supervision—to be given and received 5. Materials, tools, and machinery and equipment to work with 6. Definition of immediate subordinates and superiors 7. Salary level—pay, DA, bonus, incentives, method of payment, hours of work, shift and break, etc. 8. Complete list of duties, responsibilities, and authority 9. Working conditions—location, time, speed of work, accuracy, health and accidents, hazards and security measures, occupational diseases, facilities available, training and development, promotion chances, and so forth. 10. Important relationships with others

Job Specification Edwin B. Flippo defines: “Job specification is the statement that shows minimum acceptable human qualities necessary to perform a job properly. It is standard of personnel, and designates the qualities required for acceptable performance.”8 It can be defined as: Job specification depends on job description. It translates job description in the form of human qualities and qualifications that are required to perform a particular job successfully. It states what human traits and experience are necessary for doing a specific job well. It clearly indicates what type of person a firm should recruit and what qualities he must hold. Job specification is concerned with the ‘who’ aspect of the job. It is a written statement of qualifications, traits, experience, and physical and mental characteristics that an individual must possess to perform job duties and discharge responsibilities effectively. The job specifications are listed below: 1. Personal Specifications Age, sex, education, experience, extra activities and achievements, area of interest, etc. 2. Physical Specifications Height, weight, chest (where required), voice, physical structure, vision, hearing, ability to lift weight, health, capacity to use or operate machines, etc. 3. Mental Specifications General intelligence (IQ), memory, creativity, judgment, foresight, ability to concentrate, analytical ability, alertness, balance, logic or reasoning, comprehending capacity, etc. 4. Emotional and Social Specifications Emotional stabilty, self confidence, endurance, mental stability, flexibility, conversational (communication) ability, social adaptability, personal appearance, etc.

242 5. Behavioural Specifications Responsiveness, initiativeness, will power, firmness, manners, ability to express views, maturity, dominance, independence, teaching ability, etc. This is a loose classification of characteristics. Mental, emotional and social behavioural characteristic are closely related; they are more or less similar.

Recruitment Recruitment is based on manpower planning; it is the next step in procurement of manpower. It involves filling the vacancies determined by manpower planning.

Definitions

The term ‘recruitment’ has been defined as:

Stephen P. Robbins: “Recruitment is the process of discovering the sources of manpower to meet requirements of staffing schedule, and of employing effective measures for attracting the manpower in adequate number to facilitate effective selection of efficient working force.”9 Edwin B. Flippo: “Recruitment is the process of searching for prospective employees, and stimulating and encouraging them to apply for jobs in the organisation. It is often termed as positive in that it stimulates people to apply for jobs to increase the hiring ratio, i.e., the number of applicants for a job.”10 Thus, recruitment is the process of searching for prospective employees (candidates or applicants) and stimulating them to apply for vacant posts in the organisation. Recruitment is concerned with locating and attracting suitable sources of manpower to meet organisation’s human resource requirements. It involves two aspects, one is to find prospective candidates, and the second is to encourage them to apply for the posts. In recruitment, all candidates/applicants are treated equally. So, it is considered as a positive process. It is an attempt to match job seekers with the organisation’s needs for manpower. Recruitment process ends as soon as the time limit to receive/accept applications ends.

Sources of Recruitment All organisations, irrespective of size, nature, or goals, have to engage in recruitment activities. There are several sources for recruitment. The sources can be classified into two broad categories—internal sources and external sources. Internal sources include personnel already on the pay roll of the organisation. A firm can meet its requirements from the present work force. Main internal sources are: (i). Promotion (upgradation), demotion (degradation), and transfer (horizontal shift) (ii). Recall of past personnel who were once on the payroll of the company, and who are ready to return and/or whom company wants to hire again, including those who voluntary quit the organisation, dismissed, suspended or laid off employees, temporary deputed employees, etc. External sources, on the other end, are from outside the organisation. They mainly include: (i) Fresh young candidates or college graduates (ii) Trained unemployed candidates (iii) Experienced employees working in other organisations who are willing to join the organisation (iv) Those laid off by other firms

243 (v) Retired employees Particularly for external sources, there are many recruiting methods. According to J. D. Dunn and E. C. Stephen,11 recruitment methods can be classified into three categories: 1. Direct Methods: These methods include sending recruiters (company’s recruiting team) to the sources directly. L&T, Reliance Group, HDFC and ICICI Banks, TATA Group, and many other reputed companies in India opt for this option. 2. Indirect Methods: Indirect methods include advertising media, like daily newspapers, technical magazines and brochures, trade and professional journals, television and radio, Internet, and other outside media. 3. Third-party Methods: They include the use of commercial and professional agencies for the purpose. All types of sources have their applicability, merits, and demerits. A firm can use one or more suitable sources to meet its requirement. A manager should consider relevant factors while deciding on sources.

Selection When sufficient numbers of applications have been received within a specified period, selection procedure is undertaken. Selection begins after the end of recruitment. It consists of checking and evaluating applications, and testing the applicants. It comprises of all activities, from conducting the primary interview of the candidates to their placement. It is a negative process as it rejects a good number from candidates of those who have applied, leaving only the best to be hired.

Definitions The term ‘selection’ has been defined as: Selection is concerned with all activities and decisions, right from scrutinizing applications to placement and induction of newly appointed employees. Selection consists of step-by-step evaluation (checking, testing, measuring, or scrutinizing) of applicants/candidates and finally appointing a fixed number of the most deserving candidates as the employees for the organisation. Thus, selection is concerns with two important tasks, one is careful screening and testing of candidates, and the second is selecting a fixed number of candidates to fill the vacancies.

Steps in Selection Process Selection process consists of certain steps to select the right number of the right candidates as the employees of the organisation. It typically follows standard pattern – it begins with an initial primary screening interview and ends with the final employment decision. Practically, the process seems highly variable. Human resource manager must consider carefully all relevant factors to arrive at suitable selection process. Normally, for supervisory and managerial cadre employees, the selection process involves the following steps:

1. Receiving and Screening Applications Applications are received and recorded in a register till the last date mentioned in the advertisement. Received applications are screened

244 or scrutinized against primary criteria, like age, qualifications, experience, and other job requirements. Initial screening task is conducted by special office staff. Applications that fail to fulfill primary criteria are put aside. Screening can save considerable amount of time, money, and energy.

2. Primary (Preliminary) Interview

Selected applicants are called for primary interview. Mostly, interviewers try to collect information on physical appearance, education, experience, age, skills, salary demanded, reasons for leaving the present job, their interests, ambition, attitude, and so forth. Original testimonials/documents are verified, and candidates are asked simple and short questions. The interview may take two to five minutes. Care should be taken so that desirable candidates are not weeded out.

3. Application Blank (Blank Application Form) Some companies prefer to provide application blank—a standard format of application—to those who have cleared the primary interview. It is a traditional and widely used device for collecting basic information from the candidates. Candidates have to furnish information in own hand-writing. Different types of formats are prepared for different jobs. Application blank must be simple, clear, precise, suitable/relevant, and adequate. It mainly contains: (i) (ii) (iii) (iv) (v) (vi)

Biographical data Educational achievements Work experience Salary and benefits Personal items Other relevant items

4. Selection Tests

Selection tests are the most valuable and sophisticated tools to collect necessary information about the candidates. They constitute important device in the selection process. Selection test can be defined as: Selection test is a systematic and sophisticated procedure/ tool to measure different capabilities of the candidates. It is a tool for measuring overall suitability of candidates for the posts in terms of individual’s behaviour, performance, or attitudes. It produces necessary information to assess the present and the potential suitability of candidates with the given job. Tests are used for two purposes—to scrutinize a large number of candidates, and to assess suitability of candidates against standards. A manager must be aware of their limitations. Classification of Selection Tests: These tests can be classified into four basic categories: (i) Proficiency (or Achievement) Tests (ii) Aptitude (Potential Ability) Tests (iii) Personality Tests (iv) Interest Tests

5. Final Interview Interview is the most widely used selection tool. Interview is a tool or technique to secure maximum information from the candidate regarding his overall suitability with the given job through face-to-face conversation. It is a formal consultation of the candidate with the

245 selection committee to evaluate him. There are different types of interviews, such as primary interview, general interview, functional interview, pattern or systematic interview, non-directive interview, indepth interview, panel or board interview, group or focus group interview, stress interview, etc.

6. Medical Examination Those candidates who clear the interview successfully are sent for medical examination to verify their physical and mental fitness for the specific jobs. Physical examination seems inevitable to ensure that the candidates do not have any contagious diseases, deficiencies, or disabilities. Mostly, company’s medical officer (physician) performs this task. Sometimes, candidates are sent to private or government hospitals for the purpose. The medical officer examines following aspects: (i) Applicant’s medical history (ii) Physical measurement, such as weight, height, chest and abdominal circumferences, etc. (iii) Clinical tests regarding blood pressure, blood tests, functioning of heart, lungs and kidney, eyesight, skin, musculature and joints, and other relevant aspects (iv) Verification of whether the candidate has been suffering from any type of diseases Medical officer has to furnish necessary details in the medical report. He issues the fitness certificate to the candidate if abnormality is not found. In case of any physical and/or mental problem, medical officer makes necessary recommendations.

7. Checking of References Now, references of selected candidates are checked. The candidates are asked for some references (names of referees) from whom inquiries about their performance, education, background, character, etc., can be made. Some companies maintain their own specific formats of reference forms. Sometimes, candidates are asked for letter of recommendation. Referees may include teacher, professor, former employer, politician, artist, social worker, respectable citizen or other officials. References can be checked by mail, phone, personal visit, or by indirect inquiry. However, reference checking should be made carefully as it is not always reliable. 8. Approval of Appropriate Authority Once medical report and references are found satisfactory, the manager seeks approval of the appropriate authority for the final selection. A list of selected candidates and appointment orders/letters are prepared and are sent to relevant authority for final consent and signature. A selection order consists of relevant details regarding the time and the place to report and/or to resume the job. 9. Placement, Induction, and Orientation

This is the final step in selection process. Placement relates with pacing/appointing the new employee (or new entrant) to his work place. Induction refers to introducing/informing a new employee with new work place, work environment, facilities, time schedule, superior, subordinates, common rules and regulations, etc. Orientation involves providing formal primary training to enable a new employee adjust with type of work and work environment. Now, newly appointed employee is treated as a part of the present workforce.

246 Traning and Development Skills and knowledge are essential to perform the assigned jobs. Training, development, and education are closely related terms. They are used to improve skills, knowledge, versatility, and adaptability for current and potential assignments. Training and development are used together, or are interchangeable. Even for management development programmes, we use term ‘training.’ Training Facilitates at Infosys Technologies The Infosys Leadership Institute, a 200-acre campus, at Mysore spends crores of rupees (nearly 5% of its revenue) to help company create and nurture a large number of high quality leaders with a global perspective. About 70 per cent of training is to keep employees abreast with the latest technologies. About 300 faculty members are engaged to train more than 100 classes. Nearly 2000 employees can be comfortably trained at a time. Training opportunities are open to employees of every cadre. Nandan Nilekani, the CEO, says: “Infosys believes that training is extremely important and the quality of our training adds immense value to our brand proposition.” It is mandatory for all Infoscions (Infosys employees) to go through a minimum of ten days training every year. The company maintained formal training programme since 1990 when it had just 150 employees. Infosys also conducts training programmes for those employees who travel abroad to help them acclimatize and sensitize themselves to new cultures in the workplaces and outside. Emphasis is laid on communication skills, corporate etiquette, and social interfacing skills.

Definitions Training: We can define training as: Training refers to the process of imparting skills or knowledge. It includes improving physical and mental abilities necessary for the specific job. More clearly, it can be said: Training is the act of increasing the knowledge and skills of employees for doing a particular job in a better way. Development: The term can be defined as: Development is a broad term. It covers those activities and programmes that are aimed at influencing the changing (adjusting) capacity of individuals to perform the current assignment, and increasing their potential for the future management assignments. Though closely related, training and development differ in terms of scope, validity, applicability, purposes, types of employees, methods, and skills and knowledge.

Training (and Development) Methods Training methods can be classified into two groups, on-the-job training methods and off-the-job training methods. As per overall suitability, one or more methods are used for training the employees. Some companies maintain wellequipped training departments for providing training to employees while other prefer to send them to professional training institutes. On-the-Job Training Methods

In on-the-job training programme, candidates (trainees) are trained on the particular job. They are not separated from actual work and work place.

247 They perform actual work under direct supervision of a superior (senior employee). On-thejob training methods include: (i) Training on the specific job—includes experience, coaching, and understudy (ii) Position rotation—includes promotion and transfer (iii) Place rotation—sending the employee to different departments to perform same work (iv) Job rotation—asking the employee to perform different work in the same department (v) Apprenticeship (vi) Orientation and induction programmes (vii) Creation of assistant positions (viii) Delegation and assignment

Off-the-Job Training Methods Off-the-job training is full-time and full-fledged training. Trainees are separated from their actual work and work place. Such methods include: (i) Special course and lectures (ii) Conferences, seminars, and workshops (iii) Case study and management games (iv) Role playing (v) Brainstorming (vi) Demonstration (vii) Management education programmes (viii) In-basket exercise (ix) Vestibule training (x) Refresher and orientation programmes (xi) Transactional analysis/sensitivity training

Importance of Training/Development

Training (and development) is useful in following

ways: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Increased efficiency and reduced wastage Increased morale Better industrial relations Reduced task of supervisor Increased organisational viability and flexibility Efficient utilisation of resources Coping with new technology Staff stability Job satisfaction Implementing change

248 Wage and Salary Administration Wage and salary administration involves setting and implementing of sound policies and practices for employee compensation. The main related issues are job evaluation, analysing employees’ expectations, wage and salary surveys, setting suitable wage and salary structure, deciding on other monetary incentives, profit sharing, extra or overtime payment, revising and improving payment system, and other relevant aspects. Wage is payment or remuneration paid to workers (normally referred as ‘blue collar workers’), and it is paid on hourly rate or daily rate, while salary is payment or remuneration paid to administrative staff—clerical, supervisory, administrative or professional employees— (normally referred as ‘white collar workers’). Salary is paid on weekly, monthly, quarterly or yearly basis.

Key Decisions This function involves decisions about: (i) Amount of pay (ii) Method of pay (iii) Time of pay (iv) Rules, policies, and practices for administering the pay (v) Composition/constituents of pay (vi) Raising or revising of pay (vii) Incentives and bonus (viii) Allowances and deductions A manager has to consider relevant factors while deciding on structure and administration of remuneration.

Employee Turnover Employee turnover mainly includes all those aspects that lead to change in total workforce. Turnover affects availability of manpower, and it demands an adjustment in size of workforce. In employee turnover, the key issues are promotion, demotion, transfer, deputation, absenteeism, and separation (including retirement, resignation, dismissal and suspension). Particularly, promotion, transfer, and separation provide workforce flexibility and mobility to suit the needs of the organisation. Some are predictable while others are sudden in nature. Personnel department should manage all issues related to employee turnover carefully because they affect employees’ morale on one hand and firm’s reputation and image on the other hand.

Promotion Promotion implies raising position of the present employee from lower level job to higher level job. Promotion and transfer are also treated as sources of recruitment. Scott and Clothier define: “A promotion is the transfer of an employee to a job that pays more money or that carries some preferred status.”12 It is, in short, a vertical move of the employee in rank and responsibility. It results in positive effect on pay, authority, responsibility, position, status, and facilities. Thus, we can define: Promotion is upward advancement of an employee in an organisation

249 to another job that results in (1) better pay and more facilities, (2) higher status, position/rank, and prestige, (3) better working conditions, (4) higher authority and responsibility, and (5) more opportunities and challenges. For example, an assistant manager may be promoted as manager in the same or another department of the same organisation; a clerk may be promoted to the position of an office superintendent. Sometimes, the employee is promoted to higher post with transfer to another place. Promotion is based on seniority (length of service), merits (abilities, skills, expertise, and better performance/achievement), or both. We must note that promotion is not free from limitations. Such decisions must be taken with care.

Purpose of Promotion:

An organisation promotes present employees for different purpos-

es, such as: (i) To appreciate or recognise the able employee (ii) To provide job satisfaction (to reduce unrest and discontents) (iii) To encourage or motivate employees for excellent performance (iv) To maintain staff stability (v) To conserve proved skill, training, and ability (vi) To reduce cost of orientation and training (vii) To reward employees extraordinary achievements (viii) To meet the needs of both the organisation and the employees (ix) To absorb loyal and capable employees (x) To attract suitable and competent employees (xi) To comply with legal provisions, if any (xii) To build morale, loyalty, and sense of belongingness of existing staff

Transfer Transfer involves changing work (job, assignment, duty) and/or workplace without changing pay level, role, and status. Transfer is different than promotion. Dale Yoder and others define transfer as: “A lateral (horizontal) shift causing movement of individuals from one position to another, usually without involving any marked change in duties, responsibilities, skills needed or compensation.”13 C.B. Memoria defines the term in a more comprehensive way: “A transfer is a horizontal or lateral movement of an employee from one job, section, department, shift, plant, or position to another at the same or another place where his salary, status, and responsibility are the same.”14 For example, a junior officer may be transferred to an other department or branch as junior officer. Mostly, transfer does not affect pay, authority, responsibility, status and position. Transfer should be made carefully to avoid adverse impact on the morale of the present employees.

Purpose of Transfer (i) (ii) (iii) (iv)

Transfer is made for several purposes:

To adjust extra staff To meet organisation’s varying requirements To justify employee’s request for transfer To increase versatility of employees

250 (v) To make temporary appointment for temporary needs in different departments (vi) To send employees on deputation to complete projects (vii) To provide training to the employees (viii) To satisfy legal provisions, compulsory transfer after fixed tenure of job (ix) To use transfer as a disciplinary measure, to punish or penalise some employees

Other Issues in Employee Turnover

Employee turnover takes place due to following

reasons: (i) Demotion: It is an act of degrading or lowering down of pay, status, rank, authority, and responsibility. (ii) Absenteeism: It implies the employee’s tendency to be absent at work. (iii) Separation: It means cessation of service with the organisation for some reason, such as resignation, compulsory retirement, voluntary retirement, discharge and dismissal, layoff, etc. (iv) Deputation: It is temporary transfer of a regular employee to another workplace to perform similar or different work.

Performance Appraisal This staffing function involves testing and evaluating of employees’ performance. It shows the effectiveness of procuring and motivating tasks of the management. Superiors of different departments judge performance of subordinates. Promotion and career advancement decisions are based on such judgment. This is also important as performance appraisal report is used for formulating HRM policies. Various methods are used to evaluate performance of the employees. Now, organisations adopt formal procedures and appraise performance of employees periodically. Performance appraisal is also known as merit rating, personnel rating, or personnel evaluation.

Definitions Performance appraisal has been defined as: Dale S. Beach: “The systematic evaluation of the individual with respect to his performance on the job and his potential for development.”15 W. D. Scott and R. C. Clothier: “The process of evaluating the employee’s performance on a job in terms of its requirements.”16 Thus, it can be said: Performance appraisal is an act of judging systematically the value, excellence, qualities, and level of employee’s performance on the job. It involves comparing actual performance of employee with ideal (or standard) performance. In a comprehensive manner, the term can be defined as: Performance appraisal is the process of evaluating the employee’s job performance in terms of job requirements for the purpose of some administrative actions, such as placement, determining need for training, selection for promotion and transfer, providing financial rewards, assigning extra duties, and others.

Objectives The objectives of performance appraisal are:

251 1. To determine the effectiveness of employees so as to decide their performance-related benefits 2. To provide a base for deciding on salary increase, transfer, promotion, demotion, and job termination 3. To identify the defects of employees on job, and to determine the exact need of coaching, guidance, and counselling by the superior 4. To identify need of training and development, and to design purposeful training programme for different types of employees 5. To judge potential of employees for promotion and advancement 6. To evaluate the effectiveness of company’s selection, placement, and training programmes 7. To assist employees to find and accept their shortcomings (weaknesses) and help them improve performance; to help them judge ‘where they stand’ and ‘where they should stand’ 8. To decide on ways and methods to encourage employees for self-development efforts 9. To keep employees aware, active, and alert for better performance 10. To develop healthy climate by evaluating employees’ performance objectively, and improve relations 11. To prepare, up-date, and maintain employees’ records for facilitating relevant decisions 12. To provide feedback to employees regarding their performance; to indicate merits and demerits of their overall performance Performance Appraisal at Escorts Escort, the tractor major, has nine core businesses and each business has a pool of assessors (evaluators) who appraise employees on behalf of the management. The assessors are trained by relevant consultants and faculty members of leading business schools who hold annual work-shops at company’s Assessment Development Centre. A one-day assessment workshop comprises of training on behavioural tools, psychometric tests, other performance rating instruments, performance management communication, and appraisal interview. Assessors are trained to identify and rate employees’ potential and not just actual performance

Performance Appraisal Process Performance appraisal consists of evaluating an employee’s performance on the job against standards (job requirements). It is similar to controlling (regulating) performance and it involves all steps similar to the controlling process. Here, controlling is applied to employee’s performance. Appraisal Process

Normally, systematic performance appraisal process involves the fol-

lowing steps: 1. Establishing performance standards (or expectations) 2. Communicating standards to employees 3. Measuring actual performance

252 4. 5. 6. 7. 8.

Comparing actual performance with standards Measuring degree of deviation/difference Detecting causes Communicating results and causes to employees Initiating corrective actions

Methods for Appraising Performance Several methods (also known as tools, techniques, ways, or approaches) are used for appraising an employee’s performance. The methods differ in terms of traits (qualities) to be appraised, type of employees to be appraised, degree of precision to be observed, and weight (or emphasis) on different traits. Each method has its merits, demerits, and applicability. A manager can use one or more suitable method to evaluate performance. Appraisal methods can be classified into two categories—traditional methods and modern methods. See Table 9.1: TABLE 9.1 Traditional Methods

Modern Methods

Other Functions of Staffing/HRM Besides the functions discussed above, human resource manager has to perform the functions stated below: 1. Grievance Handling 2. Employees’ Welfare and Security 3. Human Relations 4. Industrial Dispute, Industrial Relations, and Working with Trade Unions 5. Employee Morale (Morale Building) 6. Organisational Behaviour

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NEW DEVELOPMENTS IN HRM This part of personnel management is concerned with new developments. A few important issues listed below have been briefly discussed in this chapter. 1. Human Resource Accounting 2. Human Resource Record 3. Human Resource Audit 4. Human Resource Information System 5. Human Resource Research 6. Ethics in Human Resource Management 7. Quality of Work Life 8. TQM and HRD/HRM

PRINCIPLES (OR QUALITIES) OF STAFFING Experts, practitioners, and research scholars have developed some principles to guide practicing managers in improving human resource practices. Personnel (HRM) manager must observe following principles for effective functioning of HR department: 1. Scientific Application: All functions, such as recruitment, selection, training, remuneration, job analysis, job description, job specification, and so on, should be performed scientifically. 2. Opportunity for Advancement: Staffing should offer opportunities for advancement to deserving employees. 3. Safety: Staffing activities should take care of physical and mental health of employees. 4. Acceptability: Staffing policies and practices should be acceptable to employees. 5. Fair and Just: Staffing should be fair and just to all. It should not result into discrimination, corruption, dispute, or dissatisfaction. 6. Provision for Training: There should be provision for training to improve employees’ performance. 7. Freedom: Staffing should permit reasonable freedom to employees. Employees should be allowed to express their opinions and feelings freely. 8. Facilities: Personnel department should offer necessary facilities at workplace. Fringe benefits should also be offered. 9. Simple and Precise: All the activities of staffing should be simple, up-to-date and (precise) exact. Unnecessary complexities should be avoided. 10. Healthy Climate: Personnel manager should try to create and maintain healthy climate in which employees can enjoy work and can maximise their contribution. 11. Participation and Consideration: Along with economic benefits and incentives, employee participation and consideration should be given adequate space. 12. Fair Remuneration: Employees work primarily for monetary rewards. They should be paid adequately and regularly. Remuneration policies should be formulated with great care and caution.

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SUMMARY Staffing is also called Personnel Management, (Personnel Function), Human Resource Management (HRM) or Human Resource Development (HRD). Manager who performs this function is known as Personnel Manager or Human Resource Manager. Staffing is concerned with appointing the right individual for the post determined by the organisation, and to maintaining people and activities related with this aspects. Human resource is the most valuable assets of the organisation, and the major determinant of firm’s success. Effective utilisation or contribution of other physical resources depends on type and ability of human resources. Human resource management is primarily concerned with acquiring, maintaining, and managing this valuable resource. Key HRM decisions are manpower planning, recruitment and selection, training and development, wage and salary administration, employee turnover, performance appraisal, grievance handling, employees’ welfare and security, human relations, industrial disputes, industrial relations and working with trade unions, employee morale building, and organisational behaviour. New developments in HRM include Human Resource Accounting, Human Resource Record, Human Resource Audit, Human Resource Information System, Human Resource Research, and Ethics in Human Resource Management, Quality of Work Life, TQM and HRD/HRM. Key HR principles are scientific application, opportunity for advancement, safety, acceptability, fair and just, provision of training, freedom, facilities, simple and precise, healthy climate, participation and consideration, and fair remuneration.

KEY TERMS Staffing, HRM, and Personnel Management Manpower Planning Job Analysis –Job Description and Job Specification Recruitment and Selection Training and Development Wage and Salary Administration Employee Turnover Promotion, Demotion, and Transfer

Absenteeism, Separation and Deputation Performance Appraisal Grievance Handling Employees’ Welfare and Security Human Relations and Industrial Disputes Industrial Relations Working with Trade unions Employee Morale Building

Organisational Behaviour Human Resource Accounting and Human Resource Records Human Resource Audit and Human Resource Information System Human Resource Research and Ethics in HRM TQM and HRD/HRM

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EXERCISES Objective Type Questions A. Answer the following: 1. By what name is the person performing staffing function known? 2. Name three major activities of staffing function. 3. Name the science useful to understand, modify, and control human behaviour at work. B. Choose the correct option (MCQs): 1. Most problems in modern organisation are (a) Marketing problems (b) Production problems (c) Human problems (d) Competition problems 2. Which is treated as a valuable asset of the business enterprise? (a. Money (b) Technology (c) Information (d) Human resource 3. In today context, managing man at work is (a) Interesting task (b) Easy task (c) Challenging task (d) Managerial task 4. Which managerial function is concerned with acquiring, developing and maintaining satisfactory human resources in the organisation? (a) Staffing (b) Organising (c) Directing (d) Planning 5. Functional area of management related to staffing is known as (a) Financial Management (b) Personnel Management (c) Marketing Management (d) Production Management

4. Mention four activities of employee turnover. 5. Which are the two main statements involved in job analysis?

6. Which staffing functions involves estimating the needs of human resource for the organisation? (a) Recruitment (b) Selection (c) Manpower Planning d. Training and Development 7. Which type of process is recruitment? a) Negative process (b) Neutral process (c) Positive process (d) Short and systematic process 8. Application blank is used for the recruiting the employee for a particular post. (a) The statement is wrong (b) The statement is right (c) The statement is not clear (d) The statement is both right and wrong 9. In which staffing function are interview and written tests involved? (a) Manpower planning process (b) Selection process (c) Training and development programme (d) Induction and orientation programme 10. The staffing function that involves examination of organisation’s human resource policies, practices, and procedures is known as

256 (a) Human Resources Accounting (b) Human Resource Records

(c) Human Resource Research (d) Human Resource Audit

Descriptive Questions ` 1. What is staffing? Is there any difference between HRM and HRD? State the characteristics of staffing. 2. ‘To manage the man at work is a challenging job.’ Explain the statement with reference to role of HRM in today’s organisations. 3. Give elementary idea of various HRM functions. 4. What is recruitment? Explain various recruitment sources. 5. Write notes on: a. Methods of recruitment

b. Manpower planning 6. Define selection. Describe the selection process applicable to executive cadre employees. 7. What is training? Explain the importance of training. Enlist training methods. 8. Write an explanatory note on wage and salary administration. 9. ‘HR manager is required to consider basic principles while deciding on various aspects of HRM.’ Comment on the statement with reference to HRM Principles.

Assignments 1. Students are assigned to visit some business units and study important aspects of HRM. They need to list strong and weak aspects of HR practices of business units.

2. Students are asked to list the ideal HR policies they would propose or formulate if they are appointed as HR managers.

REFERENCES 1 2 3 4 5 6 7 8 9 10 11 12 13

Quoted in C.B. Memoria, Personnel Management, HPH, New Delhi, 2007, p. 541. Koontz and O’Donnel, Management, McGraw Hill, New York, 1984, p. 377 George R. Terry, Principles of Management, Richard D. Irwin, Homewood, III, 1988 Edwin B Flippo, Personnel Management, McGraw-Hill Ltd, Kogakusha, International Student Edition, 1980, p. 5 Bruce P Coleman, ‘An Integrated System of Manpower Planning,’ Business Horizon, Vol. 13, 1970, pp. 89–95 Edwin B Flippo, Personnel Management, McGraw Hill, New York, 1984, p. 144 Ibid., p. 114 Ibid., p. 114 Stephen P. Robbins, Personnel: The Management of Human Resources, Prentice-Hall Inc., Englewood Cliffs, New Jersey, 1978, p. 75 Edwin B Flippo, op cit. p.131 J D Dunn and E C Stephen, Management of Personnel, McGraw-Hill Book Company, New York, 1972, pp. 97–103 William Scott, R C Clothier, and Spiegel, op. cit., p. 178 Dale Yoder, Heneman, Turnbul and Stone, Handbook of Personnel Management and Labour Relations, McGraw-Hill Book, Company, New York, 1958, p. 20

257 14 C B Memoria, Personnel Management, Himalaya Publishing House, New Delhi, 2007, p. 257 15 Dale S. Beach, op. cit., 258 16 William Scott, R. C. Clothier, and WR Spriegel, op., cit., p. 160

ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. 2. 3. 4. 5. B.

Human resource manager Acquiring, developing and maintaing satisfactory human resource in organisation Organisational behaviour Promotion, transfer, demotion, and separation. Job description and job specification 1. (c), 2. (d), 3. (c), 4. (a), 5. (b), 6. (c), 7. (c), 8. (a), 9. (b), 10. (d)

CASE HR Practices at Microsoft India Microsoft started its Indian operations in the year 1990, by setting up Microsoft India Corporation (Pvt) Ltd in New Delhi. Later, Microsoft expanded its footprint in India by bringing its six main units of business into the country. The headcount at Microsoft India Development Center (MSIDC) at Hyderabad grew from 20 in 1998 to more than 1,500 by the end of 2008, making it the company’s second biggest development center in the world. Company’s HR strategy focuses on building organisational capability and strengthening employee engagement to leverage the limited human resources to achieve the company’s mission. Human resource practices of Microsoft India have been summarised as below: Recruitment and Selection: Microsoft India recruited both fresh graduates from academic campuses and experienced professionals from the IT industry. For campus recruitments, the selection process included written tests and several rounds of personal interviews. Training and Development: For trainees, Microsoft India conducted a training programme, named Leap Engineer Acceleration Programme (LEAP), which imparted technical and personal skills required to carry out the job successfully. Career Management: Microsoft India provided both vertical and lateral growth prospects for its employees in all six business units present in India. Flexible Work Timings: Microsoft India followed a flexible work timings policy for its employees. The flexi-time policy enabled the employees to work according to their convenience. Employee Retention: For employee retention, Microsoft India initiated various programmes, particularly in MSGSTC (Microsoft Global Technical Support Center), Bangalore, where work was carried out round the clock (24 X 7) in order to provide technical support services to its customers in different nations and time zones. Performance Management: Microsoft India followed a candid process while evaluating the performance of employees and regarding their compensation packages. The process was transparent so as to enable employees to identify their performance levels and have a clear idea of what was required in terms of performance in order to reach the next level.

258 Women’s Empowerment: Microsoft India conducted special recruitment drives exclusively for women in line with the overall IT industry’s aim of raising the male-female ratio in the workforce. Work-Life Balance: In 2007, Microsoft India launched a programme called ‘Bring Your Child to Work’ in a move to improve work-life balance among its employees. HR Metrics at Microsoft India: In Microsoft India, metrics were developed to track and define the effectiveness of HR function. Microsoft India HR policies aimed to maximise the value of human capital in achieving business growth by focusing on talent acquisition and development, management development, leadership development, and management of evolution of the Microsoft culture. However, though Microsoft India’s HR practices received accolades from many quarters, the ‘Best Employer Survey 2008’ released by Dataquest said that overall employee satisfaction at Microsoft India was below the industry average in India.

Questions for Discussion 1. Give brief outline of HR practices at Microsoft India Corporation (Pvt) Limited. 2. Discuss flexible work timings and employee retention issues in the company. 3. In relation to ‘women empowerment’ efforts at Microsoft India, what is the recent global trend in this regard? 4. Which aspects of HR policies were focused by the company to achieve business growth? 5. According to Dataquest’s ‘Best Employer Survey’, overall employee satisfaction was found below the industry average in India. What, according to you, does Microsoft India needs to do to improve employee satisfaction? 6. Make two additional suggestions to improve HR practices.

CHAPTER

10

Directing and Coordinating Learning Objectives Upon completing this chapter, you will be able to: Define directing and enlist its features Describe the importance of directing in management Summarise the techniques of direction—leadership, motivation, communication, and supervision—as the tools of directing Define the meaning of coordination and list its features Indicate guiding principles for effective coordination Explain difference between coordination and cooperation Define the term ‘supervision’ and state its features Explain the main tasks of a supervisor and outline the qualities of a good supervisor

INTRODUCTION Management is the art of getting things done through the efforts of people. Goal can be achieved by joint efforts of a large number of people who perform a variety of activities in several departments of the enterprise. Directing plays prime role in integrating efforts and achieving the desired objectives effectively. Directing and coordination are closely related. Coordination is considered as the soul of management, and directing is the base to achieve better coordination. It should be clear that coordinating is not a function of management; it is the end result of systematic managerial functions, particularly directing function.1 Note: Additional reading material related to this chapter is available on the companion website of this book.

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This chapter discusses the following topics: 1. Directing 2. Directing techniques (in brief) 3. Coordination 4. Coordination and cooperation 5. Supervision (in detail) Right Direction Leads to the Right Results Today’s business environment seems more turbulently dynamic. Not only techniques and methods, but the mindset of people is also drastically changing. The firm expecting to exploit emerging opportunities needs to adopt new ideas, methods, and approaches. Adoption and improvement need proper direction and coordination. Hindustan Bakery Private Limited experienced the same situation. Mr. Satyajeet Jha, newly appointed member in distribution crew, brought to the organisation the modern management theory and practice and proved that professionally qualified person can make a difference. He applied dynamic leadership, persistency, team-building, informal relations, effective two-way communication, and innovative ways to improve distribution system in the company. Amidst strong resistance, Mr Satyajeet Jha strived to pave a way to excel the performance. He struggled resiliently to improve directing task. The Chairman recognised the young talent and, finally, he appointed Mr. Satyajeet as the leader of a team of 25 members. Successful functioning of organisation needs proper directing to coordinate efforts of the people. (For more details, refer to chapter-end case).

DIRECTING In the management process, directing is the fourth function or step. Employees’ efforts can be meaningful only if they are properly directed—guided, instructed, and inspired—to make them work as per the plan. Manager, by using one or more directing techniques, can direct the efforts of employees to maximise their contribution in attaining the desired results. In absence of proper direction, even a sound plan, adequate resources, qualified and capable staff, and effective organisation structure can fail to achieve the expected results. Directing ensures that everything goes as per plan and goals are being achieved. Due to direction, performance is not only monitored, but also corrected. Directing techniques or tools mainly involve: 1. Leadership 2. Motivation 3. Communication 4. Supervision

Definitions of Directing The term ‘directing’ has been defined as: 1. Earnest Dale: “Direction is telling the people what to do and seeing that they do it to the best of their ability. It includes making assignments, corresponding procedures, seeing that mistakes are corrected, providing on-the-job instructions, and, of course, issuing orders.”1

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2. Theo Haimann: “Directing consists of the process and techniques utilised in issuing instructions and making certain that the operations are carried out as originally planned.”2 3. Marshal Dimock: “Directing function involves determining the course, giving orders and instructions, and providing dynamic leadership.”3 In simple words, we can say: Directing is the process of ordering, instructing, informing, guiding, and inspiring the people, and seeing that they do the work in the best way they can.

Characteristics of Directing From the definitions stated above, we can state the following characteristics: 1. It is a managerial function that is primarily concerned with human factor at work. 2. It initiates actions. It makes people work in a specific direction. 3. Leadership is in the centre of direction. Effective communication, motivation, and supervision depend on ability of the leader. 4. It is an act of influencing behaviour of people; to make them behave in the desired way. 5. It involves instructing, guiding, and inspiring people to carry out the assigned task effectively as per plan. 6. It is a base for coordination. It is aimed at coordinating efforts of people. 7. It is human activity; a human tool exercised by human beings. 8. It has dual objectives, offering and gaining benefits. Management and employees both are benefited. 9. It is continuous (not occasional or incidental) process. 10. It is an essential activity at all levels—top, middle, and bottom. 11. Directing involves leadership, motivation, communication, and supervision. 12. It is universal activity. It can be applied where and when groups of people work together for common goals.

Importance of Directing Directing is a base to achieve effective coordination, and coordination is the key to achieve objectives. Therefore, entire management can be replaced by the directing function alone. James D. Mooney and Alan C. Reiley, for example, state: “Management is the art of directing and inspiring people.” Likewise, Lawrence A. Appley defines management as: “Management is the art of getting things done through the efforts of other people.” Both definitions, emphasise the crucial role that directing plays to make people work to achieve objectives. It is obvious that nothing will occur unless the manager orders, instructs, guides or inspires employees. Work takes place as per plan only if people are properly directed. Note that directing is not just meant for ordering and instructing, it also involves explaining, educating, and inspiring to make people work as required. Sound organisation structure, effective plan,

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excellent policies, availability of resources, and qualified and capable employees can contribute in attaining goals if there is proper direction. Importance of directing essentially explains importance of all directing techniques—motivation, leadership, communication, and supervision. Following points states the role of directing: 1. It supports other functions of management. Other functions, like planning, organising, staffing, and controlling can be effective only if there is proper direction. 2. It initiates action. It makes people work to attain the desired results. 3. It minimises the possibility of mistakes, and also helps in rectifying errors, if any. 4. Directing ensures effective use of available resources. 5. It boosts morale of employees. Morale is expressed through degree of enthusiasm, willingness to cooperate, and voluntary conformation with rules and regulations. High morale leads to high degree of efficiency. 6. It is important for correct evaluation of employees’ performance. A manager can evaluate employees’ performace objectively. 7. It results in two-way benefits, both to management and employees. 8. It prevents unexpected events, like strikes, lockouts, mass leaves, work-to-rules, etc. It can contribute to better industrial relations. 9. Directing is useful, directly as well indirectly, to create and maintain good image and reputation in the market. 10. It makes organisation dynamic. The organisation finds it easy to adjust with business environment. It can absorb needed changes easily.

Directing Tools or Techniques In a formal organisation, a manager can opt for many techniques to direct efforts of people. Techniques of direction indicate two aspects—directing tools and directing styles. 1. Directing Tools or Techniques: Which means are used to direct efforts of people? The directing techniques or tools, that are used to direct people, include motivation, leadership, communication, and supervision. 2. Directing Styles: How are people directed at work? This issue necessarily indicates directing styles. Ways, methods or styles are the means through which directing tools are used to direct them. Directing styles include autocratic style, democratic style, and free-reign style. Leadership, motivation, communication, and supervision tasks are used differently in different styles. Many writers on the subject consider leadership styles to be similar to directing techniques. In fact, leadership is not equal to directing, it is a part of directing. What is more interesting is that it is the leader (manager) who can lead followers (employees) by using one or more directing tools. However, his style to use these techniques may be different.

Main Directing Tools ments of direction:

To avoid controversy, we use the following techniques, tools, or ele-

Directing and Coordinating

1. 2. 3. 4.

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1. Leadership Leadership is in the centre of directing because it is through this tool that other techniques of directing (motivation, communication, and supervision) can be used. A leader can lead, motivate, communicate, and supervise employees/followers. Effectiveness of other directing techniques, to a large extent, depends upon type of leadership. Not only this, leadership is also considered similar to management. Leadership alone—due to the fact that the manager has to get the work performed by others—can replace entire management. A manager must possess leadership qualities to get work done. Virtually, managership and leadership are complementary terms as they involve, more or less, same tasks. Leadership involves guiding and inspiring people towards achievement of goals. Since human being is a key factor in determining overall performance, leadership plays a vital role in achievement of goals. Important Note: Leadership is a common chapter in management and organisational behaviour. Leader’s functions and activities are indispensable improving management effectiveness as well as generating positive behaviour. This topic has been discussed in Chapter 21 ‘Leadership and Leadership Theories.’

2. Motivation

Ability of a manager to motivate employees makes a significant difference in managerial effectiveness. In the same way, motivation is integral part of organisational behaviour. It constitutes basic cognitive process and plays a key role in understanding individual (and group) behaviour. Motivation has been recognised as one of the powerful determinants of behaviour, in general, and performance, in particular. To get work done, the manager has to motivate employees on a continuous basis. Motivation and morale are closely related and interdependent terms. Morale is one of the determinants of motivation force—motivated employees hold high morale toward employers and the organisation. Important Note: Motivation is a common chapter in both management and organisational behaviour. All basic issues pertaining to motivation and morale have been discussed in the second part of the book. For more detail refer to Chapters 19 and 20. Chapter 19 describes introductory aspects of motivation and morale while Chapter 20 describes main motivation theories.

3. Communication Communication, one of the techniques of directing people at work, is also an input in remaining three directing techniques. That is, communication—exchange of ideas, information, instructions or guidelines—is a must for effective leadership, motivation and supervision. Even for other functions of management (planning, organising, staffing,

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and controlling), communication is highly essential. Most of the managerial problems can be prevented, minimised and/or solved by effective communication. In contrast, poor communication not only creates problems, it also complicates and multiplies the problems. It is not an exaggeration to state that poor communication is a major source of problems while effective communication is a powerful method to solve them. To make people work for the firm’s objectives, the manager must be a good communicator. Modern communication system is different. Managing people and activities have undergone drastic reforms due to communication revolution. People use high-tech facilities to exchange their views and suggestions. Latest information technology offers a number of effective options (media), including Internet, Fax, e-mail, video conferencing, telecommunication, networking, and other codeless and paperless devices to receive and send messages comfortably across the world. Modern organisations are well-equipped with MIS to meet information needs effectively. Besides, non-verbal or gestural communication has attracted attention of management experts and researchers. Communication contains many issues, like communication message, network, communication process, media, method, barriers, principles, nonverbal communication, and others. Important Note: Communication is a common chapter in both business management and organisational behaviour. It is indispensable for improving management effectiveness as well as generating desired behaviour. This topic has been discussed in Chapter 24 ‘Communication and Power and Politics’.

4. Supervision Supervision, a function of managements, is concerned with facilitating employees at work. Managers perform the supervisory function at all levels in the organisation. However, this task is more important at the operating level. Supervision deals with observing on-going work of subordinates, guiding and instructing them, and ensuring that the work is being performed as per the plan. The superior who performs supervisory duty is called supervisor, superintendent, foreman, or sectional officer. A supervisor is responsible for issuing orders and instructions, laying down work methods and procedures, and initiating action. Supervision is considered a directing as well as controlling technique. (For more details, refer the latter part of the chapter)

COORDINATION Many eminent writers on the subject, including Henry Feyol, James Mooney, Ordway Tead, Luther Guillick, Louis Allen, Urwick, etc., consider coordination as a function of management. However, as stated earlier, coordination is not a function of management, it is the result of management process. Every managerial function can contribute to effective coordination. Particularly, coordination is result of systematic directing. If all directing techniques are used systematically, a business unit can achieve better coordination, and coordination is the key to achieve the desired goal. Other words closely related to coordination are integration, unification, adjusting, careful cooperation, matching, harmony, synchronisation, balance, unity, etc.

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In fact, planning, organising, staffing, directing, and controlling functions are coordinating techniques; each of them can contribute to coordination. Coordination is not an input in managerial actions, but is an outcome of systematic managing. Dr. George R Terry, eminent writer, asserted: “Coordination is not a fundamental function of management; it permeates (contains) the entire process of management. Coordination is the result of management process.”4 Practically, a manager is a coordinator, and his primary task is to achieve coordination. Wise managers concentrate on achieving coordination (but not on goals), goals are achieved automatically. James Mooney stated: “Coordination is the soul of management functions.”

Definitions of Coordination Let us examine some definitions of coordination: William F. Glueck: “Coordination is a set of human and structural mechanisms designed to link the parts of the enterprise together to help achieve the specified objectives.”5 Mooney and Reiley: “Coordination is the orderly arrangement of group efforts to provide unity of actions in pursuit of common goals.”6 Thus, coordination may be defined as: Coordination refers to orderly and collaborative interplay of functions, processes, efforts, and activities to achieve the best possible outcomes, by optimum use and minimum wastage of resources. Finally, it may be defined as: Coordination involves integrating efforts of a large number of people in the organisation. It needs systematic arrangement of efforts, time, places, and resources to maximise contribution in accomplishment of common goals.

Characteristics of Coordination Common elements/characteristics of coordination have been listed below: 1. It is not a separate function of management, but is an end result of management. 2. It is basic responsibility of managers. They must strive for better coordination. No manager dares to avoid it. 3. Common goal or purpose is the key to coordination. Timing, integrating, and balancing of efforts depend on common goals. 4. It is goal oriented. Coordination is aimed at the desired goals. 5. It is the result of integrated efforts of groups. It is not input in managerial efforts, but outcomes of integrated efforts. It is the aim and not action. 6. It cannot be achieved automatically/spontaneously. It is conscious and deliberate activity. It needs high degree of understanding among people. 7. It is required when more individuals/groups are trying for common goals. It is not necessary when an individual works (alone) in isolation to complete any work. (However, he has to coordinate his efforts with time, means, and ways). 8. It is the soul of management. Effectiveness of management is reflected in the form of better coordination. It is the result of sound management. 9. It is an all level and universal activity. When more than one individual work for common goal(s), coordination becomes essential. It is applicable in every type of human activity.

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10. Cooperation is a part of coordination. Coordination is cooperation plus something. Only cooperation (willingness to exert support) is not enough, it needs an intelligent understanding. 11. It is a continuous activity. Coordination needs continuous efforts. It is also a dynamic process as type, level, timing, and integrating efforts depends on circumstances. 12. Each of the managerial functions, particularly, directing function, can contribute to coordination. Managerial functions are coordinating devices.

Types of Coordination On the basis of type and number of people involved and direction of coordination, there can be mainly two types of coordination – internal coordination and external coordination.

1. Internal Coordination

Internal coordination consists of two facets, vertical coordination and horizontal coordination. Effective coordination depends on them. (a) Vertical (Upward and Downward) Coordination: It includes all levels of management. Attempts are made to coordinate efforts of lower level, middle level, and top level employees. (b) Horizontal Coordination: This relates only with coordination among employees at the same level of management.

2. External Coordination It is an attempt to coordinate the company with external environment, including government, technology, competition, market trend, etc. A firm is required to take necessary steps to maintain consistency with external environment (factors or forces). Mostly, external coordination involves one-sided efforts. For external coordination, the organisation must maintain healthy relations with all stakeholders. Their support seems inevitable for achieving objectives. Organisation needs to undertake a number of actions continuously to build and nurture healthy relations.

Methods (and Ways) of Coordination It is clear that every managerial function is a coordinating device. However, directing function (including leadership, motivation, communication, and supervision) seems more important as it can directly contribute to coordination. Some commonly used methods have been briefly discussed below.

1. Observation Method

The superior observes the behaviour of employees for effective coordination. He continuously directs and inspires them for achieving coordination. He observes his employees activities and, as and when necessary, guides them for better coordination.

2. Sound Planning

Planning is a base for coordination. Plan contains objectives, policies, rules, procedures, schedules, etc., which bring uniformity in actions among various individuals working in different departments. Clear norms and standards bring uniformity among the efforts of different departments.

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3. Communication Method Undoubtedly, communication helps in setting and maintaining better coordination among efforts of various groups in the organisation. Effective communication ensures availability of needed information regularly and continuously throughout the organisation. Suitable communication network keeps the organisation’s departments connected, informed, and active. Face-to-face communication is more effective for coordination. People can understand each other’s needs. 4. Coordinator or Contact Officer

Sometimes, a capable executive is assigned the task of maintaining harmony among various departments and divisions. He investigates coordination-related problems, collects suggestions, and finds out ways to solve the problems. He maintains a live contact with all executives and tries to achieve sound coordination among them. He is responsible to do everything possible for integrating efforts of several departments and divisions.

5. Free Discussion and Deliberation Method Discussion and deliberation bring people together. Free, frank, and open discussion improves understanding among them. The method calls for joint efforts to seek the desired coordination. Open and free discussion seeks clarifications among people. Doubts, prejudices, and priorities of position holders are clarified. Employees can develop intimacy and extend deliberate support for mutual benefits. Organisation must promote free discussion and deliberation, and encourage people to express their views. 6. Effective Motivation

Suitable motivation is a master key to solve any problem in the organisation, and coordination is no exception. Sound motivation policies and practices satisfy employees and make them extend their willing cooperation. Adequately motivated people help each other.

7. Leadership and Supervision Leadership is a linking pin that links several departments for common purpose. A leader, using suitable leadership style, tries to integrate efforts of different groups of people. A good leader guides and inspires subordinates to put integrated efforts for the common purpose. He makes them strive for better results. In the same way, leader’ personal supervision and face-to-face communication reduce differences and help make employees work as per need. 8. Liaison Officer Liaison officer works as a special coordinator. He is like a full-time coordinator who facilitates to unify efforts of departments. He maintains liaison (connection, relations, and cooperation) among different departments and tries to bring uniformity among their efforts. He advises managers about what they should do for effective achievement of objectives.

9. Creating Suitable Climate

A suitable organisation climate encourages coordination. Cooperation is a key input in coordinations, and willing cooperation, to a great extent, depends on organisation’s climate and culture. There must be amicable, win-win, supporting, and encouraging work climate that inspires employees to work for each other. Conducive climate creates healthy mentality, and it becomes a platform to bring effective coordination.

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10. Suitable Organisational Structure

Suitable organisation structure works as a sound base for facilitating coordination among efforts of all levels and departments in each level. Structure consists of levels, positions and roles, division of work, communication, distribution of authority and responsibilities, formal-authority relations, etc. Proper organisation structure is a facility for effective coordination.

11. Use of Common Staff

In large organisations, a centralised team of expert staff is used for coordination. Common staff brings departments together for unified efforts. All departments can avail necessary services from them. The staff provides necessary services to all executives. It also provides expert advice to each department for making efforts in the right direction. Common staff helps achieve inter-departmental coordination. Ratan Tata, a Successful Coordinator of Tata Group Ratan Tata, the chairman of the salt-to-software Tata Group, has exerted great coordinating and supervising skills since many years. He has been successfully coordinating about 95 companies and nearly 4 lakh employees in different diversified areas (industries), including auto parts, telecom, insurance, retailing, financial services, IT, cosmetic, infrastructure, oil drilling, cements, etc. His corrdinating skills could foster strong bond among companies operating in diverse fields. Due to his sound management mettle, in October, 2010, he has been included in a 19member group of notables that would assist the UK government in preparing business strategies and highlights priorities for the British Economy. He has been a part of various advisory councils in India, the most recent being an advisory panel that was formed to restructure the ailing national carrier, Air India. Mr. Tata is also a part of the global advisory board of Nanobiosym, a leading global nanotechnology organisation that was founded as an idea incubator and research institute.

Importance of Coordination Coordination is the soul of management. It is the final outcome of systematic management process. Main task of the manager is to coordinate efforts of people in the large organisation. A manager needs be a good coordinator. Following points explain the important role that coordination plays in today’s organisations:

1. Primary Condition to Succeed Mostly, every type of activity (economic, social, political, and religious) involves joint/integrated efforts. In the same way, activities are interdependent. Efforts of every individual have a definite impact on other’s results. Therefore, every individual is required to extend intelligent cooperation (help) to other individuals for completion of interdependent work successfully. Coordination is a base; it is a fundamental condition to achieve goals with joint efforts.

2. Handling Complexity Today’s organisations are large and complex. A large number of people from different departments perform multiple activities to achieve common objectives. Coordination is essential to integrate their efforts in pursuit of common goals.

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3. Unity of Objectives and Efforts Coordination makes all people integrate their efforts in pursuit of common goals. United efforts for the same objective create a force necessary to achieve better performance.

4. Staff Stability Coordination also contributes to staff stability. Due to effective coordination, efforts of people result into satisfactory results, and hence, employees are satisfied. Normally, satisfied employees prefer to stay with the organisation for a longer period. Thus, the company can retain loyal employees over time.

5. Balancing among Efforts of Employees All employees are not capable of contributing equally to objectives. It is coordination that balances efforts. Poor performance/efforts can be easily offset against the efforts of capable employees. 6. Optimum Use of Resources

Coordination leads to careful and optimal use of valuable resources. It ensures the exact use of resources for a definite purpose. Every resource can make maximum contribution to objectives.

7. Good Relations

Internal coordination builds, improves, and maintains internal relations among employees, groups, and departments. Same is the case with external coordination for external relations. Internal and external relations can be instrumental in achieving objectives effectively. Such relations are very critical during adverse situations.

8. Minimum Wastage Coordination minimises/prevents misuse and/or mishandling of resources by ensuring precise and purposeful use of all productive resources. Better quality products can be produced at low costs. It can improve competitive edge of the company. 9. Adjustment with Outside Environment Coordination also involves constant changes and adjustments to meet internal and external requirements. And, it makes the organisation internally strong to seek adjustment with ever-changing and challenging external business environment comfortably. 10. Image and Reputation When efforts are suitably coordinated, company can achieve its goals effectively and efficiently. It can fulfill its business obligations successfully in time. All parties related to a firm are satisfied. A company with better coordination can enjoy good image and reputation in the market.

11. Smooth and Undisruptive Functioning Better coordination ensures smooth and undisruptive functioning of organisation over time. An organisation can absorb attractive opportunities, and can survive and grow continuously.

12. Others The following points also highlight importance of coordination: (a) High morale of employees (b) Assisting other functions

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(c) Improved competitive strengths (d) Continuous growth and development (e) Balancing divergent interests

Guiding Principles of Coordination Experts and practitioners have developed some principles for effective coordination. These principles are basic facts a manager must consider while coordinating efforts among organisation’s groups and departments. These principles also show areas where the coordinator should emphasise for harmonising efforts. Important principles have been listed below: 1. Principles of Direct Contact 2. Effective Leadership 3. Principles of Effective Supervision 4. Proper Structure of Organisation 5. Principles of Precision (Clarity) 6. Principle of Continuity 7. Principles of Voluntary Cooperation 8. Principle of Personal Contact 9. Coordination Right from Beginning 10. Principle of Harmony and Cooperation 11. Principle of Effective Communication 12. Principle of Proper Training 13. Principles of Healthy Work Climate 14. Principle of Effective Motivation

COOPERATION AND COORDINATION Cooperation and coordination are closely related terms, but they are different. Cooperation is just one element in coordination. In other words, coordination includes cooperation. Coordination is cooperation plus something. While clarifying key difference between the terms, McFarland notes: “Coordination is far more inclusive term encompassing the idea of cooperation. Cooperation, that is, mere willingness of individuals to help each other, cannot serve as a satisfactory substitute for coordination. Cooperation is, for the most part, the result of voluntary attitudes on the part of people in an organisation. Coordination, on the other hand, cannot be voluntarily produced by a number of cooperating persons. Coordination is a state of affairs which an executive brings about through deliberate action on his part.”7 Cooperation is voluntary desire to help in all possible ways, such as to remain present or absent, cast vote, provide correct information, remain silent, be aggressive, protect others, assist in work completion, and so on. Coordination needs specific type of (deliberate and conscious) help or behaviour that has positive impact on performance. Table 10.1 shows clearly the difference between cooperation and coordination.

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TABLE 10.1

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Difference between Cooperation and Coordination

Key Points

Cooperation

Coordination

1.

Meaning

It indicates merely the desire and will- It indicates integrating or combining efingness of individuals or groups to ex- forts for common purpose. It relies on tend help to others. high degree of understanding among people.

2.

Key elements

Only willingness or desire to help oth- Willingness to help deliberately, purers. posefully, and consciously.

3.

Type of work

It applicable to any type of work.

4.

Scope

It is a narrow concept; it is a part of It is wide concept; it includes cooperacoordination. tion. It is cooperation plus something.

5.

Purpose

The purpose is to extend help volun- The purpose is to work jointly and purtarily.

6.

Forms

It consists of willingness to help in any possible way. to work.

7.

Outcomes

It leads to uncertain outcomes.

8.

Nature

It is emotional in nature.

9.

Status

It is general. It is not the essence of It is the essence (or soul) of managemanagement. ment. It has high status.

10.

Requirement

Degree of cooperation depends on re- Degree of coordination depends on eflations, affection, emotions, and devo- fectiveness of management. Each of tion. the functions, individually and jointly, can contribute to coordination.

It is applicable to interdependent work situation.

It is logical in nature.

Cooperation is an important input in coordination, but it cannot guarantee coordination. It simply implies positive attitudes of people, and is necessary even in case of independent work. It indicates merely the desire and willingness of individuals or groups to extend help to others. More clearly, it is readiness tendency (voluntary desire) of people to help others. Coordination is necessary when interdependent work is to be performed by joint or integrated efforts. Coordination is intellectual, calculated, and conscious help to others. It is required to realise a definite purpose. Coordination is aimed at specific results, while results have nothing to do with cooperation.

SUPERVISION Supervision is one of the tools of directing function of management and—along with leadership, motivation, and communication—isused to direct efforts of employees. It is concerned with facilitating and supporting employees at work. Managers perform the supervisory function at all levels in the organisation. However, this task is more relevant at the operating level. The person who performs supervisory duty is called supervisor, superintendent, foreman, or sectional officer. He is responsible for issuing orders and instructions, laying down work

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methods and procedures, and initiating people to action. Supervision has dual purposes—the first is, to direct efforts toward objectives, and the second is, to exercise control so that they work as per plan. Thus, supervision is both directing and controlling technique. It benefits to organisation as well as employees.

Definitions of Supervision We can define supervision as follows: 1. Supervision is a process that involves carefully observing on-going work of subordinates and, if necessary, providing guidance and instructions to ensure that the work is being performed as per plan. 2. Supervision is an act of purposefully observing on-going work of subordinates, and providing guidance, instructions and coaching as and when needed. It ensures that the work is being performed as per plan. 3. Supervision is a process of overseeing the subordinates at work by direct and face-to-face contact between the superior and his subordinates. It also involves putting the subordinates on a right path to ensure that they work effectively and objectives are being achieved. 4. Supervision is a function of directing and controlling that consists of observing on-going works of subordinates, issuing orders and instructions, laying down methods and procedures, and guiding, coaching and training subordinates to make them perform work most effectively.

Nature or Characteristics of Supervision Main characteristics stated below describe nature of supervision: 1. Supervison involves face-to-face observation of what is going on and, if required, correcting mistakes. Some mechanical devices (for example, close circuit cameras) are also used to observe employees’ activities directly from a distant place. 2. It consists of issuing orders and instructions, formulating methods and procedures, and providing coaching and training to make employees work effectively as per plan. 3. It is a task of lower level management (i.e., a supervisor is a manager of workers) and it is an important link between workers and higher authority. 4. Supervision involves elements of motivation, leadership, and communication. A successful supervisor has to perform supervisory tasks to initiate work. 5. It is both directing and controlling tool. 6. It is a preventive as well as a corrective technique. It prevents any mishaps or mistakes. And, in case there are mistakes, they can be corrected immediately. 7. It offers two-way benefits – to workers as well to the organisation. 8. It is a multipurpose human tool for human benefits. It is used by humans for human benefits. 9. It may be formal or informal, may be strict or benevolent, and may be taken as the source of facility or punishment. It is aimed at carrying out work as per plan, maintaining discipline, satisfying workers, evaluating performance, and so forth.

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10. It is a science and an art. Supervisor must have adequate knowledge (i.e., science) of directing as well as practical skills (i.e., art) to use the knowledge. 11. It is a continuous process. The function is continuously used. It is a routine task of supervisor. 12. It is all level and universal process. However, in management, it is rigorously used in production department at the operating level. Ability to Coordinate and Supervise Qualifies a Person for Responsible Posts Reliance Industries’ decided to nominate Nita Ambani, wife of chairman Mukesh Ambani, to the board of East India Hotels (EIH) when Reliance acquired 14.12% stake in EIH. She was selected due to her ability to coordinate and supervise work. When she was put in charge of a project to set up a township in Jamnagar (in Gujarat) on a barren tract of land, she had actively supervised the execution of projects that contained setting up of schools, parks, and shopping complexes for over 2500 families. She had put a lot of ‘soul’ in the project and completed it successfully.

Tasks or Functions of Supervisor (Supervision) Supervisor is a manager at lower level. He is responsible for the performance of his workers. His task consists of guiding, coordinating, and controlling the activities of workers and clerks (or foremen). Supervisor, mostly at operating level in the organisation, performs one or more of the functions discussed below:

1. Planning the Work Supervisor prime function is to plan the day-to-day operations inputs at work-place. It consists of assigning work, setting targets, scheduling work, determining methods and procedures, and carrying out other work-related activities.

2. Provision for Inputs Supervisor is responsible for arranging necessary resources (inputs) for his department. He determines and prescribes needed inputs and facilities to carry out assigned work effectively. He does everything for providing inputs for effective performance of workers under him.

3. Staffing Function

Supervisor performs staffing function for his unit. He is actively involved in recruitment, selection, induction and orientation, on-the-job training, and other staffing functions of human resource under him.

4. Issuing Orders and Instructions He directs efforts of workers in his department. He issues orders, instructions, and guidelines to make them work as per plan so as to achieve objectives. 5. Communication Supervisor is a vital communication link between manager and workers. He passes on the information (regarding rules, policies, and procedures) received from upper level to the workers, and also supplies necessary information about work and workers to the higher authority. He actively tries to keep the concerned people informed and connected. He is a reliable source of information for both higher authority and workers.

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6. Enforcing Discipline He enforces rules and regulations of the organisation. He makes workers observe order and regularity in his unit. He uses authority and (limited) reward power to maintain discipline among the workers. 7. Safety Measures

He plays a direct role in ensuring physical and mental safety of workers. Based on the type of work and machine, he aranges safety measures. Significance of this task increases manifold when workers perform hazardous work. He sets safety standards, explains how to be conscious (alert) to prevent mishaps, and teaches them how to use safety devices. He also instructs them about the measures to be taken if anything unexpected happens.

8. Performance Appraisal

Supervisor measures and evaluates the work performance of his subordinates against prescribed standards. He identifies effective and poor workers from workforce. He makes suggestions for improving poor performance. He also reports to the authority regarding performance level of his subordinates.

9. Human Relations

At the lower level, a supervisor plays a vital role in maintaining healthy relations with and among workers. He handles complaints and grievances of workers and keeps them happy. He, if needed, intermediates between higher authority and subordinates to solve subordinates’ problems.

10. Good Climate Work climate at the lower level is significantly influenced by the superior. His ability, experience, nature, and approach towards workers plays a vital role in promoting and maintaining conducive work climate. Encouraging work climate facilitates better performance. He makes the workplace enjoyable one and a source of satisfaction. 11. Other Functions

Apart from above discussed functions, the supervisor performs the functions as stated below: a. b. c. d.

Establishing and maintaining healthy relations with other employees in organisation Recommending for promotion, transfer, demotion, dismissal, incentives, etc. Providing coaching and training as per need Performing any other function that seems necessary for the interest of organisation and workers

Principles of Effective Supervision To supervise the subordinates effectively is not an easy task. Supervisor must consider certain fundamental facts or principles (often referred as guidelines or requisites) to perform his job successfully. The principles tell the manager at operating level what he is required to do to make his supervising task effective. Management experts, writers and practitioners have developed (or derived) certain principles to guide today’s supervisors and help improve their supervising skills. Supervisor must observe following principles while supervising his workers:

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1. Proper Planning of the Job 2. Delegating Authority 3. Timing the Work 4. Allocating Resources 5. Good Labour Relations 6. Grievance Handling 7. Regularity and Discipline 8. Selecting and Inducting Staff 9. Training and Development 10. Performance Appraisal 11. Controlling the Operations 12. Coordination with Others 13. Proper Motivating and Communicating 14. Overseeing on-going Works Note: Principles are closely related to functions of supervision. Here, every systematic function is taken as measure, the fact (or principle), or the base to improve supervisory performance.

Qualities of a Good Supervisor Effectiveness of supervisory function depends on supervisor’s abilities, expertise, and experience. A supervisor must possess job-related knowledge and skills, and also human qualities. Such qualities include:

1. Knowledge of Organisation

Effective supervision is based on organisation’s objectives, policies, rules, and procedures. A supervisor is expected to have complete knowledge about the organisation.

2. Knowledge of Work (or Proficiency) Supervisor must be the master of his area. He must have sufficient knowledge about the work to be performed by his subordinates. He must know methods, procedures, and tools related to specific work. Job-related knowledge, experience, and skills enable him to supervise the workers effectively. 3. Human Qualities

Supervisor must be good human being first. He must possess important human qualities, like integrity, fairness, empathy and sympathy, regularity, sincerity, care for others, etc.

4. Foresight Foresight is an ability to project/forecast the future outcomes. A supervisor must be capable of probing the future reasonably. He must be in a position to predict or estimate things before they happen. He must correlate the present efforts and the future outcomes of those efforts.

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5. Leadership Qualities Self confidence, initiative, communicability, work mastery, dominance, vigor, firmness, etc., are leadership qualities that generate good impression over others. Supervisor must be successful leader for the workers. He must be capable of leading them successfully and representing their feelings to the higher authority. He must struggle to meet their reasonable expectations. 6. Communicability

Communicability is an ability to communicate effectively. A supervisor must be a good communicator. He must have the ability to convince subordinates by clear orders, instructions, and guidelines. He is expected to communicate subordinates’ problems to the higher authority. In addition, he should have enough patience to listen to others carefully, i.e., he should be a good listener.

7. Human Relations and Interpersonal Skills Supervisor plays the pivotal role promoting and maintaining human relations. He must have needed qualities and skills (empathy, care for others, generosety, openness, etc.) to promote and maintain sound human relations. 8. Regularity, Sincerity and Discipline If supervisor wants his subordinates to exhibit regularity, sincerity, and discipline, he must exemplify the same. If he insists on these qualities in his subordinates, he must possess them. 9. Physical and Mental Fitness

Physical vigor and sound mind are basic qualities necessary in a successful supervisor. He needs tremendous physical stamina and mental balance to make workers respect him and obey his commands. If required, supervisor must be prepared to perform heavy work that needs a great deal of physical energy (stamina).

10. Decision-making Skills

Decisiveness makes the difference. Supervisor has to take several decisions relevant to activities of his unit. Good decision-making skills (that is, judgment power) are required in a good supervisor. He must be capable of taking balanced decisions in time.

11. Dynamism or Flexibility

Supervisor must not be rigid. He must be willing and capable to adjust with changing situations. He must also be capable of adjusting with exceptional situations.

Factors Affecting Supervision Type and nature of supervision, ways and methods used for supervision, and supervisor’s approach (strict or liberal, positive or negative) towards subordinates depend on many factors. In the same way, many factors affect effectiveness of supervision. These factors have been listed below: 1. Objectives of organisation

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2. Relationship between supervisor and subordinates (trust, confidence, mutual respect, etc.) 3. Number of employees to be supervised 4. Organisational climate and culture 5. Type of employees to be supervised 6. Type of work to be supervised 7. Ability and experience of supervisor 8. Supervisor’s power position 9. Organisation’s staffing policies 10. Influence of trade unions 11. Informal relations 12. Communication within and with top management

SUMMARY Directing and coordination are closely related. Coordination is considered the soul of management, and directing is the base to achieve better coordination. Directing, the fourth function of management contains four techniques, leadership, motivation, communication, and supervision. Leadership involves guiding and inspiring people towards achievement of goals. It is in the centre of directing because it is through this technique that other techniques of directing can be used, i.e., a leader can lead, motivate, communicate, and supervise employees/followers. Coordination is not a function of management; it is the outcome of systematic management. Directing function can make direct contribution for better coordination. Importance of directing essentially explains importance of all directing techniques—motivation, leadership, communication, and supervision. Coordination is not a function of management, but it is the result of management process. Every managerial function can contribute to effective coordination. Particularly, coordination is result of systematic directing. Coordination involves integrating efforts of a large number of people in organisation. It needs systematic arrangement of efforts, time, place, and resources to maximise contribution in accomplishment of common goals. Coordination is a far more inclusive term encompassing the idea of cooperation. Cooperation, that is, mere willingness of individuals to help each other, cannot serve as a satisfactory substitute for coordination. Supervision is an act of purposefully observing the current activities of subordinates, and providing guidance, instructions, and coaching as and when needed. Supervisor performs a variety of useful functions. Experts suggest some qualities or principles of to make supervision effective.

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KEY TERMS Directing and Coordination Directing Techniques/ tools Leadership Motivation Communication

Supervision Importance of Directing Coordination Types and methods of Coordination Guiding Principles of Coordination

Coordination and Cooperation Importance of Supervision Supervisor’s Tasks Supervisor’s Qualities Principles of Supervision

EXERCISES Objective Type Questions A. Answer the following: 1. What is directing? 2. State four directing techniques. 3. Define coordination. 4. What type of relation exists between cooperation and coordination?

5. What does vertical coordination imply? 6. Write any four tasks/functions of supervisor. 7. State any four qualities of good supervisor.

B. Choose the correct options (MCQs): 1. In management theory and practice, coordination is popularly referred as the (a) Limbs of management (b) Heart of management (c) Brain of management (d) Soul of management 2. Leadership, motivation, communication, and supervision are (a) Functions of management (b) Techniques or tools of directing (c) Steps in management process (d) Principles of modern management 3. Which is the central tool of directing that uses other directing tools? (a) Motivation (b) Communication (c) Supervision (d) Leadership 4. Which one is absolutely true? (a) Coordination is function of management (b) Coordination is function of directing

(c) Coordination is outcome of systematic functioning of managerial functions (d) Coordination has nothing to do with management 5. What type of relationship exists between cooperation and coordination? (a) Cooperation is just an element of coordination (b) Cooperation is substitute of coordination (c) Cooperation and coordination are same (d) Cooperation is not necessary in coordination 6. Which directing tool involves the exchange of ideas and understanding? (a) Communication (b) Motivation (c) Supervision (d0 Leadership 7. Observing on-going work of subordinates and guiding and instructing them at work place is called

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(a) Motivation (b) Supervision (c) Communication (d) Leadership 8. Supervision is both (a) Planning and controlling function (b) Organising and directing function (c) Directing and controlling function (d) Planning and directing function 9. Who among the following is known as superintendent, foreman, or sectional officer? (a) Manager (b) Leader

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(c) Branch manager (d) Supervisor 10. Supervision is sub-function of (a) Planning (b) Staffing (c) Directing (d) Controlling 11. Which two functions does the supervisor perform at a time? (a) Planning and staffing (b) Directing and controlling (c) Organising and controlling (d) Planning and organising

Descriptive Questions 1. What do you mean by directing? Explain its importance in management. 2. ‘Coordination is not a function of management, but an outcome of effective management.’ Do you agree? Why? Enlist characteristics of coordination. 3. Write a note on directing tool/techniques. 4. Define the term ‘coordination.’ What is its significance? 5. Write notes: (a) Coordination methods (b) Difference between coordination and cooperation

6. Discuss: (a) Types of coordination (b) Guiding principles for effective coordination 7. What do you mean by supervision? Briefly explain its features. 8. Explain: (a) Functions of supervisor (b) Principles of effective supervision 9. Discuss qualities of a good supervisor. What factors affect supervisory task? 10. ‘A supervisor is a manager of workers.’ Comment on the statement in relation to supervisor’s managerial functions at operating level.

Assignments 1. Students are assigned to recall directing and coordinating problems they have faced during functions, class room seminars, talent shows and other group activities in campus of the institute. Ask them to detect key problems and make suggestions to improve directing coordination.

2. Students are assigned a project to visit production department and study the functions and duties the supervisors perform. They have to state the qualities they have observed in supervisors.

REFERENCES 1 Earnest Dale, Management: Theory and Practice, McGraw-Hill, 1978, p. 211 2 Theo Haimann, Professional Management, Houghton, Boston, 1982, p. 315

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Marshall E Dimock, Administrative Vitality, Harper Brothers, New York, 1975 George R Terry, Principles of Management, Richard D Irwin, Homewood III, New York, 1988 William F Glueck, Management, Business Publications, New York, 1984, p. 78 JD Mooney and A C Reiley, The Principles of Organisation, Harper & Rows, New York, 1939 Dalton E McFarland, Management Foundations and Practices, Macmillan, New York, 1960, p. 380

ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. Koontz and O’Donnell: ‘‘Direction involves guiding and supervising subordinates.’’ 2. Leadership, motivation, communication, and supervision 3. Mooney and Reiley: ‘‘Coordination is the orderly arrangement of group efforts to provide unity of actions in pursuit of common goals.’’ 4. Cooperation is a part of coordination. 5. Vertical coordination implies coordinating efforts of people among different levels in management. 6. Planning the work, enforcing discipline, safety measures, and provision for inputs 7. Human qualities, leadership qualities, communicability, and physical and mental fitness B. 1. (d), 2. (b), 3. (d), 4. (c), 5. (a), 6. (a), 7. (b), 8. (c), 9. (d), 10. (c), 11. (b)

CASE Making a Difference Hindustan Bakery Private Limited, a Mumbai-based unit established in 2001, has been manufacturing and distributing bakery items throughout Mumbai city and nearby areas. All products are sold under the brand name ‘Hindustan Fresh.’ There are many small and medium size bakeries in the city, but the company has never experienced any threat to its sales and profits. Hindustan Fresh is an established brand and is known for its quality. However, till recently, the distribution activities were not so systematised. The company maintained a crew of 45 to 50 distributors—teams of four to five members in major areas of the city—to distribute various products on daily basis. Distribution crew members were paid monthly. They were paid overtime if the work was not completed. There was no team leader, teams were led by senior supervisors, most of them above 50 years in age. They used to advise and order distributors, juniors and newcomers. They hardly supervised the work; they were more busy calculating overtime. They strictly insisted on juniors doing as suggested and never discussed the job-related issues with them. Any suggestions made by crew members were discarded. They were not ready to change the system. Instead of finding facts, they were engaged in finding faults with distribution members. Performance was not evaluated on individual basis, but on group basis. Company was making enough profits. Top management had never reviewed distribution system. In case of any complaint from customers, respective team members were openly scolded and criticised. Every month, one or two of the 50 distributors left the job. Mr Satyajeet Jha, a fresh management graduate, joined the company as a distribution crew member. He was very ambitious and dynamic, but due to poor economic condition, he had to

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take the job. Among a few graduate crew members, he was the only management graduate. Mr Syamlal, the senior most executive in distribution wing, briefed Mr Satyajeet about the policies and practices of the company. Mr. Jha was greatly surprised to know about the distribution system. Within a week, he met Mr Syamlal with a few practical problems along with justifiable solutions. Mr Syamlal did not attend his problems and suggestions, and advised him to adjust with the system. Within three months, Mr. Satyajeet came out with excellent performance amidst many constraints. Though he was not responsible to contact, attract, and add new customers, he did this job. He informally convinced other crew members to adopt some creative ways of improving distribution. Sales of his team were much better than other teams. However, his special and extra efforts were counted in terms of team performance. His boss was not happy with Mr Jha’s working style as it could endanger their prestige and position. Mr Syamlal started harassing him without any reason. Ultimately, Mr Satyajeet Jha decided to meet Mr Vimal Gupta, the chairman of the company. Mr Gupta, MBA with specialisation in HRM, was a very wise man. In the history of the company, it was the first time that a junior member was eager to meet him. He permitted Mr Jha for personal meeting. The meeting lasted for two hours. Mr Vimal Gupta was highly impressed with Mr Jha’s talent and suggestions. He realised that Mr Jha was capable to lead not only the team, but the company as well. He decided to initiate rudimental changes in the existing system. The following week, he issued Mr Jha an appointment letter. And, for the first time, the chairman appointed Mr Jha, the most junior crew member, as an official team leader of 25 distributors.

Questions for Discussion 1. 2. 3. 4. 5. 6.

Comment on the company’s current distribution system. ‘Education background makes a difference.’ Give you opinion. Do you advise the company to practice logistics management? Evaluate Mr. Jha’s working style. Why was Mr. Syamlal not happy with Mr. Jha’s excellent performance? How would look at Mr. Vimal Gupta’s immediate decision of appointing Mr. Jha as official team leader? 7. What lesson do we learn from the case?

CHAPTER

11

Controlling (Managerial Control) Learning Objectives Upon completing this chapter, you will be able to: Define controlling and enlist it features Describe the importance of controlling Explain controlling process Discuss features of effective of controlling Elaborate traditional and modern controlling techniques

INTRODUCTION Controlling is the last function of management. Control exercised by a manager in a formal organisation can be called managerial control. In management terms, ‘controlling’ is more comprehensive and relevant than ‘control.’ It ensures regularity, order, and discipline in the organisation. It is exercised to know whether the organisation is achieving its intended goals. It is erroneous to say that control is applied only when the results are fully achieved at the end of the specific planning period. In fact, it is applied at any level of progress, at any time during the plan period to detect anything wrong in advance.1 Controlling does both tasks—detective task (to detect what is right or wrong) and corrective task (to correct what is wrong). Controlling system may be imposed or self-controlled. Imposed or forced control system is enforced by top authority while the self-controlled system is voluntarily Note: Additional reading material related to this chapter is available on the companion website of this book.

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or willingly observed by the employees. Self-control is far better than imposed one. Top authority must develop and nurture healthy and employee-oriented work climate that inspires self-control. Designing a Sound Controlling System Mr. Aditya Mohan, newly appointed marketing controller, vowed to formulate needbased controlling system for his company. He firmly believed that only ‘fit’ could function effectively in turbulent business environment. He discussed relevant issues with the former controller, top authority, employees, and regular clients and customers. Incorporating views of all those concerned with business operations, he worked out most acceptable and objective-oriented controlling system. In the meeting, he discussed key aspects of a new controlling system which was wholeheartedly welcomed by all. Modern managers must formulate controlling system with due consideration of all members of the organisation.

DEFINITIONS OF CONTROLLING The term ‘controlling’ has been defined as under: George R Terry and Stephen G Franklin: “Controlling is determining what is being accomplished, that is, evaluating the performance and, if necessary, applying corrective measures so that the performance takes place according to plans.”1 Henry Feyol: “Control consists in verifying that everything occurs in conformity with the plan adopted, the instruction issued, and the principles established.”2 We can define the term as: Controlling is an act of verifying on going activities in relation to plan, and, if required, taking appropriate steps to ensure that the work is taking place as per plan.

CHARACTERISTICS OF CONTROLLING Nature of controlling can be explained by characteristics listed below: 1. Controlling is the last function of management process. 2. It is based on planning. 3. It may be strategic or operational. 4. It is preventive as well as corrective function. 5. It is goal oriented function. 6. It has dual objectives or mutual benefits—beneficial to organisation and to employees. 7. It comprises of measurement, evaluation, and correction of performance. 8. It is a regulating device. 9. It is a dynamic function. 10. It is an integrated activity and coordinated system. 11. Plan, authority, action, and feedback are essential elements of controlling. 12. It is taken as continuous process. 13. It is an all level and universal function. 14. It is internal activity as it is exercised for internal operations of the organisation.

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15. It is a human activity. 16. It is forward looking process. Controlling does not mean termination of management process. It is one of the functions of continuous management process. Practically, planning and controlling are interrelated and interdependent. Planning is a base to exercise control and controlling is a base for the next plan. One cannot exercise control without expected standards which are determined in planning. Likewise, if there is no control, plan fails to reach the target. Therefore, it can be said that planning is meaningless if there is no control, and controlling is impossible if there is no plan. Both are interdependent.

CONTROLLING PROCESS (CONTROL MECHANISM) Controlling is a dynamic process. Figure 11.1 shows the five-stepped systematic controlling system.

FIGURE 11.1 Controlling System

1. Specifying Objectives

Controlling process starts with the question: Why is controlling necessary? Controlling is objective-oriented. A manager exercises control over several activities of a large number of people in the organisation to ensure that work is being done as per plan and objectives are being achieved effectively in time. Therefore, objective specification is considered the first step in controlling process. Controller must be aware of the main objective(s) to be achieved within the given period. Objectives shape the entire controlling process (or system), i.e., subsequent steps depend on them. However, many writers do not consider this the first step assuming that the controller knows adequately about the objectives.

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2. Establishing Standards The second step in controlling process is establishing standards. Standards are set in relation to objectives specified in the first step. Standards can be defined as definite level of excellence, established or accepted models, or criteria. They are yardstick against which actual performance can be measured. The standards are also known as expected or planned results. They are concerned with the question: What aught to be? They constitute the desirable the situation. Standards determine the ideal level of work performance. They should be realistic, reasonable, and feasible; they should not be over/under-estimated. There are different types of standards, as stated by Koontz and O’Donnell3 and others. Controlling standards can be classified into two groups, as shown in Table 11.1. TABLE 11.1 Controlling Standards Tangible Standards

Intangible Standards

1. Physical standards

1. Employee job satisfaction and morale

2. Cost standards

2. Product leadership

3. Revenue standards

3. Consumer satisfaction 4. Competitiveness

5. Capital standards

5. Goodwill and reputation in market

6. Quality standards

6. Human relations

7. Programme standards

7. Work climate and culture

Controlling standards must be carefully decided. They must be bias-free, flexible, simple, reasonable, complementary to each other, and achievable.

3. Measuring Actual Performance

The third step in controlling process measures actual performance (outcomes). Measurement of performance should be in terms of control standards established in the first step to facilitate comparison between standards and actuals. Performance should be expressed in physical and monetary terms. Similarly, measurement should be clear, simple, and rational. Moreover, it should be reliable and relevant. Manager/controller should collect relevant information on actual performance by employing appropriate methods. Several methods are used for collecting information on actual performance. Methods for Measuring Actual Performance: Widely used methods for collecting information about actual performance include: (i) Personal contacts (ii) Oral reports (iii) Written reports (iv) Formal and informal observations (v) Regular or sudden inspection (vi) Conducting tests (or experimentation)

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(vii) Research and analysis (viii) Interviews (ix) Performance audit (x) Use of computerised MIS

4. Comparing Actual Performance with Standards Once standards are set and actual performance is measured, the next step is to make comparison between the two to find out the degree of variation/difference. When more standards are used for comparison, appropriate system of comparison should be developed. Variation may be calculated for individual aspect or more aspects at a time. For integrated view, average/weighted average and other statistical parameters are calculated. The step comprises of three tasks: (i) Measuring Degree of Deviation: Manager tries to find out how far actual performance deviates from expected performance. Charts, tables, comparative tables, diagrams, etc., are prepared to present degree of difference clearly. Normally, deviation is expressed in form of per cent. (ii) Detecting Causes Responsible for Deviation: When deviation is beyond permissible limit, attempts should be made to detect causes leading to that deviation. Causes so detected should be properly analysed to get more meaningful information. (iii) Communicating Deviation to Responsible Persons: The persons who are directly responsible for variation in performance should be informed. A detailed report containing standards, actual performance, degree of deviation, and causes should be communicated with those who are believed to be responsible.

5. Correcting Deviation After measuring deviation, detecting causes, and informing those responsible, the controller should decide what actions should be directed to correct/reduce deviation. There is no need to take action if performance is in harmony with standards (i.e., expected results and actual results are equal). Corrective steps become urgent when there is considerable difference between standards and actual performance. Correction process involves review and modification of one or more management functions. Actions depend on degree of deviation and causes responsible. Managerial Actions: This step calls for undertaking one or more of the following actions: (i) Review of plan or standards (ii) Change in measurement of performance (iii) Change in assignment of work (iv) Change in existing methods of direction and resource allocation (v) Change in organisational structure (vi) Change in working conditions and provision for facilities (vii) Alteration in authority and responsibility (viii) Provision for training (ix) Specifying and applying preventive measures for the future operations (x) Change in motivation—rewards and punishment—policies

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When corrective actions are directed, it is necessary to find out how far such changes are generating positive impact on performance. Such feedback is essential to guarantee that right actions have been taken.

STRATEGIC CONTROL AND OPERATIONAL CONTROL Control system may be operational or strategic depending on its strategic orientation. Table 11.2 shows key difference between strategic control and operational control.4 TABLE 11.2

Comparison of Strategic and Operational Control

Factors

Strategic Control

Operational Control

1. Basic Question

Are we moving in the right direction?

How are we performing?

2. Aim

Proactive, continuous questioning of Allocation and use of organisational basic direction of strategy resources

3. Main Concern

Steering the future direction of the or- Action control ganisation

4. Focus

External environment

Internal environment

5. Time Horizon

Long-term

Short-term

6. Exercise of Control

Exclusively by top management, may Mainly by executive or middle manbe through lower level support agement on the direction of top management

7. Main Techniques

Environmental scanning, information Budget, schedules, and MBO gathering, questioning, and review

TYPES/STAGES OF CONTROL Control can be applied at different stages of work performance. It can be applied before operations are undertaken, along with operations, or after their completion. On the basis of the time to take corrective actions (or stage at which control is exercised), there can be three types of control mechanism, forward (or feedforward) control, concurrent (simultaneous) control, and feedback (or postmortem) control. Each type of control has been briefly described below:

1. Forward Control Forward control is preventive in nature. Controller tries to identify critical issues, that have potential impact on the future performance, and takes preventive actions in advance to avert the problem (deviation). Manager provides the employees information about the critical issues before the plan is implemented, so that unexpected outcomes can be prevented. Thus, the controller estimates possible deviation, chooses the best inputs (policies, rules, procedures, resources, etc.), and prevents possibility of deviation while implementing the plan. Adverse impacts of unexpected environmental changes can also be prevented.

2. Concurrent Control Concurrent control is also known as simultaneous or parallel control. It is applied at different stages of a whole process. It is work-in-progress control; it is applied

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while work is going on. It involves taking certain steps along with continuous work so that work takes place as per expectation. Applying controlling mechanism at every specific interval or critical point ensures that operations are being performed successfully as per plan. It is, thus, intermediate control and is applied in-between inputs and final outcomes. For example, controller tries to evaluate performance weekly, fortnightly, or monthly, and takes immediate actions so that quarter, half-year and annual performance can be achieved in accordance with the plan.

3. Feedback Control

This control mechanism is applied after operations are completed or mistakes are committed. It is applied after measurement of results of the actions. This type of control is applied only if there is deviation (or problem). Feedback control is also known as postmortem control. It shows how far the organisation has been effective in realising its expected results. Feedback information can be used as input to reward employees, and formulate and modify strategies. This control is the only help when forward and concurrent controls are not possible to apply.

IMPORTANCE OF CONTROLLING Controlling is the last, but very critical function of management. It is as important as the break in a vehicle. It is both preventive and corrective function. It prevents mistakes, and if, for any reason, anything unexpected occurs, it shows the way to rectify (correct) it. Controlling keeps everything in desired way and form. Human beings are, by nature, imperfect and liable to serious faults. If they are not controlled, the group endeavour is likely to be wayward, inefficient, and may even break down. Controlling ensures that everything takes place according to plan; objectives are achieved. It is due to control that people work as per rules, policies, and procedures. A good controlling mechanism is essential for sound performance at minimum efforts and wastage. Importance of controlling can be explained as follows:

1. Achievement of Objectives Controlling system makes people work as per plan. The organisation is able to achieve its objectives effectively in time due to controlling. Preventive and corrective measures help to minimise variation and ensure exactness. 2. Essential for Success of Plan

Controlling system compels people to work in accordance with the plan because their performance is measured and compared with the planned results, and actions are taken. Therefore, controlling is needed for success of plan.

3. Adjustment in Operations Controlling is an adjusting function. Every organisation specifies ways and means to achieve certain objectives. Controlling ensures that objectives are being achieved. In case, of variations, immediate actions are initiated to make necessary adjustments. 4. Rules, Policies, and Procedural Verification

Every organisation formulates rules, policies, and procedures to guide actions. They are the base and reason for controlling. Managerial performance is reviewed against these elements of plan. When there is variation in

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results, along with other reasons leading to such variation, rules, policies, and procedures are also verified or checked. If needed, they are also modified.

5. Psychological Pressure Controlling process puts psychological pressure on people working in the organisation to give better performance. They know that their performance would be measured and evaluated against standards. Further, they are also aware that rewards and punishment are linked with actual performance. Provision of measurement and evaluation of actual performance makes individuals sincere, aware, serious, and committed, which leads to maximum individual contribution. 6. Better Coordination in Action

Coordination is the essence (or core) of management. Better coordination can be achieved through effective performance of all managerial functions. Control system focuses on operations and is the ultimate responsibility of managers. It affects coordination in two ways; first, control involves planning, which can directly help in coordination, and second, controlling compels the manager to coordinate the activities of his subordinates in a way that maximum possible outcomes are achieved.

7. Improved Efficiency and Effectiveness Controlling makes people work as per plan. Every individual is able to contribute maximum due to clarity and precision. Unnecessary wastage is minimised, or even prevented. Everyone is actively engaged in one’s relevant activity. Again, controlling coordinates efforts of various workgroups. All these result in improved efficiency and effectiveness.

8. Keeping Organisation Active and Engaged Control keeps the entire organisation active and engaged. Controlling mechanism keeps people engaged on a continuous basis in achieving objectives. They work actively and regularly as per policies and procedures. Thus, control contributes to optimum use of productive resources. Organisation is able to fulfill its commitments successfully.

9. Making Managers Responsible From top to bottom, every individual is assigned responsibility to carry out certain work. Every superior assigns responsibility and delegates authority to his immediate subordinates. However, he is finally responsible for ultimate results or performance. Hence, he needs to exercise control over them. Due to provision of control, every manager can be made responsible. Control is important to assess how far an individual has performed with responsibility.

10. Discipline and Regularity Controlling is very important to maintain strict discipline and regularity for achieving goals successfully in time. As stated earlier, control pressurises people to work as per rules and regulations. Certain undesirable events like strikes, lockouts and other sabotages can be restricted in the organisation. Disciplined organisational climate is not only essential for achieving objectives, but also prevents unnecessary interference from outside. Organisation can work smoothly—without any kind of disruption—in pursuit of desired objectives.

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KEY PROBLEMS IN CONTROLLING PROCESS Controller has to exercise controlling task amidst dynamic forces of business environment. He has to control business operations in quite uncertain situations. Similarly, internal (organisational) problems also create difficulties while exercising control over. Some controlling problems have been listed as under: 1. Ever-changing business environment 2. Too much information (information overload) 3. Faulty standards 4. Problems in measurement and evaluation 5. Employee resistance 6. Organisational inflexibilities 7. Costs

PRINCIPLES OF EFFECTIVE CONTROL SYSTEM Controlling is essential for every organisation. Every manager is required to design an effective control mechanism/system. A control system which is suitable to organisation in all significant aspects can be referred as effective control system. The effective control system is based on certain principles. These principles can also be called qualities or requirements for effective control system. Some important principles of effective controlling system have been briefly discussed below: 1. Suitability: Control system must be fit for objectives, nature, size, and capacity of the organisation. It must be suitable for overall situations of the organisation. Self Control Makes a Sense—a Story of TVS Motors Employees’ involvement and freedom at work results into self-control. Venu Shrinivas, a BE from Madras University and MS from Purdue University, joined TVS family business in 1978. He promoted a new venture with Suzuki of Japan. He made managers and workers observe self control. He took genuine interest even in hiring blue collar manpower. He allowed managers and workers enjoys a lot of freedom to do things in their own way. He linked performance with rewards, pursued quality consciousness, and built excellent interpersonal relations with workers. He put the company on the track within two years. During the prize awarding ceremony at Japan in 1998, he took all key workers along with him to Japan. He even openly refused to take award all alone. He kept all key workers with him while receiving award. Leading magazines published the award ceremony photograph of Shrinivas sharing the prize with all the team members on the stage. Magazines took note of the excellent relations he built with his workers and also the way he was empowering them. Employees’ active involvement in decisionmaking, freedom to work, and empowering efforts are instrumental in make employees observe self-control. 2. Objectivity: Objectivity implies two issues. The first is that the control system must be free from personal bias. It should be based on the actual requirements of organisation,

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5.

6.

7.

8.

9. 10.

11.

12.

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not on personal need of a person or a group. The second is that the control system must reflect objectives of the organisation. Simplicity: Control system should be simple to understand and apply. There should not be unnecessary complexities. Flexibility: To a reasonable extent, control system should be flexible to cope with changing requirements of the organisation and dynamic nature of the environment. Control system should be able to absorb changes. Clarity: Control mechanism should be clear and precise. It should be free from ambiguities and confusions. Every aspect of controlling should express an exact or precise implication. Forward Looking: An effective control system should always be forward looking, i.e., it should be capable of detecting the problem in advance (before it actually arises). It should be preventive, i.e., it should prevent problems or deviation from occurring. This can be done by initiating before the problem arises. Promptness: Controlling must facilitate prompt actions. Unnecessary delay in setting standards, measuring performance, detecting deviation, and directing corrective actions is detrimental for the organisation. Motivating: Control is not meant for punishing someone or finding faults in others. It is desirable for both employees and management. Therefore, it must be of motivating nature. It must lead to overall improvement. Economical: A control mechanism should be affordable. It should be within budgeted capacity of the organisation. Correction of Deviation: The ultimate aim of controlling system is to prevent or correct deviation. Measuring, comparing, and detecting deviation and causes result in wasteful exercise if deviation is not properly corrected. Critical Point Control: Critical point control means applying controlling mechanism as per priority or importance. The control system should give more emphasis on critical or vital activity. It is meaningless to apply control mechanism equally or rigorously on all activities/departments. Reflection of Organisation Pattern: The control system must reflect organisation pattern. Every aspect of control system must be reflective of organisation’s approach, attitudes, policies, rules, procedures, etc.

TECHNIQUES OF CONTROLLING There is no doubt that controlling plays an important role in ensuring expected performance. It is a monitoring process that ensures that scarce resources are utilised in most effective and productive ways and objectives are achieved. Controlling is necessary for effective functioning of the organisation. It mainly involves four steps, (1) determining standards, (2) measuring actual performance, (3) comparing and detecting deviation, and (4) taking need-based corrective steps. The effectiveness of control system depends on the use of suitable techniques.

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Note that controlling techniques involve all those devices and methods that are used either for measuring and comparing performance, and/or correcting deviations. Any technique/method used in the entire controlling process, or part of it, can be a controlling technique. Controlling techniques can be classified into two broad categories—traditional techniques and modern techniques. However, this is not a strict classification. Figure 11.2 shows classification of controlling techniques.

FIGURE 11.2 Here, techniques have been described from management’s point of view, and not from technical point of view. Following part deals with brief discussion of some important controlling techniques.

Traditional Techniques for Controlling Main traditional control techniques have been discussed as under:

1. Budgetary Control Budgetary control is a commonly used technique for planning and controlling. In controlling, budget is used for setting standards. It shows estimated results against which actual results can be compared, and corrective actions can be initiated when abnormal

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deviation is detected. George R Terry defines budgetary control as: “Budgetary control is a process of comparing the actual results with the corresponding budget data in order to approve accomplishment, or to remedy differences by either adjusting the budget estimates or correcting the causes of the difference.”5 It must be mentioned that budgetary control is not used for only cost control. This technique can be applied to any area where estimated data are used for comparison with actual data and where budgets can be prepared. Budgetary control leads to maximum utilisation of productive resources and maximum returns. It is a tool for planning as well as controlling. Likewise, it is useful in coordination also. Types of Budgets: Various budgets can be prepared for different activities, functions or areas, such as: (i) Master budget (ii) Capital and revenue budgets (iii) Cash budget (iv) Time, space, and material budget (v) Production budget (vi) Sales budget (vii) Performance budgets Recently, the concept of zero-based budget has become popular. Every time, a new budget is prepared for any area of business operations. All costs or expenditures are calculated afresh for budget period instead of considering the past data.

2. Cost Control This technique of controlling is based on costing aspects. It involves control over costs in the light of certain predetermined costs, usually known as standard costs. Such standards are set for total costs as a whole, and for its various components, like material costs, labour costs, overheads, etc. Thus, control through costing consists of comparing standard costs of certain transactions (activities or operations) with the actual costs to find out the amount of variation and the reasons responsible for that variation. Cost control involves (1) fixation of standards, (2) determining actual costs, (3) comparison between standard costs and actual costs to find out deviation, (4) if variation is beyond limit, reasons are detected and corrective steps are directed. This technique offers a number of benefits such as: 1. 2. 3. 4. 5.

It provides a base for measuring operating performance. It is helpful in comparability. It leads to cost reduction. It can be used as a base for preparing budgets. It is used for preparing and modifying policies.

3. Special Report and Analysis

This technique is used to exercise control on a special area or non-routine type task. In case of a special problem or contingency, the investigation wing is assigned a task to investigate the problem, collect information, and prepare a detailed report. On the basis of the report submitted by the investigation wing, actions are taken. Sometimes, such task is assigned to professional experts.

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4. Break-even Analysis This is widely used technique in production and marketing. This technique is used to find out such a quantity or volume of production (or sales) at which total costs are equal to total revenue. Break-even point is the level where there is no profit, no loss. It is minimum level that a company must achieve to avoid loss. Volume over/above breakeven level indicates profit, and vice versa. Thus, break-even analysis is concerned with the cost-volume-profit relationships. Mathematically, break-even point can be calculated using the following formula: Fixed costs Break even point = Contribution per unit Contribution = Sales revenue per unit less variable costs per unit Margin of safety = Total sales proceeds less sales at B.E.P. Profit = Sales revenue less total costs (fixed + variable) It can also be depicted graphically. Break-even analysis is useful in planning and controlling because it emphasises on marginal concept. A manager can easily find the effect of marginal unit of sales on profit. He can monitor production and sales levels in such a way that loss can be avoided. Careful and purposeful analysis of cost-volume-profit relations can prove a useful technique to guide business operations. 5. Profit and Loss Control This is not a separate controlling technique. In fact, every controlling technique is, more or less, concerned with profit and loss aspects. In this technique, profits of various products, divisions, departments, and branches are compared with profit standards to find out which one/s is/are doing well. Comparison may be in relative or absolute terms. Similarly, profits may be compared with expected profits and historical trends to judge whether there is improvement in profits. When it is observed that profits or losses are beyond our expectation, necessary actions are taken. This technique is used either to increase profits or minimise losses.

6. Production Control and Inventory Control

Production control is aimed at regular and undisruptive production activities. The process of control remains similar, but it is applied in production function (activities) of the organisation. Because of systematic control over production area, a production manager is able to ensure right quality, quantity, and timing of production. Similarly, production control minimises chances of accidents and wastage of resources.

Inventory control is concerned with materials management. It involves controlling of types, amount, location, movements, and timing of the various materials used for production purpose. Inventory control prevents unnecessary blockage of working capital and ensures smooth functioning of business enterprise. Various techniques are used for the purpose. The most popular techniques may include Economic Ordering Quantity (EOQ), and ABC Analysis. Alike other controlling techniques, relevant standards are set and compared with actual outcomes to know whether special actions are needed.

7. Statistical Data Analysis (including Ratio Analysis)

Use of statistical analysis is very common to control various business operations. Such statistical analysis provides a base for setting standards, measuring performance, and finding deviations. Analysis is in terms

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of average, percentage, ratios, correlations, quality control, inventory control, etc. Statistical analysis provides valuable information which can be used for controlling purpose. Large companies maintain well-equipped departments for statistical data collection and analysis. It is a powerful tool for measuring performance in absolute and relative terms. Recently, computer software (package) has been developed for accurate, unbiased and speedy analysis of performance in any area of business operations.

8. Audit Audit involves formal and systematic checking, or verifying of accounting records. It is an accounting technique used for accounting or financial control. However, audit can be extended to other areas of business operations over and above accounting. An expert, called an auditor, performs the task of audit. He is expert in the respective area and well-equipped to carry out the task. Based upon who performs the audit, it maybe internal audit or external audit. Both types of audit have same purpose, that is, to verify or evaluate financial records, policies, procedures, use of authority, quality of management, special problems, and other operations of the business unit. Auditor not only checks performance but also suggests how problems can be solved in an effective way. Thus, audit involves measuring performance and finding deviation and suggesting corrective actions. It is desirable to assign this task to external/neutral auditor for unbiased evaluation.

9. Personal Observation Though all these techniques are useful for exercising control, managers should not forget the importance of control through personal observation. Observation involves systematic watching and recording action or behaviour. It involves mostly direct contact and discussion. Manager can observe actual operations by visiting respective department. It makes a larger impression as he can convey information through face-to-face contact, personal observation, and conversation. Another important issue is that he can easily find out if anything is wrong. In such a case, immediate actions can be initiated to prevent further deterioration. Various methods are used for observation, like human observation and mechanical observation, live observation and record observation, disguised and undisguised observation, etc. It is an effective way to prevent and correct deviations.

10. Other OR Techniques

The techniques used for decision-making are also applicable to controlling. Some techniques have been discussed in traditional and modern controlling techniques. Operations Research (OR) techniques include linear programming, queuing theory, simulation, decision theory, game theory, etc., which have been discussed in Chapter 5.

Modern Techniques for Controlling Popularly used modern techniques include Return on Investment, CPM and PERT, MIS, management audit, social audit, etc.

1. Return on Investment Control Every business unit must earn reasonable return on the capital employed. It is an important device as it is concerned with one of the basic objectives. It is natural that optimum return not only strengthens company’s financial position, but

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also attracts investors and improves reputation in the market. It can be calculated by dividing net operating profits by operating capital employed in the business. Various ratios may be calculated for further analysis (for example, EBIT, EBT, Net Profit, etc.). In this technique, a company may set expected return in advance against which actual return on investment is compared to find out deviation, if any. If required, necessary steps are directed to ensure adequate profits.

2. CPM and PERT Critical Path Method (CPM) and Programme Evaluation and Review Technique (PERT) are production control techniques. They both are related to engineering aspects. These techniques are concerned with minimising overall time and/or costs for completion of work/product by selecting the most suitable route and sequence of various activities. However, it can be used for any area where multiple activities are performed simultaneously. A network is developed to show the sequence of activities, time taken, and time of starting of particular activity. These techniques are used to determine most appropriate time duration of each activity in production process, when it involves a number of sub-processes occurring simultaneously. Both the techniques are used for the same purpose and are based on the same principles. However, there is a little difference. PERT was developed by the special project office of the US Navy in 1958. Almost at the same time, engineers (Walker and Kelly) of Du Pont Company, USA, also developed CPM. PERT is more relevant to Aerospace industries and military activities while CPM is used for such projects as construction, where repetitive activities are performed. CPM assumes that the duration of every activity is constant, i.e., equal or fixed. In case of PERT, there is uncertainty in the duration of activities, and time can be measured by three parameters – most optimistic, most likely, and most pessimistic duration. Network preparation involves following steps: 1. Identification of activities 2. Sequential arrangement of activities 3. Time estimate of activities 4. Network construction 5. Identification of critical activities CPM/PERT is used to minimise total time, total cost, cost for a given total time, time for a given cost or idle resources. CPM/PERT is used for solving problems related to scheduling activities in most economic way. It is used in production department, construction, army, preparing and installing computer network, missile project, etc. It shows most appropriate time, sequence of activities, critical activities, and route of each activity, which can be used as a base to compare actual performance. A manager can direct right action, at the right point, and at the right time. Though there are some practical problems associated with preparing CPM/PERT network, both are useful techniques and help minimise time, money, wastage, and efforts.

Advantages of CPM/PERT CPM/PERT can offer following advantages: 1. Planning Tool: The primary purpose of this technique is to plan the activities needed to complete the project. By preparing a chart, one can know in advance about start time,

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end time, total time, along with activities. Thus, one can manage for needed inputs in advance. Controlling Tool: When the technique is used for planning, it is automatically useful in controlling. Stat time, finish time, total time, and sequence of activities can be treated as standards against which actual progress can be evaluated. Detection of Critical Path: Under this method, the most critical path or activity can be detected, which requires exceptionally more attention. The technique guides to determine which activities should be give more attention, and which require less attention. Effective Utilisation of Resources: CPM/PERT is useful for determining the most appropriate time to complete the project; can help in detecting the critical path/activities; can find out the shortest possible route to complete the job, etc. Therefore, human and physical resources can be effectively utilised and project can be completed within targeted time and resources. Determination of the Most Appropriate Time: Basically, this technique is meant for determining the least possible time to complete the project. It saves time, and, consequently, resources. Pictorial Presentation: Arrow diagram is used to represent various jobs, events, and time. It is more effective presentation of each of the activities to be performed with time duration. One can easily understand number, time, and order of various jobs. Flexibility: CPM/PERT is flexible technique. It allows the planner to adjust with situations. Useful in Manpower Planning: The PERT can help in manpower planning, too. The techniques are also useful in determining manpower requirement. On the basis of the chart prepared, a manager can determine requirement of different types of employees needed for completion of projects.

Limitations/Disadvantages of CPM/PERT Though CPM/PERT is very useful technique for planning and controlling, it also suffers from certain limitations: 1. It is difficult to estimate the exact time. 2. It has limited applicability in production planning and control. 3. It is concerned with engineering aspects. It is related to technical matter. Therefore, it seems complicated for non-technical staff. Even top management cannot understand the exact implications of the technique. 4. This is too sophisticated tool to apply and afford. It is costly. Company needs to employ highly qualified staff. 5. Actual benefits of CPM/PERT depend on the degree of active interest of the top-level management. If top level management is not supportive, it has limited value.

3. Management Information System It is said that information is as important as blood circulation in human body. Information is the knowledge obtained through investigation, study and experience, or collected by communicating with others. Every decision is taken on the basis of information. Therefore, availability of adequate, relevant, reliable, and timely information

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is vital for right decision-making. The system that manages the flow of information is known as Management Information System (MIS). The entire organisation remains active and integrated in pursuit of objectives. A manager can remain in touch with every department, and can initiate immediate action as and when required. Information is a key input in planning and controlling operations. Manager knows what is happening, and when and what actions are to be taken. MIS is useful in every step of controlling process. MIS assists in setting standards, measuring actual performance, detecting deviation and causes, communicating with people, and taking effective corrective actions. (For more details, refer MIS, Chapter 13.) HP’s Informal Control System Shiv Nadar led Delhi-based Hewlett-Packard India (HP), a leading IT company, believes that ‘people are here to do a great job.’ All employees are treated like mature adults. Even a fresh recruit in HP is given all kinds of resources and a team to do things in a novel way. All such attempts are fully supported by top management. There are no supervisors in HP to exercise control over employees. There is no boss to keep the watch over employees. Company makes every attempt to provide excellent opportunities to employees for vertical growth. Company organises several events such as family days, annual picnics, kid’s days, dial-a-chocolate, wedding gifts, subzi-on-wheels, car serving facilities, and so forth to make employees live throughout the year. Due to lenient control system, ‘HP could maintain its position amidst severe competition.

4. Management Audit The various controlling techniques discussed so far deal with a particular area of the business operation. They do not focus on quality of overall managing system. It is management that determines success and failure of any business unit. Assessment of management quality (or effectiveness) is an important issue for improved performance. Management audit is an attempt in this area. It is a relatively a new technique of controlling. Management audit is an evaluation of management as a whole. It involves an independent and critical examination of the entire management process, including planning, organising, staffing, directing and controlling. It covers marketing, finance, personnel, and production areas. According to Bhandari and Abani, “A periodically done critical analysis of various components of organisation as a whole, its end results, deviations and degree of impact of various factors resulting in deviation in the principles and practice of managerial functions at different levels of management may be called management audit. Such audit is concerned with the past and the present situations, and should necessarily be done by expertise with positive outlook to advise the top management for necessary adjustment in order to make the organisation more effective.”6 Thus, management audit is periodical and critical analysis of various aspects of management to find out how far management of the enterprise is effective, and if needed, suggesting the top authority to make desired adjustments to improve management practices. Management audit consists of preparing a detailed audit report that is submitted to top management. Mostly, management audit is carried out by external auditor for the objective or neutral investigation.

5. Social Audit This technique is used to increase the awareness of businessmen toward social responsibility. The concept was developed by Bowen in U.S.A. in the fifties. However,

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in India, the concept is not very popular in business communities. Nevertheless, it has great potential in underdeveloped and developing countries. The primary purpose of social audit is to make the businessmen socially responsible and protect the interests of a large number of people. The audit tries to examine how far a business unit is discharging social responsibility towards several interest groups (public). Various approaches are used as measuring yardsticks, for example, total expenditure for social activities, value of productive capabilities of organisations’ human resources, activities performed for social reasons, efforts for conservation of natural resources and protection of ecological environment, efforts for meeting social expectations, ethical audit, ecological audit, and so on. Social audit has limited applicability in our country as business enterprises are not much sensitive to their social performance. Recently, a few Indian companies have adopted social audit in a limited form. Even in advanced countries, social audit report is meant for top-level management only. It is a developing area of control. In light of current marketing practices, social audit may be made compulsory in the coming years. These controlling techniques have their merits, demerits and applicability. Manager should use a suitable and affordable method for controlling. Note that the list of techniques discussed in former part is not complete; manager can also develop his own techniques. There are certain techniques, which have not been covered in above discussion, such as Human Resources Accounting, Responsibility Accounting, etc. Moreover, only elementary aspects of each of the techniques have been explained so that students can be briefly exposed to them. It should also be mentioned that the classification in terms of modern techniques and traditional techniques is also general. The techniques can also be classified in terms of financial control techniques and operational control techniques.

SELECTION OF CONTROLLING TECHNIQUES Every controlling method/technique has its strong and weak points, and applicability. Management must use appropriate technique(s) suitable to the overall situations. Selection and use of suitable technique depend on the following factors: 1. Area of operation 2. Top-level management policy 3. Purpose – measurement, comparison or correction 4. Availability of techniques 5. Suitability of techniques 6. Costs consideration 7. General trend in different industries 8. Staff involved in controlling 9. Time required 10. Reliability of techniques

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SUMMARY Controlling is the last function of management process that relates with regulating organisation’s activities. It is an act of verifying on-going activities in relation to plan, and, if required, taking appropriate steps to ensure that the work is taking place as per plan. Planning and controlling are interrelated and interdependent. Planning is meaningless if there is no control, and controlling is impossible if there is no plan. Controlling is a process of comparing actual/operating results with planned/expected results and taking corrective actions when results deviate from plan. Controlling process consists of five steps—specifying objectives, establishing standards, measuring actual performance, comparing actual performance with standards, and correcting deviation. Controlling is important for achievement of objectives, essential for success of plan, adjustment in operations, rules, policies, and procedural verification, psychological pressure, better coordination in action, improved efficiency and effectiveness, keeping organisation active and engaged, making managers responsible, and maintaining discipline and regularity. A control system which is suitable to organisation in all the significant aspects can be referred as effective control system. It must fulfill certain principles or reflect qualities. Controlling techniques involve all those devices and methods that are used either for measuring, comparing performance and/or correcting deviations. Any technique/method used in the entire controlling process or part of it can be a controlling technique. Budgetary Control, Cost Control, Special Report and Analysis, Break-even Analysis, Profit and Loss Control, Production Control and Inventory Control, Statistical Data Analysis (including ratio analysis), (Accounting) Audit, and Personal Observation are widely used traditional controlling techniques, while Return on Investment Control, CPM and PERT, Management Information System, Management Audit, Social Audit, etc., are considered as modern techniques.

KEY TERMS Controlling Controlling Process Controlling Standards Controlling Techniques Controlling Principles/ Qualities Controlling Techniques Budgetary Control Cost Control

Special Report and Analysis Break Even Analysis Profit and Loss Control Production Control and Inventory Control Statistical Data Analysis Accounting and Social Audit

Personal Observation Return on Investment Control CPM and PERT Management Information System Management Audit

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EXERCISES Objective Type Questions A. Answer the following: 1. What type of relation exists between planning and controlling? 2. Write any five quantitative standards. 3. State four qualitative standards used for controlling.

4. State any four modern controlling techniques. 5. Mention five principles of effective controlling system.

B. Choose the correct option (MCQs): 1. In modern management, controlling is (a) The second function of management (b) The first function of management (c) The fifth function of management (d) The third function of management 2. What type of relationship exists between planning and controlling? (a) Planning and controlling are interrelated and interdependent (b) Planning and controlling are independent functions (c) Planning is above controlling (d) Controlling is part of planning 3. If we compare controlling system with a vehicle, then controlling is as important as (a) Break (b) Accelerator (c) Head light (d) Fuel 4. A manager does not require plan to exercise control over business operations. The statement is (a) Partially correct (b) Absolutely correct (c) Partially incorrect (d) Absolutely incorrect 5. With reference to contribution of controlling for dealing with errors, controlling is (a) Only preventive function (b) Only corrective function

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(c) Both corrective and preventive function (d) Neither corrective nor preventive function Which one is not tangible standard? (a) Units of production (b) Per unit cost (c) Operating profits (d) Employee job satisfaction and morale In which situation, the controller is not required to undertake any corrective actions? (a) When actual result is less than expected result (b) When actual result is more than expected result (c) When actual result is equal to expected result (d) When there is not result In which category does management audit fall? (a) It is not a controlling technique (b) It is modern controlling technique (c) It is traditional controlling technique (d) It is both modern and traditional controlling technique To which functional area of management do CPM and PERT relate? (a) Production (b) Marketing (c) Financial (d) Human resource

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10. Which is not correct? (a) Social audit is concerned with social responsibility review (b) Management audit focuses on quality of overall management system

(c) MIS provides necessary information for exercising control over business operations (d) CPM and PERT are useful for financial control

Descriptive Questions 1. Define controlling. Write a note on importance of controlling. 2. How are controlling and planning interrelated? Discuss nature of controlling. 3. Explain systematic controlling process. 4. What is an ideal/effective controlling system? Discuss principles or qualities of good controlling system. 5. Enlist controlling techniques. Discuss any three techniques.

6. Write a note on traditional controlling techniques. 7. Discuss important modern controlling techniques. 8. Write a note on CPM and PERT. 9. Write brief notes: (a) Management Information System (b) Social Audit

Assignment 1. Students are assigned to study and describe control mechanism of any medium or large size corporate unit.

2. The students are required to design appropriate controlling mechanism for the institute in which they are studying.

REFERENCES 1 George R Terry and Stephen G Franklin, Principles of Management, AITBS, 2000, New Delhi, 422 2 Henry Feyol, General and Administrative Management, Sir Issac Pitman, 1949, London 3 Koontz and O’Donnell, Principles of Management, McGraw-Hill, New York, 1980, p. 585 4 John A Pearce and Richard B Robinson, Strategic Management, Homewood III, Richard D. Irwin, 1988, p. 140. 5 George R Terry, Principles of Management, Richard D Irwin, Homewood III, 1988, p. 573 6 S K R Bhandari and A S Abani: “Management Audit with Reference to Indian Public Enterprise,’’ Indian Journal of Accounting, June-Dec. 1977, pp. 99-111

ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. Planning and controlling are interrelated and interdependent 2. Sales volume, time, units of production, net profits, and earning per share 3. Employee job satisfaction and morale, consumer satisfaction, human relations, and goodwill and reputation in market 4. Management audit, social audit, MIS, CPM and PERT 5. Suitability, objectivity, simplicity, flexibility, and clarity B. 1. (c), 2. (a), 3. (a), 4. (d), 5. (c), 6. (d), 7. (c), 8. (b), 9. (a), 10. (d)

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CASE New Controlling System Controlling, the last function of management process, relates with regulating activities of the organisation. It is both preventive as well as corrective device. Every organisation must create and maintain appropriate controlling system for satisfactory performance of business operations. Two types of controlling systems are practiced in business. One is, imposed or forced control system that is enforced by top authority, and the second is, the self-control system that is voluntarily or willingly observed by the employees. Self control is far better than imposed system. But, it is a long process. Top authority must develop and nurture healthy and employee-oriented work climate that inspires self-control. The controlling system must be fit with organisation’s internal and external situations. Mr. Aditya Mohan attempted to formulate an appropriate controlling system. Aditya Mohan, 40, previously working in a reputed MNC as assistant marketing controller, took charge as the marketing controller of EBA Home Appliances Ltd. In his career, he had worked in many reputed companies dealing with national and international trade. Wherever he worked, he applied his own new or different method of working. It was his belief that the new system should be ideologically as well as practically sound; it must be fit in all significant regards and must be objectively and impersonally selected and implemented. He firmly believed that only ‘fit’ could function effectively in turbulent business environment. His approach to work had yielded satisfactory outcomes each time. On the very first day, he reviewed marketing policies and practices. He discussed relevant issues with the former controller. He arranged separate meetings with senior executives, followed by junior executives. Then he met the chairman and other top position holders. He also shared his views with regular clients and customers. At the end of a month, he evoked a new control system. In the meeting, he highlighted key points of the proposed control system. New control system will be implemented from 1st October, 2011. Team containing one member from every department will be constituted to review performance in unbiased manner. Members of review committee will be appointed on rotation basis. They are to be rotated after every two years. Profits, sales, customer satisfaction, new customers, competitiveness, relations with outsiders, and growth rate will be used as criteria to evaluate departmental and individual performance. Pay package, incentives, promotion and transfer, leaves, authority, and other rewards will be strictly linked with performance. Outcomes of every quarter performance will be communicated to relevant employees. Employees will be given a chance to express their views. Control system is to be treated as preventive measures, it is not meant for punishment. Top management and all executives were satisfied with new control system. The meeting ended with smile on everybody’s face.

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Questions for Discussion 1. What is role of controlling in business management? What type of controlling system a manager should apply? 2. ‘Mr. Aditya Mohan preferred to meet all those concerned with company’s operation before he evoked a new controlling system.’ With reference to modern management theory and practice, discuss his approach. 3. Which criteria/standards have been considered in proposed controlling system? What is your opinion? 4. Write four key features of the proposed controlling mechanism. 5. What are the three most positive aspects of the new controlling system? 6. ‘Mr. Aditya Mohan’s new controlling system is integrative; it considers all major areas of management.’ Comment. 7. ‘It is easy to propose a sound system, but difficult to implement.’ Discuss the statement with reference to practical limitations. 8. What is self controlling system? Why is this type of controlling system a long process to pursue?

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Functional Areas of Management: Basic Principles Learning Objectives Upon completing this chapter, you will be able to: Introduce branches of business management Define production management and outline its functions Explain the term ‘marketing management,’ describe its functions and state its importance Clarify concept of financial management, and explain its functions and significance Define personnel management and discuss its functions

INTRODUCTION Management fundamentals—concepts, functions, processes, principles, and theories—can be applied to any field of human activities, including economic or business, social, political, religious, and so forth. Management can be applied to any field, which has some objectives and requires group efforts. Interestingly, it can be meaningfully applied to personal life, too. Business management involves applying planning, organising, staffing, directing and controlling functions to business activities, such as production activities, marketing activities, personnel activities, and financial activities.1 Note: Additional reading material related to this chapter is available on the companion website of this book.

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FUNCTIONAL AREAS OF MANAGEMENT To realise the business goal—maximum consumer satisfaction—the CEO of the company needs to consider equally all four functional areas of management. He must follow integrative approach; he must coordinate efforts of all key functional areas—production, marketing, finance, and personnel—as each of them can contribute to organisation’s goal. Marketing and production are two line functions. They must be duly supported by finance and HRM. Different functional areas of business management are also known as branches of business management. The present chapter briefly discusses fundamental aspects (principles) of main functional areas of business management, including: 1. Production Management 2. Marketing Management 3. Financial Management 4. Personnel (or Human Resource) Management

PRODUCTION MANAGEMENT Production constitutes one of the key activities of business; it is the basic activity of all industrial units. Goal can be achieved only when something is manufactured and sold to someone. This is true especially for a manufacturing unit. Production management is also called manufacturing management or operations management. Here, all relevant aspects of management science are applied to production area. The purpose of production management is to carry out all necessary activities to manufacture a desired product that can easily be sold to target markets. Production management is concerned with producing the right products (of right qualities, features, and performance) in the right quantity, at the right place, using the right method (technology), and at the right time. Production management is also relevant to service industry, like banking, insurance, telecommunication, film and entertainment, etc., because it also requires producing of certain services. However, it is more relevant to production of various types of consumer and industrial goods. It involves technical and engineering aspects. Production activities are managed by production department, and production manager, who he heads production department, is responsible for production activities.

Definitions

Production management can be defined as:

1. Production management is the management of production activities. It involves applying planning, organising, staffing, directing, and controlling of production related activities and operations. 2. Production management is the application of management science—concepts, functions, processes, principles, and theories—to production activities for producing goods and services of desired specifications in terms of quality, quantity, features, timing, and costs. 3. Production management is concerned with those production processes/activities which transform the inputs into outputs. The inputs are resources like raw materials, labour, machines, methods, and services, while the outputs are goods and services. 4. Production management is concerned with decision-making related to production process to produce products (goods and services) as per specifications—in terms of quality, features, quantity and schedule—and at minimum costs. Production involves a set of activities to convert materials into the finished product by using step-by-step process either chemically or mechanically. Main inputs in production include materials, men, plants and machineries, methods, and relevant services. The production

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department does not always produce finished products that can be used by ultimate consumers; many firms produce semi-finished products that can be used as input (raw materials) for other production firms. Production management manages all activities and operations of production department.

Functions (Scope) of Production Management Production management, also known as manufacturing management, is concerned with managing entire production system to produce the right product at the right time in the most cost-efficient ways to generate maximum consumer satisfaction. This branch of business management involves all the activities to convert raw materials into the finished product. Production manager needs cooperation of other functional managers to carry out production operations successfully. Let us examine main functions (activities or decisions) of production management: 1. Designing Product

Product designing is one of the crucial decisions of production management. Needless to state that product is the prime determinant of firm’s success or failure. Suggestion of marketing department must be incorporated while designing the product. Key aspects of product planning/designing include decisions on product’s features (size, shape, colour, weight, facilities, etc.), qualities (safety, durability, ease and convenience, efficiency, utility or usefulness), and performance. Tata Motors’ Upgraded Nano Tata Motors, Indian leading automobile major, has recently made a few changes in Nano’s design. In order to boost sales of “Dream Car” Nano, decided to go for a makeover. It had planned to add safety device and new features to the world’s cheapest car. The upgraded Nano would come with premium features such as power steering, the tailgate opening at the rear, seat adjustment, five-speed gearboxes and a variable transmission. The new models would improve safety as well bolster fuel-efficiency and performance.

2. Production Planning While product designing deals with types of products, production planning deals with various issues related to production of the products. Production planning involves making several decisions in advance, such as why to produce, what to produce, for whom to produce, how much to produce, when and where to produce, how to produce, and who is to produce.

3. Plant Location An appropriate location can contribute significantly to success of business enterprise. It is top-level decision. Promoters and managing body decide on the location or site where factory (production plant) is to be set up. Location decision depends on analysis of a large number of relevant factors, including promoters’ perception, availability of basic inputs (raw materials, water, power, labour, etc.), market vicinity/accessibility, government norms and assistance, and many other factors. The location of the plant must be suitable in all significant aspects.

4. Plant Layout Plant layout deals with arrangement of plant (technology, machines, and equipments). It also involves production process decisions. More clearly, it shows arrangement or location of plant and machinery, production administrative department, store rooms, tool

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room, powerhouse, shipping department, parking, canteen, toilets, supervisors’ offices, etc., in the factory buildings. Suitable plant layout improves product quality and minimises costs, time, and wastages. The decision is taken by technical (architectural and engineering) experts. Plant layout decisions depend on many factors, like type of product, scale of operations, type of technology, availability of floor area, need for future expansion, material handling system, legal provisions, and so forth.

5. Organisation of Production Department Establishing and maintaining a suitable structure of organisation for production department facilitates smooth functioning of production operations. Organisation of production department portrays various positions and levels in production department and formal authority relations among position holders. The structure must be suitable in all significant aspects. Type of organisation structure depends on many factors, like type of product, type of technology, size of operation, production process, etc. 6. Quality Control Management Quality (control) management is a system of assuring the right quality of the product. It is a part of total production control system. It involves setting quality standards, evaluating (inspection and testing) product qualities against standards, and taking necessary actions when standards are not met. Now, most companies apply Total Quality Management (TQM)—the commitment of all functional areas to quality assurance—for ensuring overall quality in all related operations. The ISI mark and the ISO (9000 series, 14000 series, 21000 series) certificates are related to quality aspects of product and production processes. Quality audit, Quality Circle (QC), Statistical Quality Control (SQC), etc., are interesting and useful areas of quality control. A firm can develop and apply its unique quality control system to ensure quality products. Sometimes, quality control task can be assigned to outside agencies working on professional basis. 7. Plant Maintenance Plant maintenance is one of the important functions of modern production management. It improves functional reliability of the plant. Plant includes buildings, machines and equipments, power supply, safety measures, materials handling equipments, and other facilities, directly or indirectly related to production processes. Plant accounts for huge investment on one hand, and affects overall operational efficiency on the other hand. Proper maintenance results into better quality products, reduced costs, better capacity utilisation, and safety of human and physical resources. Plant maintenance involves certain costs, such as employment of staff, stocking up of repair parts, administrative expenses, investment in maintenance equipments, and maintenance materials. But, inappropriate plant maintenance is costlier as it results in machine breakdown and stoppage of production, idle machine time, idle direct and indirect labour time, poor quality products, increased scrap and wastage, loss of customers/clients, accidents and payment of workmen’s compensation, legal complexities, and adverse impacts on workers’ morale as well as on firm’s reputation. Type and number of plant maintenance activities depend on type and nature of production process. Normally, maintenance covers a range of activities, including inspecting, cleaning, repairing and replacing, lubricating, updating, safety measures, provision of stand-by equipments, and adequate provision of tools and parts. Normally, production department has two options to perform maintenance tasks—preventive maintenance and breakdown maintenance.

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Preventive plant maintenance involves undertaking necessary actions to avoid any type of problems; maintenance activities are performed to prevent possibility of accidents or stoppage of machines. Breakdown maintenance involves undertaking maintenance actions when plant fails to operate or accidents take place. Obviously, preventive maintenance is more preferable. Main plant maintenance decisions include: (i) Formulating maintenance policies (ii) Maintenance planning (deciding on why, what, when, where, how, and who aspects of maintenance) (iii) Appointing, training, and maintaining maintenance crew (staff), such as inspectors, mechanics, electricians, cleaners, plumbers, carpenters, painters, blacksmiths, welders, masons, and workers) (iv) Provision of maintenance equipments, facilities, and materials (v) Exercising control over maintenance activities, evaluating firm’s maintenance system

8. Production Control Production control is concerned with applying suitable production control system over production activities. It ensures that production department is working as per production plan. Production manager or chief production engineer exercises direct control over production operations. Production control system involves (1) setting control standards, (2) measuring actual performance of production department, (3) comparing actual performance with standards, and (4) taking corrective actions, if needed. It ensures righteousness in all significant aspects—right product, right quantity, right time, right process, and so forth. Success of production operations depends on firm’s control system. Controlling is preventive as it prevents anything unexpected, as well as corrective as it corrects the differences (errors). Scope of production control consists of activity control, inventory control, quality control, method control, labour efficiency control, control over machines and tools, and so forth. Need, type, and intensity of production control depend on nature of business, scale of operations, type of manufacturing process, degree of mechanisation and automation, management philosophy, etc. As per need, a firm should set up a suitable production control system.

9. Safety Management Safety management is concerned with decisions related to security measures for physical and human resources. Particularly, ensuring safety of human resource seems critical in the present era. Due to legal provisions, workers’ awareness, functioning of trade unions, human rights movements, and other factors, security/safety measures at workplace have become indispensable. In the same way, modern management theory and practice emphasise on better treatment to workers for better performance. Improved working condition is considered a basic input towards employees’ high morale. Organisation’s safety unit, safety department or safety section deals with all issues related to safety. Apart from outside forces and human relations, safety measures are also essential for smooth operations at the factory. Suitable safety system results scheduled production of better quality product at low cost. A firm has to develop, operate, and update suitable safety programme for optimum safety of workers as well as physical resources. While developing safety system/programme, safety department must consider the views of all relevant parties, including

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production manager, production engineers, supervisors, external safety experts, technology experts, and even workers. Main activities/decisions of safety management involve: (i) Setting up of up-to-date safety system and disaster management (ii) Teaching and training people regarding possible hazards of their jobs, and how to avoid them (iii) Providing the latest safety equipments (iv) Undertaking immediate corrective actions when unsafe conditions or activities are detected (v) Supervising or inspecting machines and on-going works to detect defects in advance (vi) Investigating causes when accidents/mishaps occur in factory (vii) Formulating policies related to insurance, medical treatments, and compensation in case of physical injuries or loss of life (viii) Reviewing the entire safety system at regular intervals and taking necessary actions when needed (ix) Dealing with external hazards, like natural and man-made calamities (x) Deciding on safety budgets (xi) Performing any task related to safety of workers

10. Waste Management (WM)

Waste management is an important area of production management. Some wastes are inevitable in any conversion process of inputs to outputs, and, hence, its management. Here, waste refers to all types of spoilage that do not add to value. Spoilage, includes scrap materials, rejected items, byproducts during production process, obsolete, outdated or useless parts, damaged parts, etc.

Key ratios used for measurement of waste measurement are (1) Wastivity Ratio: Waste (W) ÷ Input (I), (2) Gross Wastivity Ratio: Total Waste ÷ Input, (3) Net Wastivity Ratio: Net Waste (total waste – waste recycled with the system) ÷ Total Input. Waste management decisions include: (i) Formulation of policies related to wastes (ii) Research and investigation for improved waste management (iii) Waste measurement and estimate of value (iv) Recycling of wastes (v) Disposal of salvable wastes (scrap) (vi) Further processing or treatment for disposal (vii) Staffing and equipping waste management department Common causes of wastes include: (i) Poor production policies, rules, and procedures (ii) Faulty or obsolescent technology and machinery (iii) Power failure and machinery breakdown (iv) Careless supervisors and workers

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(v) Faulty staffing function (vi) Poor plant maintenance and delayed replacement of parts (vii) Defective structure of organisation (viii) Lack of suitable inventory control (ix) Defective work methods (x) Substandard inputs, including raw materials, parts, fuels, and services (xi) Impact of climate or weather (xii) Man-made (sabotage) and natural calamities

11. Materials Management

Production management involves converting raw materials into semi-finished or finished products. Production department needs several types of materials of the right quantity and quality at the right time. Materials are basic input in production process and they constitute major element of costs. Materials management performs all materials-related activities to facilitate smooth production. It is similar to inventory management. Materials management is mainly concerned with procuring (purchasing) materials, storing and maintaining materials, dispatching and handling materials, and other materials-related decisions. Effective materials management results into undisruptive production process and effective utilisation of materials. It contributes in smooth production process, better quality products, reduced wastage, and low costs. Quality product at low price is the basic condition to succeed in competitive market situation. Materials management involves decisions on three areas stated below: (a) Procurement Management: It includes three decisions, such as: (i) What to buy? It relates with deciding on type of materials. (ii) Where and from whom to buy? It relates with vendor selection. (iii) How to buy? It relates with buying modes—cash, credit, advance, instalments, etc. (b) Inventory Management/Control: It includes three decisions, such as: (i) When to buy? It relates with ordering and reordering time. (ii) How much to buy? It relates with quality to be purchased, i.e., the order size. (iii) How to receive, store, and maintain the materials? It relates with storing and maintaining materials for smooth production. Ordering and maintenance costs are key issues. (c) Materials Handling: It includes two decisions: (i) How to dispatch the materials? It relates with dispatching materials to production department. (ii) How to handle the materials? It is concerned with physical movement of materials from storeroom to plants. Material handling methods and tools are main issues.

12. Pollution Control Measures

Protection of natural (ecological) environment is one of the top issues in global agenda. All, common countrymen to the key men of dominating nations, have started worrying about ecological imbalance across the world. Clearly, production activities have created more harm than any other activity. Today’s industries are major source of pollution. Either voluntarily or by force, factories need to accept and apply pollution control measures. At present, pollution control measures are treated as decisions of high priority.

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It is mandatory for production manager to adopt necessary pollution control measures. It is social responsibility of managers to protect environment. Pollution control covers a number issues, such as eco-friendly technology and production processes, pollution control (effluent plants) tools and technology, pollution control costs, recycling of wastes, etc. Some companies maintains pollution control department for handling pollution-related matters.

13. Other Decisions Apart from above decision areas, production management involves many other activities. Some of them have been listed below: (i) Equipment replacement decisions (ii) Production process and plant capacity (iii) Maintaining healthy relations (iv) Depreciation decisions (v) Job analysis (vi) Value analysis (vii) Reengineering (viii) Costs accounting system, etc.

MARKETING MANAGEMENT Marketing management is management of marketing – selling and distribution – activities. All fundamentals of management science, such as functions, processes, principles, and theories applied to marketing field to realise marketing goals. The prime goal of marketing management is to achieve maximum consumer satisfaction within given resources. This area of management primarily deals with selling and distributing of products. In fact, modern marketing is closely associated with production department. It can be defined as the process of achieving the desired exchange with the target market. Marketing management’s tasks have become difficult, challenging, and dynamic. Marketing manager needs to perform all the activities to satisfy consumers’ needs and wants. Success of any business unit largely depends on performance of marketing management. In today’s concern, marketing management enjoys the highest status, and other managements, including production management, personnel management, etc., act as subsidiary or supplementary areas of marketing management. All marketing activities are performed in the marketing department and the manager who is responsible for marketing decisions is marketing manager.

Definitions

Marketing management has been defined as:

William Stanton: "Marketing management is a total system of business activities designed to plan, price, promote, and distribute want satisfying products, services, and ideas to target market in order to achieve organisational objectives."1 Philip Kotler: "Marketing management is the analysis, planning, implementing and controlling of programme designed to bring desired exchange with target audience for the purpose of

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mutual gain. It relies heavily on the adoption and coordination of product, price, promotion and place for achieving effective response."2 We can define the term as: Marketing management is essentially the management of the demand. The task of marketing management is to influence timing and level of demand. More comprehensively, the term is defined as: Marketing management is a system of integrated business activities that is designed to develop strategies and plan (marketing mix—product, price, promotion and place) for satisfying customers wants of selected market segments.

Functions (or Scope) of Marketing Management

Marketing management is a powerful branch of business management. Marketing management is a wide term that covers a large number of activities. The modern marketing approach—integrated marketing—covers other branches of business management, such as financial management, personnel management, and production management, too. Therefore, indirectly, it can be said that scope of marketing management is similar to scope of entire business management. Marketing management involves all those activities required to be performed for satisfying consumers at profit. It also involves undertaking certain socially significant activities. Following functions can be included in scope of marketing management:

1. Perceiving Marketing Opportunities Marketer needs to scan/analyse the broad business environment to see whether attractive marketing opportunities exist along with threats and challenges. He has to appraise firm’s strengths and weaknesses against opportunities and threats. Analysis of business environment produces useful information that can be used for further planning. 2. Setting Marketing Goals The prime task of marketing manager is to set marketing goals and objectives. Clearly and precisely defined objectives can help marketing manager to direct marketing efforts effectively. The goals and objectives (whether strategic and operating, or short-term and long-term) must be suitably communicated to the employees concerned. As far as possible, objectives should be expressed in quantifiable terms. 3. Selecting Target Market

Segmenting total market and selecting target market are fundamental tasks of marketing management. Modern marketing practice is based on target market, and not on total market. Marketing manager cannot satisfy all the needs and wants of the entire market. He must concentrate his efforts only on well-defined specific groups of customers known as the target market. All the marketing functions are directed to cater needs and wants of target market only. Based on company's overall capacity, the target market should be selected.

4. Marketing Organisation

Formulating suitable organisation structure for marketing department is one of the important functions of marketing management. To implement marketing plan, a suitable organisation structure is essential. On the basis of analysis of type of products, type of market, geographical concentration of market, and many other relevant factors, appropriate organisation must be designed. Various alternative structures are available, such as product organisation, matrix organisation, geographic organisation, functional organisation, and so forth. Based upon requirements, the appropriate structure should be prepared and modified as per need.

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Tata Motors Revamps Marketing Strategies In the month of December, 2010, Tata Motors undertook aggressive marketing policies to stabilize and increase sales of ‘people’s car’ Nano, the world’s cheapest car. The company’s new marketing strategies consist of: Installing more safety device free-of-cost to prevent Nano catching fire Adding new models with attractive features (five-gear box, power steering, attractive colours, etc.). Undertaking rigorous advertising through TV and Print media. Widening and improving distribution system. Introducing annual maintenance contract at Rs. 99 per month. Extending warrantee up to 4 years/60000 kms. Helping customers’ avail 100% financing easily at low rate. Targeting small town and villages to strengthen market position.

5. Maintaining Healthy Relations with other Departments

Marketing department needs cooperation of other departments of the organisation, including financial department, personnel department, and production department. Their support is cousidered to be important to satisfy consumers. Thus, for integrated efforts, marketing manager should try to establish and maintain good relations with them. Likewise, within marketing department, he must establish coordination among various personnel.

6. Relationship Building (Public Relations) Establishing and maintaining profitable relations with outside parties seem inevitable in today’s marketing practices. Alike internal support, external relations are also extremely necessary. Marketer, in order to carry out marketing activities effectively, must establish and maintain healthy relations with various external parties, such as customers, suppliers, service providers, government agencies, dealers, consultants, and so forth. Without their support, marketing manager cannot carry out functions successfully. Due to important role of external relations, contemporary marketing practices can be said as relationship marketing.

7. Marketing Research Activities Marketing research is one of the important functions of modern marketing. Marketing research is concerned with systematic collection, analysis, and interpretation of data on any problem related to marketing. It provides valuable information on which marketing decisions can be taken. Marketing research is essential to know adequately about consumers and market situation. It is a basic function to satisfy consumers. Marketing efforts are based on marketing research information.

8. Sales Management Sales management is concerned with planning, implementation, and controlling selling efforts. It performs all activities directly related to execution of sales. Sales department carries out selling functions. It formulates sales policies, ensures adequate quantity of products, maintains sales records, formulates structures for sales department, manages sales force (salesmen), and controls selling efforts.

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9. Product Decisions (Product Mix)

Marketing mix consists of various decisions related to product. Product is the basic element of marketing mix because all other elements are required only when there is product. It is the center of all marketing activities. Here, product includes good and service. Marketer can satisfy needs and wants of consumers by product. Product is the vehicle, medium, or means by which consumers can satisfy their needs. Important marketing decisions on product may be termed as product strategies. Product mix is concerned with following decisions: (i) (ii) (iii) (iv)

Development and marketing of new products Matching the products with needs and wants of target consumers Modifications (in term of quality, features, and performance) on existing products Product-related strategies, including branding, packaging, labeling, colour, weight, grading, etc. (v) Product line decisions, including different varieties or models, and product mix decisions including width, depth length, and consistency (vi) Product-related services, like after-sales services, home delivery, guarantee, warrant, and demonstration (vii) Competitive advantages of products (viii) Product life cycle, relevant strategies for each stage of product life cycle, and consumer adoption process

10. Pricing Decisions (Price Mix) Price is another important element of marketing mix. It is considered as very critical element. Price can be defined as the economic value of product normally expressed in form of money. The price of a product should be set in such a way that buyers can pay and company can earn adequate profits. In case of price-sensitive customers on one hand, and the prestige-sensitive customers on the other hand, the pricing decisions become vital. Normally, pricing decisions involves: (i) (ii) (iii) (iv) (v) (vi)

Determining development costs of products Determining manufacturing (variable and fixed) costs of products Study of pricing policies and strategies of the close competitors Formulating appropriate pricing policies for products Deciding on level or margin of profits Decisions on variable v/s fixed pricing, price discrimination, discounts, allowances, and seasonal effect (vii) Identifying and analysing of various relevant factors influencing pricing decisions (viii) Pricing policies/strategies in different stages of product life cycle (ix) Decisions on price-setting methods (x) Price decisions for direct and indirect product distribution methods

11. Marketing Promotion Decisions (Promotion Mix) Promotion mix deals with those activities directed to increase sales volume. It is also known as market communication. In today’s marketing practices, market promotion plays a vital role. Promotion mix involves all

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those efforts directed to increases sales of products on a continuous basis. It includes providing information to customers, inspiring them to buy, and offering incentives. Note that market promotion is concerned not only with raising sales volume, but is also a tool for establishing longterm relations with the parties involved, and is a matter of image, reputation, and goodwill for the company. Promotion mix consists of following elements or tools: Advertising Advertising is a popular and powerful tool of market promotion. It can be defined as a paid form of non-personal presentation and promotion of idea, goods, and services by identified sponsor. It is a tool for mass communication. It includes following aspects: (i) Setting advertising objectives (ii) Deciding on advertising message, media, schedule, copy, agency, and budget (iii) Evaluating social aspects and advertising effectiveness (iv) Coordinating advertising efforts with other tools of market promotion Personal selling Personal selling is also known as salesmanship, and management related to personal selling is sales force management. Personal selling decisions consist of following: (i) Setting objectives of personal selling (ii) Deciding on sale force size (iii) Recruitment, selection, training, transfer, and promotion activities (iv) Remunerating, motivating, and controlling salesmen (v) Associating personal selling efforts with other market promotional tools Sales promotion Sales promotion involves offering short-term incentives to promote and increase sales. It includes temporary efforts to attract customers and induce them to buy. Most popular forms of sales promotion are free gifts, discounts, exchange offer, free home delivery, after-sales service, guarantee, warrantee, various purchase schemes, etc. Sales promotion covers following decisions: (i) Sales promotion objectives (ii) Sales promotion methods – consumer level, salesmen level, and dealer level (iii) Timing of sales promotion (iv) Assessing costs and effectiveness of sales promotion (v) Associating sales promotion efforts with other elements of market promotion Publicity Publicity is non-person stimulation of demand for the product, service or business unit by placing commercially significant news in mass media or getting favourable presentation on radio, television, or stage that is not paid by the sponsor. It is also known as public relations. It includes: (i) Deciding on objectives of publicity (ii) Indirect expenses of publicity (iii) Coordinating publicity with other promotional tools (iv) Types of efforts to get publicity (v) Assessing impact of publicity on sales and reputations of company

12. Distribution Related Decisions (Place Mix)

This area of marketing management is related to distribution of product. The element is basically concerned with physical distribu-

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tion and channel of distribution. This is the last element of marketing mix but it is very important as marketing goals can be achieved only if the products reach the hand of consumers conveniently. This element concerns with making products available to the customers effectively. That means, the right products can be made available to the right consumers, in the right way, at the right time, and the right place, and in the right form. Place decisions involve: (i) (ii) (iii) (iv) (v) (vi)

Study of geographical concentration of customers Study of types of distribution channels and channel members Analysing various relevant factors affecting channel decisions Selecting suitable channel of distribution Strategic decisions related to distribution activities Physical distribution, including transportation, communication, warehousing, insurance, banking, etc. (vii) Balancing distribution costs and selling price (viii) Designing a suitable distribution network, and long-term distribution strategies

13. Exercising Effective Control on Marketing Activities

Control is essential to ensure that activities are performed as per plan. Control involves establishing standards, measuring actual performance, comparing actual performance with standards and taking corrective actions, if needed. Control keeps the entire marketing department alert, active, and regular. Marketing manager should set up effective controlling system to monitor marketing efforts.

Importance of Marketing Management

Marketing is a central activity of business. In today’s business environment, selling is tougher than manufacturing. Marketing manager has challenging role to success amidst severe competition. He is not required to manage selling activities only; his duty is extended to integrate all activities for satisfying consumers more effectively and efficiently than competitors. It is marketing manager who can make the entire organisation market-oriented. In reality, marketing management is emerging as a key management area and other functional areas, like financial management, production management, and personnel management, have just complementary role to assist it. Importance of marketing management can be made clear with reference to the points stated below: 1. It analyses the business environment and finds marketing opportunities. 2. It is the major determinant of success of any business venture. 3. It prepares and executes marketing programme (product, price, promotion, and distribution) successfully to gain maximum positive consumer response. 4. It tackles competition for interest of the organisation. 5. It performs marketing research activities to keep close watch on market changes. 6. Marketing management establishes and maintains good relations with all stakeholders, such as customers, suppliers, banking, transportation, middlemen, government offices, and so forth, to extend business interest. 7. Marketing manager is responsible to structure the marketing organisation as per nature and need of busines.

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8. Marketing manager tries to integrate efforts of all departments concern to achieve maximum consumer satisfaction. Proper integration results in higher operational efficiency. 9. Marketing management exercises control over marketing activities to ensure performance as per plan.

FINANCIAL MANAGEMENT Finance means fund or money resource. It is a key input in business; all business activities start and end with finance. Finance is the major determinant of business performance of any firm; it is one of the important criteria to measure and evaluate efficiency and effectiveness of business operations. Finance has remained basic consideration for any type of business or profession. Therefore, it is considered as life-blood of a business. Efficient financial management is crucial for the better business performance. Financial management is the management of money. The department dealing with finance is labeled as financial department. The manager who manages financial activities is designated as financial manager or financial controller. Financial management is concerned with planning, raising, utilising, and distributing funds effectively. Financial management is closely related to economics. It has drawn some concepts, principles, and theories from economics. Until 1890, financial management was a branch of economics. But, now, it has become a separate discipline, a separate branch of study. Financial management is equally crucial to all types of activities—economic, educational, social, religious, and so forth.

Definitions

Let’s examine some simple definitions of financial management:

1. In common parlance, we can define the term as: Financial management deals with effective collection, utilisation, and allocation of funds for achieving business goals. 2. We can also state: Financial management involves planning and raising (collection) of money, investing and allocating money, and maintaining and distributing (profit allocation) of funds so as to achieve objectives effectively. 3. Finally, it can be said: Financial Management is the management of money. All management fundamentals are applied to financial decisions. Thus, it is planning, organising, staffing, directing, and controlling of financial functions.

Scope/Functions of Financial Management Financial management involves following functions/activities:

1. Financial Planning and Capital Structure Financial planning is one of the key decisions of financial management. It involves basically two decisions—the first is, estimating total requirement of funds, and the second is, deciding on raising the same. In brief, financial manager must decide how much (size or amount of funds), when (timing of funds), how (methods/modes of raising funds), where (place of raising funds), and from whom (people from whom to collect funds) to acquire funds to meet the firm’s requivements. The basic issue is to determine the appropriate proportion of equity (owned capital) and debt (borrowed capital). The mix of debt and equity is known as capital structure. It shows proportionate relations

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between debt funds and equity funds. The manager tries to obtain the best financial mix, known as the optimum capital structure.

2. Investment Decisions Investment decisions involve capital investment. Such decisions are also known as capital budgeting. They are concerned with allocation of capital to long-term assets that can yield benefits in the future. Investment in long-term assets involves more uncertainly and heavy risks. Therefore, financial manager has to take such decisions with great care and caution. He needs to make assumptions regarding the future operations and to estimate fund inflows. There are a number of capital budgeting techniques to decide on appropriate investments, such as Payback Method, Accounting Rate of Return (ARR), Present Value Method (PV), Internal Rate of Return (IRR), Profitability Index, and so forth. 3. Management of Fixed Assets Investment in fixed assets is long-term and irreversible (irrecoverable) in nature. It affects firm’s operations over a long time. Sound fixed assets management positively affects survival and growth of business. It involves managing tangible and non-tangible assets. Tangible assets include land, plant, machinery, office, factory, furniture, building, vehicles and other facilities, while non-tangible assets include technical know-how, technological collaboration, patents and copyrights, and long-term debts. Main issues are how much to invest in fixed assets, repaying of debts, depreciation policy and replacement decisions, etc.

4. Working Capital Management Working capital management is known as the current assets management. It affects firm’s liquidity. All current assets must be managed efficiently to safeguard the firm from the risk of illiquidity (lack of liquidity). Sound management of working assets is essential to arrive at profitability-liquidity trade-off. Note that working capital management has direct impact on functioning of production, marketing, and other operations. The management involves mainly four areas like (1) management of cash, (2) management of receivables and payables, (3) management of inventory, and (4) financing or funding working capital needs. 5. Profit Management

Profit management is closely related to dividend decisions. It involves distribution or allocation of profits earned during defined period. The key decision is to decide whether the firm should distribute all profits or retain them, and if to retain, what is the proportion of retained profits. The proportion of profits distributed to shareholders is known as dividend payout ratio, and the retained portion is known as the profit retention ratio. The firm must arrive at the optimum dividend policy so as to maximise market value of firm’s shares. Dividends are paid in cash or in form of issue of bonus shares (issue certain shares to existing shareholders without charge). Profit management affects firm’s financial condition on one hand and prestige and reputation on the other hand. Financial controller has to consider a number of factors to decide on profits allocation.

6. Accounting System Financial department is also responsible for developing and/or adopting suitable accounting system for recording monetary transactions. Accounting system

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is concerns with systematically recording of monetary transactions, or book keeping and accounting. Accounting data have multipurpose uses. They are used for planning and controlling. Suitable accounting system helps in evaluating firm’s performance in both the ways, absolutely and relatively. Trading accounts, profit and loss account, balance sheet, cash flow and funds flow statements, etc., are prepared by financial department to estimate financial performance of the firm. Nowadays, most companies practice computer-based accounting system. Up-to-date financial records show clear picture of firm’s operational efficiency and also help in meeting legal requirements.

7. Organisation Structure Financial manager is responsible for creating a suitable organisation structure for financial department. It is essential for effective administration of activities and transactions. It consists of several sub-departments, like costing, accounting (record keeping), auditing, administrative, etc. It involves recruiting, training, and motivating employees, delegation of authority, establishing relations, and deciding on type of structure. 8. Financial Control Exercising financial control is the task of middle and top-level management. Financial control ensures that all finance-related activities are performed as per financial planning, and the department is achieving its objectives. It keeps the employees in the financial department sincere, active, and alert. It also prevents any unexpected events to occur. Here, same control mechanism is applicable, such as setting financial standards, measuring actual financial performance, comparing actual performance with standards and, if necessary, taking corrective actions.

9. Relation Building Financial manager must establish and maintain healthy relations both within and outside the organisation for smooth functioning. Good relationship must exist among employees within the department, between financial department and other departments of the organisation, and between financial department and outside parties (including shareholders, debtors and creditors, government agencies, banks, etc.). Healthy relations help in undisruptive functioning of financial operations. Importance of Financial Management

Business is an economic endeavour. It involves monetary transactions, that is, receiving and paying money. Financial management ensures raising, allocating, and utilising funds. Right from inception, a business unit needs funds. Every business activity involves direct or indirect spending or earning. Effective management of money/finance is the basic condition to succeed in competitive business environment. Importance of financial management can be described as under: 1. Determining Optimum Need of Funds: For better performance of business activities, adequate finance is a precondition. Financial management estimates the need for finance to meet the current and future needs. 2. Raising/Collecting Funds Effectively: Based upon the nature of business, level of expected profits and market conditions, finance should be raised. Financial controller analyses every aspect to determine the sources by which financial requirement can be met adequately. Each source has its own merits, demerits, and suitability. Here, the critical issue is debt-equity ratio.

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3. Efficient Utilisation of Funds: Financial management plays a critical role to utilising or allocate funds. It determines how much fund is to be invested in fixed assets; how much is to be kept for meeting current needs; and how much should be reserved for repayment of debt. Proper allocation is essential to meet needs of funds for different purposes. 4. Managing and Repaying Debt Effectively: It is not only important to raise adequate funds through various sources; but also a company must repay its debt in time. Financial management is important to deal with this aspect. 5. Systematic Recording of Financial Transactions: Monetary transactions must be recorded regularly and systematically to facilitate evaluation of performance. It is also essential to meet legal obligations, such as sales tax, income tax, and publication of financial statements. Financial management ensures recording and maintaining financial information systematically. 6. Proper Management of Working Capital: Working capital management plays a crucial role in both producing and selling of products. A firm must ensure adequate working capital to meet routine expenses. Management of working capital involves management of cash, receivables, and inventory, and profit management. 7. Expansion of Business Activities: Financial management has a decisive role to play while expanding business activities. It estimates requirement of funds for expansion, and ensures their availability for the purpose. 8. Smooth Running of Business: A business runs undisruptively when every department can avail required funds regularly. 9. Suitable Financial Department: Finance manager is responsible for creation and maintenance of financial department. It involves recruiting, training, and motivating employees, delegation of authority, establishing relations, and deciding on structure of organisation. 10. Image and Reputation in Market: Due to effective management of funds, the company can fulfill its financial obligations in time. This has positive impact on its image and reputation in the market.

PERSONNEL (OR HUMAN RESOURCE) MANAGEMENT Staffing function of management is called personnel management. It is a separate function of management that concerns with human aspect in the organisation. It is the management of men (human resource or employees). It is also known as Human Resource Development (HRD) or Human Resource Management (HRM). The department related with staffing activities is called Personnel (or Human Resource) Management and manager is known as Personnel (Human Resource) Manager. Staffing deals with acquiring, developing, and maintaining satisfactory human resource in organisation. It covers all necessary activities to be performed, right from manpower planning to retirement of employees.

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Definitions Staffing function of management is also known as personnel management or HRM—human resource management. (For definitions of staffing, please refer Chapter 9, ‘Staffing.’) Personnel Management (Staffing) Functions

Staffing (or HRM) consists of following

functions: 1. Manpower planning 2. Recruitment, selection, and induction 3. Training and development activities 4. Wage and salary or compensation administration 5. Employees’ welfare activities (employee benefits and services) 6. Management/handling of grievances 7. Human relations 8. Organisation structure 9. Other functions (For more details, refer to Chapter 9 on Staffing.)

SUMMARY Business management involves applying planning, organising, staffing, directing and controlling functions to business activities, such production activities, marketing activities, personnel activities, and financial activities. Production management is concerned with producing the right products (of right qualities, features, and performance) in the right quantity, at the right place, using the right method (technology), and at the right time. Scope of production management covers designing product, production planning, plant location, and plant layout, organisation of production department, quality control management, plant maintenance, production control, safety management, waste management (WM), materials management, and pollution control measures. The prime goal of marketing management is to achieve maximum consumer satisfaction within given resources. This area of management primarily deals with selling and distributing of products. It can be defined as the process of achieving the desired exchange with the target market. Main functions of marketing management are perceiving marketing opportunities, setting marketing goals, selecting target market, marketing organisation, maintaining healthy relations with other departments, public relations, marketing research, sales management, product decisions, pricing decisions-marketing promotion decisions, distribution related decisions, and marketing control. Financial management is the management of money. It concerns with planning, raising, utilising, and distributing funds effectively. Effective management of money/finance is the basic condition to succeed in competitive business environment. Basic functions of financial management are financial planning and capital structure, investment decisions, management of fixed assets, working capital management, profits management, accounting system, organisation structure, relation building, and financial control.

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Personnel management is the management of men (human resource). It is also known as Human Resource Development (HRD) or Human Resource Management (HRM). Staffing deals with acquiring, developing, and maintaining satisfactory human resource in the organisation.

KEY TERMS Functional Management Production Management

Marketing Management Financial Management

Personnel Management

EXERCISES Objective Type Questions A. Answer the following: 1. Fundamentals of management can be applied to any field of human activities. Do you agree? 2. Name four branches of business management. 3. Which two terms are used for production management? 4. State five functions of production management. 5. What is the prime goal of marketing management?

6. Mention four key decision areas of marketing management. 7. With what activities is financial management concerned? 8. Write five functions of financial management. 9. Which two terms are used to indicate personnel management? 10. Suggest four main functions of HRM.

B. Choose the correct option (MCQs): 1. Which function is aimed at maximum consumer satisfaction? (a) Financial Management (b) Marketing Management (c) Personnel Management (d) Operations management 2. Name the management function that concerned with converting inputs into products. (a) Operations Management (b) Human Resource Management (c) Financial Management (d) Marketing Management 3. ‘Plant layout and plant location are same.’ (a) The statement is true.

(b) The statement is false. (c) The statement is partially true. (d) The statement is partially false. 4. Which branch of business management can directly contribute to raise the living standard of society. (a) Production Management (b) Personnel Management (c) Marketing Management (d) Financial Management 5. Dividend decision is sub-decision of (a) Profit management b) Financial planning (c) Working capital management (d) Fixed assets management

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Descriptive Questions 1. Which are main functional areas of business management? Discuss them briefly. 2. Define production management. Discuss its functions in brief. 3. Explain any five functions of production management. 4. Explain: (a) Plant Management (b) Waste Management 5. Discuss: (a) Safety Management (b) Materials Management

6. Define marketing management. Explain its importance. 7. Describe functions of marketing management. 8. What is financial management? State its importance. 9. Write explanatory note on functions of financial management. 10. What is personnel management? Discuss its functions.

Assignments 1. Students are assigned to describe, in relation to any company, the manner in which the four functional areas are related, and the significance of integrated efforts.

2. Students are asked to collect information on market orientation efforts of some companies.

REFERENCES 1 William Stanton, Fundamental of Marketing (1991) 2 Philip Kotler and Gary Armstrong, Principles of Marketing, Prentice-Hall of India, New Delhi, 2000

ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. Yes, the statement is true. 2. Production management, marketing management, financial management, and human resource management. 3. Manufacturing management and operations management. 4. Designing product, production planning, plant location, plant layout, and quality control management. 5. Maximum consumer satisfaction is prime goal of marketing management. 6. Product decision, price decision, promotion decision, and place (distribution decision). 7. Financial management is concerned with raising, utilising and distribution fund or money. 8. Financial planning and capital structure, investment decisions, management of fixed assets, working capital management, and profits management. 9. Human Resource Management (HRM) and Human Resource Development (HRD). 10. Manpower planning, recruitment, selection, and training and development. B. 1. (b), 2. (a), 3. (b), 4. (c), 5. (a)

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CASE CEOs Going Incognito to Learn Home Truths—Innovative Marketing Chairperson and CEO of PepsiCo Inc, Indra Nooyi, announced that its Indian arm was planning to launch a healthy snack for bottom-of-the-pyramid customers in India. The new product would be low-cost-healthy-food. The proposed product was based on incognito visit to ordinary families living in Mumbai. Mr. Sanjeev Chadha, chairman of PepsiCo India, agreed that the idea of new product came, not from the plush office in Gurgaon, but in a shanty in Chirabazarm, south Mumbai, in a household that lived hand-to-mouth on a monthly income of Rs. 2500. Mr. Chadha, in his incognito tour, got the idea during discussion with the mamber of the family. He went incognito to customer homes and chatted with them about what they ate and drank and why. Direct search gives first hand feel of what the consumers wants. Increasingly, CEOs of Indian consumer product companies are feeling that the important question—what does the consumer want?—is not always answered best in conference rooms or through PowerPoint presentations. Something is lost in transaction. So, they are going to the source, consumers’ homes. Those making personal visits to consumers include Nitin Paranjpe of Hindustan Unilever, Kishore Biyani of Future Group, Vinita Bali of Britannia, Zubair Ahmed of GlaxoSmithKline, Harsh Marwala of Marico, Adi Godrej of Godrej Industries and Kiyoshi Oike of Yakrult. On an average, each of them makes three to four such home visits a year. They come back with new and precious learning. Going incognito to learn home truths has resulted in innovative ideas that can later be converted into profitable goods and services. For examples such home visits were the spark for Horlicks diversifying into instant noodles, Britannia launching smaller biscuit pack (Rs. 2), Marico’s anti-hair loss products, and more. Most CEOs admit that such ideas of customers may or may not work, but they give them stimulus to business opportunities. The ideas are not the ready solution to marketing problems, they are base to design overall marketing strategies and improve them over time. However, due to certain reasons, CEOs of all companies do not pursue incognito tours. (Source: Based on ‘CEOs Going Incognito to Learn Home Truths,’ article by Ratan Bhusan, The Economic Times, 19 July, 2010, p. 1)

Questions for Discussion 1. ‘Idea of new product came not from the plush office, but from ordinary consumers.’ Comment. 2. Describe the experience of Mr. Sanjeev Chadha, chairman of PepsiCo India, in search of a new product. 3. How would you evaluate modern CEOs’ approach of going incognito to learn home truths? 4. Marketing research can be conducted by professional experts or company’s employed staff. Why do CEOs prefer to use their valuable time and energy in collecting information from actual users? What are the reasons for such visits? 5. Give names of three products that are based on incognito visits to customers.

CHAPTER

13

Emerging Issues and New Developments in Management Learning Objectives Upon completing this chapter, you will be able to: Define business ethics, list popular ethics, and state their importance Discuss issues relevant to social responsibilities Differentiate between American Management and Japanese Management Explain key issues related to TQM, and creativity and innovation Define MIS and discuss its process and relevant issues Talk about ISO standards Define MBO and discuss its process Discuss key issues related to MBE, MBP and MBS

INTRODUCTION The chapter is divided into two parts. The first part describes emerging issues in management. Nine important emerging issues have been included in the first part. The second part consists of new developments in management theory and practices. This part includes four approaches.1

PART I EMERGING ISSUES IN MANAGEMENT In relation to modern management theory and practice, certain issues are given more emphasis for better management. These issues have attracted attention of modern management thinkers Note: Additional reading material related to this chapter is available on the companion website of this book.

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and practitioners. We may refer them as emerging issues in management. Be clear that these managerial issues have been a part of management theory and practice for many years. They are emerging in the sense that they are comparatively recent, and are given more importance or priority in today’s management practices to improve managerial performance. The present chapter deals with some important issues that need to be debated for improving management practices. They are listed below: 1. Business Ethics and Management 2. Social Responsibility of Business 3. American and Japanese Style Management 4. TQM –Total Quality Management 5. Creativity and Innovation 6. MIS – Management Information System 7. ISO – International Standard Organisation 8. Employee Participation 9. MBO – Management By Objectives

Business Ethics and Management Business ethics are moral principles generally found in the form of formulas, songs, anecdotes, statements, or words that indicate direct or indirect lessons or guidelines that businessmen need to observe while dealing with varied interest groups, such as customers, suppliers, creditors, government, and so forth. Business ethics are closely related to social responsibility. Every business unit develops, adopts, and practises some ethics in its operations. Nowadays, due to competition, increased consumer awareness, government compulsion, and self-restrictions imposed by regulating bodies of relevant associations, businessmen have started observing business ethics in actual practice. They are meant for ensuring fair dealings with business participants—customers, dealers, employees, governments, and society. Consumerism, a social movement, is directed toward compelling the managers to practice such ethics. Ethics are either observed voluntarily or are forced by the law. In order to protect consumer rights (like the right to know, the right to complain, the right to be heard, the right to safety, etc.) and ensure consumer welfare, Government of India has formulated at least 30 Laws; most of them have been amended several times to match contemporary situations.

Definitions Ethics are moral principles of behaviour (or interaction) that distinguish between good and bad, right and wrong. When these principles are applied to business, they become business ethics. In fact, it is not possible to define the term ‘business ethics’ in exact words as they exert many loose implications. There can be several definitions of business ethics: Davis and Frederick: “Ethics refer to the rules and principles that define right or wrong conduct. In other words, ethics refer to the discipline that deals with defining what is good and what is bad, and what is moral duty and obligation. They serve as a parameter to judge whether the behaviour would benefit or harm human beings.”1

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Ethical Erosion Unethical practices have become part of today’s corporate life. Ethical erosion is a global phenomenon. 2G Spectrum scam and the Commonwealth Games scam in 2010 are evidence that some corporate houses play dirty games for unjust gains. Politicians and bureaucrats have been convinced by corporate agents to avail discriminative gains for business houses. Recent global economic crises were man-initiated. The root cause was unethical behaviour of some people across the globe. Gaurishankar Joshi, a young MBA, found it difficult to work with companies indulging in malpractices. He frequently changed jobs in search of integrity-based company. At last, he joined a pharmaceutical company and had the worst experience. Spiritual values and family norms stopped him from working in these companies. He found himself caught between two forces—his inbuilt virtues and job requirements. “Business ethics are standards or moral principles to judge what is right and/or wrong. They determine an ideal system of behaviour of businessmen in relation to customers and other parties involved in business activities.”2 More clearly, the term can be defined as: Business ethics consist of moral responsibilities of businessmen for protecting rights and ensuring the welfare of consumers, and fair dealing with all other parties involved in business transactions. Business ethics safeguard interests of all living beings. In recent years, China, Indonesia, Philippines, South Korea, Poland, Ukraine, Nigeria, and some other countries have introduced anti-corruption or ‘honesty education’ classes. Relevant topics have been introduced in curricula of different disciplines. India needs to follow these nations.

Some Business Ethics There are a number of moral principles (ethics) prescribed by spiritual agencies, professional associations, social organisations, non-government organisations (NGOs), and governments. Businessmen, in most countries, follow, more or less, the same business ethics. Some ethics have been listed here: 1. Be honest and sincere towards business operations to achieve higher efficiency to serve society. To observe transparency in all economic transactions. 2. Obey and observe honestly the legal provisions (the Acts) specified by the governments, and extend full support to the governments and agencies working for implementation of the provisions. 3. Do not cheat customers by defective or inferior products and illusionary sales promotion schemes. 4. Avoid black marketing, hoarding, profiteering, and speculation for the interest of buyers. 5. Treat employees fairly, pay them adequately in time, and take care of their welfare. 6. Refrain from unhealthy competition, and promote healthy competition. 7. Ensure honesty and precision while packaging, labeling, and advertising the products. 8. Do not defame the image and reputation of other firms by improper methods.

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9. Create and maintain up-to-date records of economic transactions and produce them when asked by the authority. 10. Pay taxes and duties honestly in time. 11. Discharge social responsibilities towards suppliers, governments, investors, service providers, and other stakeholders. 12. Do not make any contracts with domestic or global parties that affect adversely the longterm social interests and welfare of people. 13. Extend all possible support and cooperation to governments in implementing social and economic schemes and plans. 14. Contribute liberally to socially significant activities. 15. Protect ecological environment in all possible ways.

Some Ethical Sayings 1. 2. 3. 4. 5.

“Honesty is the best policy.” “Love your customers more than your products.” “Customer is king in our business.” “Protect the nature, protect yourself.” “All living beings have an eternal right to live with dignity, extend your support.”

Needs and Objectives of Business Ethics Business ethics are special type of regulatory guidelines. They are vital for making business operations more authentic. Today’s marketing practices are full of deceptive packaging, ambiguous offers, exaggerated advertising, and aggressive selling efforts. Some marketers use unfair tactics to attract customers in pursuit of sales volumes and profits. In many cases, they follow excessively self-centered approach for more and immediate benefits at the cost of others. The presence of business ethics and the compulsion to follow them restrict such activities. Business ethics are necessary for marketers as well as consumers. They have many direct and indirect purposes. Some common purposes include: 1. To prevent malpractices in business. Ethics make business activities more authentic 2. To ensure uniformity in marketing (business) practices among various business enterprises throughout the country 3. To make businessmen more aware, sensible, and liable to customers, other stakeholders, and society as a whole 4. To ensure conformity of business operations with the contemporary legal framework (the Acts) 5. To confine or restrict harmful operations which affect adversely long-term interests of people 6. To force governments, voluntary social organisations, and others to be alert and active for protecting long-term interests and welfare of society 7. To assist governments to formulate necessary legal provisions and force the marketers to obey them

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8. To distinguish ideal firms from exploiting ones. This facilitates actions against firms indulging in malpractices 9. To decide on rewards, awards, certificates, prizes, and other encouragements to deserving business firms (who observe business ethics in practice) 10. To make businessmen more sensible to safeguard ecological environment and other living beings

Social Responsibility of Business Social Responsibility (SR) has become a vital issue in management literature and practice. Professional management has resulted in controversy about how much emphasis should be given to social responsibility. This issue has attracted attention of management thinkers and practitioners throughout the world. The term is widely used in the literature of sociology, anthropology, economics, politics, and business management. But, conceptually as well as practically, it has been a volatile, vague, and confused area. Due to global deterioration of ecological health, the governments, naturalists, and environmentalists across the world have given red signals against certain industries the cause ecological imbalance. Due to widespread consumerism, increase in education and awareness, active role of voluntary organisations, and activeness of governments, it has become mandatory for today’s professional managers to think and act on social responsibility. It is very clear that no society would allow any business unit to operate against its interests. Here, society includes all people who are involved, either directly or indirectly, in company’s production, distribution, and consumption of products.

Definitions A business unit is an integral part of society. Society is the home of business. It cannot afford to work in isolation from society. Therefore, it is moral duty of businessmen to protect social interests. Let’s define the term: 1. We can define the term as: Social Responsibility implies social obligation towards society that a business has to fulfill, regardless of ownership or type of management. 2. It further indicates: Social responsibility involves conscious efforts of businessmen to safeguard long-term interests and welfare of society. Any operation of the company must not have any kind of adverse impact on any of the compositions (customers, people, suppliers, investors, employees, etc.) of society. 3. Thus, more clearly, we can define the term as: Social Responsibility (SR) of managers (businessmen) involves fulfilling the obligations toward several interest groups that are directly or indirectly concerned with business operations, like shareholders, customers, suppliers, creditor, employees, government, and nation or society. In terms of interests of various compositions of society, L M Prasad asserts: “Social responsibility contends that management is responsible to the organisation itself, and to all the interest groups with which it interacts. Other interest groups, such as workers, customers, creditors, suppliers, government, and society, in general, are placed essentially equal with shareholders.”3

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Socially Responsible Indian Companies In India, a number of companies, like TISCO, DCM, Dr. Reddy’s Laboratory, Hindustan Steel Ltd., Godrej Group, Kirlosker, Hindustan Unilever Ltd., ITC, Alembic, Shriram Investment, Larson and Turbo, M&M Gorup, Bajaj Auto, and many more, have been doing remarkable job of discharging social responsibility. They have exemplified what is corporate social responsibility and what can be done in this regard. They spend millions of rupees for many activities having social significance. For example, Dr. Reddy’s Laboratory has initiated health education in India. Britannia Industries’ Tiger brand biscuits, have sponsored the ‘Save the Tiger’ project, in association with Sanctuary, the environment magazine. Mahindra and Mahindra (M&M) Group spends 1% of its net profits on various welfare schemes for the disadvantaged sections. Under Mahindra All India Talent Scholarship (MAITS), every year about 500 students are offered scholarship for three-year courses. So far, the company has supported 4772 students since 1995. Larsen and Toubro (L&T) spends around Rs. 5 crore annually on various social projects, such as healthcare, birth control, mother and child care, camps for tuberculosis and leprosy. L&T runs the ‘Life Line Express’, world’s first ever hospital on rail. It also extends assistance to source seeds, improves social quality, encourages dairy and poultry development, and promotes afforestation, biogas plants, and smokeless chullahs. The Associated Cement Companies (ACC) has recently taken up a social project that involves conservation of heritage buildings and structures, particularly, in Mumbai. Tata Steel (TISCO) established a tribal cultural centre to preserve tribal customs, arts, and habits. The company is engaged in setting link road, irrigation facilities, sports activities, etc., for the benefits of the society at large. Otis Elevator Co India focuses on a number of activities, like improving condition of the mentally retarded, or ‘special people.’ Worldwide, Otis has been involved in promoting sports for them. Otis India sponsored 350 special athletes from Maharashtra for the World Special Olympics in 1995. Bajaj Auto has been running a Samaj Seva Kendra at Akruit near Pune since 1975. More than 900 families are its members. It attempts to improve the quality of life of its members by providing facilities, including education, health care and vocational training. Sometimes, social responsibility also involves direct efforts/contributions initiated by the company for betterment of people directly or indirectly connected with its activities. Company’s policy and practice on quality of products, price, advertising, employees’ welfare, prevention of pollution, fair and just dealings with customers, and its direct role towards social advancement are some of the important issues related to social responsibility of business. Manager has to work out an action plan for discharging social responsibilities. An appropriate policy should be formulated to help managers fulfill social responsibilities. Programme for social responsibility includes following steps: 1. Determination of social objectives 2. Commitment from top management 3. Determining areas and listing the activities to be performed for social welfare 4. Formulation of social responsibility policy

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5. Institutionalisation of social responsibility in decision-making 6. Measurement, evaluation, and action Bill Gates of Microsoft and Warren Buffets (the investment Guru) run a campaign to urge the world’s other wealthy individuals to pledge at least half their wealth to charity. Recently (September, 2010), Shiv Nadar, chairman of HCL Technology and co-founder of the HCL Group, has committed to put aside 10% of his wealth for philanthropic ventures. He sold 2.5% equity in HCL and pumped the entire Rs. 585 crore into his philanthropic efforts. At present, Mr. Nadar, 65, spends 40% of his time on social ventures. His daughter, Roshni, has chosen social entrepreneurship and is not interested in running the group’s business. In the same direction, Wipro chairman Azim Premji’s foundation focus on improving quality of primary education in the country, while the Infosys Foundation works on rural development and social rehabilitation.

Social Responsibilities Towards Interest Groups Peter F. Drucker, management consultant and philosopher, stated: “The enterprise is an organ of society and its actions have a decisive impact on the social scene. It is thus important to realise that it must consider the impact of every business policy and business actions upon society. It has to consider whether the action is likely to promote public good, advance the basic belief of society, contribute to its stability, strengths, and harmony.” As stated earlier, business management has to fulfill obligations to various parties connected, directly or indirectly, with its activities. Parties associated with business activities are also called compositions or segments of society. Businessmen have to discharge social responsibilities towards following interest groups (parties or stakeholders): 1. Shareholders

They are the real owners of business. They invest their money in the company. They are real risk bearers. Therefore, it is the prime duty of management to protect their interest. Business responsibilities toward this group include:

(a) Effective and optimum use of resources (b) Providing correct and relevant information to shareholders periodically regarding functioning of its operations (c) Ensuring proper representation in management (d) Ensuring reasonable return (e) Safeguarding money invested by shareholders

2. Employees and Workers

Employees and workers constitute valuable asset of the company. Success of business largely depends on performance of manpower. Management has following obligations towards workers and employees: (a) (b) (c) (d) (e) (f) (g)

Treat them as human beings and ensure fair dealing with workers Provision of facilities and protection measures to augment their health Regular and adequate payment of wages, salaries, and other financial incentives Assisting employees in all possible ways for job satisfaction Provision of welfare facilities Proper policies for advancement Reasonable involvement in relevant decisions, and consideration of their views

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3. Customers Customers are king in today’s business. Their satisfaction can contribute to business success. Management owes primary obligation to give a fair deal to customers. The obligations toward customers involve: (a) (b) (c) (d) (e) (f)

Satisfying customers’ needs and wants effectively and efficiently Ensuring fair and reasonable price They must be offered goods and services of standard quality and quantity Promoting healthy competition for customers’ benefits Providing necessary information regarding products, and their terms and conditions Management should not mislead the customers by false, misleading, and exaggerated advertising and other promotional efforts (g) Management should avoid hoarding, profiteering, and black-marketing

4. Creditors and Suppliers

Creditors and suppliers affect company’s operations. Their contribution is important for sound performance of the company. Therefore, management should discharge its obligations towards these parties. They include: (a) (b) (c) (d)

Providing accurate and relevant information to creditors and suppliers Payment should be made in time to supplier and creditors Fair dealing with them and protecting their interests in all possible ways Management should create and maintain healthy relations with them

5. Government

The government maintains a close association with business community. It formulates rules to govern business activities. It provides a number of direct and indirect facilities and infrastructure for smooth running of business operations. Thus, government not only regulates and controls business, but it also contributes for its development. Management is morally and legally bound to fulfill certain responsibilities, such as:

(a) Management should conform to rules, regulations, and policies formulated by govern(b) (c)

(d) (e) (f)

ment for the interest of citizens of the nation. Businessmen should do everything possible to be good citizens. Management should pay taxes, duties, and other dues honestly in time. Management should refrain from corrupting government servants for their selfish ends. It should support government in curbing unfair trade practices and antisocial/antinational activities. Firm should cooperate and contribute in implementing government mission or projects during natural and man-made calamities in the interest of society. It should not buy political favour and should avoid corruption to get the work done with discriminative priority. It should provide feedback to government as and when necessary to support government in carrying out actions

6. Nation/Society It is clear that organisation exists within social system. Without social support, business cannot grow and develop. Therefore, management has its obligations to-

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wards society as a whole. Management should act in such a way that long-term interest or welfare of society is protected. In this regard, management has following social responsibilities: (a) It should ensure fair business policy and practice. (b) It should protect resources of society like water, air, forest, land, etc. It should try to conserve ecological balance. (c) It should liberally contribute for schools, hospitals, gardens, community halls, sports and cultural activities, and should actively perform all the activities seem desirable for social development and welfare. (d) It should try to remove obstacles of any kind against social welfare and development. (e) Business organisation should set examples for others regarding how and what activities can be undertaken for social benefits, etc. The manager owes responsibility toward all theses groups. For the purpose, management has to set standards and norms for different segments of society.

American and Japanese Style of Management Management is situation bound. People of every nation differ significantly in terms of objectives, attitudes, resources, religion, spiritual values, national priority, economic v/s social welfare, competition, etc. All theses characteristics have tremendous impact on leadership style, in particular, and management style, in general. Here, we discuss two extreme management styles—Japanese management style and American management style. Difference between Japanese and American management styles is restricted/limited to Japan’s large corporate houses only. Small companies have different terms and conditions. However, Indian management style is the combination of both. Table 13.1 summarises the key differences between these two management styles.

TQM: Total Quality Management TQM, Total Quality Management is popular concept in today’s management. It is a vital concept in business and academic circle. This concept originated in Japan in the late 1980s and has spread throughout the world. It is closely related to ‘quality circle’ or ‘quality control.’ Business managers are enthusiastically trying to implement it while academicians are trying to determine what it actually is. The word ‘quality’ has wide meaning in TQM. Quality is measurement of perfection or excellence. It focuses on superiority of products (goods and services). Total Quality is a description of company’s culture, attitude, and organisation that strives to provide customers with goods and services of better quality that satisfy their needs. Managing (generating, improving, and maintaining) total (complete) quality products is central theme of TQM. It is the outcome of integrated efforts of all people involved, directly or indirectly, in production and marketing activities. Producing excellent goods and services to satisfy the customer is the goal of TQM. It focuses on perfection in all the important areas. TQM needs integrated efforts to excel each and every activity of the business enterprise. Sound management has direct influence on its total operations. Effective TQM results in greater consumer satisfaction, improved profitability and increased productivity, reduced costs,

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sound internal and external relations, high goodwill and image in market, more competitive advantages, and so on. TABLE 13.1

No. 1.

Summary of Key Differences between American Management and Japanese Management

Key Points of Difference Life-time ment

Japanese Management Style

American Management Style

Employ- It offers life-time employment. age.

2.

Preference for Na- Only Japanese are appointed Deserving persons from any nationality can tionality for key positions. occupy key positions.

3.

Gender Choice

4.

Evaluation and Pro- Slow evaluation and predict- Evaluation may be fast and uncertain. motion able promotion.

5.

Decision-making Pattern

6.

Role of Top Manage- It works as consensus builder, ment and not decision-maker. decision.

7.

Recruitment Time

New recruitment is made on 1st April every year.

8.

Initial Pay

Normally low and uniform to Depends on type of employee and capacity of company.

9.

Quality Orientation

It tries for perfect or zero-de- It tries for relatively superior product. fect product.

10.

Trade Union

Normally, there is company- Employees hold shold memberships of nabased trade union. tional unions.

11.

Emphasis

Japanese managers believe in Americans believe in hard ‘s’, like structure, soft ‘s’, like skills, staff, sympa- strategy, system, status, etc. thy, superordinate goals, spirit, style, etc.

12.

Courtesy and Hu- Japanese managers are hum- American managers are comparatively difmanity ble, and they respect employ- ferent. ees more than any other population in the world.

13.

Production limit and There is need-based or priorityPriority based production.

14.

Condition of Senior Citizen tive. They have to struggle.

Mostly male are appointed for Such gender restriction is not applicable in responsible posts. America.

Decision is based on complete Decision is based on relative majority. majority.

- Comparatively, senior citizens have more conformable life.

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Many institutes have initiated educational and training programmes for successful TQM practices across the world. For example, in India, Mahindra Institute of Quality (MIQ), www.miq.in, offers several courses related to quality management, competency building programmes, and short programmes in QM for different levels of management. It also offers customised training in QM and consultancy services. The institute is winner of excellence award for campus, architecture, and landscaping. The institute emphasises on: ‘Improve your Business Performance through Quantity Management.’

Definitions

There are a number of definitions of TQM. Let us examine some of them.

A V Fiegenbaum: “The composite of product and service characteristics of marketing, engineering, manufacturing, and maintenance, through which the product and service in use will meet the expectation of the customers.”4 Indian Statistical Institute (Hyderabad): “TQM is an integrated organisational approach in delighting customers by meeting their expectations on a continuous basis through everyone involved with organisation working in continuous improvement in all products, services, and processes along with proper problem-solving machinery.” We can define the term as: TQM is the concept related to the quality of overall management that involves customer driven quality, employee involvement, continuous improvement, and decisions based on facts, data and analysis. Note that quality control is not the sole duty of Quality Control Department; quality is the responsibility of all departments, all employees, and all branches of the enterprise.The ISI mark granted by Indian Standard Institute, international standard certificates, like ISO – 9000 series (quality management) and ISO – 14000 series (environment management) issued by the International Standard Organisation, Geneva, are directly concerned with management quality. Quality of overall management is reflected in the form of standard goods and services, which determine consumer satisfaction and competitiveness.

Scope or Areas of TQM

TQM indicates observing quality in planning, organising, staffing, directing, and controlling applicable in all the areas (production, finance, marketing, HRM, etc.) of business operations. Well-accepted national and international standards are used to check quality in important areas. TQM can be applied to any field of human activities, like business, education, politics, and, even, personal life. Our discussion is restricted to business management. Here, total quality management implies observing (or focusing on) quality in following areas: 1. 2. 3. 4. 5. 6. 7. 8.

Management Philosophy and Process Technology Production Process Products Human Resource Management Costs and Revenues Pollution Control Measures Market Leadership and Competitiveness

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9. Marketing and Customer Orientation 10. Finance Management 11. Research and Development Activities 12. Information Management 13. Structure of Organisation 14. Internal and External Relations Note that this is not an exhaustive list of areas that can contribute to or constitute the TQM programme. There may be more areas where TQM can be observed.

Significance of TQM TQM is not just a concept; it is a managerial approach and philosophy. It teaches and preaches the practicing manager how to excel in the entire range of business activities. If this philosophy is applied and implemented successfully, the enterprise can achieve outstanding performance. It may be used as a master key to tackle any managerial problem. It is clear that TQM is an attempt to excel in each and every activity undertaken by any organisation. It can be applied in social, education, political, and other such non-economic fields, too. An organisation, in any field, can be benefited by TQM in the following ways: 1. Superior products and wide market coverage: Standard products help the company achieve marketing goals. 2. Effective fulfillment of business obligations: It ensures company survival and growth in the long run. 3. Adoption of the latest development in management field : New concepts, philosophies, and approaches may be adopted to excel in performance. 4. Absorbtion of the latest technological reforms: Suitable technology keeps organisation’s operations up-to-date. 5. Effective coordination and better management: It leads to maximum contribution of each individual, group or department. 6. Effective utilisation of productive resources and minimum wastage: It improves firm’s profitability. 7. Creation of good image and reputation in the market: Company may avail prestigious certificates like ISI mark, ISO – 9000, etc. Similarly, national and international awards, certificates and prizes may be bagged, which would magnify its reputation. 8. Meet challenges and threats, and exploit attractive opportunities: It improves company’s competitive strengths. 9. Favourable terms: A firm is able to comfortably deal with outsiders at favourable terms and conditions. It helps establishing and maintaining healthy relations with all stakeholders. 10. Balanced development: TQM oriented organisation considers all segments of organisation, which results in balanced development. 11. Social Cause: TQM based organisation may contribute towards social and economical development of nation.

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Creativity and Innovation Though the creativity and innovation are closely related terms, they are different. They are associated with improvement or advancement and are the main sources and forces for any change or alteration in the organisation. They lead to growth, development, improvement, replacement, and adjustment. In the age of rapidly changing business environment, only creative organisations can survive in the long run. Creativity is an ability to generate new ideas, and innovation deals with transforming new ideas into thing, service, facility or tool. Let’s define creativity and innovation:

Creativity Creative people are able to view things in new ways, from different perspectives. They are capable of generating unique possibilities and alternatives. The real test lies in the novel aspects of alternatives. Creativity is fundamental aspect in research and development in almost all types of activities, particularly in the field of entertainment (films, music etc.), painting, advertisement, computers, engineering, business and profession, writing, and other similar areas. Definitions Creativity is made of a number of constituents, such as novel skills, imagination, intelligence, innovativeness, intuition, ingenuity, originality, difference, invention, etc. It is a complex set of intelligence and physical skills. Creative people are called genius, smart, intelligent or original. Let us examine some definitions: Robert E Franken defines the term as: “Creativity is the tendency to generate or recognise ideas, alternatives, or possibilities that may be useful in solving problems, communicating with others, and entertaining ourselves and others.”5 In common words, creativity can be defined as: Creativity is actually the ability of an individual to generate something new. It is concerned with finding of new ideas, techniques, procedures, or products.

Innovation Innovation is a new idea applied to initiate or improve a product, process, or service. Innovation indicates practical utility of a creative idea. It is not a separate term, but an outcome of creativity. Definitions Let’s define the term: 1. Innovation can be defined as: Creativity is a new idea and innovation is the translation (conversion) of such an idea into a new product, thing, service, or method. 2. More clearly, innovation, in relation to creativity, can be defined as: Creativity is just a new idea. Innovation implies generation, acceptance, or implementation of new idea in form of process, product or service. It is an act of putting a new idea into practice.

Creativity and Innovation Creativity alone can contribute a little or nothing to organisational effectiveness. It is just an idea. Unless it is implemented, full benefits cannot be made available. Innovation is the result of creativity. Thus, creativity includes both elements—creativeness and innovativeness. Now onwards, creativity and innovation will be treated as similar, or one for another.

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Characteristics of Creative/Innovative People

No doubt, creative people differ significantly from the non-creative. They have a unique way of thinking, working, and reacting. Manager should consider these characteristics to assess whether he himself is creative. He can also use these characteristics to select creative employees, and/or train them to be creative. Some distinctive characteristics of creative/innovative people are listed below: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

Originality Flexibility Simplicity and humbleness Unsatisfied Complexity-oriented High level of resistance power Unpredictable behaviour Persistency and resilience High degree of patience Doubtfulness Non-systematised life style Unique expectation or goal

Indian Companies Pursuing Reverse Innovation Reverse innovation refers to developing low cost but high value products, primarily for emerging markets, and eventually to graduate them to developed countries. Products designed and developed in India are now flowing to the rest of the world. Following nine products were made in India. Since then, they have been launched elsewhere in the world, successfully: 1. Ford Figo 2. Toyota Etios 3. Nokia’s Learn English Application 4. Tata Swach 5. Nestle Maggi Masala-ae-Magic 6. Pepsi Kurkure and Nimbooz 7. HP’s (Hewlett-Packard) Gesture based Interaction 8. McDonald’s Aloo Tikki Burger 9. KFC Krushers (Source: The Economic Times, 18 December, 2010, p.14)

Significance of Creativity and Innovation

Creativity and innovation are both extremely useful for keeping the organisation up-to-date. They bring improved methods and procedures, and help in offering best quality goods and services to customers. The organisation can excel in every aspect of its operations. Creativity and innovation are indispensable to survive and grow in competitive business environment. Only creative organisation can keep pace with ever-changing business environment. Creativity can contributes to economic excellence, and

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also helps in improving reputation and image of the organisation. Following points bring out the significance of creativity (and innovation): 1. It helps in effective utilisation of valuable and scarce resources. 2. It leads to fast growth of business operations. Creativity helps in absorbing useful changes, exploiting opportunities, and facing challenges. 3. Company is able to get advantage of latest technology. 4. It leads to improved competitive strength in the market. 5. Organisation is able to cope with dynamic business environment. 6. Company achieves market share and magnifies its profitability. 7. Creativity helps in sustaining consumer satisfaction on continuous basis. 8. It results in improved goodwill, status, image, and reputation in society. 9. Creative organisation can easily win awards, prizes, and certificates. 10. Creative firm can solicit overall support and cooperation from others. It is able to attract capable people. 11. Creativity contributes in overall development of the nation. 12. Firm is able to deal with other stakeholders at favourable terms and conditions.

Role of Management in Promoting Creativity

Note that creativity is not hereditary in nature. People are not born with creative abilities (ideas and skills). Their creativity depends on post-birth environment and treatment. It indicates that people can be made creative by appropriate treatment and training. Creative manager or leader is more likely to prepare creative employees. Creativity is not imparted automatically. The organisation should provide opportunities and base to encourage creativity. Creativity is of little value if it is not converted/transformed into innovation. Note that creativeness and innovativeness require proper environment to flourish. A dynamic leadership helps in generating positive organisational climate for promoting such skills. The following steps help the manager to impart creative skills or support creativity: 1. Positive attitude 2. Security to employees 3. Appreciation 4. Continuous interactions 5. Tolerating failures (or errors) 6. Freedom to achieve objectives 7. Provision of inputs or facilities 8. Suitable reward policies 9. Platform to express creativity 10. Conducive climate

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MIS – Management Information System We are living in the information era. Information is the life-blood of the organisation. It is a prime input in decisions. Quality of managerial decisions depend on quantity, quality, and availability of information. Therefore, every manager needs the right type (adequate, reliable, relevant, and timely) of information. Information can be defined as: Information is the knowledge communicated by others, or obtained from investigation or study. The flow of information is regulated by a specific system knows as Management Information System (MIS).

Definitions Management Information System (MIS) is systematic management of information. It is a formal and permanent system/framework that consists of three main activities —gathering data, converting data into useful information, and supplying necessary information to managers. Let us define the term: Walter J Kennevans defines MIS as: “An organised method for providing past, present, and projected information relating to internal operations and external intelligence. It supports the planning, control, and operational functions of an organisation by furnishing uniform information in the proper time frame to assist the decision-making process.”6 Thus, we can say: MIS is the permanent system or arrangement by which relevant, reliable, adequate, and timely information is collected, analysed, interpreted, and disseminated continuously to those who require it for making decisions. MIS involves a number of activities related to collection, analysis and dissemination of information. It observes ‘righteousness’ in all significant aspects related to information. The objective is to generate the right information, supply the same to the right people, in a right way and at the right time. MIS involves four components—Internal Report System (deals with internal information), Management Intelligence System (deals with external information), Analytical Management System (deals with methods, tools, and models to collect and/or analyse information), and Management Research System (deals with solving non-routine or specific managerial problems).

Functions of MIS In short, MIS involves following functions/activities: 1. 2. 3. 4. 5.

Collection of data Data processing Evaluation Dissemination Storage and maintenance

Steps in Designing MIS MIS process involves following steps: 1. 2. 3. 4. 5. 6.

Primary survey and problem identification Determining need of information Conceptual design of MIS Primary design of MIS and testing Final design (Blueprint) of MIS Monitoring and improving MIS

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Significance of MIS In today’s dynamic and complex business environment, need for information has increased. Fast growing business concern heavily depends on quality and quantity of information available. An effective MIS can contribute significantly to improve managerial practices. In fact, it is an inevitable tool for managing business affairs. Role of well-designed MIS can be explained in light of the points listed below: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Benefits of specialisation Forecasting and planning Inevitable for new organisation designs Easy availability of information Continuous monitoring of data Decentralising activities Effective coordination Improved efficiency Controlling operations Improved public relations

International Standard Organisation (ISO)7 Like Indian Standard Institute (ISI) deals with business standards in India, every country has institutes/organisations that deal with national standards for business and non-business activities. Mostly, such organisations set standards for clients, verify the proposals for certificates, and, if satisfied, issue certificates to clients. ISO – International Standard Organisation – is the world’s largest developer and publisher of international standards. ISO is a network of the national standard institutes of 161 countries (one member from one country). It has its central or head office, Central Secretariat, in Geneva, Switzerland. It coordinates the system. The word ISO has been derived from the Greek ‘isos’ meaning ‘equal.’ In all languages of the world, the short-form is always ISO. In 1946, delegates from 25 countries met in London and decided to create a new international organisation, of which the object would be to facilitate international coordination and unification of industrial standards. The new organisation, ISO, officially began operations on 23rd February, 1947, in Geneva, Switzerland. It is a non-government organisation (NGO) that forms a bridge between public and private sectors.

ISO Standards International Standard Organisation (ISO) is situated in Geneva, Switzerland. It issues several certificates of international credit. The certificates awarded by the organisation can be classified into many ISO Certificate Series. Most popular among them are (1) ISO 9000 Series—Standards for quality maintenance, (2) ISO 14000 Series —Standards for protection of ecological environment, and (3) ISO 22000 Series—Standards for food safety, etc. In every series, there are different groups of standards, like ISO 9000, ISO 9001, ISO 9003, and likewise. Each group of standards deals with specific aspect/area.

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Other ISO standards Apart from ISO 9000 series, ISO 14000 series, and ISO 22000 series, the International Standard Organisation has developed other standards. They include: 1. ISO IEC 9003 (2004) – Software Quality Management Standards 2. ISO 13485 (2003) – Medical Device Quality Management Standards (Quality Management Standards for Medical Devices) 3. ISO OHSAS 18001 (2007) – Occupational Health and Safety 4. ISO IEC 27001-2 (2000 – 2005) – Information Security Management 5. ISO 10011 -1 – Guidelines for Planning and Performing Quality Audits 6. ISO 10011-2 – Guidelines for Selecting Quality Management Auditors

Main Areas ISO develops standards on many areas (which can be further divided into 247 sub-areas) like Agriculture, Basic Chemicals, Building, Environment, Health and Medicine, Information Processing, Graphics, Photography, Services, Medical Engineering, Non-metallic Materials, Ores and Metals, Packing and Distribution of Goods, and Special Technology.

Who benefit from ISO Standards

Many parties including businessmen, innovators, customers, governments, trade officials, developing countries, mankind and the planet (i.e., earth) are benefited.

Till May 2009, 247 Technical Committees have published 21,445 standards. Important Aspects/Issues of ISO Important aspects (issues) related to ISO are listed below: 1. Inception of ISO 2. Why standards matter 3. Individual benefits to different parties 4. Some examples of benefits of ISO standards 5. Characteristics of ISO Standards 6. Other Important Issues Related to ISO (a) Who can join ISO, or ISO membership. (b) How is the ISO system managed? (c) How is the ISO system financed? (d) Who develop standards? (e) How does ISO decide to develop standards? (f) Who are ISO’s international partners? (g) Who are ISO’s regional partners? (h) Stages of development of international standards

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Employee Participation (Participative Management) Participation implies complete involvement of an individual in the group. Employee participation is also similar to involvement, consideration or employee concern. It has been catching attention of thinkers and practitioners since last five decades. It is based on democratic style of leading and managing followers. Note that employee participation is one of the ways of empowerment. It has positive impact on employees’ motivation and morale. Employee participation can be used as problem-solving technique. It, particularly, shows significant role of employees in decision-making.

Definitions

The term ‘participation’ in management does not just mean allowing people to share views. It is a philosophy of management. It shows integrative management system. Let’s define the term: Newstrom and Davis: “Participation is the mental and emotional involvement of people in group situations that encourages them to contribute to group goals and share responsibility for them.”8 In other words, it can be said: Participation in management (participative management) involves such a situation in which all people in the organisation extend their support to group efforts and share responsibility. Thus, participation does not only mean active involvement of employees in decision-making, it involves working with groups, extending full support to group task, and sharing responsibilities. It is based on three basic elements—mental and emotional involvement, acceptance of responsibility, and motivation to contribute.

Characteristics The key characteristics of participation in management are given below: 1. Participation is a source of motivation. It improves employees’ motivation to work better. 2. It is one of the ways of empowering employees. 3. It also indicates participative decision-making pattern. 4. It is a democratic way of leading followers. 5. It is an employee development technique. 6. It is one of the non-monetary rewards/incentives. 7. Worker participation is part of participative management. 8. It involves three main facets—mental and emotional involvement, acceptance of responsibility, and motivation to contribute. 9. It is closely related to decentralisation of authority. 10. It promotes and strengthens human relations. 11. It also promotes coordination.

Labour Participation Note that labour (workers’ or employees’) participation is one facet of ‘participative management.’ It carries different meanings to different people of different countries. The term has been defined as:

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Labour participation clearly shows involvement (association) of workers or their representatives in decision-making process. Employee participation means joint/collective decision-making by workers and management. It indicates sharing decision-making powers and rights with representatives of workers in formal organisation.

Objectives/Importance of Workers’ Participation Workers’ participation is aimed at following objectives: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Promoting industrial democracy Making them accept decisions Making workers responsible Developing healthy industrial relations Avoiding external interference Stimulating workers’ productivity Improving motivation and morale Dignifying workers’ role and position Cultivating a sense of belongingness Developing informal relations Imparting self-discipline and self-control

_________________ PART II NEW DEVELOPMENTS IN MANAGEMENT Since the beginning of the 20th century, management thinkers, experts, and practitioners have been investigating for better approaches or guiding philosophies to improve management practices. A manager practicing with a particular approach tries to adopt or develop more effective approaches. As a result, a number of management approaches and philosophies have been developed. This part of the chapter describes some new guidelines/approaches and innovative ways developed recently. They are: 1. MBO – Management By Objectives 2. MBE – Management By Exception 3. MBP – Management By Participation 4. MBS – Management By Situation

MBO – Management by Objectives Management By Objectives (MBO) is based on objectives. It is different from management by domination. The concept was originally developed by Peter F Drucker9 in 1954. The concept was further modified by Schleh. It has been named Management by Result. The approach is

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also known by different names, such as Management By Goals and Results, or Work Planning and Review. Objectives are in centre of the MBO approach. Every decision is taken in context with objectives to be achieved. MBO is considered as one of the important ways/approaches of business (and non-business) management. MBO philosophy carries important implications for areas like performance appraisal, resource allocation, integration, participative management, and motivation, and can aid in long-run planning, human relations, and so forth.

Definitions

Following are some important definitions of Management By Objectives:

Heinz Weihrich and Harold Koontz: “MBO is a comprehensive managerial system that integrates key managerial activities in a systematic manner, consciously directed towards effective and efficient achievement of organisational objectives.”10 S K Chakraborty: “MBO is a result-centered, non-specialist operational process for effective utilisation of material, physical, and human resources of the organisation by integrating the individual with the organisation and organisation with the environment.”11 Hence, we can define MBO as: MBO is an objective-based managerial philosophy and approach in which superior and subordinates jointly identify common objectives, set results for subordinates, assess contributions of each individual, and integrate the individual with the organisation for achieving objectives effectively in time. MBO implies mainly three aspects: 1. Objectives: It focuses sharply on objectives, or the end expected results that every manager has to achieve within the given time. 2. Participation: It suggests participative decision-making (particularly for deciding on objectives). 3. Integration: It emphasises on proper integration between individual objectives and organisational objectives.

What is Objective? Objective setting is the central theme in MBO. Entire MBO philosophy depends on deciding and achieving objectives. Every organisation exists for realisation of its objectives. So, first, let’s define ‘objective.’ Objective is the end expected result to be achieved within the definite time period. George R Terry defines the term as: “A managerial objective is the intended goal, which prescribes definite scope and suggests direction to efforts of a manager.”12

Features of Objective Following elements explains the nature of objective: 1. Objective is an expected aim that may be achieved in the future. 2. 3. 4. 5.

It guides managerial actions and employees’ efforts. Organisation comes into being and exists for objective(s). It may be for entire organisation or part thereof, may be for individual or group. It may be for long-term or short-term, strategic or operational, and may be economic or non-economic. 6. It governs behaviour of entire organisation. 7. Different objectives can be expressed hierarchically according to priority. 8. Objectives are dynamic and can be changed as per situations.

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Characteristics of MBO Following are the key characteristics of MBO: 1. Managerial Approach and Philosophy: MBO is both a managerial approach and a phi2. 3.

4.

5.

6.

7.

8.

9.

10.

losophy (not merely a management technique). It is a specific way of thinking about management and doing management. Specific Approach: MBO is one of the most popular approaches, and is regarded as a modern approach of management. It suggests a special way of managing. Its application needs drastic structural and psychological reforms. Wide Applicability (Versatility): MBO is non-specialised approach as it is applicable to managing every type of activity. It can be applied to business as well as non-business activities. Objective-based Approach: MBO is objective-oriented (not task-oriented) approach. It emphasises on achievement of objectives, not performance of tasks. Objectives are in the centre of MBO approach. Self-direction and Self-control: Self-direction and self-control are key elements in MBO philosophy. When subordinates are involved in objective setting, they try to meet expectations of superior. There is no need to direct and control them. Employees are expected to observer self-direction and self-control. Participation: Employees’ active participation (or involvement) in objective setting and appraising of results is a key aspect in MBO. Setting objectives jointly by superior and subordinates is the central theme of this approach. Integrating Device: MBO suggests a unique way of integration and coordination. Objectives provide a base for integrating several departments with the organisation and organisation with the environment. Periodical Review: MBO advocates periodical review of results (performance). Performance must be evaluated at the right interval to ensure that the organisation is working as per expectations. It leads to modification, correction, and improvement of results. It is necessary for planning as well as controlling. Objectives-based Decisions: MBO suggests that vital decisions related to allocation of resources, assignment of responsibility, delegation of authority and evaluation of results, and, consequently, reward and punishment must be linked with achievement of objectives. Continuous Process: MBO is a continuous process because it involves setting goals and achieving them every time. It consists of modifications in organisation to suit with goals, or modifying goals to suit with organisation’s internal and external situations.

MBO Process If any organisation is preparing to implement MBO approach, it has to follow a systematic process. In fact, imparting MBO philosophy in practice requires mental revolution. Managers should prepare themselves to welcome employees while taking vital decisions, such as objective setting. The organisation is required to undergo major psychological and structural changes before the concept is implemented. Note that MBO cannot be applied to whole organisation at a time. It should be applied gradually as it needs structural and psychological changes, which take place slowly.

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Experts have different views on how to apply MBO in actual practice. Many Indian companies, including Tata Group of Companies, have tried this approach in practice. Steps involved in MBO process are subject to vary as the theme permits greater degree of flexibility. Views of L M Prasad13 seem more logically consistent and practically applicable. Here, MBO process has been discussed with a little variation.

1. Setting Organisation’s Objectives

The first step in MBO process calls for defining clearly the purpose and objectives. The fundamental questions to be answered are: Why does the organisation exist? What should be our business? Both long-term and short-term objectives should be determined. Strategic and operational objectives should be defined separately. Clarity in organisation’s objectives helps in setting departmental and individual objectives. Further, objectives must be set for departments, sections, groups, and individual managers. As far as possible, objectives should be set in quantifiable terms.

2. Deciding on Key Result Areas (KRAs) Key result area (KRAs) are important business criteria that are closely related to main objectives of the organisation. They are indicators of firm’s performance. They are identified in context with objectives and planning premises. Key result areas indicate the areas on which a company wants results, or the areas to be emphasised for achieving objectives. They may be profitability, innovation, competitiveness, quality/market leadership, workers’ performance, financial and physical resources, managerial performance, labour relations, etc. 3. Setting Subordinates Objectives This is a critical step in MBO process. Organisational objectives are achieved by individual performance. Therefore, each individual manager must know in advance what he is expected to achieve. The process of objectives setting starts from top to bottom in the hierarchy. First, every superior proposes objectives for his subordinates and subordinates respond stating their objectives. Thus, participation in objective setting is a key aspect of MBO. By mutual negotiation between superior and subordinates, final objectives for subordinates are set. This type of style reduces goal conflict. It minimises the gap between what superior expects and what subordinates perceive.

4. Matching Resources with Objectives

Once objectives are set for subordinates, the next step is to determine resource requirements. It is a crucial decision as adequate resources enable subordinates to achieve their objectives effectively in time. They include money, material, place, tools, and human resource. They must match with objectives, i.e., they must be adequate in relation to objectives to be achieved. For allocation and movement of resources, individual managers must be consulted and their views considered.

5. Implementing MBO After allocation of resources, the managers of respective departments try to work as per new philosophy. Individual manager concentrates on KRAs. They must be provided with needed support to achieve objectives. Monitoring authority should keep close watch at initial stage of implementation. All directing techniques—leadership, motivation, communication, and supervision—play vital role in putting the new concept in practice.

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6. Appraisal of Performance or Review of Results This step involves two actions—to find out whether objectives are being achieved, and to take follow up actions. It is important to know whether subordinates are achieving their objectives. This step is meant for measuring and evaluating performance of individual managers. If, for any reason, objectives are not being achieved, the superior tries to detect the problems and find to overcome them. It is an ongoing process to find out any deficiency or deviation. Appraisal of performance is not aimed at determining punishment or rewards, but to ensure that everything is going as per plan, and the organisation is able to achieve its goals.

7. Full-fledged Application or Recycling If review shows satisfactory performance, the process is extended to other departments. Steps one to six, discussed in relation to individual department and managers therein, are applied to other parts of the organisation gradually, one-by-one. Recycling refers to applying same process (consisting of objectives setting, deciding KRAs, setting subordinates’ objectives, allocating resources, implementing, and appraisal) to the entire organisation to realise the impact of MBO in full-fledged manner. In short, MBO process is repeated till it is applied to the entire organisation.

Essential Conditions Successful implementation of MBO depends on certain conditions or prerequisites. Important among them have been listed below:

1. Clarity of objectives and area where it is to be applied 2. 3. 4. 5. 6. 7. 8. 9. 10.

Precisely defined key result areas and performance standards Strong commitment of managers to objectives and standards Active role and favourable attitude of top management Adequate resources and fair allocation to each of the departments Provision of feedback to employees for self direction and self-control Healthy mentality of employees and meaningful participation Regular critical evaluation of performance Suitable structure of organisation and healthy climate Full-fledged implementation; it must be implemented at all levels

Merits and Demerits of MBO Table 13.2 states merits and demerits of MBO approach. MBE – Management By Exception Management is situational. Situations are changing continuously. Any action successful in one situation has a little value in another situation. Every time, a fresh outlook is essential. So, it is better to apply exceptional or completely new way for getting things done. Management by Expectation advocates applying a completely new way of managing. In management literature, the MBE is popular for exercising varying degrees of control on different operations, for example, ABC techniques (for inventory control), CPM (Critical Path Method), etc. However, its applicability can be extended to any function or functional area of modern management. In broad sense, the MBE suggests exceptional—non-routine, unusual, or non-established—way of managing (planning, organising, staffing, directing, and controlling).

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TABLE 13.2 MBO Approach—Merits and Demerits Merits

Demerits

Achievement of objectives Need of resources Clarity and precision in action

Problems in objective setting

Source of motivation Periodical review of results

Lethargic employee attitudes

Successful implementation of change

Frustration

Better integration Self-control and self-direction

Disturbance in routine work

Improved communication

Slow or time consuming

Tool for training and development

Uncertainty

In this approach, situation is the main determinant of the exceptional managerial style. Management By Exception implies two aspects: Relative Management, which implies applying of verifying degrees of management, and Innovative Management, which implies applying completely new or exceptional way of managing.

Definitions

Management By Exception (MBE) can be defined as:

Management By Exception is a new management philosophy that advocates the use of exceptional, unusual or completely different management to manage different activities effectively. MBE is based on the fact that managers should deploy their more time, efforts, and devotion to relatively more significant matters. It suggests selective management at strategic points.

MBE Process MBE Process consists of following steps: 1. Determining objectives 2. 3. 4. 5. 6.

Analysing/scanning situation Applying exceptional managerial style Monitoring Management By Exception Evaluation of performance Directing corrective actions

MBP—Management By Participation Management By Participation (MBP) is a popular approach based on democratic management style. It is known by several names, participative management, consultative management, democratic management, humanitarian management approach, etc. Well-known management writers, including Marry Parker Follet, Peter F Drucker, and many others have recognised the significance of

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employees’ participation in managerial decisions. In the same way, behavioural scientists treat participation as a key to end human problems. Even in political science, democratic system (political democracy) is popular, and is treated as the ideal way of ruling.

Definitions

MBP can be defined as:

Management By Participation (MBP) indicates full-fledged involvement of stakeholders (including employees, shareholders, investors, consumers, and other parties) in managerial decision-making. Management By Participation (MBP) is formal and institutional system or arrangement, in which employees are given the right to influence managerial decision-making.

MBP Process Typical MBP process consists of following steps: 1. Setting objectives 2. Deciding key areas or operations 3. Identifying key participants 4. Determining ways/methods of participation 5. Balancing interests 6. Developing system or machinery to monitor participation 7. Measurement and evaluation 8. Follow-up actions MBP offers several relative advantages over centralised management system, and also suffers from several limitations.

MBS – Mangement By Situation Knowingly or unknowingly, Management By Situation (MBS) has been practiced since a long for managing different activities, particularly, business activities. It is popularly known as contingency approach to management. Leadership theories, such as Fiedler’s Contingency Theory, Hersey and Blanchard’s Life cycle, and Likert’s Four Systems explain the role of situation in deciding leadership style. In addition, McGregor’s Theory X and Theory Y of motivation have situational implications. In relations to motivation, it has been rightly stated: There is nothing like universal elements of motivation. Situations motivate people. Every thing in management is situational. Every decision depends on prevailing situation. Situation remains a key input or consideration in each managerial functions. Clearly, situation is the result of environment forces. However, mostly, situation and environment are treated as similar and are used interchangeably. Be clear that situation is always discussed in relation to particular firm. Manager has two options to follow the approach (1) change the situation to suit with given management, or (2) change the management to suit with given situation. Consequently, manager has to perform managerial functions and interact with the environment continuously for survival and growth. Obviously, organisation’s effectiveness largely depends on its ability to interact with environment successfully within limit of given resources.

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Situational Forces (Factors or Variables) Situation or environment is made of variables, forces, or factors. Favourable or unfavourable situations are made of following three sets of factors/variables:

1. External Uncontrollable Factors These factors constitute macro environment. For a firm, the only option is to accept and respect these factors, and adopt and adjust with them constantly. These factors include demographic, ecological, economic, socio-cultural, political and legal, and technological factors. 2. External Partially-controllable Factors

These factors constitute a micro business environment. They are not fully controllable. They can be made favourable by systematic actions. Such factors include suppliers, customers/market, middlemen, competitors, and common public.

3. Internal Controllable Factors These variables are under control of management. They are also a part of micro business environment. These factors are manipulated by the company to respond to external partially controllable and uncontrollable environment. They are treated as resources, tools, or weapons to adjust, respond, or fight with outside environment. These factors include resource (human and non-human) ability, structure of organisation, policies, rules and objectives of organisation, organisation culture and climate, and marketing mix (product, price, promotion, and place).

MBS Process

Management is made of functions, like planning, organising, staffing, directing, and controlling. A function is a set of decisions. According to Management By Situation, every managerial function must follow the following process:

1. Analysing situation 2. Assessing strengths and weaknesses 3. Determining objectives 4. Deciding managerial actions 5. Measuring and reviewing results 6. Follow-up actions MBP offers a number of advantages and also some limitations. There are many practical issues related to theory and practice of the MBS. However, the approach is useful to formulate meaningful managerial strategies. It can, at least, be practiced as supplementary to other approaches to improve managerial performance. The approach, at present, is in its initial stage of development. It needs more comprehensive research work to make it fully operational.

SUMMARY Business ethics are the moral principles generally found in the form of formulas, songs, anecdotes, statements, or words. Business ethics are special type of regulatory guidelines. They are vital for making business operations more authentic.

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Social Responsibility (SR) has become the most vital issue in management literature and practice. The manager owes responsibility towards all groups. People of every nation differ significantly in terms of objectives, attitudes, resources, religion, spiritual values, national priority, economic versus social welfare, competition, etc. All theses characteristics have tremendous impact on management style. Japanese and American management styles differ significantly. TQM—Total Quality Management—is popular concept in today’s management. TQM indicates ‘total quality’, which means full-fledged (overall) quality of management. It has a number of important implications for performance improvement. Creativity and innovation, though closely related terms, are different. Creativity is an ability to generate new ideas, and innovation deals with transforming new ideas into thing, service, facility or tool. Creative people differ significantly from others in several ways. The MIS is a formal system for providing managers with reliable, relevant, adequate, and timely information to enable them to make decisions. Systematic design of MIS consists of certain steps. Effective MIS contributes positively to organisation’s performance. ISO—International Standard Organisation—is the world’s largest developer and publisher of international standards. ISO is a network of national standard institutes of 161 countries, one member from one country. By the end of May, 2009, ISO had developed around 21,445 international standards. Employee participation is the mental and emotional involvement of people in group situations that encourage them to contribute to group goals and share responsibility for them. Labour (workers or employees) participation is one facet of the broad term ‘participative management.’ The MBO—Management By Objectives was originally developed by Peter F Drucker in 1954. It advocates the managerial system that integrates key managerial activities in a systematic manner. Many companies have practiced MBO. It has plus and minus points. Management By Exception (MBE) suggests exceptional—not routine, usual, or established—way of managing. Management By Participation (MBP) indicates full-fledged involvement of stakeholders (including employees, shareholders, investors, consumers, and other parties) in managerial decision-making.

KEY TERMS Emerging Issues in Management Business Ethics Social Responsibility Japanese Management and American Management Management Information System (MIS)

International Standard Organisation (ISO) Employee Participation New Developments MBO – Management By Objectives MBE – Management By Exception

MBP – Management By Participation MBS – Management By Situation

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EXERCISES Objective Type Questions A. Answer the following: 1. What do business ethics imply? 2. Name four interest groups to whom a businessman is socially responsible. 3. In which country only male employees are appointed for highest posts? 4. State any four spiritual values of Japanese management style. 5. Mention any four hard ‘S’ of American Management.

6. Suggest four areas of TQM. 7. State key differences between creativity and innovation. 8. Write any four functions/activities of MIS. 9. What does ISO 14000 stand for? 10. What does Management By Exception indicate?

B. Choose the correct option (MCQs): 1. In relation to business activities, business ethics are closely related to (a) Formal authority (b) Social responsibility (c) Public relations (d) Profit and growth objectives 2. Indian management style is based on (a) Japanese Management (b) American Management (c) Combination of Japanese and American Management (d) None 3. Gender choice is an important aspect of (a) American Management (b) Japanese Management (c) Indian Management (d) None 4. From which country has TQM originated? (a) America (b) Britain (c) India (d) Japan 5. Creativity is a new idea and innovation is the translation (conversion) of such an idea into a new product, thing, service, or method. (a) The statement is absolutely true. (b) The statement is absolutely wrong.

6.

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(c) The statement is partially true. (d) The statement is meaningless. LAN, MAN, and WAN are related to (a) TQM (b) MIS (c) Creativity and innovation (d) ISO Where is the Central Secretariat of ISO situated? (a) Geneva, Switzerland (b) Delhi, India (c) New York, America (d) England, UK ISO 22000 series stands for (a) Standards for quality maintenance (b) Standards for protection of ecological environment (c) Standards for food safety (d) Information security management Management By Situation (MBS) implies (a) Contingency approach to management (b) Human relations approach to management (c) Behavioural Approach to management (d) Making business systematic

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(c) Allowing full-fledged involvement of stakeholders in decision-making (d) Making employees partners in the business

10. Management By Participation (MBP) is concerned with (a) Permitting workers to participate in profits (b) Permitting employees to take part in each of the firm’s activities

Descriptive Questions 1. Define ‘business ethics.’ State different ethics. Write objectives of business ethics. 2. What do you mean social responsibility? State the types of responsibilities a firm has to discharge for different interest groups. 3. Discuss ten key differences between Japanese management and American management. 4. “Japanese management style and American management style are two opposite ends.” Discuss the statement and state key

5. 6.

7. 8.

differences between the two management styles. Explain the term ‘TQM’ and discuss its main characteristics. Briefly state its scope. What is creativity? How does it differ from innovation? What are the characteristics of creative people? Explain. What is MIS? Elaborate the MIS process. What does ISO stand for? Write a note on different ISO standards.

Assignments 1. In line with the new developments discussed in the chapter, ask the students to find out other new developments in global management practices.

2. Students are assigned a project work to test the practical utility of some of the concepts and approaches discussed in the chapter by using appropriate methods.

REFERENCES 1. K. Davis and W. C., Frederick, Business and Society, MaGraw-Hill, New York, 1988, p. 76 2. R. B. Rudani, Basics of Marketing Management, S. Chand & Co., New Delhi, 2010, p. 52 3. L. M. Prasad, Principles and Practice of Management, Sultan Chand & Sons, New Delhi, 1991, p.107 4. A. V. Fiegenbaum, Total Quality Control, McGraw-Hill, New York, 1991 5. Robert E. Franken, Human Motivation, Brooks/ Cole Publishing CA, 1994, p.316 6. Walter J Kennevans, ‘MIS Universe,’ Data Management, September, 1970, p. 63 7. Based on Relevant websites, books, and journals 8. John W. Newstrom and Keith Davis, Organisational Behaviour, Tata McGraw-Hill 9. Peter F Drucker, The Practice of Management, Harper & Brothers, New York, 1954 10. Heinz Weihrich and Harold Koontz, Management, McGraw-Hill, New York, 1993, p. 131 11. S K Chakraborty, Management By Objectives, Macmillan, New Delhi, 1976, p. 5 12. George R Terry and Stephen G Franklin, Principles of Management, AITBS, 2000, p. 124 13. L M Prasad, Principles and Practice of Management, Sultan Chand & Sons, New Delhi, 2005, p. 183

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ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. B.

Business ethics imply the morale principles or standards to be observed by businessmen. Customers, shareholders, creditors, and government Japan National service, fairness, harmony and cooperation, and struggle for betterment Structure, strategy, system, and status Management philosophy and process, technology, production process, products Creativity is a new idea and innovation is the translation of such an idea into a new product, thing, service, or method Collection of data, data processing, dissemination of information, and storage of information It stands for Environmental Management Standards It is indicative of innovative management practices 1. (b), 2. (c), 3. (b), 4. (d), 5. (a), 6. (b), 7. (a) 8. (c), 9. (a) 10. (c)

CASE Ethics and Management Practices Business ethics are the moral principles that indicate direct or indirect lessons (or guidelines) that the businessmen have to observe while dealing with varied interest groups. The ethics are prescribed by spiritual agencies, professional associations, social organisations, non-government organisations (NGOs), and governments. Ethics are either observed voluntarily or are forced by the law. Business ethics are observed by different companies in varying degrees. Unethical practices have become the inevitable part of today’s corporate life. Ethical erosion is a global phenomenon. However, we must not blame the businessmen alone; business environment is also responsible. The bureaucratic system, impractical procedures, unrealistic ambitions, loopholes in legal provisions, corruption, and, particularly, erosion of human virtues—honesty, patience, national spirit, humanity, and so forth—are the key factors that cause businessmen to exhibit non-ethical behaviour. But, many respectable business firms are committed to ethics. Unethical business practices create many problems for value-sensitive employees. Mr. Gaurishankar Joshi, a young MBA form B K School of Management, Ahmedabad, joined Best Care Pharma Private Limited as assistant sales and advertising manager. Mr. Gaurishankar’s family background was quite different. He had grown in a joint family consisting of 20 members. His grandfather and uncle were popular Kathakars (spiritual speakers) in India and abroad. His father was trustee in famous Shiva temple in the city. His family culture was religiously dominated. Truth, honesty, justice, fairness, care for others, and other such virtues (moral values) were forcefully imparted to every member of his family. Every family member was expected to work as per these spiritual values or human qualities. He was the first to take management education in the family. He made up his mind to work in private sector to show his calibre. In the last two years, he has changed at least five companies due to, more or less malpractices indulged by companies. He had not been able to find any company running as per social/business ethics and spiritual norms. Spiritual values and family norms disqualified him to work in these companies.

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During orientation for one month, he was exposed to the quality and contents of the products, including tablets, injections, and syrups mostly used by child specialists for treatment of patients under the age of 12 years. He studied advertising message, contents printed on the package and label, sales promotion techniques offered to doctors and stockiests, and training contents to medical representatives. However, after two weeks, he came to know the real quality and contents of the products. He was shocked to know the following realities: 1. Quality of the products was far below than claimed in advertising 2. Proportion of various components in each of the products was severely different from the description on the package 3. Medical representatives were trained to exaggerate the facts, most of the claims regarding the effects of products had little truth 4. Doctors were offered a number of incentives to use and/or prescribe maximum quantity of products 5. Advertising appeal was seriously misleading and exaggerating Mr. Gaurishankar found his values and family norms strongly clashing with marketing practices. This was worse experience than previous jobs. He was under pressure of two forces; his spiritual values and family norms, and job requirements. He didn’t want to go back to go his family occupation, and he could not settle anywhere due to unjust job requirements. He was under extreme tension. Immediately after training, he went on medical leave for one week to decide whether to join the job. (Source: Rudani, Basics of Marketing Management, S. Chand & Co., New Delhi, 2010, pp. 412-413)

Questions for Discussion 1. 2. 3. 4. 5. 6.

What do you mean by business ethics? How are they formed and implemented? With reference to business ethics, comment on the current business practices. Would you appreciate Gaurishankar’s decision to prefer a different occupation? What is your advice to Mr. Gaurishankar? Should he resume the job? How would you perceive overall marketing environment? Is it possible to observe ethical norms in real practice? Why?

CHAPTER

14

Introduction to Organisational Behaviour Learning Objectives Upon completing this chapter, you will be able to: Explain the complex nature of man at work, and the need of versatile subject to understand and treat man Define organisational behaviour and outline its nature Describe positive contribution of OB Summarise key disciplines that have contributed to OB Explain relationship between OB and management List limitations of OB Explain issues related to ethical behaviour

INTRODUCTION Organisational behaviour (OB) is made up of two words—‘organisational’ means related to organisation, and ‘behaviour’ means observable and/or measurable response and reaction of managers and employees. OB is concerned with systematic study of human behaviour in an organisation. It helps in improving managerial decisions and, consequently, overall productivity of people. OB focuses on the man at work in relation to organisation structure and contemporary (local, domestic, and global) environment. With reference to OB, gender equality or difference at work, quality of work life, work life balance, stress, leadership style, positive psychological capabilities, and ethical behaviour at work are global issues frequently discussed in corporate offices. 1 Note: Additional reading material related to this chapter is available on the companion website of this book.

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ORGANISATIONAL BEHAVIOUR (OB) Organisational behaviour is a multidisciplinary subject. It consists of derived or borrowed knowledge (including basic concepts, principles, processes, and theories) from relevant disciplines, such as psychology, anthropology, sociology, politics, economics, etc. Organisational behaviour is also known as behavioural science or science of human behaviour. It is a relatively young discipline and enjoys more flexibility in terms of nature and scope of subject. OB has become an integral part of modern management theory and practices across the globe. The objectives of OB comprise the following: 1. Describe human behaviour: How people behave under a variety of conditions 2. Understand behaviour: Why people behave as they do 3. Predict behaviour: Guessing the future employee behaviour 4. Modify behaviour: Altering and improve human behaviour 5. Control behaviour: Regulate and control human behaviour at work This chapter attempts to seek reasonable answers to the following questions: 1. What is OB? 2. Which are the contributing disciplines to OB? 3. How has OB developed? 4. How is OB useful to management? 5. Which are the practical problems of OB application? 6. What is the scope of OB? 7. What is ethical behaviour and how can it be generated?

DEFINITIONS AND CHARACTERISTICS OF OB There are several definitions of OB. Let us examine some of standard definitions: 1. Stephen Robbins: "Organisational behaviour is a field of study that investigates the impact that individuals, groups, and structure have on behaviour (of people) within the organisation for the purpose of applying such knowledge towards improving an organisation’s effectiveness." 1 2. Fred E Luthans: "Organisational behaviour is the understanding, prediction, and management of human behaviour in the organisation."2 3. Keith Davis: "Organisational behaviour is an academic discipline which is concerned with understanding and describing human behaviour in organisational environment." 3 At last it can be concluded: Organisational behaviour is a body of knowledge—concepts, principles, and theories—derived from various disciplines, like anthropology, psychology, sociology, social psychology and political science. The knowledge is concerned with describing, understanding, predicting, shaping, modifying, and controlling human behaviour in the organisation.

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The following characteristics of organisational behaviour describe its nature: 1. OB is a distinguished field of study as it studies human behaviour at work. It primarily focuses on understanding human behaviour in formally designed organisation. 2. It is relatively young and growing field of study. It exhibits a number of controversies (and flexibilities) in terms of nature and scope of subjects. Approaches and models differ from person to person. 3. It is systematic and scientific study of humans at work. It studies individuals and groups in relation to formal organisation. 4. It is also an art. Successful application of OB in dealing with complex human element depends on manager’s practical know-how (skills) and abilities. 5. It is performance-oriented. The purpose of study and application of OB is to improve performance of people at work. 6. It studies, describes, predicts shapes, modifies, and controls human behaviour in the organisation. 7. It is part of management; it is behavioural approach to management. 8. It studies cause and effect relationship – relationship between behavioural causes and resulting outcomes. 9. It is multidisciplinary subject/science. It has legitimately borrowed the best from various established frameworks (disciplines) for gaining insight into human behaviour. Anthropology, psychology, sociology, social psychology, and political science are among main disciplines contributing to OB. 10. It is human tool for human benefits. Its knowledge improves human productivity and welfare. 11. It is not a direct solution to human problems, but it attempts to analyse, understand, and solve the problems. It cannot solve any problem directly; it is an aid to understand the problems. OB is an input to decision-making. 12. It is universally applied. It can be applied to any field of human activities.

HUMAN NATURE Organisational behaviour focuses on the nature of man, especially at the workplace. Everyday, we come across several people from various walks of life. Just as they hail from different backgrounds and surroundings, and differ in their physical attributes, they differ in their nature as well. Human nature refers to the distinguishing characteristics which include ways of feeling, thinking and acting. It is because of these characteristics people seem different from one another despite being in the same profession or belonging to the same religion, culture or social class. Different people have different likings and interests. Some become musician or painter while others work as scientist or engineer. Though a person may have aptitude for a particular field, he or she can enhance his or her skills only through proper training. They have different perspectives towards life. So, a musician's personality will obviously be different from that of a

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scientist. Similarly they have contrasting goals and motives. Contribution of personalities like Swami Vivekananda and Mahatma Gandhi to the society has been immense. However, both had different perspectives and individual ways of working depending upon their nature. Modern-day scenario at the workplace demands diverse responses from employees most of the time. However, people do not have a consistent pattern of reacting to a stimulus every time. They tend to exhibit different types of reactions at different situations. Some surrender to a situation while others overcome it. Human nature is definitely unpredictable, and certain circumstances make it even more difficult to comprehend the complex nature of human beings. Study and application of organisational behaviour is an attempt to get an insight into the behaviour of human beings at the workplace.

Similarities and Dissimilarities People tend to be similar or dissimilar in many aspects. Table 14.1 gives briefly individual similarities and dissimilarities. However, dissimilarities are more relevant to the study and application of OB.

Type of Man or Different Models of Man at Work Manager needs to understand individual differences to treat each individual in a suitable manner. Man at work has been found transforming his needs, priorities, work-orientation, degree of involvement in decision-making, rationality, and overall behaviour. He has completed the long journey from economic man to complex man. This transformation can be attributed to internal and external forces. Today’s man at work operates from many different models at a time, and has become sophisticated, complex, mature, capable, and free. Figure 14.1 shows the man transformation process.

1. Economic Man

Economic man works for money (salary, wage, pay, incentives, or commission). Work is considered as source of money. He puts more efforts, works better, and exerts good behaviour to get more money. He evaluates his efforts, contribution, and commitment against money. His every action is initiated for money. Also, he evaluates every jobrelated aspect against money.

2. Social Man Economic man transformed into social man. Satisfaction of economic and safety needs made him prioritise social needs. Man is a social animal and prefers to live with others in society. He likes to build, improve, and maintain social relations with other members for satisfying social needs, such as affiliation, belongingness, and acceptance. Social needs make him behave in a specific way. 3. Organisation Man

Social man became mature and transformed into organisation man. He prioritises organisational needs over personal needs. He prefers to live and work with other members in formal organisation for mutual gain. He extends cooperation, involves in interactions with others, and keeps association with organisational members. He is committed

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and loyal to the organisation. Social ethics and social responsibility make him sacrifice personal needs against impersonal needs of the organisation. TABLE 14.1

Similarities and Dissimilarities in Individuals

Key Points

Similarity

Dissimilarity

Physical Features

Mostly all people have same They differ in terms of external (number and type of) organs like look and physical strength. head, limbs, trunk, feet, kidneys, and other internal organs and systems.

Culture

All people have their relevant cul- Cultural values have varying deture that governs their behaviour over time. people.

Psychological Factors

Learning, attitudes, perception, motivation are important aspects for every human being. These aspects affect their behaviour.

Sensation and Interpretation

Sensation (sensitising stimuli by Interpretation is quite different. Many factors affect their interpretation of stimuli.

Needs

All people have physiological, so- The intensity of needs and means cial, safety, esteem and self-actu- to satisfy these needs seem to be alization needs. different.

Motivation

All people have some goal to be Their goals differ. Each has a realised. They want success in life.

Human Virtues

All people hold respect for human People respond to these virtues qualities, like regularity, sincerity, differently. Sometimes, they have loyalty, integrity, and so forth. virtues.

Personality Factors

dence, resiliency, emotional intelligence, endurance, intelligence, and likewise are important personality factors.

People assign different weight to different personality aspects. All are not equally important in every situation.

Human Resource Aspects

People may have equal potential to acquire human resource skills, knowledge, abilities, talent, commitment, et al. Almost all professions require same skills.

People’s job-related skills, knowledge, abilities, talent, etc., are different depending upon how they put their efforts and how they are treated (i.e., trained). In different professions, they require different degrees of professional skills.

They differ in terms of their attitudes, perception, motivation, etc., depending upon personal characteristics and situation.

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FIGURE 14.1 Transformation of Man at Work (Models of Industrial Man)

4. Self-actualizing Man Organisational man transformed into self-actualizing man. He attempts to do some things better, something different, and something special to remain selfsatisfied. He tries to reach the level of excellence by capitalising all his capabilities, potentials, and distinctive traits. He struggles to become everything he is capable of becoming. The employee wants challenges and creative tasks where he can exploit his potential. People are highly satisfied when they achieve or create something special. For this man at work, achievement is a source of satisfaction. 5. Emotional or Impulsive Man This model is closely associated with social man. Emotional or impulsive man prefers to react immediately and spontaneously. Impulsive behaviour is not calculated, rational, or deliberate. Behaviour tends to be emotional and passionate. Manager, by experience, can differentiate impulsive and non-impulsive employees and can treat them accordingly. However, people do not like to be impulsive on all issues. The matters that are closely related to needs, sentiments, love, hobby, and ambition attract impulsive behaviour.

6. Compulsive (Conscious) Man Here, compulsive man indicates conscious man. This model is closely related to organisational man. Under this, the individual exerts most desirable behaviour. Apart from social, organisational, personal, cultural and political factors, characteristics of other people affect employee’s behaviour. Compulsive man behaves deliberately and consciously to satisfy others’ expectations. His behaviour is regulated by organisational mission, policies and rules, and personality aspects of his subordinates, peers, superiors, customers, and other stakeholders. These forces force (or compel) him to behave in a particular way others expect. His behaviour seems more rational, deliberate, and calculated to influence other stakeholders. Today’s employees are expected to react carefully to other respondents. 7. Complex Man

Man at work seems more complex. It is difficult to understand man and predict his behaviour. At any time, man exhibits the mix of the above models. Human behaviour does not take place in established pattern or pre-determined cause-effect relationship.

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Individual differences complicate the task of predicting and controlling human behaviour. Multiple variables determine individual behaviour to particular stimuli in a particular situation. Between economic man and complex man, the order of other models is subject to vary. Social man and emotional man are closely related; organisational man and compulsive man are more or less similar. Readers should treat every model independently, without its forward or backward connection with other models. Note that every successive transformation model of man indicates extension of the previous one. Each successive model is treated as an addition, extension, or improvement of the previous one, and not the replacement. In other words, each successive model does not replace the previous but adds to it. For example, social man does not replace economic man, but adds to it, organisational man does not replace social man but adds to it, and likewise. It is interesting to note that same person operates from different models at different times. For example, impulsive man may be compulsive when he attends a high profile meeting. In the same way, compulsive man behaves rudely under provocation. The order of models is not very strict. Complex man is the reality of today’s organisation.

Man Models and OB

Organisational behaviour depends on man model (what type of people work in organisation) and three types of influencing factors. Figure 14.2 shows different models of man at work and the influencing factors. Human behaviour is influenced by three types of factors, group influence, management actions, and organisational influence (including organisational design, roles and status, formal relations, communication, and organisational climate.) Interplay of these factors determines organisational behaviour. However, management influence plays a prime role in influencing the group and formulating suitable organisation structure or design. The set of three factors have varying degrees of impact on different man models.

FIGURE 14.2

IMPORTANCE OF ORGANISATIONAL BEHAVIOUR At work, the man seems complex. In addition, today’s organisations are large and complex by nature. In the same way, business environment is also dynamic. To cope with all these realities, a

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manager is required to organise human resources very carefully. Success of managerial actions depends on response of people. Most organisational problems are human problems. People in the organisation are source of problems, and solution as well. Whether people contribute to the problem or its solution depends on how they are treated. Most problems can be brought to an end just by right understanding of man. Organisational behaviour can help the manager to understand human factor in context with the present environment. Organisational behaviour does not contribute to corporate life only; it has potential to improve human performance in every human activity. It can be useful in improving quality of personal life, too. If knowledge of the subject is used in the right perspective, all parties— individuals, organisations, society, and nation—are benefited. Following points explain how OB is useful: 1. OB is helpful in analysing complex nature of human being at work. Manager can better understand his employees scientifically. It helps in analysing, describing, predicting, modifying, and controlling human behaviour. It helps to understand workforce and cultural diversities to improve performance. 2. Complexity of human nature signifies the role of organisational behaviour. OB avoids simplistic assumption about people and suggests the right approach to manage them. It emphasises contingency approach to management and makes organisation dynamic to absorb emerging opportunities and tackle threats and challenges effectively. 3. OB helps bring mental revolution on both sides—management and employees—and ensures good industrial relations. It prevents/minimises unexpected events, for example, strikes, lockouts, mass leaves, work-to-rule, sabotage, etc. As a result, the company enjoys a good reputation in the market. 4. Application of organisational behaviour can improve overall productivity of people. A country can thus, develop economically and socially. It can acquire global recognition. 5. Knowledge of organisational behaviour helps the managers exercise motivation, leadership, helps the and communication tasks effectively. 6. Proper use of the subject reduces wastage of valuable resources and ensures their effective use. 7. It helps creat and maintain conducive organisational climate in which people can enjoy work. Successful application of OB results better job satisfaction and high morale. 8. Manager can formulate suitable policies, rules, and procedures with the help of the subject. 9. It suits with ever-changing external environment. It is instrumental in implementing necessary changes successfully. 10. It is useful to improve the living standard of people by quality product at lower cost. OB can contribute positively to economic prosperity, social welfare, peace of mind, and, above all, quality of life. Its application leads to triple rewards. Employees, company, and society are benefited. It leads to a win-win-win situation.

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CONTRIBUTING DISCIPLINES TO OB Organisational Behaviour (OB) is a multidisciplinary subject. It contains knowledge (concepts, functions, principles, theories, processes, etc.) drawn or borrowed from various disciplines, subjects, or fields of studies. OB consists of accumulated knowledge rather than developed knowledge. This is due to the fact that human being is complex at work. A manager, in order to understand, analyse, predict, and control human behaviour, requires knowledge of all the subjects/disciplines that are concerned, explicitly or implicitly, with study of human being. Dominant contributing disciplines to OB include: 1. Anthropology 2. Psychology 3. Sociology

4. Social Psychology 5. Political Science 6. Other disciplines

Note that while psychology contributes mainly at the individual, or micro level study of human behaviour, remaining disciplines contribute to analyse and understand group and organisational behaviour, or macro level study of human behaviour. Psychology has remained a dominant discipline to analyse human behaviour. Most knowledge of OB is based on psychology alone.

Anthropology Anthropology is the foundation of behavioural science. Anthropology is made of two terms, anthropo, (the Greek word) meanning ‘man’ and logy meaning ‘science.’ Thus, literally, anthropology can be defined as the science of man. It studies origin and evolution stages of human societies. Anthropology has been defined as: Stephen Robbins: "The study of societies to learn about human beings and their activities."4 Oxford Dictionary: "The study of human origins, societies, and cultures." Therefore, the term can be defined as: Anthropology involves the study of mankind, especially of its origin and cultural development—norms, customs, rituals festivals, values and beliefs. It particularly studies the impacts of culture on human behaviour. In other words, the term can be defined as: Anthropology is closely concerned with the study of evolution stages of human societies, their gradual development from origin, and cultural changes. Cultural anthropology is most relevant to organisational behaviour. Indeed, culture has significant influence on human behaviour.

Contribution of Anthropology to OB

Anthropology has contributed following aspects to

OB: (i) (ii) (iii) (iv)

Development stages of human society Comparative values and attitudes Organisational culture Cross-cultural analysis

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(v) Organisational changes (vi) Organisational environment

Psychology Psychology is the most important discipline contributing to organisational behaviour. It is the most important foundation for micro approach to OB. It is concerned with analysing individual and interpersonal behaviour. Modern psychologists divide psychology into three areas, experimental, clinical, and social. Social area (i.e., social psychology, discussed later on) seems more relevant to organisational behaviour. Let’s define the term: 1. Stephen Robbins: "Psychology is the science that seeks to measure, explain, and, sometimes, change behaviour of humans and other animals."5 2. Webster’s Dictionary: "The science that investigates the phenomenon of mental and emotional life." 3. Oxford Dictionary: "The scientific study of human mind and its functions, or of the mental characteristics or attitudes of a person."

Contribution of Psychology to OB Psychology has contributed following aspects to OB: (i) (ii) (iii) (iv) (v) (vi)

Learning Perception Values Attitudes and beliefs Personality Motivation

(vii) Leadership (viii) Job satisfaction (ix) Employees’ promotion, selection, and training (x) Work stress and work design (xi) Individual decision-making

Sociology Sociology is the science (or systematic study) of society. It explains development and structure of human societies. It studies human behaviour in relation to groups, institutions, societies, and organisations. Sociology deals with social works and the solving of social problems. It is scientific study of the nature and development of society and social behaviour, the study of people in relation to their fellow human beings. Let’s define the term: 1. Stephen P Robbins: "The study of people in relation to their fellow human beings."6 2. Fred E Luthans: "Sociology is an academic discipline that utilises the scientific methods in accumulating knowledge about social behaviour."7 3. Oxford Dictionary: "The study of the development, structure, and functioning of human society."

Contribution of Sociology to OB Sociology has contributed following aspects to OB: (i) Group dynamics (ii) Design of work teams (or team work) (iii) Communication

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(iv) Inter group conflict and behaviour (v) Power and politics (vi) Intra-group (within a group) and inter-groups (among groups) behaviour (vii) Formal organisational theory and structure (viii) Organisational technology (ix) Organisational change (x) Organisational culture and climate

Social Psychology Social psychology is made of two disciplines – sociology and psychology. It studies interpersonal behaviour. In social psychology, social aspects are investigated psychologically. Obviously, it is psychological study of sociology in form of development, structure, and relationship. OB borrows heavily from the theories and research findings of social psychology. Let’s examine some definitions. Stephen Robbins: "An area within psychology that blends concepts from psychology and sociology and that focuses on influence of people on one another."8 More clearly, it can be said: Social psychology is concerned with the study of individual behaviour in relation to the social environment (groups); it is study of individual behaviour within a group. While psychology emphasises on individual behaviour, social psychology emphasises on group behaviour.

Contribution of Social Psychology to OB

Social psychology has contributed following

aspects to OB: (i) Behavioural change – how behaviour is changed or modified (ii) Attitudes – how attitudes are formed and changed (iii) Communication patterns – impact of communication network on individual and group efficiency and satisfaction (iv) Group formation processes – dynamics of groups and teams (v) Group decision-making – collective decision-making or how decisions are made in groups (vi) Problem solving – how problems are solved in groups (vii) Social influences – the study of impact of social factors on group conformity and cohesiveness (viii) Leadership – identification of leader in a group, and leadership functions and effectiveness

Political Science In relations to dynamics of groups, the contribution of political science seems more relevant. Politics is a common phenomenon in today’s organisations to gain power, position, and discriminative benefits. People play politics in different ways (Refer Chapter 24 for more details). Political science has been defined as:

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Stephen Robbins: "The study of behaviour of individuals and groups within a political environment."9 Oxford Dictionary: "The study of political activities and behaviour of groups." Thus, we can define the term as: Political science involves the study of individual and group behaviour within a particular political environment. It is concerned with tactful and intelligent games the people play in organisations for power, position, and discretionary benefits or favour. In relation to organisation, political activities are concerned with gaining or using power within an organisation or group. People in organisation play different games or political tactics to acquire power, gain more influence over others, maintain importance, and occupy key positions. Organisational politics is an important facet of today’s organisational life (For more details, refer Chapter 24).

Contribution of Political Science to OB

Political science has contributed following as-

pects to OB: (i) (ii) (iii) (iv) (v) (vi)

Analysis of conflict Power and politics Manipulation of power Intra-organisational politics Allocation and acquisition of power Individual self interest

Other Disciplines Besides the five disciplines already discussed, there are some disciplines with potential to contribute to behavioural science. They include: (i) Economics – Motivation, learning, preference, economic decision-making, etc. (ii) Management – Motivation, leadership, communication, organisational structure, etc., to manage behaviour towards strategic requirements (iii) Technology and Information Technology – Impact of technology on behaviour, virtual organisation and office, communication, team work, decision-making, work environment, etc. Each discipline has something special to contribute to OB. One discipline cannot be completely separated from the remaining. Some contributing points are common in more than one discipline. Particularly, anthropology, psychology, sociology, and social psychology seem more closely related, even interdependent.

ORGANISATIONAL BEHAVIOUR MODEL Model (or framework) is a description of how things work, and is also known as paradigm. The model shows several relevant variables in OB, their interrelations (interplay), and resulting outcomes. Experts in the field have developed different models to explain what relevant variables undergo in organisational behaviour and their interaction. Each OB model makes

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some assumptions about the nature of people. These paradigms influence the thoughts and actions of managers and guide their behaviour.

The S-O-B-C Model Fred E Luthans10 has explained the conceptual framework of OB in form of the S-O-B-C Model. The Model contains four variables, as portrayed in Figure 14.3. Nature and scope of OB can be better explained by S-O-B-C Framework. It describes important constituents and sub-constituents in OB. Four main elements of the S-O-B-C model have been briefly described below:

1. Stimuli (S) or Situation

They include overt and covert stimuli, or physical, socio-cultural, international, and technological environment. These stimuli constitute physical settings and external situations that affect reactions or responses of people; they make people react or respond. Organisational culture is the most important determinant of situational behaviour. Organisational structures, management processes, and job design are major situational inputs (stimuli) that affect people’s behaviour. Organisational structure consists of designations, roles, and positions. Management processes include decision-making, control, communication, power, and goal setting. Job design shows systematic arrangement of job contents, including job title, location, duties, working conditions, responsibility, skills, knowledge, rewards, relations, timing, and so forth.

2. Organism (O) or Organisational Participants

They consist of cognitive mediators and physiological beings. Type and characteristics of participants are key to organisation. They can be thought of in terms of cognitive and psychological processes. Personality, perception, attitudes, and motivation and learning processes are the heart of micro study of organisational behaviour. They constitute the most vital constituent in OB model. Organisational participants interact with the situation.

FIGURE 14.3 The S-O-B-C Model

3. Behaviour (B) or Organisational Behaviour It consists of individual and group behaviour. It implies reaction patterns of people to stimuli. Certain dynamics of human resource

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management are especially relevant to regulate consequences. The dynamics of group, stress, conflict, politics, power, leadership, etc., affect/regulate behaviour of participants and are important in the study of organisational behaviour.

4. Consequences (S) or Organisational and Behavioural Consequences

They consist of overt and covert, as well as positive and negative, contingent consequences and environmental dynamics and their implications. The study of organisational and behavioural consequences indicates final outcomes of behaviour. It helps in predicting and controlling human behaviour. Performance, relations, satisfaction, turnover, productivity, effectiveness, absenteeism, morale, etc., can be treated as organisational behaviour outcomes. These outcomes hold definite implications for managing and improving human behaviour. All variables are in continuous interaction with one another and reciprocally affect one another. Interactive nature of these variables is the essence of organisational behaviour, and it serves as the foundation for behavioural approach to management.

Simplified OB Model Based on explanation of Fred Luthans and Stephen Robbins, the simple OB model can be evoked. It explains multiple dimensions/variables in the simplistic manner. See Figure 14.4.

FIGURE 14.4

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Independent variables, group variables and organisational variables are same as stated in Stephen’s alternative model (see website of the book). Situational variables are similar to stimuli or situation in the Luthans’ model. Organisational behaviour is same as the third variable (Organisational Behaviour) in S-O-B-C model. Resulting outcomes or consequences are identical to both previously discussed models. There exists reciprocal impact between individual variables and organisational level variables, as well as between group variables and organisational level variables. Situational variables affect both individual variables and group variables on one hand, and organisational variables on the other hand. Interplay of first four variables determines organisational behaviour that leads to final outcomes or behavioural consequences. Interestingly, resulting outcomes/consequences of all types of variables and resulting behaviour do affect reciprocally, i.e., individual variables, group variables, and organisational variables determine organisational behaviour and organisational behaviour determines/affects outcomes. Outcomes can be the input in all three types of variables. Job satisfaction, for example, affects individual behaviour and, hence, group behaviour. The model shows the scope of OB. Remaining part of the book describes all the variables stated in this model in relevant chapters.

MANAGEMENT AND OB Organisational behaviour is part of management. OB contains multidisciplinary knowledge and is capable to deal with multiple problematic situations. Organisational behaviour is an input to managerial decisions. Managers who are well-equipped with OB techniques can work comfortably in today’s dynamic and threatening business environment. They can improve decision-making, human relations, and productivity, and can sustain continuous progress in severe competitive and uncertain situations. OB supplies the manager the useful knowledge that can improve his immunity to work effectively amidst diversities, ambiguities, controversies, and difficulties. Eminent writers, including Stephen Robbins, Fred Luthans, and many others, have adequately emphasised the practical value of OB in managing contemporary business. Interestingly, management practices affect behaviour of employees. Type of management practices depend on systematic and scientific study of human behaviour. So, OB is an important input in management. Sound management practices always need background knowledge of OB. It guides managers to adjust with contemporary situations and exploit maximum opportunities. Managerial actions include deliberate managerial efforts to organise, direct, and control human efforts. Also, management policies, procedures, rules, organisation structure, job design, employees’ welfare and benefits, and so forth, largely depend on managers’ knowledge of OB. Clearly, manager who possesses rich knowledge of OB can manage people more effectively. See Figure 14.5.

ROLE OF OB Its role in managing business activities can be explained with reference to following points:

1. Responding to Globalisation Borderless business operations across the globe are today’s reality. World is characterised by extreme diversities. It is a challenge for managers to manage

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workforce with different needs, aspirations, and attitudes. Working with people of different cultures and economic systems needs modification of management practices. Managers have to adjust in jobs anywhere in the word to keep costs low or grab market opportunities. OB helps them survive in challenging situations.

2. Managing Workforce Diversities

OB teaches that managers need to shift from their philosophy of treating everyone alike. They must recognise the differences and must respond to those differences in such ways that employees are retained and their productivity is improved. Conflict and communication problems can be handled effectively by managing diversities.

3. Improving Quality and Productivity OB teaches a number of direct and indirect lessons to practicing managers about how to improve quality of operations and employees’ productivity. It suggests that quality management, process reengineering, etc., must be based on extensive involvement of employees. 4. Effective Outsourcing

OB helps in managing business outsourcing (BPO – Business

Processes Outsourcing).

5. Working with Network Organisation and Virtual Organisation Network organisation and virtual organisation are the reality of today’s business operations. Managers, themselves, have to acquire necessary skills to work with these new forms and also have to get their employees acquainted with them. OB has potential to give valuable insights to cope with these issues. 6. Improving Customer Services OB can contribute positively to improve customer services. It explains how managers’ and employees’ attitudes are associated with customer satisfaction. It helps in creating customer-responsive culture.

FIGURE 14.5 Relationship between Organisational Behaviour and Management

7. Developing and Imparting Managerial Skills OB guides managers about what skills are important to manage people and how these skills can be acquired.

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8. Employee Empowerment and Self-managed Teams OB guides practicing managers to practice suitable leadership styles, maintain relationships, allow full control, and structure the organisations. 9. Stimulating Innovation and Change

OB provides plenty of ideas and techniques to stimulate employees’ creativity and innovation. It shows how to prepare people in bringing about changes.

10. Ethical and Positive Behaviour OB assists in creating an ethically healthy climate for employees and helps them judge what is ethically right or wrong. Positive organisational behaviour is real blessing to the manager. Be clear that OB is not a magic stick or mystic words to solve problems. It is passive knowledge and has potential to improve managers’ knowledge, understanding, and practices; it helps practicing managers in perceiving situations in the right perspective. It helps widen managerial approach and change mentality. It prepares managers to adopt and adapt with realities related to complex and mysterious human element at work.

LIMITATIONS OF ORGANISATIONAL BEHAVIOUR Organisational behaviour is not full-proof knowledge. Its knowledge and applicability can be challenged on various fronts. Following are some obvious limitations of the subject: 1. OB is just passive knowledge and not a readymade solution to every type of human problems. To what extent the knowledge is useful depends upon ability, experience, and maturity of managers. 2. Knowledge of organisational behaviour is based on research and experiments made in Western countries many decades ago. So, it cannot be applied everywhere directly. 3. Most theories and concepts have been developed many years back. In a completely changed environment, it has limited suitability. 4. Methodological aspects are major limiting factors. Most experiments were made on creatures like monkeys, bulls, rats, rabbits, dogs, pigeons, etc., to generate OB knowledge and draw conclusions. Therefore, inferences drawn from them cannot be applied to human beings in the same way. Even, recent studies are based on limited sample, and, therefore, general conclusion is always doubtful. Besides, recent studies and their conclusions do not exhibit consistency. 5. Many critics argued that application of organisational behaviour follows the law of diminishing returns. At a particular level, use of organisational behaviour may not contribute positively. Even, performance starts declining due to excessive use of knowledge. 6. It is concerned with only one facet of the organisation, i.e., human factor. It avoids totality or system approach. In fact, overall performance depends on contribution of all factors. 7. Multidisciplinary nature of organisational behaviour creates many problems. A manager cannot be trained in all disciplines. So, no manager can be the master of the subject. Insufficient knowledge may multiply problems.

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8. Experts opine that organisational behaviour is too sophisticated to use in real practice. In fact, it is more complex and costly to use. Knowledge sounds better in books. 9. It is claimed that organisational behaviour may be a source of exploitation of employees. It can help the manager to achieve better performance at the cost of employees interests. 10. It has been argued that knowledge of organisational behaviour is neither sufficient nor up-to-date. The knowledge is yet in its childhood. To analyse and understand man, more divergent knowledge is required. 11. Application of organisational behaviour does not guarantee absence of conflict, job satisfaction, and quality of life. In some cases, the manager who knows nothing about organisational behaviour can run the organisation better. 12. OB is relatively young discipline. More intensive and worldwide research is needed to enhance its non-controversial use and applicability. Global economic, political, social, and cultural diversities and other heterogeneities restrict consistent global application of OB.

ETHICAL ORGANISATIONAL BEHAVIOUR Chapter 13 discusses business ethics. Ethics are moral standards and are closely related to social responsibility of businessmen. Here, our discussion is restricted to ethics in relation to organisational behaviour. In today’s situation, the study of ethics becomes critical to management education, and to organisational behaviour. The fact is that we are facing new realities—new opportunities, new challenges, and new threats. Working pattern of multicultural human force, information technology, and globalisation have started erasing domestic cultural peculiarities. Global ethics seem to be dominating national ethics. Large domestic and multinational companies have started concentrating on ethical behaviour. Ethical behaviour is, or behavioural ethics are, indicative of standard behaviour. It is an ideal way of behaving with others. It implies the ideal behaviour of individuals and groups in the organisation. The term is difficult to define as it is a relative issue. Something unethical to a person, group or organisation may be viewed differently (i.e., ethical) by others, within and outside the organisation. For example, strike is generally viewed as unethical, while is ethical to workers demanding fair wage and facilities. Well-defined and well-communicated common behavioural ethics positively affects well-being of employees and their performance. In fact, all business ethics discussed in Chapter 13, are equally applicable to ethical behaviour as they restrict undesirable acts in the organisation. An organisation is made of individuals and groups. Behaviour of all participants within the organisation affect its internal and external activities and transactions. Therefore, business ethics are closely related to ethical behaviour. Let’s define the term: Behavioural ethics or ethical behaviour demonstrate(s) an ideal conduct of organisation’s participants. They imply desirable response to others. Thus, ethical behaviour implies judging the right or wrong conduct. Ethical behaviour consists of observing, accepting, and respecting the prescribed behavioural codes that elicit desirable, acceptable, or positive behaviour.

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Behavioural ethics govern behaviour of people in the organisation. Ethical behaviour in formal organisations can be discussed in relations the key position holders and the employees and workers. Certain acts (behavioural patterns, actions-reactions, or responses) of firm’s key position holders, such as underpayment, discrimination, defective or harmful products, overcharging and profiteering, health-hazardous work assignment, unnecessary bossism, centralised decision-making, etc., can be described as non-ethical behaviour; the opposite to these aspects is ethical behaviour. In the same way, non-cooperation, lack of sincerity, carelessness, non-conformation to rules, policies, and procedures, lack of morale towards organisation, etc., on the other hand, can be described as non-ethical behaviour of employees; the opposite of these is ethical behaviour of employees. Thus, ethical behaviour is applicable to employers, employees, and those who are directly or indirectly related to organisation’s activities.

Some Behavioural Ethics Behavioural ethics are applicable to both top executives and employees. Some behavioural ethics are globally accepted, some are domestic, while some are organisational. In the same way, all organisational participants may have their personal behavioural ethics, too. Cultural values and traditions pay crucial role in forming, accepting, practicing, and modifying behavioural ethics. However, ethical behaviour is more relevant to managers. Most of behavioural ethics are equally applicable to business, education, social, and missionary activities. Common behavioural ethics—applicable to both superior and subordinates at any level—have been listed below: 1. To set and maintain fair dispute handling procedures 2. To provide employees protection against sexual harassment 3. To permit employees secure privacy issues and personal life information 4. To ensure fair payment, facilities, working conditions, and welfare schemes 5. To allow employees to participate in relevant decisions 6. To ensure fair or just dealings with other stakeholders 7. To ensure maximum contribution to firm’s prosperity 8. To avoid the use of negative ways and means to get the work done 9. To cultivate and impart desirable and equitable organisational climate and culture 10. To contribute liberally to activities of social and cultural significance 11. To protect national interest in all possible ways and exhibit respect to key human rights 12. To extend all possible support for ecological balance, or for protection of global ecological environment 13. To obey organisational and national cultural values 14. To be good human being in all significant manners The last point is inclusive of all ethical behavioural codes. Ethics seem overlapping. They have similar implications. The ethics give some moral lessons that all organisational participants must observe while behaving with people internal and external to the organisation.

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Factors in Behavioural Ethics A number of cultural, organisational, and external factors affect ethical behaviour. Cultural forces affecting ethical behaviour include religion, family, social organisations, education, neighbours, friends, and others. Ethical codes, roles, models, policies and rules, organisational culture and climate, reward and punishment systems, etc., are organisational forces that affect ethical behaviour. Other external forces having notable impact on ethical behaviour include legal and political systems, economic condition, ecological factors, working of international agencies, and other international developments. Interplay of these three types of factors/ forces shape and modify ethical behaviour of individuals and groups in organisations. The organisation must prescribe behavioural ethics clearly. Seminars, workshops and similar training programmes, and suitable motivation policies can help in imparting and popularising important behavioural codes. Care should be taken that ethical codes are impersonal, rational, and useful. Stephen Robbins states: "Today’s managers need to create an ethically healthy climate for their employees, where they can do their work productively and confront a minimal degree of ambiguity regarding what constitutes right or wrong behaviour."11

SUMMARY Organisational behaviour is the understanding, prediction, and management of human behaviour in the organisation. Organisational Behaviour (OB) is directly concerned with the describing, understanding, predicting, modifying, and controlling human behaviour in formal organisation to attain organisational goals effectively. Most of the problems can be brought to end just by right understanding of man. Organisational behaviour can help manager to understand human factor in context with the present environment. It helps in improving managerial decisions and, consequently, improving overall productivity of people. Organisational behaviour is multidisciplinary subject. Main contributing disciplines include Anthropology, Psychology, Sociology, Social Psychology, Political Science, etc. Model (framework) is description of how things work and is also known as paradigm. Fred E Luthans has developed the S-O-B-C Model while Stephen Robbins and some others explain interactions among three types of variables—individual level, group level, and organisational level. Organisational behaviour is part of management the manager gives useful knowledge. This knowledge can improve his skills to work effectively amidst diversities, ambiguities, controversies, and difficulties. OB makes management practices effective. Organisational behaviour suffers from a number of practical problems. Ethical behaviour is, or behavioural ethics are, indicative of standard behaviour. It indicates fair or just behaviour of organisational participants. Care should be taken that ethical codes are impersonal, rational, and useful. A number of cultural, organisational, and external factors affect ethical behaviour.

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KEY TERMS Organisational Behaviour (OB) Multidisciplinary Subject Contributing Disciplines Anthropology Psychology Sociology Social Psychology

Political Science Organisational Behaviour Model The S-O-B-C Model Dependent Variables Independent Variables Individual Level Variables

Group Level Variables Organisational System Level Variables Limitations of OB Ethical Organisational Behaviour Behaviour Ethics

EXERCISES Objective Type Questions A. Answer the following: 1. What is behaviour? 2. How is modern organisational man perceived? 3. What do you mean by OB? 4. How is OB useful to managers? 5. Write four main contributing disciplines to OB.

Write components of S-O-B-C Model. How are OB and management related? What is ethical behaviour? Name three sets of factors affecting ethical behaviour. 10. State any four models of man at work.

B. Choose the correct option (MCQs): 1. In today’s organisations, man is perceived as (a) Economic Man (b) Social Man (c) Complex Man (d) Interesting Man 2. Which one is not a contributing discipline to OB. (a) Mathematics (b) Sociology (c) Social Psychology (d) Political Science 3. In relation to nature of OB, which one is true? (a) OB is single disciplinary science (b) OB is strict disciplinary science (c) OB is multidisciplinary science (d) OB is triple disciplinary science 4. Which one is not true? (a) OB and management are not related

(b) OB is behavioural approach to management (c) OB is part of management (d) OB is human tool for human benefits 5. The discipline which is concerned with the study of human origins, societies, and cultures is known as (a) Sociology (b) Anthropology (c) Psychology (d) Political Science 6. ‘The scientific study of human mind and its functions, or of the mental characteristics or attitudes of a person.’ This is the definition of (a) Sociology (b) OB (c) Psychology (d) Social Psychology

6. 7. 8. 9.

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7. What does Sociology study? (a) The study of people in relation to their fellow human beings (b) The science that investigates the phenomenon of mental and emotional life (c) The study of human origins, societies, and cultures

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(d) The study of political behaviour of people at work 8. Who developed S-O-B-C Model of OB? (a) Fred E Luthans (b) Stephen Robbins (c) Keith Davis (d) None

Descriptive Questions 1. What is organisational behaviour? Explain its nature. 2. Discuss: (a) Importance of OB (b) Management and OB 3. ‘Organisational behaviour is multidisciplinary in nature.’ Explain the statement, and discuss, in brief, relevant contributing disciplines. 4. ‘OB is useful discipline but should be use with care and caution.’ Do you agree? Discuss limitations of OB.

5. Explain suitable OB model and outline the scope of the subject. 6. ‘Today’s managers are facing ethical behavioural dilemma.’ Comment on the statement. Write some ethical behaviour codes. 7. Define ethical behaviour. Enlist factors affecting ethical behaviour. What should a manager should do to create ethical behaviour.

Assignments 1. Each group of students is assigned a topic related to OB (such as Nature of OB, Role of OB, Limitations of OB, OB Model, Ethical Behaviour, OB and Management, etc.)

to study with reference to actual management practices, and is asked to conclude how far OB is applicable and useful.

REFERENCES 1 Stephen P Robbins, Organisational Behaviour, Prentice-Hall of India, New Delhi, 2000, p. 5 2 Fred E Luthans, Organisational Behaviour, McGraw-Hill, New York, International Editon, 2005, p. 21 3 Keith Davis, Human Behaviour at Work, Tata McGraw-Hill, New Delhi, India, 1981 4 Ibid., p. 11 5 Stephen P Robbins, Organisational Behaviour, op. cit., p. 9 6 Ibid., p. 11 7 Fred. E Luthans, Organisational Behaviour, McGraw-Hill International, New York, 1989, p. 32 8 Ibid, p. 11 9 Ibid, p. 12 10 Fred E Luthans, op. cit., p. 13–15 11 Ibid, p. 26

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ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. Behaviour means observable and/or measurable response and reaction of managers and people 2. Organisational man is perceived as ‘complex man’ 3. OB is systematic study of behaviour of people in organisation 4. OB helps in understanding, predicting, and controlling human behaviour 5. Psychology, Sociology, Anthropology, and Political Science 6. Stimuli, Organism, Behaviour, and Consequences 7. Organisational behaviour is an input to managerial decisions 8. Ethical behaviour is indicative of standard behaviour, or is ideal way of behaving with others 9. Three sets of factors are cultural factors, organisational factors, and external factors, affect ethical behaviour 10. Economic man, social man, organisational man, and complex man B. 1. (c), 2. (a), 3. (c), 4. (a), 5. (b), 6. (c), 7. (a), 8. (a)

CASE Gender Factor at Work Place Gender difference, woman equality, and gender effect at work are global issues. Quality of work life, work life balance, stress, leadership style, positive psychological capabilities, and gender equality (gender factor at work) are some areas frequently discussed in corporate offices. Gender factor is among the top most debated issues in today’s work places. To protect women’s interest at work, discriminative laws and treatments have been prescribed by authorities and social organisations. However, expected level of maturity is still awaited from both male and female employees at work. Unfortunately, corporate sector failed to wipe out gender difference at work, either because of priorities and special privileges to women, or because of excessive and impatient ambitions of women. Emphasis on gender equality on one hand, and discriminative prescription for female employees on the other, seem severely clashing. Informal cross-gender relations may affect work climate. In some cases, corporate offices are blamed for sexual harassment of women while sometimes women are found distorting the healthy and amicable organisational climate for personal ends. Mr. V V Gupta, senior sales manager, had been working with Seema Chemicals Private Limited, a medium size company located at Bangalore, for ten years. He was known for his sincerity and regularity. Top executives held Mr. Gupta in high esteem. Since the beginning, all proposals he forwarded and suggestions he made were rarely rejected by top authority. He was very kind to his fellow employees. Despite excessive work, he never asked for an assistant and continued performing his duties sincerely. He used to consult concerned officers while taking any decisions. He had never imposed any decision on others. Area sales managers were fully satisfied with their boss. General manager had expressed full confidence in his working pattern. Everything went on as per company’s general goal and intermittent objectives. Board of Directors, in the last annual meeting, had decided to appoint assistant sales manager to reduce Mr. Gupta’s overload. Miss Sumita, a smart, young, beautiful, and ambitious lady, was appointed as assistant in Mr. Gupta’s office; she was the only lady employee in office. Ever since

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she joined duty, climate of the organisation started changing drastically. She was single and free from family responsibility. She was smarter in relations building than performing routine work. She used to stay at office three to four hours more than routine schedule. Sometimes, she came to office one-two hours earlier than routine office time. Within six months, she tightened her grip over all employees, including top level executives. Now, she could do what she wished. Using her feminine instincts, she could influence any employee in the organisation. Despite Mr. Gupta’s strong objection, she was permitted to go on business tour at regional offices for fifteen days. In the history of the company, for the first time, she went on visit to areas offices situated at different places in the country. She developed close liaison with area sales managers, too. Mr. Gupta felt ignored. In most cases, some top executives started insisting that Mr. Gupta discuss the matter with Ms. Sumita. Honesty, sincerity, regularity, commitment, and, in general, efficiency were replaced by charming personality. Mr. Gupta found it difficult to work as per this theory. Astonishingly, some of area managers, who previously admired Mr. Gupta working style, started lodging complaints against him. Entire setup was disturbed. Internal politics spoiled healthy climate. Company lost its direction and performance started deteriorating. Last quarter sales were miserably poor. Finally, Mr. Gupta decided to meet the MD. After brief discussion, the MD directed him to work with Ms. Sumita and investigate causes for poor performance. Gupta was wise enough to realise that Sumita factor was governing the chairman, too. Everyone started blaming Mr. Gupta. He, as a last resort, started clarifying the fact, but efforts proved in vain. For the first time, without prior permission, he went on leave for fifteen days. Top authority did not try to contact him. On sixteenth day, the GM received resignation letter from Mr. Gupta. He stated in his letter, ‘‘I cannot work in an organisation where sentiments and personal relations govern/dominate objectivity and human virtues. The top authority has been deaf and blind to facts. ‘‘I cannot compromise beyond limit. I cannot work with Sumita in a way the authority expects. I hope my resignation may be accepted. Good wishes.’’

Questions for Discussion 1. 2. 3. 4. 5. 6. 7. 8.

Describe today’s corporate climate and state some key topics discussed at corporate offices. ‘Gender equality seems impossible to be realised.’ Comment. Describe work environment in Seema Chemicals before the entry of a woman employee. Explain Gupta’s behavioural pattern at Seema Chemicals. What type of change was witnessed after Sumita’s entry at Gupta’s office? What did Sumita do to influence the overall climate of the organisation? How would you evaluate management decision of business tour? Was it needed? Why? Who was responsible for poor performance? Why? What is now left to do to put the company on tract? 9. How would you look at Gupta’s decision to go on sudden leave, and finally submission of resignation? What else, accordingly to you, could have been done?

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Historical Background and Evolution of OB Learning Objectives Upon completing this chapter, you will be able to: Give the background of the Hawthorne Experiments Describe stages of development of OB Discuss phases of the Hawthorne Experiments with individual outcomes Draw implications of the Hawthorne Experiments that have lead to Human Relations Movements and OB Discuss key issues related to international organisational behaviour Briefly discuss emerging challenging in the field of OB

INTRODUCTION Organisational Behaviour (OB) has passed through several stages of development. Still, considerable research is going on to enrich its knowledge. Now, OB has become a global discipline as most topics have global implications. It has become inevitable knowledge to acquire and apply for excellence in economic performance as well as building image. The present chapter discusses four interrelated topics:1 1. Evolution of OB—Historical Development of OB 2. The Hawthorne Experiments 3. International OB 4. Emerging challenges in OB Note: Additional reading material related to this chapter is available on the companion website of this book.

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Logically, we can interlink the topics as: OB emerged as a new discipline, and then became international and, now, is facing a number of challenges.

HISTORICAL BACKGROUND OF OB Historical development of OB describes its progress from very primitive stage to the advanced or modern stage. The stages may be called the evolution stages of OB development. Wide controversy exists regarding initiation of OB. In fact, it has been in existence since human beings started living in groups. It has travelled parallel to management, but, it is younger than management. OB can be said as the second or the advanced stage of management development. Managers or leaders, at different intervals of time, have played different roles, from dictator (extremely strict and self-centered role) to dedicator (very liberal and care taking role). In fact, Elton Mayo and his colleagues may be considered the initiaters of OB after they conducted a series of experiments at Hawthorne Plant in the United States. The Hawthorne effects led to development of human relations movement. Implications of the human relations movement have been used as an alternative approach to management, that is, the Behavioural Approach (or Neo-classical School of Management). Behavioural approach has become the base of OB. Various formal and informal studies have been conducted since the 1950s on the significance of human element and behaviour in formal organisation for improving productivity, relations, and employee satisfaction.

PHASES/STAGES OF DEVELOPMENT OF OB Development of OB can be described in four stages:

1. First Stage: Scientific Management Movement Early management pioneers (all classical thinkers), particularly F W Taylor, Henry Feyol, and others, provided a base for OB. F W Taylor helped to improve the working conditions of industrial workers and this was instrumental in enhancing the productivity of the workers. Principles of scientific management obviously recognised, and even emphasised, the importance of human element at work. Improved productivity via improving contribution of employees was treated as important foundation of OB. Contributions of P F Drucker, in the form of MBO, and Herbert Simon, Koontz and March, in form of socio-technical system, recognise the role the human element can play in improving productivity. In short, all classical thinkers’ contributions can be treated as the first stage of development of organisational behaviour. (For more details refer the ‘Classical Schools of Management,’ Chapter 2).

2. Second Stage: The Hawthorne Experiments

Elton Mayo, F J Roethlisberger, and others, during 1924 – 34, conducted industrial experiments at Hawthorne plant of Western Electric Company at Chicago, in America. Their studies brought out a positive correlation between productivity and workers’ participation. The findings helped managers understand people’s behaviour at work, and the significance of human relations in work settings. (For more details, refer Hawthorne Experiments, discussed in the later part of this Chapter).

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Hawthorne Experiments have made a valuable contribution to understand human factor at work. Based on implications of the Hawthorne Experiments, a new management school/ approach was developed. This phase was labeled the Human Relations Schools, Behaviour Approach to Management, or Human Relations Movement. Key implications of the human relations movement, further strengthened the base of OB. (For more details, refer the ‘Human Relations Movement,’ Chapter 2, and the Hawthorne Experiments discussed later on in this Chapter).

3. Third Stage: Organisational Behaviour

At initial level, scientific management and administrative management, and, later on, human relations schools, offered enough background inputs to develop organisational behaviour. Thereafter, a series of experiments and studies were conducted across the world to strengthen the base of OB. Particularly, many theories have been developed on motivation and leadership to enrich the subject matter. Other disciplines—anthropology, psychology, sociology, social psychology, political science, economics, etc.—have been adequately (and meaningfully) exploited to enrich contents and application of OB. Conclusions, implications, or outcomes of a number of studies—most of them were conducted in the United States—provided a solid base/foundation for systematic study of organisational behaviour. Later, OB emerged as a separate discipline with unique identity, and was recognised as a distinct area of study. In the last couple of decades, a few writers, most of them from America, including Keith Davis, Fred E Luthans, Stephen Robbins, and some others, have played critical role in collecting bits of knowledge on OB, organising and interpreting valuable contributions/knowledge of behavioural scientists, and presenting the same in form of books. Indian writers, academicians, and experts, in India and abroad, contributed by adding, improving, simplifying, popularising, and, hence, applying organisational behaviour in management study and practice. Now, OB is recognised as an important discipline, and has been incorporated in management education and training. People hold in high esteem in those who are closely concerned with OB, including students, teachers, trainers, experts, and behavioural scientists. OB, a branch of study with adequate theoretical and practical support, is widely used by today’s managers to cope with global cultural diversities in multinational companies (the topic has been discussed later on in the chapter). Positive organisational behaviour is the latest area of organisational behaviour.

4. Fourth Stage: Positive Organisational Behaviour Positive organisational behaviour (POB) is the latest version (or advanced stage) of organisational behaviour. A reasonable amount of studies have been conducted in the last three decades in this area, mostly in the United States. POB is revised form of traditional OB. Its purpose is to observe positivism in every aspect of OB. While Psychology is the base for OB, positive psychology is the base for POB. Positive psychology applies a more matured, refined, and advanced approach to human element at work. It potentially contributes to excellent work performance, job satisfaction, quality work life, and work life balance. Major focus of POB is to perceive human beings positively at work, and to develop better human qualities and capabilities needed to work and live better. Major areas of positive organisational behaviour include optimism, hope, happiness, resiliency, emotional intelligence, leader efficacy and team efficacy, self efficacy (self confidence), etc. (For more detail on POB, refer to Chapter 25).

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THE HAWTHORNE EXPERIMENTS (STUDIES) (ORIGIN OF NEOCLASSICAL—HUMAN RELATIONS OR BEHAVIOUR—SCHOOL) (Note: As stated in the section ‘Neoclassical School of Management,’ Chapter 2, the Hawthorne Experiments made valuable contribution in development of human relations school and, subsequently, in behaviour school and organisational behaviour. Be clear that the Hawthorne Experiments cannot be treated as full-fledged school of management; it is a base for development of the neoclassical school of management). The Hawthorne Experiments by Elton Mayo and his associates at Hawthorne Plant of Western Electric Company has been treated as important event because it initiated the beginning of OB. In this connection, Fred E Luthans notes: "The famous Hawthorne studies provide historical root for the notion of a social organisation made of people, and mark the generally recognised starting point for the field of organisational behaviour."1 Following part describes various phases of the Hawthorne experiments and implications that have been treated as the base for modern OB.

Introduction Factually, human relations approach was the reaction to partially failure of classical approach. A number of experts contributed to enrich human relations school in the last six to seven decades. Elton Mayo’s2 contribution titled, ‘Hawthorne Experiments,’ has remained significant in the area of human relations school, and, consequently, in modern organisational behaviour. It was the first intensive and systematic attempt of its kind to analyse human element. The Hawthorne experiments produced very astonishing and interesting conclusions (implications) regarding human being, and threw away many assumptions about him. They disclosed many secrets about human at work, and made the experts think in a completely divergent manner.They intoduced a fresh outlook to evaluate human element at work.

Place, Time and People The Hawthorne Experiments were conducted at Hawthorne Plant of the General Electric Company, Chicago, America, during 1924 – 32. The company was producing telephone system bells and employed about 30,000 employees at the time. The experiments were conducted in four phases and lasted for about eight years (1924 – 32).

The Root Cause The company was among the most progressive companies of the time. It was providing the workers pension and sickness benefits, and recreational facilities. Despite these material benefits and amenities, the workers were not satisfied. Their productivity was not up to the expected mark. The company asked efficiency experts to conduct formal investigation into the cause. When experts failed to produce satisfactory explanation, the company requested the National Academy of Science to probe into employees’ dissatisfaction and resulting low productivity.

Investigating Team To investigate the real cause of employees’ low productivity and/or their dissatisfaction, a three-member team was constituted. The team involved Professor Elton Mayo (the psychologist), Roethlisberger (the sociologist), and William Dickson (the company representative).

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Phases of the Hawthorne Experiments The team conducted several experiments in four subsequent phases: 1. First Phase: Illumination Experiments (1924–27): The purpose was to determine the effect of change in illumination (physical work setting) on productivity. 2. Second Phase: Relay Assembly Test Room Experiments (1927–28): The purpose was to determine the effects of change in work hours (number of rests and their duration) on productivity. 3. Third Phase: Mass Interviewing Programme (1928–30): The purpose was to determine workers’ attitudes and sentiments toward company management. 4. Fourth Phase: Bank Wiring Observation Room Experiments (1931–32): The purpose was to analyse social aspects (group dynamism) in the organisation. Subsequent part of the chapter describes the key aspects—main objectives, nature of experiments, and consequent outcomes—of the Hawthorne Experiments.

First Phase: Illumination Experiments The first phase of the Hawthorne Experiments was concerned with illumination experiments. The experiments included varying the degree of illumination (level or intensity of light) at work place. The illumination was taken as a physical variable affecting the productivity of workers. The hypothesis (assumption) was: The higher the illumination, the higher the productivity would be. For the purpose of experiment, one group was selected, and then it was divided into two groups—the experimental group and the control group. The experimental group was exposed to different levels/degrees of illumination. For the control group, level of illumination was kept unchanged. The researchers observed that when illumination was increased, production of both groups also increased; when degree of illumination was decreased, astonishingly, the production continued to increase in both groups. But, production of the experimental group decreased only when the illumination was decreased to moonlight (i.e., below normal level). Production decreased as workers could not work comfortably in extremely low light. Researchers failed to establish relationship between degree of illumination and productivity of groups. Thus, it was not level of illumination, but some (unidentified) other human factor that affected productivity. The big question was: Which aspects were responsible for the outcomes? To answer the question, another phase of experiments was conducted, the Relay Assembly Test Room Experiments.

Second Phase: Relay Assembly Test Room Experiments

The Relay Assembly Test Room Experiments were aimed at determining effects of different job conditions on group productivity. The experiments were conducted on female workers. For the experiment, first, two girls were selected. The girls were asked to choose four more girls as coworkers. The job consisted of assembly of telephone relays, each relay involved a number of parts. The girls had to assemble the parts into finished products. Output was dependent on two factors—speed and continuity of work. During the experiment, a number of changes were introduced in sequence. The duration of each of the changes was four to twelve weeks. To supervise the work of the girls, an observer

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was closely associated with them, and in friendly manner. Every time, when a change was introduced, the girls were consulted; they were given opportunity to express their views about the change, and about the behaviour of the supervisor. Types of changes introduced and subsequent outcomes: Following five changes were introduced in subsequent pattern, one-by-one: 1. First Change: A new incentive system was introduced in which each girl’s extra pay was based on the output of five girls rather than output of a larger group of 100 or more girls. The productivity increased. 2. Second Change: Researchers introduced two five-minute rests (breaks), one in the morning session and another in the evening session. Then, the two five-minute rests were increased to ten minutes each. In this case also, productivity increased. 3. Third Change: The rest period was reduced to five minutes, but the frequency was increased. (Instead of two rests, each of ten minutes, four rests, each of five minutes, were introduced). Productivity decreased slightly and girls complained that frequent intervals affected continuity and rhythm of work. 4. Fourth Change: Again, the number of rests was reduced to two of ten minutes each. In addition, girls were served coffee or soup with sandwich in the morning and a snack was offered in the evening. The productivity increased. 5. Fifth Change: Finally, changes related to working hours and workdays were introduced, like cutting an hour off in a day and eliminating Saturday work. The girls were permitted to leave by 4.30 pm instead of the usual 5.00 pm, and later at 4 pm. The productivity increased. Results were almost identical to illumination experiments. Every change (test) produced positive impacts on workers’ behaviour. As the changes were introduced, absenteeism decreased, morale increased, and workers required less supervision. With great surprise, the researchers observed that when all changes were reverted back to original, productivity increased further instead of going down. It was concluded that positive impact on productivity was not due to positive change in physical factors (independent variables like rest periods, number of rests, or time of a workday), but due to girls’ changed attitude toward work, workgroup, and supervisor. Due to freedom to work, freedom to express their views, etc., they developed a sense of responsibility, self-discipline, feeling of stability, and sense of belongingness. Particularly, close and friendly supervision played an important role in changing the attitude of the girls. Additionally, apart from supervisors and incentives, small group, novelty, and involvement of only female workers might have produced positive impact on productivity. The results were not much conclusive, there was still something missing that needed to be identified.

Third Phase: Mass Interviewing Programme To determine employees’ attitudes toward company, supervision, insurance plan, promotion, wages, and other aspects related to job, about 20,000 interviews were conducted between 1928 and 1930. Two types of interviews were conducted. One was direct interviewing or questioning. Interviewers asked direct questions to employees, such as ‘do you like your supervisor?’ or ‘Is the supervisor fair to you?’ etc. The second was Non-direct interviewing or listening. Since direct interviews could produce only oversimplified answer in terms of ‘yes’ or ‘no’ or stereotype answers, interviewers were asked to

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listen the workers instead of talking, arguing, or advising. The interview programme produced valuable (psychological and social) insights about human behaviour. Findings: Major findings include: 1. A complaint is not necessarily related to facts, it is a symptom of personal disturbance, and the cause of such disturbance may be deep seated. 2. Objects, persons, and events are related to employee satisfaction or dissatisfaction only when he views them from his personal situation. 3. The personal situation of the worker is composed of personal preferences, sentiments, desires, interests, and social reference. 4. Meaning and value to (or evaluation of) the events, objects, hours of work, wage, facilities, etc., depend on the position and status the workers hold in the company. (For example, manager, supervisor, and worker evaluate the same job-related aspects differently). 5. The organisation of the company represents a social system of values, and the worker derives satisfaction or dissatisfaction as per perception of his social status and expected social rewards (i.e., what should be his status in the organisation and what he must receive, are major determinants of his satisfaction or dissatisfaction). 6. The social demand (role, status, and importance in a group) of the workers depends on social experience in the groups, both inside and outside the work plant. During the course of interviews, it was observed that workers’ behaviour was being influenced by group behaviour. In most cases, they behaved as a unit/part of group rather than an individual. But, researchers were not satisfied with such conclusions. In order to get more insight into group dynamics, they decided to conduct another phase of experiments that analysed the functioning of a small group and its impact on individual behaviour.

Fourth Phase: Bank Wiring Observation Room Experiments To analyse the functioning of a small group and its impact on individual behaviour, another series of experiments was conducted between 1931 and 1932. Elton Mayo and his team selected a group of fourteen male workers for the test, including nine wiremen, three soldermen, and two inspectors, and were employed in the bank (instrument) wiring room. The work involved attaching wire to switches for the instrument used in telephone exchange. Hourly wage rate for personnel was based on average output of each employee, while bonus was determined on the basis of group output. The bank wirers were placed in a separate test room. Unlike the relay room experiments, the bank wiring study involved no experimental change once the study started (frequent changes were not introduced). Instead, an observer and an interviewer gathered objective data for study about workers’ attitudes, thoughts, and feelings. Here, department’s regular supervisors were used, and the supervisors’ main function was to maintain order and control. During the course of the experiment, workers were counselled for good human relations in company’s plant, including personal adjustment, supervision, employees’ relations, and management-employees relations. The hypothesis was: To earn more wage, the employee would produce more, and in order to take benefits of group bonus, they would help each other to produce more. However, the hypothesis did not hold valid. Workers themselves decided a ‘proper’ day’s work. The group decided to produce 6,600 equipments (terminal connections) as against a standard (management norms) of 7,312 terminals. Two and half equipments was norm of management, but two equipments

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were the informal group norm, and the actual output. The researchers determined that employees’ norm of two equipments represented restricted output rather than a lack of ability to produce two and half equipments, the company norm. Clearly, employees were capable to produce as per management norms, but, for certain reasons, they deliberately restricted output. Thus, conclusions were drastic and interesting. Unlike the former experiments, productivity was reduced, output was restricted. Workers gave following reasons for restricting output: 1. Fear of being Laid-off: They reasoned that if they continued to give more output, some of the workers would be laid-off as the company would require less number of employees to produce the desired level of production. 2. Fear of Raising Standard: Workers were convinced that if they attained the standard output, management would increase the standard assuming that workers could easily attain high standard. 3. Protecting Slower Workers: To protect slow (less capable) coworkers, the capable workers restricted production deliberately. They thought that slower workers also had family responsibilities and, hence, must remain employed. Therefore, faster workers supported them by not overproducing (i.e., by restricting production). 4. Satisfaction on Part of Management: Workers argued that management would accept lower production standards and no one would be fired (laid-off) or even reprimanded (scolded or warned) for restricted output. It was observed that (from the group dynamic standpoint) social pressure gained compliance with the group norms. Group pressure had tremendous impact on all the workers. Social ostracism, ridicule, and name-calling were used for winning individual compliance with the group. Social ostracism was more effective in gaining compliance with the informal group norm than money and security were in attaining the scientifically derived management norm.3 The study concluded that informal relationship is/was the main factor affecting/determining human behaviour.

Managerial/Behavioural Implications Despite some obvious philosophical, theoretical, and methodological limitations by today’s standard of research, the Hawthorne Studies did provide some interesting insights and contributed to a better understanding of human behaviour in the organisation.4 Four phases of the Hawthorne Experiments (1928 – 32) produced many useful implications. Some inconclusive, but interesting, issues encouraged a number of research studies thereafter. It has historical importance, not only for enriching knowledge of organisational behaviour, but also for improving managerial practices. Small groups, type of supervision, earnings, working hours, rest periods, novelty situation, interest in experiments, social (informal) pressure, communication, leadership style, etc., were the important issues in the Hawthorne Experiments. Few important implications include: 1. Novelty of Situation: Experiment setting can have an impact on productivity. When workers are provided novel situation to work, it is more likely that their productivity improves. People want novelty, change in routine work, and friendly and close supervision. In context with modern management, job rotation, job enrichment and enlargement can have more value in improving productivity.

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2. Leadership: As shown in Bank Wiring Experiments, informal leadership is accepted by followers and can more effectively influence behaviour of subordinates. Style of superior must fit with employees. He, as far as possible, should practice liberal and democratic leadership. 3. Impact of Social Factors: It is clear that organisation functioning is notably influenced by social factors. Behaviour of people depends on social needs, social norms, and relations. While motivating people, a manager must remember that economic rewards and productivity do not go hand-in-hand. 4. Impact of Informal Group/organisation: People in organisation tend to form an informal group to satisfy their social and psychological needs. So, individual behaviour can be attributed to group norms rather than individual needs, wants, feeling, or expectation. Informal group can shape, modify or extinguish behaviour of its members. Managers have to react carefully with informal groups as they have tremendous impact on individual behaviour. 5. Group Size: It was observed in the Relay Room Experiments that small group could work more effectively. High cohesiveness exists in a small group. Small group is more controllable, predictable, and productive. 6. Impact of Gender: Females were more susceptible to novelty, supervision, and positive treatment. They liked novel situation and put more efforts. They are more punctual, sincere, and supportive in certain type of work. 7. Impact of Supervision: The Hawthorne Experiments basically appealed to concentrate on supervisory climate. Supervisory climate is important factor that affects behaviour of workers. Friendly, attentive, and encouraging supervision can have positive impact on human behaviour. Freedom to workers has potential to improve productivity. Coercion and threat may not be effective. 8. Need for Good Communication: It was observed in the Relay Room Experiments that free communication could produce better results and could maintain good relations. Two-way effective communication can improve productivity. During experiments, female workers were permitted to express their feelings and that might have caused improved productivity. Managers should take a lesson from this conclusion. 9. Conflict and Cooperation: The Hawthorne Experiments have some indirect implications related to conflicts and cooperation. Informal relations lead to formation of informal groups, which may differ from official/formal groups. There are more chances that norms and objectives of informal groups are quite different from formal norms (as observed in the last phase of the experiments). When members in a group fail to comply with informal norms of informal group, there is conflict within the group. Also, when norms of informal groups are different from management norms, the result is conflict. Modern managers are required to manage conflicts and promote cooperation.

Limitations of the Hawthorne Experiments Despite the Hawthorne Experiments’ contribution in initiating human relations movement and organisational behaviour, they are not free from limitations. The experiments have been

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severely criticised by behaviourists and management experts on the plea of lack of scientific objectivity. Human relations issue, or recognition of human factor at work, was not the objective that led to the Hawthorne Experiments. Implications and conclusions were treated as serendipitous (unexpected or unanticipated) discovery rather than purposive outcomes. Some researchers observed that conclusions were not fully supported by research evidences. Even, the experiments suffer from a lot of methodological limitations. Novelty, small groups, special attention, gender bias, interest in experiment, and so forth, seem significant subjective issues in the experiments. Many experts raised questions about location of Hawthorne plant and selection of members. The conclusions cannot be widely applied everywhere. Despite some limiting factors, the Hawthorne Experiments have been treated as the base for human relations movement followed by modern organisational behaviour. Doubtlessly, Elton Mayo and his associates will be recalled forever for their valuable contribution.

INTERNATIONAL ORGANISATIONAL BEHAVIOUR (IOB) The international context of organisational behaviour is becoming increasingly significant as business operations are expanding beyond their national boundaries. Managers of multinational firms have to manage their operations amidst a variety of social, political and economic environments, and have to cope with individual differences. Countless forces contributed to rapid globalisation of business, and global diversities at workforce necessitated international OB. OB is integral part of management practices and has become global with global management practices. (Note: We abbreviate international organisational behaviour as international OB, or simply IOB.) International OB deals with two issues. They are: 1. Behaviour of managers belonging to a particular nationality, working in different countries 2. Behaviour of employees belonging to multinational backgrounds, working at a particular place

Definitions of IOB All definitions of OB are equally applicable to International Organisational Behaviour (IOB); the only difference is that the target people are not local but global. Most MNCs have been applying international OB for many years. International organisational behaviour has been defined as follows: 1. International Organisational Behaviour (IOB) studies systematically the behaviour of people in relation to global perspectives to assist managers in understanding and shaping behaviour of cosmopolitan employees. 2. International OB (IOB) is concerned with the study and application of behaviour of employees with foreign backgrounds, and is aimed at seeking adjustment in foreign countries, and with the expatriate (migrated from other nations) employees in the company. 3. International OB is the study and application of human behaviour at work in relation to global diversities, and is aimed at understanding dimensions of people of different nationalities. It helps modify behaviour of cosmopolitan employees in pursuit of certain goals.

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4. With a little modification, the definition of OB as given by John W Newstrom and Keith Davis5 can be presented as: "International organisational behaviour is the study and application of knowledge about how people with global diversities—as individuals and groups—act within organisations. It strives to identify ways in which people can act more effectively."

Elements or Features of IOB Nature of IOB can be explained in relation to following points: 1. IOB is extension of organisational behaviour. Study and application of behavioural science is applied at international level. 2. Individual, group, and organisational behaviour is studied with reference to international work environment. 3. When world becomes a global business arena, international OB and simply OB makes no difference. OB has become international as it actively deals with international population. 4. It is systematic study of behaviour of people – managers and managed—with foreign origin. IOB takes place when at least one party belongs to foreign countries. 5. It assists in comfortable adjustment with foreign employees, management system, and the environment. It teaches how to work with people with foreign background. 6. It is applicable when employees work as expatriates, or one has to manage foreign employees. It describes reciprocal impact of foreign management on host employees, or host management on foreign employees. It primarily studies cross-cultural effects among several cultures of different countries. 7. It studies behaviour of all three major players in the organisation, such as employees, middle order managers, and top managing body. 8. It helps understand cultural and work diversities of different countries. It teaches managers what they need to do to manage employees in foreign situations. 9. Comparatively, it is more complex and multidimensional as it studies behaviour of people belong to different nations. 10. Positive organisational behaviour, including emotional intelligence, hope, resiliency, self-efficacy, happiness, etc, is equally applicable to international OB, but these aspects are studied and applied in relations to multinational employees.

People, Factors, and International OB International OB is not a distinct discipline or a unique entity. It is just an extension of behavioural science. Key areas of OB are same in IOB. IOB is more important when corporate units deal with international workforce. Figure 15.1 displays people, factors and behaviour in relation to international OB.

People in International OB People refer to those who are actively involved in organisation’s efforts, or are subject to be affected by organisational efforts. Following parties constitute the people in international OB:

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Foreign employees in a company Expatriate managers in a foreign company Foreign top management Foreign management and employees in a country Other domestic and/or foreign stakeholders

Factors in International OB All factors affecting OB also affect international OB, but they are related to international environment. Such factors include: Cultural factors Social factors Personal factors Geographical factors Organisational factors

International OB OB is more relevant to home environment while international OB is relevant international environment. International OB studies behaviour of multinational workforce at three levels: Individual level Group level Organisational level

FIGURE 15.1 People and Factors affecting IOB

Key Issues in International OB When all fundamental aspects of behavioural science are studied and applied at international level, i.e., to multinational employees, it becomes international OB. It studies individual

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behaviour, group behaviour, and organisational behaviour, but with reference to multinational employees and managers. So, workforce global diversities are the focal point in International Organisational Behaviour (IOB). The term workforce diversities can be defined as: The concept that organisations are becoming more heterogeneous in terms of gender, race, ethnicity, sexual orientation, and inclusion of other diverse groups.6 International OB is concerned with following issues: 1. Cultural Diversities and Employees' Response: Eating, dressing, worshipping, dealing, living, individualism v/s collectivism, communication pattern, life approach, etc., exhibit vast differences in different cultures. Managers need to be sensitive to cultural differences across different countries to achieve their goals in the global economy. People respond to stimuli differently in different countries due to cultural diversities. The various aspects that differentiate cultures are people’s perceptions, their relationship with their environment, the time dimension, and the importance attached to public and private space. Differences between countries in these cultural aspects affect the way business is conducted across the globe. 2. People in International OB: International OB studies behaviour of people with international background. It makes a sense when at least one party belongs to a foreign nation. Foreign employees, foreign managers, foreign stakeholders, and/or foreign management can be said as people in international OB. 3. Role of Workers/Gender Differences: Manager must understand the type of role a woman can play, or is permitted to play in each country. The expatriate must be aware of norms of the society or the law in this regard in relation to business activities. Woman equality is prime issue to be focused while working in host countries, or in MNCs. The point has been discussed later in this chapter. 4. Management Theory and Practices: Decision-making, leadership style, and motivating, communicating, and supervising tasks are bound to differ. These issues play a vital role in influencing behaviour of people. Many factors like personal values, interpersonal skills, background, and the decision-making skills of the manager influence the way he leads the employees. Globally competent managers have a good understanding of the worldwide business environment from a global perspective and try to learn about various cultures in order to carry out business operations in different countries successfully. In the same way, decision-making affects behaviour of people. Domestic culture affects communication pattern and decisionmaking style. 5. Individual Behavioural Aspects: People of different nationalities differ in terms of their perception and learning, attitudes, and personality dimensions. These aspects are significant in understanding individual behaviour. Manager needs to understand individual behavioural aspects in relation to global perspectives. Some important individual behavioural aspects in international OB are: (a) Personality and Ability: Personality, and physical and mental abilities of people vary from country to country. (b) Value and Attitudes: People of different nations hold different values and attitudes for life orientation, job, organisation, freedom and empowerment, quality of life, power-orientation, opportunities and threats, and many such aspects.

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(c) Perception and Learning: Perception and learning of people of different nations show notable distinction. They depend on domestic climate. They are key issues in international OB. (d) Motivation: People across the globe are motivated differently by different incentives and methods. Motivation can never be alike among people of different countries. Money, informal relations, job contents, facilities, non-monitory rewards, and so forth, have varying roles in motivating employees of different nations. (e) Degree of Dynamism: People across the globe display different degrees of adaptability. Some accept the changes without much hesitation while others resist them strongly. Manager needs to act differently with the people with different degrees of dynamism. Global Mobility: Employees who travel to a foreign country for work find it difficult to adapt to the new culture because of factors like parochialism, ethnocentrism, and culture shock. Although culture shock acts as a potential barrier to globalisation, it can be overcome through careful selection, training and assistance for employees on foreign assignments. Groups and Teams: Culture and climate in a country affect group formation, group norms, and group behaviour. In the western countries, people believe in individualism, while in the eastern countries they believe in groups and teams. Dynamics of groups and teams have significant influence on behaviour of people. Need of Most Suitable Approach: It is not possible to transfer business practices directly from one country to another. It is also not possible to use either the home country practices or the traditional practices of the host country. In such a situation, the best approach for expatriate managers would be to operate within the scope of home office policies, after adapting them to fit the culture of the host nations. Theory Z is an example of an organisational approach that integrates American and Japanese management styles. (Refer to Chapter 20 for more details.) Self-Efficacy Skills: A man is the outcome of his culture. Culture injects certain virtues and capabilities that have strong influence on one’s confidence, persistence, and career orientation. Self-efficacy—a prime capability determining one’s response to a situation— is crucial issue in international OB. Self-efficacy is: The individual’s belief that he or she is capable of performing a task.7 People belonging to different cultures and nationalities have different levels of self-efficacy. Manager dealing with multinational workforce cannot treat employees equally. Self-efficacy affects choice of behaviour, motivational efforts, perseverance, facilitative thought pattern, and vulnerability to stress. He needs to understand their self efficacy levels and should manage them accordingly. Change and Conflict: Employees and managers hold different views for change and conflict. People of different nations have different capacity to discover, accept, and adapt to change. This is significant matter for a manager working with multinational employees. In the same way, people, worldwide, are not identical in relation to conflict. For example, some perceive conflict as a problem while some perceive it as creative abilities. Positive Organisational Behaviour (POB): Important constituents of POB, including emotional intelligence, hope, subjective happiness, self-efficacy, et al, have a number of useful implications in international organisational behaviour. These constitutes are viewed, studied, and applied to organisations dealing with multinational workforce.

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Model of International Adjustment International OB helps managers to deal with international adjustment problems effectively. IOB improves managers’ understanding of different dimensions related to behaviour of people worldwide. International adjustment problem arises in two situations: 1. When company wants to work at foreign place and/or work with foreign firms and clients 2. When company manages cosmopolitan workforce in the country J. S. Black, M. Mendenhall, and G. Oddou8 suggested a model of international adjustment. The model describes what type of skills an expatriate (or emigrant) manager requires to adjust with behaviour of people in foreign countries and international workforce. The model portrayed four types of expatriate’s skills for three types of adjustments. The model explains the type of behaviour an expatriate should exert to adjust with international behaviour of people. See Figure 15.2.

1. Individual Dimension Individual dimension describes skills and capabilities a manager requires to adjust with international environment. It includes three sets of individual skills: (i) Self-efficacy Skills: The expatriate must have self-confidence, self-esteem and mental hygiene. He should mentally and socially be able to manage different people in foreign country. He must be able to manage stress level; must possess necessary technical competence; and must find out alternative ways to seek pleasure and happiness in a foreign place.

FIGURE 15.2 Model of International Adjustment (Source: Based on J. S. Black, M. Mendenhall, and G. Oddou, ‘Towards a Comprehensive Model of International Adjustment: An Integration of Multiple Theoretical Perspectives,’ Academy of Management Review, Vol. 16, 1991, pp. 291 – 317)

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(ii) Relational Skills: Relational skills are similar to social skills, such as expatriate’s ability, desire, and tendency to interact, mix, and develop relationships with people of host nation. Communication with others in local language and use of such tidbits can help develop intimacy and build relations with foreigners. (iii) Perception Skills: Perception skills include ability of expatriate to understand the behaviour of foreign people and employees, their practices and culture. He must hold the right perception.

2. Non-work Dimension Non-work dimension deals with off-the-job adjustment. People working in a foreign land have to adjust in different situations. Non-work dimension may include: (i) Cultural Novelty: Cultural diversity or novelty demands high degree of flexibility on part of expatriate. One who wants to seek adjustment in foreign environment needs to change his behaviour and be adaptive. (ii) Family-Spouse Adjustment: This adjustment refers to degree of adaptation of expatriate’s family members – spouse and children. A lot depends on personal characteristics of family members and social support of overseas population.

3. Job Dimension Job dimension describes expatriate’s adjustment with job in overseas organisations. He needs necessary skills, knowledge, and experience to perform the assignment in the host countries. However, Indians exert high degree of job adjustability anywhere in the world. This dimension includes role clarity, role discretion, role novelty, and role conflict. (i) Role Clarity: Role clarity implies the degree to which one understands his duties, responsibilities, tasks, demands and, in general, job expectations. High degree of clarity leads to easy adjustment with the assigned work. (ii) Role Discretion: Role discretion indicates the degree of flexibility of workplace rules, policies, procedures, regulations, expectations, etc. (iii) Role Novelty: Role novelty implies the degree to which the role (duties, responsibilities, expectation, demands, etc.) exhibit distinctiveness compared to expatriate’s perceived/ assumed role. (iv) Role Conflict: Role conflict takes place when one’s perceived role differs from actual role the job requires. But, when there is possibility of high role conflict, an expatriate must learn to compromise.

4. Organisation Culture Dimension Every organisation has its culture. It is made of assumptions, norms, and patterns that regulate behaviour of members in the organisation. Cultural novelty and social support are two important issues in organisation cultural dimension. (i) Organisation Culture Novelty: Expatriate employee must be aware of organisation culture in which he has to work or is working. His adjustment process depends not only on the degree of novelty, but also on his abilities to adjust with novel situation. For example, Indian employees can easily adjust in organisation cultures in Africa, UAE, America, Australia, Canada, and other nations.

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(ii) Social Support and Logistical Help: One’s adjustment with organisation culture in foreign country depends on the type of social support and logistical help extended by the company management. This model highlights almost all possible constraint that an expatriate faces while working in foreign organisations. The model shows what types of capabilities one requires and what type of diversities he is supposed to confront. It is useful framework and carries a number of implications in relations to international OB. It indirectly describes different dynamics of international OB, including individual behaviour, group behaviour, and organisational behaviour. The model helps find and analyse relevant dimensions of international OB. Students, teachers, and proctitioners can gain useful insights from the model. Contributors must be appreciated for valuable comprehensive analytical model that describes international adjustment. The frame work, though developed two decades ago, seems valid even today.

Women’s Role and IOB Study of International Organisational Behaviour is incomplete if gender issues are not addressed. The position of women in society and the role they play have always been controversial across cultures. Different cultures assign different roles to women and, consequently, their involvement in business is largely determined by these social, cultural and legal norms. This section focuses on the role of women against the backdrop of International Organisational Behaviour. Societies across cultures have assigned various roles to women. With the passage of time, the status of women underwent considerable changes. Society became more acceptable towards women stepping out of the house and venturing into professions hitherto reserved for men. Gradually women went up to gain top positions in all kinds of professions. Nonetheless, limitations can still be found in certain parts of the world while it comes to women venturing into business. In countries like USA or UK women enjoy equal opportunities along with their male counterparts. They are found in almost every profession ranging from politics to sports, while in some Middle Eastern countries women are not even allowed to drive. However, Saudi Arabia made a recent breakthrough by appointing its first woman deputy education minister. (Refer companion website for more detail on this topic) International OB seems more relevant to those who operate globally. Gillette, Dow Chemicals, Sara Lee, Procter and Gamble, Coca-Cola, GE, Boeing, Colgate-Palmolive, Kodak, Taxas Instruments, and McDonald, (all US based), obtain more than two-thirds of their sales from overseas. Samsung and Hyundai (Korean companies) operate in many countries of the world. Indian software companies (Infosys Technologies, Tata Consultancy Services, Wipro Corporation, etc.,) sell their products in many countries. Indian automobile majors, including Tata Motors, Mahindra and Mahindra, Hero Honda, Maruti Suzuki, and many others sell their products in global market. In the same way, L&T operates in many countries. They employ people of several nationalities. Managers of these corporate units need knowledge of international OB. Most of them are aware of how people behave in domestic and foreign organisations.

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It can be concluded that despite such visible changes, women still have a long way to go especially in the world of business.

EMERGING CHALLENGES IN OB Major Challenges Major challenges have been briefly described below: 1. Complex Human Being Man—both manager and managed—is the most complicated element of an organisation. Man has transformed from economic man to complex and compulsive man. The real challenge is: What aspects, in what depth, and in which context should be studied to make reasonable prediction. 2. Humanistic and Anti-humanistic Approaches to Employees Some companies have adopted and implemented employee-oriented management practices. They include quality of work life, work life balance, employee empowerment, socio-technical job design, etc. The challenge for OB is to find the why and how of this issue. 3. Small and Large Companies (Size Diversities) People working in small companies and large companies have different mindsets and expectations. The challenge for OB is to find the aspects that govern behaviour of people in different organisations of varied sizes. 4. Information Technology

Development of information technology made man greedy to do everything within limited time and energy. IT makes man more complex and compulsive.

5. Ethical Erosion Worldwide Ethics scandals have hit many companies recently. OB has been caught between pure ethical and pure unethical practices. OB cannot make a sense when people have different ethical standards.

6. Rapid Globalisation Managers have to manage a workforce that is likely to be very different in needs, aspirations, life-orientation, attitudes, and so forth. Motivation, leadership, communication, and personality traits are some essential determinants to be understood with reference to globalisation. 7. Recent Economic Crisis

Changed economic conditions necessitated both managers and managed to change their mindset. OB needs different perspectives to deal with changed situation. Perception of people is subject to change during economic prosperity and crisis.

8. Instable and Inadequate OB Knowledge Nature and scope of OB is still a dilemma. Though a number of new concepts, theories, and approaches have been used intensely, to manage man at work is still a challenge. Workforce becomes more and more contingent upon global situations. OB has been proved to be inadequately armed to deal with the recent situations. 9. Natural Terror Tsunami, heavy rains, floods, cyclones, excessive snowfall, spread of fatal epidemics, etc., affect natural way of living and perceiving. Healthy mentality is disturbed. Implications of OB seem irrelevant in such situations.

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10. Spread of Terrorism

Recent brutal and merciless terrorists’ attracts in many places, claiming hundreds of innocent lives, have changed healthy attitudes of people and businessmen as well. Broad mindedness turned into narrow mindedness. People have started defining equality, fairness, trust, and reliability in a subjective manner. Universal applicability of behavioural science has been challenged.

11. Open System Organisation Organisation is an open system consisting of people, technology, structure, and purpose (elements within organisation) that interact with its environment. OB has to state how many and which ones constitute the relevant environment. Practically, it seems a challenge. 12. Workforce Diversities Workforce diversities indicate differences among people within an organisation in a given country. Organisations exhibit more heterogeneous mix of people in terms of gender, age, race, ethnicity, sexual orientation, cultural values, socio-economic background, and capabilities and/or disabilities. Managing workforce diversity has become a global concern.

13. Gender Issue

Different countries and different cultures have their norms for employing and treating women at work. It is a real challenge for OB to explain this phenomenon.

14. Cultural Diversities at Different Workplaces Culture is the acquired knowledge that people use to interpret experience and generate social behaviour. Understanding global differences and applying OB is not an easy task.

SUMMARY Organisational Behaviour (OB) has passed through several stages of development. Considerable research is still going on to enrich the knowledge. Now, OB has become a global discipline. Historical development of OB describes progress of OB from very primitive stage to the advanced or modern stage of organisational behaviour. It may be called the evolution stages of OB development. Development phases of OB contain four stages: Scientific Management Movement, The Hawthorne Experiments, Organisational Behaviour, and Positive Organisational Behaviour. The Hawthorne Experiments (1924–32) by Elton Mayo and his associates at Hawthorne Plant of Western Electric Company treated as important event because they initiated the real beginning of OB. The Hawthorne Experiments were conducted in four phases: First Phase: Illumination Experiments (1924–27), Second Phase: Relay Assembly Test Room Experiments (1927–28), Third Phase: Mass Interviewing Programme (1928–30), and Fourth Phase: Bank Wiring Observation Room Experiments (1931–32). The Hawthorne Studies provided some interesting insights and contributed to a better understanding of human behaviour in the organisation. International Organisational Behaviour (IOB) studies systematically the behaviour of people in relation to global perspectives to assist managers in understanding and shaping behaviour of cosmopolitan employees.

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Many forces, including global diversities in workforce, rapid means of communication and transportation, growth of international business, LPG policies, unequal distribution to natural resources, and some others, necessitated international OB. Cultural diversities and employees' response, people in international OB, role of gender differences, management theory and practices, individual behavioural aspects, global mobility, groups and teams, need for most suitable approach, self-efficacy skills, change and conflict, Positive Organisational Behaviour (POB), etc., are key issues in IOB. However, work- force global diversities are the focal point in IOB. International OB helps managers to deal with international adjustment problems effectively. It improves managers’ understanding of different dimensions related to behaviour of people worldwide. J S Black, M Mendenhall, and G Oddou suggested a model of international adjustment. In different countries, the woman has varying degrees of involvement in business activities and management. Indian situation is quite good. Many Indian women are successful businesswomen. They enjoy more freedom compared to other nations.

KEY TERMS Evolution of Organisational Behaviour The Hawthorne Experiments Illumination Experiments Relay Assembly Test Room Experiments

Mass Interviewing Programme Bank Wiring Observation Room Experiments Positive Organisational Behaviour (POB) International OB (IOB)

Key issues in International OB The Model of International Adjustment Women’s Role in International OB Emerging Challenges in OB

EXERCISES Objective Type Questions A. Answer the following: 1. Name the famous experiments that provided a base for emergence of OB. 2. Name the two key persons who conducted the Hawthorne Experiments. 3. Which type of change was introduced in the Illumination Experiments? 4. In the third stage of Hawthorne Experiments, how many interviews were conducted during 1928 and 1930? 5. How do OB and IOB (international OB) differ? 6. State any four key issues in international OB.

7. In the Model of International Adjustment, what are the key variables in individual dimension? 8. Name the country where women seldom work after marriage, are lower paid and are not permitted for top positions. 9. Name the Islamic nation which has taken certain steps for women employment. 10. Write five key challenges that OB is now facing.

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B. Choose the correct option (MCQs): 1. Prime focus of organisational behaviour is (a) Technology (b) Human being (c) Organisation structure and design (d) Organisation culture and climate 2. Which one of the followings is treated as the base of OB development? (a) Scientific Management (b) Administrative Management (c) Hawthorne Experiments (d) System Approach 3. Who was associated with the famous Hawthorne Experiments? (a) Elton Mayo (b) Peter F Drucker (c) Chester Barnard (d) Douglas McGregor 4. State the fourth and the last stage of OB development. (a) Hawthorne Experiments (b) Positive Organisational Behaviour (POB) (c) Human relations movement (d) Scientific Management 5. Where were the Hawthorne Experiments conducted? (a) Tokyo (b) Chicago (c) California (d) London 6. State the correct time span of the Hawthorne Experiments. (a) 1934–42 (b) 1932–34

7.

8.

9.

10.

(c) 1922–32 (d) 1924–32 Which is the second stage of the Hawthorne Experiments? (a) Mass Interviewing Programme (b) Bank Wiring Observation Room Experiments (c) Relay Assembly Test Room Experiments (d) Illumination Experiments When is international OB necessary? (a) When company is large in size (b) When company employs multinational employees or/and operates in foreign land (c) When company is engaged in export and import (d) When company uses foreign technology With reference to international OB, find the odd one. (a) Foreign employees in a company (b) Expatriate managers in foreign company (c) Foreign top management (d) Foreign educated managers in a company Which is the most important issue in international OB? (a) Workforce diversities (b) Global mobility (c) Technological diversities (d) Gender factor at work

Descriptive Questions 1. ‘Behaviour School has its root in Hawthorne Experiments.’ Comment. State managerial implications of Hawthorne Experiments. 2. ‘Organisational behaviour is serendipitous discovery.’ Explain the statement in relation to objectives of the Hawthorne Experiments and their resulting outcomes.

3. Write notes on: (a) Behavioural implications of the Hawthorne Experiments (b) Bank Wiring Observation Room Experiments 4. Discuss evolution stages of organisational behaviour.

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5. Explain: (a) Illumination Experiment (b) Mass Interviewing Programme in the Hawthorne Experiments 6. Explain the term ‘international OB.’ Briefly describe its features. State factors and people in International OB. 7. Write a note on key issues in International OB.

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8. Explain: (a) Women’s role in international OB (b) Model of International Adjustment 9. ‘OB is facing a number of challenges in today’s business world.’ Comment on the statement addressing key issues. 10. Discuss emerging challenges in OB

Assignments 1. Students are assigned to find out about MNCs that practice international OB for excellence in performance.

2. Students are assigned to investigate about permissible role of women in business across the globe.

REFERENCES 1 Fred E Luthans, Organisational Behaviour, McGraw-Hill/Irwin, New York, 2005, p. 14 2 Elton Mayo, The Human Problems of an Industrial Civilisation, Macmillan Company, New York, 1933 3 Fred E Luthans, op. sit. p. 15 4 Ibid, p. 16 5 John W Newstrom and Keith Davis, Organisational Behaviour, Tata McGraw-Hill, New Delhi, 1998, p. 5 6 Stephen Robbins and Seema Sanghi, Organisational Behaviour, Dorling Kindersley (India), 2006, p. 15 7 Stephen Robbins and Seema Sanghi, op. cit, p. 620 8 J S Black, M Mendenhall, and G Oddou, ‘Towards a Comprehensive Model of International Adjustment: An Integration of Multiple Theoretical Perspectives,’ Academy of Management Review, Vol. 16, No. 2, 1991, pp. 291 – 317

ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. The Hawthorne Experiments 2. Elton Mayo (the psychologist) and Roethlisberger (the sociologist) 3. The change was about varying degrees of illumination (level or intensity of light) at work place 4. About 20,000 interviews were conducted during 1928 and 1930 5. OB and IOB differ in terms of target people 6. Four issues are: cultural diversities, gender differences, global mobility, and self-efficacy skills 7. The key variables are self efficacy, relational skills, and perception skills 8. Japan 9. Oman

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10. Complex human being, ethical erosion worldwide, recent economic crisis, spread of terrorism, and workforce diversities B. 1. (b), 2. (c), 3. (a), 4. (b), 5. (b), 6. (d), 7. (c), 8. (b), 9. (d), 10. (a)

CASE Seminar on Emergence of OB Organisational behaviour has become integral part of today’s management practices. It studies scientifically the behaviour of people in formal organisation. It has potential to improve managers’ understanding of employees and helps in formulating formal provisions. In fact, it is difficult to trace the exact beginning of OB. Given below are some excerpts of a seminar organised on ‘Historical Development of OB.’ First Participant: OB has been in existence since the beginning of human civilisation; OB is as old as human civilisation. Study of behaviour and its implications have remained significant in organising, directing, and controlling human efforts in the army and other activities since thousands of years. But, this area was not formally recognised as a discipline or field of study. Unquestionably, behaviour has remained key consideration in every type of decision. Classical thinkers have indirectly considered human behaviour as one of the important issues in organising and managing human efforts. However, the Hawthorne experiments are considered as real beginning of OB in formal ways. Inferences of the Hawthorne were used to develop human relations movement, and, finally, the field has been labeled as organisational behaviour. Though the scope of OB is still not very well-defined, it has been useful area of management study and application. Second Participant: The domain of OB is not restricted to domestic application only. Application of basics of OB have been extended to international management. With globalisation process, OB has become global discipline. Managers are expected to have knowledge of how the workforce originating from different places behaves at work. Workforce diversities have impelled managers to acquire basic knowledge of international OB (IOB). The slogan ‘Go Global’ has made OB an imperative discipline in management education at the global level. IOB has become part of curricula of management education across the world. Third Participant: Women’s role in business has a number of behavioural implications. In OB and international OB, gender issue enjoys top priority Different cultures permit the women varying degrees of freedom to involve in business activities. Even in developed countries, social and cultural forces do not allow women to work at par with men. For example, in USA and Canada, women are seldom found at top positions; Japanese women normally do not work in business after marriage; in Israel, normally, the Constitution doesn’t permit women to work. In most countries where women are permitted to work, they perform subordinate role to men. Indian women enjoy comparatively more equality. Business women are discriminated in form of retirement age, position and status, pay, work assignment, and so forth. Experts justify such discrimination on biological and psychological grounds. In India, we find women in every type of work at every position in the organisation. Fourth Participant: In the era of rapid globalisation process, OB has become IOB. Whether prefix ‘international’ is used or not, Organisational Behaviour (OB) is treated as International Organisational Behaviour (IOB). Now, OB is equipped with rich theoretical and research base. It seems instrumental for international adjustment. However, due to a number of factors, OB

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(or IOB) is facing formidable challenges. In certain cases, OB is not found strong enough to suggest objective solutions to problems. Complex human being, humanistic and anti-humanistic approaches to employees, small and large companies (size diversities), information technology, ethical erosion worldwide, recent economic crisis, instable and inadequate OB knowledge, natural terror, spread of terrorism, and other factors have challenged OB. Open discussion took place followed by concluding speech of expert, and the event ended.

Questions for Discussion 1. 2. 3. 4. 5.

Comment on emergence of OB. Do you recommend complete gender equality at workplace? Why? ‘Despite a number challenges, OB cannot be replaced by any other discipline.’ Discuss. ‘OB and IOB are same.’ Do you agree? Why? Do you think that Indian women have better position in business? Support your argument with practical examples.

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Organisational Structure, Climate, and Culture Learning Objectives Upon completing this chapter, you will be able to: Examine the impact of organisational structure and design on employees’ behaviour Summaries traditional organisational designs Describe some modern organisational designs including horizontal organisation, network organisation, and virtual organisation Define organisational climate and examine its impact on employees’ behaviour Define organisational culture and discuss relevant issues

INTRODUCTION Organisational structure, organisational climate, and organisational culture are three key issues in understanding, generating, and controlling human behaviour at work. Organisation design determines internal structure and environment that directly affects behaviour of people in it. The right design is a source of motivation and satisfaction and can positively contribute to better performance. In that view, some modern organisation designs have been evoked recently. For example, SAS Inc tried to actualize ideal organisation design, encouraging organisation culture, and amicable climate. The company was established in the 1970s. It had practiced employee friendly policies. Its co-founder and CEO, Dr. Jim Goodnight, had created employee centric corporate culture. However, some experts opine that too much employee centric policies and practices can affect objectivity in operations. 1 Note: Additional reading material related to this chapter is available on the companion website of this book.

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The present chapter contains four parts: 1. Organisational Structure and Design 2. Organisational Culture 3. Organisational Climate 4. Organisational Effectiveness

ORGANISATIONAL STRUCTURE AND DESIGN Organisation design is a plan or blueprint that leads to specific organisation structure. The structure is based on design. However, structure and design are taken as synonyms and are used interchangeably. Modern management practitioners, behaviourists, and experts stress more on suitable organisation design for regulating behaviour of people. Note that organisation design affects relations among people, determines job performance, and contributes to overall satisfaction. The right design is a source of motivation and satisfaction. The structure plays an important role in innovation and change, conflict and stress management, and creating suitable work climate that makes people work with their best capacity. An organisational theorist noted: "Organisational structure is more than boxes on a chart; it is a pattern of interactions and coordination that links the technology, tasks, and human components of organisation to ensure that the organisation accomplishes its purposes."1 Classical theory emphasises on people and authority relations and, hence, it seems an inadequate explanation. Modern organisation theory views the organisation as a system made up of interacting parts. It is an open system and interacts continuously with external environment for inputs and outputs. The latest development in organisation theory is the contingency approach. It assumes that there is no best way to organise; the organisation structure must fit with existing (internal and external) environment. Environmental forces shape the design of the organisation. Organisation must adjust and readjust with outside forces to survive and grow. It is based on the principle ‘survival of the fittest.’ Information technology and globalisation processes are key issues of the present environment that affect organisational design.

Types of Organisation Structure/Design Chapter 8, ‘Types of Organisation Structure’ discusses key aspects of basic types of organisation structures. All types of organisation structures are based on distribution of authority and responsibility from top-to-bottom or from bottom-to-top. The chapter describes the following structures: 1. Entrepreneurial Organisation 2. Line Organisation 3. Line and Staff Organisation 4. Functional Organisation 5. Committee Organisation 6. Project Organisation 7. Matrix Organisation

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8. Other Organisation Structures (a) Decentralised Organisation (Structure) (b) Team Organisation (c) Strategic Business Unit

Bases for Departmentation These are some simple and traditional approaches to design the physical layout (structure) of the organisation. The latter part of Chapter 7 describes different bases for designing organisation structure. They are also called bases for departmentation. The chapter briefly describes: 1. Place based Organisation (Geographical Organisation) 2. Function based Organisation (Functional Organisation) 3. Product based Organisation (Product Organisation) 4. Customer based Organisation (Customer Organisation) 5. Time based Organisation (Time Organisation)

Modern Organisational Designs In this chapter, some modern organisational designs have been discussed. Modern designs show a drastic shift from traditional bureaucratic patterns to experimental and innovative patterns. Fred E Luthans notes: "The modern structures of organisation are based on behavioural, system and contingency theories, and they are designed to meet the challenges of growth, complexities, conflict and changes."2 Simply modifying classical structure is not enough to meet contemporary situations. Fast changing environment, gigantic size of organisation, revolution in information technology, rapid globalisation, diversified culture of employees, and more emphasis on creativity, innovation, flexibility, and adaptability have created the biggest challenges for managers to overcome. Modern managers are found searching for better organisation design to adjust with internal and external forces. This part explains some modern organisational designs: 1. Horizontal Organisation Design 2. Network Organisation Design 3. Virtual Organisation Design

Horizontal Organisation Design

Traditionally, organisation follows vertical or heretical (hierarchical) pattern. In the changed environment, vertical organisation is not suitable, and is loosing its relevance. Particularly, advanced information technology and fast globalising environment demand horizontal structure. Horizontal structure facilitates cooperation, processes, teamwork, and customer orientation.

Definitions Horizontal organisation is easy to describe, but difficult to define. In comprehensive manner, a horizontal organisation can be defined as: Horizontal organisation is a customer driven modern form of organisation characterised by reduced hierarchy, direct information link with

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participants, team-based performance evaluation and reward, emphasis on multiple competencies, openness in dealing, and end result process based organisation that enables the firm to facilitate speed in action, flexibility with situation, and comfortable cooperation.

Principles (Elements or Characteristics) Frank Ostroff (a consultant) and Douglas Smith3 have developed some guiding principles for defining and designing horizontal organisation design. They are: 1. Organisation revolves around the process, and not the task: Therefore, organisation must be designed around its core processes. Each process has its owner (responsible head) and specific performance goals. 2. The hierarchy is flattened: It suggests to reduce level of supervision, combine fragmented tasks, eliminate works that fail to add value, and cut the activities within a process to minimum. Organisation must be made flat from tall. 3. Team is used to manage every thing: Self-managed teams are the building blocks of this organisation. Each team consists of experts in respective areas who have common purpose and are held responsible for performance. 4. Customers driven performance: Customer satisfaction, not profits, is the primary focus of the organisation. Performance is measured and evaluated against customer satisfaction. It indicates customer-oriented design. 5. Team performance is rewarded: The reward systems are based on team results, and not individual performance. Multiple skills development, not specialised expertise, should be rewarded. 6. Supplier and customer contact is maximised: Employees of organisation must maintain direct and regular contact with customers and suppliers. If possible, representatives of customers and suppliers may be included as members of in-house teams. 7. All members need to be fully informed and trained: All employees must be supplied with full data. Similarly, they need to be trained to enable them collect, analyse and use the data to make effective decisions. Like General Electric, Motorola, Xerox, and others have moved to horizontal design of organisation. They have cut bureaucracy across functions and levels to solve their problems. Some of them have applied supply-chain management to serve their esteemed customers better. Xerox has used multidisciplinary teams to develop a new product. Horizontal organisation facilitates speed in action, flexibility with situation, and comfortable cooperation. Some recent work on horizontal organisation suggest following principles:4 1. Make teams, not individuals. 2. Decrease hierarchy by eliminating non-value-added work, and by giving team members the authority to make decisions directly within their respective process flow. 3. Emphasise on multiple competencies and train people to handle issues and work in cross functional areas. 4. Measure for end-of-process performance objectives, as well as customer satisfaction, employee satisfaction, and financial contribution.

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5. Build a corporate culture of openness, cooperation, and collaboration; a culture that focuses on continuous performance improvement and value, employee empowerment, responsibility, and well-being.

Network Organisation Design Network organisation design is an improvement over horizontal design. It is based on horizontal coordination and collaboration beyond the boundaries of the organisation. It is totally free from the classical, hierarchical, and functional structure of organisation. Internet technology and advanced means of telecommunication, and continuous globalisation have made it possible to form a network that can link people, organisations, and systems of the whole world. Now, it is possible for people to exchange information and work regularly with virtual teams on various projects. Many organisations have started practicing network structure. Many companies have been practicing the network organisation successfully. Coca-Cola sees itself as a global corporation, and not as a US or Atlanta Company. Nile, Reebok, Boeing, Apple Computer, Nokia, Sony, and many others, have strategic alliances or joint partnerships with dozens of companies of the world. The network organisation can be created by subcontracting firm’s many major functions to separate enterprises and coordinating their activities from a small headquarter organisation. Data and information sharing among participating firms take place electronically (i.e., via Net). The hub organisation maintains control over work processed by various subcontractors. Even a small network structure can compete on a global scale. BPO (Business Process Outsourcing) firms widely follow network organisation design.

Definitions Network organisation has been a popular concept in academic literature for a number of years. Miles and Snow,5 the organisation theorists, identified this design and called it dynamic network. It shows a unique combination of strategy, structure, and management process. Miles and Snow define: "Delayered, highly flexible, and controlled by market mechanism rather than administrative procedures, firms with this new structure arrayed themselves on an industry value chain according to their core competences, obtaining complementary resources through strategic alliance and outsourcers."6 Network organisation is quite different from traditional hierarchical organisation. Superiorsubordinate (authority) relations are brought to an end and all members have equal status as members of a team, who are expert in their relative areas and perform complementary activities to excel team performance, not individual performance. More clearly, the network design can be described as: Network design is a new form of organisation structure that is characterised by customer orientation, multidisciplinary team-building, flexibility, innovation, quality, and rapid responsiveness. It stresses heavily on information technology, achieving competencies, outsourcers, and strategic alliance. We can define the term as: Network organisation is temporary network of autonomous organisations that operate on complementary competencies. They connect their information system to other partners via networks for developing, making and distributing products in cooperation.

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Based on key characteristics of the network organisation, we can give a comprehensive definition as: The network design is based on market mechanism and customer-orientation that stresses on information technology, multidisciplinary team building, achieving core competencies, prioritising outsourcing, building strategic alliances, and performing client and server functions. Unlike hierarchical structure, network design cannot be easily drawn on paper.

Characteristics of Network Organisation

Based on above definitions, a few salient fea-

tures can be derived: 1. Networked Functioning: Members perform spherical (round) functional and activities. Each of them performs complementary functions. 2. External and Open: Its design depends on outside sources and forces. 3. Asset or Capital: Human competencies and information are treated as capital of the firm. 4. Dynamic Design: It is highly flexible to adjust with dynamic environment. The network design is controlled by market mechanism and customer-orientation. 5. Proficiency oriented: Network organisation is managed by professionals or experts, and not by authority holders or managers. 6. Empowerment to Act: All members are empowered to decide and work without external control and supervision. 7. Team-building: Instead of groups, team-building is given more importance. Superiors and subordinates are transformed into team members. Team members are competent in their relative areas and perform complementary functions to excel team performance. 8. Insourcing and Outsourcing: Insourcing implies sharing resources and facilities within organisation to compete effectively with outside clients and venders within given resources. Outsourcing implies sharing core competencies with outside partnerships to perform spherical activities and functions effectively and efficiently. 9. Strategic Alliances: This is strategic agreement of collaborative relationships among two or more companies who vow to contribute to each other’s performance. 10. Self-managed Team: Emphasis is given on self management. External supervision and control are avoided. 11. Replacing Managers by Leaders: Head is known as team leader and coordinator rather than boss (manager) with authority to order, reward, or punish. 12. High Sense of Belongingness: Members are made feel: ‘It is my organisation. I am proud of being member of it. I am for organisation. It is my moral duty to work for it.’ 13. Broader Competencies and Team Reward: The new design emphasises on broader competencies rather than specific skills. Team performance is considered for rewarding team members. 14. Eliminating Competition and Promoting Cooperation: Each member is competent in relative area and work complementary to others. High cooperation exists, and competition, envy, criticism, etc., tend to disappear.

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15. Virtual Identity: In fact, it is difficult to portray network organisation. It exists in virtual form. Relations can be felt, but cannot be fully depicted in form of chart. Modern Indian corporate houses are gradually adopting network design to serve their domestic and global markets effectively. To work with network organisation, mindset of top management, managers, and employees need to undergo drastic shift. Structural reforms depend heavily on psychological reforms. People’s value system, traditions, attitudes and beliefs, and so forth, are required to be changed, even to be replaced. Prior to network design, hierarchical structure should be converted into horizontal organisation by reducing distances between extreme lower and extreme higher positions. Excessive formalisation must be reduced. Network design seems capable of responding to global opportunities and challenges.

The Virtual Organisation Design Virtual organisation is also known as the digital or dotcom organisation. The concepts of virtual organisation, virtual team, and virtual office have entered in management field very recently. It is not completely a new design. The virtual organisation is closely related to network organisation. It is information-based network organisation. Fred Luthans states that ‘‘virtual organisation is a temporary network of companies that come together quickly to exploit fast changing opportunities.‘’7 Therefore, it may be referred as the extended/revised form of the network design as it also represents new information technology, partnering, strategic alliance, and outsourcing arrangements. In views of N Venkatraman and John C Hendrson, the term ‘virtual’ in the virtual organisation comes not from ‘virtual reality,’ but from ‘virtual memory,’ which has been used to describe the way computer’s memory capacity is made greater than it really is. Virtual organisation requires a strong information technology platform.’8 IBM, AT&T, Ford, ABB, Clark Equipments (American firms), TCG (an Australian firm), Semco (Brazilian firm) and many other companies have adopted this design to access global capabilities and exploit emerging opportunities. Indian IT companies intensively use virtual organisation design to manage their operations in different nations. Virtual organisations outsource many functions, and concentrate on what they do best. Virtual organisation is managed by a small core group of executives whose job is to oversee directly any activities that are done in-house, and to coordinate relationship with the other organisations that manufacture, distribute, and perform other critical functions for virtual organisation.

Definitions Virtual organisation has been defined as under: Business Week defines: ‘‘Virtual Corporation (organisation) is a temporary network of independent companies—suppliers, customers, even erstwhile rivals – linked by information technology to share skills, costs, and access to one another’s markets. It will have neither central office nor organisation chart. It will have no hierarchy, no vertical integration.‘’9 We can define it as: Virtual organisation is a network made up of companies, clients, customers and employees who link themselves viva internet technology for economic and non-economic purposes. The virtual organisation can be summarised as: The virtual organisation is the Internet-based global network of several related and/or unrelated firms that (the network) enables partnering firms to

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share costs, skills, and capabilities to access and exploit fast changing international market opportunities. Each partner contributes to the virtual organisation the best of its capabilities. It may be temporary, long-term, or permanent network to serve each others needs.

Attributes (or Features) of Virtual Organisation

Fred E. Luthans10 summarises the virtual organisation in terms five attributes: (1) technology, (2) opportunities, (3) no borders, (4) trust, and (5) excellence. Let us briefly comment these and some other attributes of the virtual organisation: 1. Technology: Information technology, the Internet, is core base of virtual organisation. Information networks link far-flung (distanced) companies and global partners. Partnerships and dealings among alliances are based on electronic contacts. 2. Opportunitism: Partners, in virtual organisation, tend to be less permanent, less formal, and more opportunistic (opportunity-oriented). They form virtual network to grab the opportunities across the world and, more often than not, fall apart once their need evaporates. 3. No Borders: Virtual organisation is boundaryless organisation. All competent global partners can join the virtual organisation. It is not confined with rigid boundaries. It is difficult to decide where one company ends and another begins. Every player has multiple alliances and connections and, therefore, their relations cannot be drawn on paper. 4. Trust (High Trust Culture): The virtual organisation depends on mutual trust. The fate of one partner depends on the other. Each one has to rely on others; each one ensures the trust and expects the same. 5. Excellence: Each firm in the network offers core competencies and the best capabilities to others to avail the same from them. Contributing and accessing the best of their capabilities, each of the partners and alliances can expect the same from others. 6. Extension of Network Organisation: Actually, as stated in the former part of this topic, it is extension of network organisation. It is more dynamic. 7. Temporary or Long Term: Normally, virtual organisation is developed to exploit emerging opportunities. When opportunities cease, or need is met, their contracts and contacts evaporate. However, it can be extended for longer period of time, too. 8. Global Opportunities: Virtual organisation focuses on global capabilities and opportunities. Excellently performing firms undergo alliances to exploit fast emerging global opportunities. 9. Developing of Internal and External Alliances: Internal virtual organisation consists of project leader and team of professionals while external alliances consist of principal customers and joint venture partners (vendors). The virtual network is made of competent firms, professionals, clients, and others global partners. Virtual organisation is used primarily for generating synergy through temporary alliances. Competencies of different partners can be shared for mutual benefits of participants involved. In fact, all companies are not capable to do well in all areas. Their best competencies can be exchanged with others to take benefit of others’ best competencies. Deploying best competencies, better results can be produced. Medical, entertainment, tourism, and other activities also use virtual network.

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Mjunction, India’s Most Successful Virtual Organisation In 2001, Steel Authority of India Limited (SAIL) and Tata Iron and Steel Company (TISCO) came together to create mjunction, which offered buyers and sellers of steel an efficient, transparent, convenient, and creditable platform to do business over the Internet. Today, mjunction (www.junction.in) offers innovative eSelling, eSourcing, eFinance, and eKnowledge services across the industries that it serves—steel, coal, automobiles, consumer products, etc. It demonstrates how mjunction can transform the way one does business across any industry and supplychain in any country. Having in facilitated eTransaction of Rs. 19,684 crore in 2009–10 and Rs. 65,000 crore since its inception, mjunction has continued to be the country’s largest eCommerce company. It has procured goods and services worth over Rs. 10,500 crore till date (20th December, 2010) and works with more than 52,000 suppliers for clients across diverse industries around the globe. Virtual organisation is not free from limitations; there are a number of problems related to these organisations. Success of virtual organisation depends on several premises, such as trust, maturity, mutual interest, high individual competencies and willingness to exchange with others, commitment, and so forth. Users of virtual organisation must be aware of these issues.

Concept of Virtual Office

As stated earlier, like virtual organisation, virtual office also has recent origin. Actually, virtual organisation is made of virtual offices. In virtual offices, employees are not required to remain present at the places officially located. They can perform their work from any place using information links (the Internet and telecommunication). Mostly, in telecommunicating and information technology, virtual offices are widely used. However, it can extend to other activities as they involve better communication facilities that can support other transactions. In virtual offices, physical office space and individual chambers and desks have been replaced by an array (arrangement) of portable (movable or transferable) communication tools, such as electronic mail (e-mail), cellule or codeless phones, voice mail system, laptop computers, fax machines, modems, videoconferencing systems, and so forth. Employees are equipped with these tools to perform their relative work without remaining present in their physical offices. They can perform their assignments from their homes, cars, customers’ offices, or from any other places through telecommunicating or using Internet. Many companies in India and abroad (including IBM, Microsoft, Infosys, Wipro, Google, etc.) have adopted the concept of virtual offices. Virtual offices are, particularly, used in telecommunication, consultancy, medicine (to some extent), education and counselling, and information technology.

Benefits of Virtual Offices

The basic reason for using virtual office is that it provides greater flexibility to employees in designing their work schedule and workplaces. Virtual offices can solve the problems related to physical distances, expedition, parking, traffic jams, etc. Employees have more freedom and excess time to perform work comfortably. Many people prefer to work through virtual offices.

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Limitations However, for some employees, virtual offices do not make sense. They argue that these offices virtually (practically) restrict relations and sentiments necessary for healthy personal and corporate life. It makes man a mechanical device, instead of sensitive living being. The beauty of face-to-face dealing cannot be experienced through virtual offices. So, experts and practitioners suggest hybrid system in which they can have both types of transactions, actual (face-to-face) and virtual (by Internet and telecommunication). Solely virtual office is not desirable; it should be used along with face-to-face contacts. 3-G technology has made significant contribution to virtual offices.

ORGANISATION CLIMATE AND CULTURE The terms ‘organisational climate’ and ‘organisational culture’ are closely related and complementary to one another. They jointly determine organisation’s internal environment. Individual virtues and vices notably depend on culture and climate of organisation to which one belongs. Culture and climate create distinct identity for organisation. Encouraging suitable climate and sound culture are great source of motivation and job satisfaction, and can positively contribute to performance. Therefore, every organisation must create, nurture, and modify appropriate culture and climate in which people enjoy their respective works and make maximum possible contribution. We will discuss organisational climate and culture separately.

Organisational Climate The word ‘climate’ is used loosely in our day-to-day interactions. It is different from natural climate (often referred as weather). Employee-friendly Organisational Climate at MUL Organisational climate at Maruti Udhyog Limted (MUL) does not permit individual offices for employees. It has cubicles, common areas for employees to work. They have common rooms for meeting and eating. Office arrangement shows the organisational values of openness, equality, interaction, creativity, intimacy, and flexibility. Likewise, Google India’s corporate culture is known for excessive employee-friendly climate.

Definitions There are many definitions for organisational climate. Most definitions have more or less same inferences. Organisational climate is a set of man-made attributes specific to a particular organisation that affects organisation’s interactions with its members and environment. Organisational climate is made of a set of specific conditions, like goals, ethics, value system, activities, administrative policies, rules, reward system, and many other such variables, that affect behaviour of people, working within it. Climate may be conducive to employees or may be stressing.

Factors (or Determinants) of Organisational Climate Organisational climate is made of several variables or conditions. Variables may be referred as determinants of organisational climate. A climate is affected by many internal and external factors as stated below:

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Organisation context (philosophy or perspectives) Organisation structure Organisational processes Physical environment Nature of job Facilities available Organisation culture (value system) Human qualities and virtues External environment

Impact of Organisation Climate Organisation climate affects employees’ behaviour. Positive and conducive climate can contribute to excellence in overall performance. Suitable climate is instrumental for achieving objectives effectively. In contrast, improper climate adversely affects work performance and relations. Every organisation dreams to create and maintain healthy climate in which employees and organisation both are equally benefited. Positive impacts of sound organisational climate can be witnessed in the form of: 1. Excellent performance and better job satisfaction 2. High operational efficiency or economy 3. High morale and strong motivation 4. Effective implementation of change 5. Healthy industrial (employer-employee) relations 6. Sound external (public) relations 7. Better adjusting ability 8. Stability or survival during tough time 9. Good image in market 10. Improved competitive strengths Theorists, management experts, and practitioners unanimously agree that sound (conducive) climate is extremely important for achieving objectives effectively in time. Organisation climate is prime determinant of job performance, job satisfaction, morale, and overall productivity of human resource. The climate is man-made in nature and, hence, it is created, shaped, modified, replaced, or controlled by deliberate managerial actions. The climate, once established must undergo necessary changes from time to time to adjust with internal and external situations (opportunities and challenges). Climate creation and maintenance is the duty of top level management. While creating and/or modifying organisation climate, top management should emphasise on various areas or factors discussed earlier.

Organisational Culture Organisational culture is one of the determinants (or components) of organisation’s overall climate. It is a man-made system that reflects organisation’s customs, values, and approach.

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People are affected by culture in which they live and work. Organisation tries to impart and maintain its culture that governs behaviour of its members. The organisational culture creates its unique identity; organisation is known by its culture. For example, IBM, Microsoft, L & T, Tata Group, Reliance Group, Infosys Technologies, Sony, Hindustan Unilever, and many MNCs are known by their cultural norms. Organisation’s culture is reflected in form of customerorientation, employee policies, quality orientation, decision-making pattern, reactions to competitors, gratitude towards nation, and services and responsibilities to society. The corporate culture, in general, governs behaviour of workforce in a particular society.

Definitions Organisation culture has been defined as: Stephen Robbins defines: ‘‘Organisation culture refers to a system of shared meaning by members that distinguishes the organisation from other organisations.’’11 The term can now be defined as: Organisation culture is made of organisation’s philosophy, norms values, and ideology. The culture shapes organisation’s vision, priorities, policies and procedures, rules and regulations, and overall climate that governs behaviour of its members. Finally, we can say: Organisational culture is a set of core values shared by majority of organisation’s members, and is reflected in form of day-to-day behaviour of employees, and organisation’s dealings with others. Culture, by definition, is abstract, elusive, and implicit. Organisation develops a set of assumptions, understanding, and implicit rules and procedures that governs day-to-day behaviour of people at work place. Culture may be dominant culture or subculture. A dominant culture consists of a set of core values, like loyalty, customer services, quality orientation, business ethics, general business goals, and so forth, that must be shared, accepted, and respected by majority of organisation’s members. Subculture is a set of values shared by small minority of its members. Every department, unit, or division has its specific culture. No doubt, subculture is complementary to dominant culture. It may be strong culture or weak culture. A strong culture is intensely held, widely spread, and forcefully imparted. Strong culture has considerable influence on organisational members. All members are expected to follow the core values while weak cultural values are lightly held and occasionally followed. It permits certain degree of discretion.

Nature (or Features) of Organisational Culture

Questions and their answers stated be-

low clarify nature of organisational culture: 1. What is it? It is a set of beliefs shared by an organisation’s members. Culture is pattern of assumptions (beliefs) and restrictions of doing work and dealing with others. It is acquired knowledge that people use to interpret experience and generate social behaviour. Culture is learned and helps people in their efforts to interact and communicate with others in the society. 2. Where does it come from? It is originally invented by the founder of the organisation, or is acquired, adopted, and accepted from well-cultured effective organisations. It is normally created by founder or top level managers who form a core group that shares common vision.

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3. What makes the culture? The culture is a set of organisation’s core/dominant values, observed regularities, beliefs, norms, rules, philosophy, traditions and organisational climate. 4. How long does it exist? The culture characteristics of an organisation are relatively enduring over time and relatively static in propensity to change. 5. How is the culture reflected? It shapes organisation’s vision, orientations, priorities, policies and procedures, rules and regulations, and overall climate that governs behaviour of its members. Organisational culture is part of business strategy of the company. 6. Whom does the culture affect? People, as a member of the group, share culture. It affects behaviour of organisation’s members and their dealing with outside parties. 7. What is its significance? Strong culture helps organisation in creating special identity. It improves organisational efficiency. 8. Which are the core areas to be emphasised? Job performance, structure, relations, security, autonomy (freedom), equity, opportunities, support, identity, reward system, conflict level, risk tolerance, employees, national interest, etc., are the main areas where core values are imparted. 9. How is it imparted or learned? It is imparted systematically by inventing, stating, teaching, and practicing core values and norms. Organisational members learn culture by various models or ways, such as stories (describing events and occasions of company and its founders), rituals (procedures to follow during events), material symbols (like cars, furniture, perks, facilities, layout of office and factories), and language (technical jargons used to denote people, status, equipment, and customs). 10. Can the culture be changed? Yes. However, culture once imparted cannot be easily changed, modified, or replaced. It takes considerable time and requires continuous rigorous efforts to get results. 11. When should it be changed? When the present culture is not compatible with internal situations, and particularly, with external forces, it must be modified or replaced. Competition and survival are two factors that demand a change in the present organisation culture. 12. What is its relation with organisation climate? Organisation culture is one of the facets of organisation’s climate. An organisation can invent its own original culture or can acquire from other organisations within and outside the country. The founders of organisation have their strong impact on respective organisational cultures, for example, Thomas Watson and IBM, Azim Premji and Wipro Corporation, Ratan Tata and Tata Group, Henry Ford and Ford Motors, Aditya Birla and Birla Group of Companies, Dhirubhai Ambani and Reliance Group, Karsanbhai Patel and Nirma Chemicals, Mahatma Gandhi and Gujarat Vidhyapith (in education), and so forth. Note that organisation’s culture is affected by the society to which it belongs. People have their own cultural values which may or may not be compatible with organisation’s culture.

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Is Organisational Culture an Asset or a Liability? Organisational culture is both an asset and a liability. How is organisational culture an asset? Asset can perform many useful functions and can assist in realising business goals. As an asset, culture is an input to operations, processes, decision-making, and actions. Organisational culture brings uniformity and conformity necessary for integrated efforts. It gives a unique identity to organisation and its members. Sound culture improves organisational effectiveness. Culture imparts in its members the useful virtues, such as regularity, commitment, loyalty, persistence, sense of belonging, self-motivation, and so forth. Well-cultivated culture is reflected in terms of earnings, market orientation, and competitiveness. It injects in its members a high level of resiliency, hope, and self-efficacy. Culture safeguards organisation’s interest from all fronts. Success of leading national and international business groups can be attributed to the cultural values they follow. Unquestionably, a good culture (of company and country) is a valuable asset. Organisational culture may also turn into a liability. How is organisational culture a liability? Less relevant and tight cultural values and norms may invite some problems. Normally, culture becomes a liability when it does not permit organisation to adjust with environmental changes and challenges. It may also create additional obligation for key position holders to sustain its less relevant cultural values. Strong culture restricts the entry of useful norms and practices. Rigid culture makes the whole organisation obsolete. Due to tight culture, the organisation is left with only limited options and opportunities. Cultural diversities may restrict merger and acquisition strategies. It also prevents the organisation from undergoing useful strategic alliances with other firms. Strong close cultural values deprive the organisation of attractive opportunities. Organisations may be ruined due to rigid irrelevant culture. It blocks organisational progress. However, extent to which organisational culture is an asset or a liability depends on type of culture, ability of its members, degree of members conformity, and level of adaptation to changing environment. In today’s fast changing business environment, change in organisational culture seems (not only necessary, but also) indispensable.

Organisational Climate v/s Organisational Culture Organisation climate and culture, though closely related, are generally viewed differently in today’s management and OB literature. Some management experts and managers perceive them as same while others consider them different terms. Both are used to explain organisation’s internal atmosphere. Table 16.1 briefly explain key differences between them. Despite terminological difference, both are, more or less, treated complementary to each other. Both are concerned with social context in organisation and affect organisational behaviour and effectiveness.

Creating (Imparting and Maintaining) Organisational Culture

Organisation can develop its culture in a number of ways. Once the value system (culture) is developed or, sometimes, acquired, it is imparted step-by-step. Fred E Luthans12 suggests seven-step process of imparting (or socialising) organisational culture:

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TABLE 16.1

Differences between Organisation Culture and Climate Organisation Culture

Organisation Climate

1.

Organisational culture is acquired knowledge that people use to interpret experience and gen- teristics that describe the organisation and distinerate behaviour. guish it from other organisations.

2.

It is a basic input in organisation climate. It is part of organisation climate. organisation climate.

3.

tion that people hold about an organisation.

4.

- It refers to current situations in organisation. It deterhaviour.

5.

It deals with basic values, norms, and beliefs.

6. run.

It does not deal with values, norms and beliefs. It indicates current situations in organisation. Organisation climate can be changed to suit current situations.

7.

Chief founder, mentors, and top level manage- Current internal and external situations and managers deal with creating and maintaining climate. organisation.

8.

It is one of the aspects that determine internal climate and external response.

basic culture.

1. Selection of Entry Level Personnel In order to impart and maintain core cultural values, organisation must carefully appoint entry level employees. While selecting them, organisation’s norms, traditions, values, and beliefs must be adequately considered along with professional competence. Standardised recruitment and selection are used to select employees who perfectly match with work as well as core values of the organisation. MNCs deploy their existing personnel to impart key values while venturing into a new project. 2. Placement on the Job

Suitable placement of employees is essential to impart and maintain core organisation culture. Employees must be taught importance of human qualities. Besides IQ and technical competence, emotional balance is also considered as the basis for deciding on suitability of employees for the organisation. Emotionally balanced employees can easily absorb initial cultural strokes.

3. Job Mastery Employees must be supported in all possible ways to master the job. Superior and training experts can help employees in this. Attempts are made to match employees perfectly with job. Company’s efforts reflect core culture. For example, Coca-Cola patiently trains employees till they start worrying about the company. Similarly, most leading organisations, like Reliance, L&T, HCL Technologies, et al, emphasise on judging overall suitability of employees to facilitate organisations’ efforts of maintaining core cultural values.

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4. Measuring and Rewarding Performance Measuring and rewarding performance must be linked with cultural values. Reward policy must be reflective of company’s unique culture. Suitable criteria for evaluating performance must be set and communicated. For example, Proctor and Gamble (P&G) focuses on three criteria—building volume, building profits, and making changes that increase effectiveness.

5. Adherence to Important Values

This is an important step in imparting organisational culture. Employees are prepared to adhere to core values. They are inspired and encouraged to sacrifice their personal convenience and benefits to adhere to organisation’s culture. Once they accept the values, they trust the organisation and do not do anything that may harm organisation’s interest. Those who sacrifice their personal comfort for the sake of company must be compensated with monetary and other rewards. For example, Gujarat Ambuja Cements, Berger Paints, Honda Motors Company, and many others take employees and their families on foreign tours.

6. Reinforcing Stories and Folklore (or Legends)

In order to strengthen cultural values among employees, stories and folklore are used. Organisations put forth live stories to validate the culture and way of doing things. Folklore (myths and legends) explain the reason why the organisation does things in a specific way. For example, stories of Ratan Tata of Tata Group and Ajim Premji of Wipro show anticorruption attitudes of the business groups. Tata’s salt to software journey shows the Group’s culture of dynamism and continuous efforts for growth and excellence. Struggle stories of founders and promoters (for example, Bill Hewlett of HP, Dhirubhai of Reliance, Gautam Adani of Adani Group, etc.) can teach employees to be resilient in pursuit of goals.

7. Recognition and Promotion (Reward) This is the final step in imparting culture and maintaining it over time. Organisation ensures recognition and promotion to those employees who have done excellent job for the company. Those who can serve as role models to existing and new employees must be awarded. Normally, all companies recognise contribution of key players in their success stories. For example, Proctor and Gamble and Google pay special attention to those who have excelled in performance. Organisation must invent, impart, nurture, and modify its culture to keep people working with their best capabilities. Suitable culture is the base for understanding, improving, and controlling behaviour of people in the organisation. Sound culture contributes positively in all significant aspects of the organisation. Emotionally balanced employees can easily absorb initial cultural strokes and concentrate on work.

Approaches for Analysing Organisational Culture Organisational culture dominates total functioning of the organisation. It is reflected in organisational policies, decision-making, and managerial actions. It is a basic input in production, finance, HRM, and marketing decisions. There are two approaches to analyse or describe organisational culture, the first is ‘William Ouchi’s Framework’ and the second is ‘Peters and Waterman Approach.’

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William Ouchi’s Framework

William Ouchi13 describes (or analyses) organisational culture in form of three groups of companies: (1) American companies, (2) Japanese companies, and (3) Theory Z companies. Table 16.2, William Ouchi’s framework, shows some cultural dimensions of the three groups of companies. TABLE 16.2 Dimensions to Analyse Organisational Culture

American Companies

Period of Employment

Japanese Companies

Type Z Companies

Culture of Japanese - companies offer lifetime provide long-term emcan companies.

Evaluation and Promo- Culture of American comtion panies permits fast eval- evaluated and promoted. follow Japanese culture. uation and promotion. Career Path

Culture of American Japanese culture emphacompanies has adopted sises on non-specialised follow Japanese culture. career path.

Decision-making

Culture encourages indi- Culture encourages parvidual decision-making. ticipative decision-mak- participative ing. making.

decision-

Control culture emphasises on culture emphasises on culture emphasises on explicit and formal con- implicit and informal con- informal control and explicit performance. trol. trol. Responsibility

Concern for People

The culture of this group The culture follows indicompanies follows indi- of companies follows It is concerned with total Same as Japanese companies.

Peters and Waterman Approach Thomas J Peter and Robert H Waterman, Jr.,14 in their book ‘In search of Excellence: Lessons from America’s Best Run Companies’ have described the relationship between organisational culture and performance in the context of highly successful American companies. They observed that specific cultural values could contribute to successful management practices. They have used following eight criteria to describe culture of successful companies. 1. Bias for Action: Due to specific culture, firms show bias for action i.e., selective/discriminative emphasis on actions. Their goals, priorities, approaches are governed by culture. Bias for action offers them competitive advantage. 2. Stay Close to the Customer: It is culture that determines the degree of customer orientation. For example, Japanese and Korean companies have customer-oriented culture. Cultural values emphasise on customer satisfaction and customer relationship building. Different cultures exhibit varying degrees of customer orientation.

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3. Autonomy and Entrepreneurship: Different cultures permit different degrees of autonomy and entrepreneurship. In fact, autocracy is outdated. Most cultures prioritise autonomy to employees. Top authority encourages managers to behave as independent and autonomous entrepreneurs to promote creativity and innovation. 4. Productivity through People: Human resource is treated as the most valuable asset. Culture emphasises on human factor for better productivity. 5. Hands-on Management: Manager can effectively manage his fellows by moving around the workplace. He needs to be physically close to employees. Managers should not sit in their offices but should move around the work places (department, factory, R&D, etc.). However, it depends on the culture. 6. Stick to Knitting: Effective business units should stick to their core values and unique competencies to ensure long-term gains. 7. Simple Form and Lean Staff: Culture is also reflected in the degree of simplicity of structure and number of employees. Simple structure and less number of employees can help achieve excellent performance. 8. Simultaneously Loose and Tight Organisation: Organisation should be tight (or strict) as members have to share and use valuable resources, but should be loose (liberal or free) so that members can take their respective decisions. This aspect depends on cultural values. In today’s global management practices, organisational culture tends to be global. Most companies across the globe follow participative, humanistic, relation-oriented, and customercentric organisational culture. Each organisation should be ready to modify its organisation culture when needed.

How to Change Organisational Culture? Corporate culture needs to be changed in order to suit the changing situations. The initial conservative and close work culture of Tatas and Birlas transformed into modern to adjust with the new environment. Most dotcom (IT) companies have adopted global management practices. Changes in culture are made based on the type of exising culture and the required new culture. Public sector companies in India are now moving forcefully from bureaucratic culture to professional etiquette. Changing organisation culture requires systematic efforts. Key position holders—founders, promoters, mentors, and CEOs—must carefully and objectively decide on changing organisational culture. Culture can be changed by: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Creating new stories Telling success stories of other organisations Initiating new rituals Changing symbols Justifying existing culture as obsolete Creating new language Appointing people belonging to the desired cultures Acquiring new culture through mergers, acquisitions, and alliances Temporary shifting of key position holders to new culture Modifying work settings

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Measuring Organisational Culture Culture is an abstract but powerful determinant of people’s behaviour. It cannot be fully measured, but better insight can be gained by systematic study. Every act of organisational member is, explicitly or implicitly, governed by organisational culture. Organisational culture consists of behavioural regularities, such as norms, dominant values and beliefs, philosophy, policies, rules and procedures, and overall climate. All these aspects have direct impact on firm’s goals, strategies, priorities, pattern of reactions to competitors, degree of customer orientation, national and social obligations, strategic alliances, and long-term strategic options. However, these cannot be fully measured. Mostly, questionnaire and interviews tools can help generalise culture of a particular organisation. We can use structured and unstructured questionnaire incorporating all things that constitute the culture. Scale-type questions can prove to be most effective for measuring intensity of cultural effect on behaviour. Three-point scale, five-point scale, even seven-point scale on a continuum can be used with or without appropriate wordings (like strongly agree, agree, less agree, disagree, and strongly disagree) to study important cultural aspects. By measuring average and multiplying the average with the weightage, we can measure composite picture of organisation’s culture. Interview of members can reveal a lot of facts related to the firm’s culture. Projective techniques, such as sentence completion test, story telling test, word association test, pictorial test, etc., can also help get insight into the culture. Besides, systematic observation can reveal a lot about the culture the firm has acquired and adopted. Emerging Issues in Organisational Culture Corporate culture across the globe is gradually changing. Business giants are adopting new ways of thinking and doing. Their focus areas, objectives, priorities, and approaches are drastically changing. Modern corporate culture concentrates more on customer orientation, external relation-building, employee friendly policies, social responsiveness, ecological balance, and service to the nation. Some important emerging issues in organisational culture include: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Information Technology Corporate culture and globalisation Cosmopolitan workforce and organisational original culture Culture and innovation Merger and acquisition Employee empowerment Market orientation Focus areas and priorities Relations building Strategic alliance

ORGANISATIONAL EFFECTIVENESS High level of organisational effectiveness is the need of the time. Effective organisation can comfortably face local and global challenges and can enjoy emerging opportunities across the globe. It can maintain pace with dynamic environment and can ensure survival and steady

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growth over time. Today’s organisations focus on many areas to improve effectiveness, such as basic inputs, organisational climate and culture, products (goods and services), customer orientation, socially significant activities, competitiveness and innovation, relationship building with key stakeholders. Even, US based giant companies including IBM, GE, GM, etc., have entered the danger zone and are struggling. Nokia, cell phone instrument giant, experienced severe decline in sales due to low effectiveness. In today’s business environment, only highly effective organisations can sustain steady growth. Organisation culture and climate plays crucial role in improving organisational effectiveness. For example, Reliance, Tata Group, M&M, Infosys Technologies, ITC, Wipro Corporation, HUL, L&T, Aditya Birla Group, to name a few, in the private sector, the and ONGC, Shipping Corporation of India, Coal India and other navratna companies in the public sector have maintained high level of effectiveness in terms of financial performance as well as social responsiveness. Their founders, promoters, and managers have struggled for many years to impart suitable culture and climate necessary to reach the admirable level of organisational excellence. Organisational effectiveness is not a one-shot game; it is the net outcome of continuous efforts for years together.

Definitions of Organisational Effectiveness Organisational effectiveness is difficult to define in an exact manner. Confusion is the result of different view points and expectations of people. For example, marketing manager equates effectiveness with volume of sales and market shares, financial manager focuses on profits, PE ratio, and earning per shares, while HR manager emphasises on employees’ morale and satisfaction. Effectiveness is, thus, a multidimensional concept. However, the term can be defined as: Amitai Etizioni: ‘‘Organisational effectiveness is the degree to which an organisation realises its goals.’’15 Basil Georgopolous and Arnold S Tannenbaum: "Organisational effectiveness is the extent to which an organisation, given certain resources and means, achieves its objectives without placing undue strain on its members."16 The term can be defined as: Organisational effectiveness refers to the degree to which the organisation is able to achieve its stated goals successfully within given resources. Acid test of organisational effectiveness is how far organisational members are able to execute efforts to achieve the stated goals. In this context, the term can be defined as: Organisational effectiveness implies the degree to which operative goals have been achieved within given resources. It is closely related to organisation’s goal achieving behaviour.

Nature of Organisational Effectiveness We can discuss nature of organisational effectiveness with reference to following features: 1. Organisational effectiveness is a confused term as people have different own viewpoints and expectations. 2. Organisational effectiveness implies organisation’s goal achieving behaviour.

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3. It is the ability of the organisation to achieve its goals successfully within given resources. 4. Organisational effectiveness and efficiency are different. Efficiency is the ability to do the things right while effectiveness is doing the right things. Efficiency is an input to effectiveness. (Difference has been discussed in the subsequent section.) 5. Overall organisational effectiveness can be measured in terms of three levels, individual effectiveness, group effectiveness, and organisational effectiveness. Each type of effectiveness depends on, or is determined by, several causes/factors. However, key position holder (chairman, CEO, chief mentor, etc.) play a prime role to make the groups and the whole organisation effective. 6. Technology, strategic choice, organisational structure, organisational culture, and processes carry significant influence on organisational effectiveness. 7. Several criteria are used to judge how far the organisation is effective. The criteria may include quality of product, brand image, sales and profits, customer satisfaction, social contribution, employee morale and satisfaction, market reputation, and so forth. 8. Organisational effectiveness can be measured absolutely, i.e., in terms of organisation’s goals, and relatively, i.e., in term of effectiveness criteria of other organisations.

Efficiency and Effectiveness While differentiating between effectiveness and efficiency, Chester Barnard quotes: ‘‘Organisational effectiveness is the degree to which operative goals have been attained while the concept of efficiency represents the cost/benefit rate incurred in the pursuit of these goals.’’17 Efficiency is the ability to do things right while effectiveness is doing the right things. Efficiency denotes input-output ratios. It is similar to productivity. It implies producing more outputs with given inputs or reducing inputs to produce the same level of outputs. It is concerned with minimising operating costs. In short, to achieve stated objectives in time with given resources and with minimum wastage is (operational) efficiency. Effectiveness is a comprehensive term. It encompasses efficiency and other aspects that make the organisation successful. It refers to the achievement of goals by performing various functions and using resources efficiently. Efficiency, thus, is an input to effectiveness. Efficiency alone cannot achieve stated goals; it is effectiveness that rewards the organisation with success. Effective organisation can create an excellent work climate. Type of organisation structure, climate and culture have definite impact on both organisational efficiency and effectiveness. Effectiveness is related to goal achievement and is externally focused. Efficiency is engineering and costing concept and it states the relationship between inputs and outputs; thus, it is internal conversion process. More clearly, efficiency indicates how much inputs have been used to produce certain level of outputs. Note that goal cannot be achieved only by production efficiency, it requires overall effectiveness. For example, organisation can achieve high operating efficiency by reducing cost of production and producing low cost product, but may fail to achieve goals as if it cannot sell the product and meet market expectations. Efficiency is necessary but cannot replace effectiveness; efficiency is part of effectiveness. Effectiveness shows organisation’s overall ability (including operational efficiency) to achieve (profit-related and other) goals. However, in most cases, people use these terms simultaneously, for example, only

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efficient and effective organisation can survive in challenging business environment, or interchangeably, for example, efficient/effective organisation can ensure its long-term survival in competitive situation. Organisation needs to be efficiently effective for long-term survival.

Factors or Criteria Organisational effectiveness is the result of systematic performance of several functions. Effectiveness is measured in terms of following factors/criteria: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

Customer orientation External relations Quality of product Productivity (operational efficiency) Profitability or earnings Market capitalisation Readiness to change or adapt Turnover and sales Social contribution HRM policies and practices Employee morale and satisfaction Organisational general policies and strategies Stability or continuity Leadership and motivation Market reputation and goodwill

Effectiveness Model Figure 16.1 outlines effectiveness model which shows three levels of effectiveness (with relevant causes) and resulting outcomes. Even, the above stated factors can be classified into three levels of effectiveness, such as individual effectiveness, group effectiveness, and organisational effectiveness. Each type of effectiveness depends on, or is determined by, several causes/factors. Effective organisation can achieve its objectives successfully.

Level of Effectiveness Organisational effectiveness depends on contribution of employees, groups, and total organisation.

1. Individual Effectiveness Organisational effectiveness depends on individuals working in the organisation. It includes founders, CEOs, key position holders, and employees. Their contribution to organisational effectiveness is determined by ability, attitude, aptitude skills, knowledge, and other causes. Contribution of late Dhirubhai Ambani to Reliance Group, JRD Tata and his successors to Tata Group, Krishna Murthy to SAIL, Dr. Kurien to Amul, Gautam Adani to Adani Group, Anil Reddy to Dr. Reddy’s Lab, Bill Gates to Microsoft, to name a few, are worth-noting. Similarly, apart from founders and CEOs, individual employees can make a difference. Individual effectiveness contributes to group effectiveness and organisational effectiveness.

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FIGURE 16.1 Level of Effectiveness

2. Group Effectiveness Organisational goals can be achieved by group efforts. Individuals’ group efforts can make significant contribution to organisational effectiveness. Group contribution to organisational effectiveness depends on group cohesiveness, team building, roles, group structure, etc. Success of the CWG, 2010, can be attributed to group efforts made by politicians, bureaucrats, and private sector talent. Behind the success story of any organisation, group efforts have significant contribution. 3. Organisational Effectiveness

Organisational effectiveness depends on individual effectiveness, group effectiveness, and other factors related to organisation. Organisational factors, such as organisational climate, organisational culture, organisational structure, technology, processes, strategies, etc., can potentially contribute to organisational effectiveness.

Environmental Factors Favourableness of environmental factors—social, political, legal, economic, and others—directly affect individual, group, and organisational level effectiveness. Favourable business environment can pave way for effectiveness. Unfavourable environment make the path harder and calls for more resilient efforts. Outcomes Three types of factors affect organisation’s effectiveness. And, degree of organisation effectiveness affects level of outcomes. Resulting outcomes include profits, customer

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satisfaction, employee morale, market fame, market leadership, etc. Obviously, high level of effectiveness is reflected in terms of high level of each of these outcomes.

SUMMARY Organisational structure, organisational climate, and organisational culture are three key issues in understanding, generating, and controlling human behaviour at work. Organisation design is a plan or blueprint that leads to specific organisation structure. The structure is based on design. Structure and design are taken as synonyms and are used interchangeably. On the basis of distribution of authority and the criteria used for designing the structure, there are different forms of organisation structure. Horizontal organisation is customer driven modern form of organisation characterised by reduced hierarchy, direct information link with participants, team-based performance evaluation and reward, emphasis on multiple competencies, openness in dealing, and end-result process based organisation that enables the firm to facilitate speed in action, flexibility with situation, and comfortable cooperation. Network design is a new form of organisation structure that is characterised by customer orientation, multidisciplinary team building, flexibility, innovation, quality, and rapid responsiveness. It stresses heavily on information technology, achieving competencies, outsourcers, and strategic alliance. Virtual organisation is temporary networks of autonomous organisations that operate on complementary competencies, and connect their information systems to those of their partners through networks for developing, making, and distributing products in cooperation. In virtual offices, employees are not required to remain present at the places officially located. They can perform their work from any place using information links (the Internet and telecommunication). Mostly, in telecommunicating and information technology, virtual offices are widely used. Organisation climate is comprised of its priorities, methods, traditions, rules, policies and procedures, and values system. It affects behaviour of its members and determines effectiveness of interactions with its environment. Organisation culture is made of organisation’s philosophy, norms, values, and ideology. The culture shapes organisation’s vision, priorities, policies and procedures, rules and regulations, and overall climate that governs behaviour of its members.

KEY TERMS Organisation Structure and Design Horizontal Organisation Network (Organisation) Design

Virtual Organisation Design Virtual Office Organisation Climate Organisation Culture

Organisational Effectiveness Organisational Efficiency

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EXERCISES Objective Type Questions A. Answer the following: 1. What is the significance of organisation design? 2. Name three modern organisation designs. 3. By which name is the virtual organisation known? B. Choose the correct option (MCQs): 1. Which is the latest organisation design? (a) Functional organisation (b) Project organisation (c) Virtual organisation (d) Committee organisation 2. Which organisation revolves around the process and not the task? (a) Network organisation (b) Virtual organisation (c) Horizontal organisation (d) None of the above 3. Name the organisation design that stresses on strategic alliance, outsourcing, and proficiency orientation. (a) Network organisation (b) Horizontal organisation (c) Virtual organisation (d) Vertical organisation 4. Which of the following organisation designs is extension of network organisation?

4. What type of relationship exists between organisation culture and climate? 5. What constitutes organisation culture?

(a) Horizontal organisation (b) Virtual organisation (c) Project organisation (d) None of the above 5. Select the correct statement. (a) Organisation culture and climate are not related at all (b) Organisation culture is one of the determinants of organisation climate (c) Organisation climate is part of organisation culture (d) Organisation culture and climate are identical 6. Which one is made of organisation’s philosophy, norms, values, and ideology? (a) Organisation climate (b) Organisation chart (c) Organisation structure (d) Organisation culture

Descriptive Questions 1. ‘Organisation design does affect employees working in it.’ Do you agree? Give relevant arguments and enlist different types of organisation structures. 2. Write notes: (a) Horizontal Organisation (b) Network Organisation 3. What is virtual organisation? Discuss its attributes. 4. Discuss: (a) Virtual office

(b) Challenges and risks of virtual organisation 5. What do you mean by organisational climate? How does organisational climate affect employees’ behaviour and their performance? 6. ‘Organisational climate is determined by interplay of many factors.’ Comment on the statement and discuss main factors affecting organisational climate. 7. Define organisational culture. Explain its features.

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Assignments 1. Students are assigned a project to assess practical application and utility of virtual organisation design in Indian context. Ask them to present their work in form of a report.

2. Each of the students/participants/trainees should be asked to study and describe organisation climate of at least one business enterprise.

REFERENCES 1 Jeffery A Oxman, ‘The Hidden Leverage of Human Capital,’ MIT Sloan Management Review, Vol. 43, No. 4, 2002, pp. 79–83 2 Fred E Luthans, Organisational Behaviour, McGraw-Hill, New Delhi, 1989 p. 16 3 See in John A. Byrne, ‘The Horizontal Cooperation,’ Business Week, December, 20, 1993, pp. 78–79 4 Fred E Luthans, Organisational Behaviour, McGraw-Hill, New York, 2005, pp. 104–105 5 Raymond E. Miles and Charles C Snow, ‘Organisation: New Concepts for New Forms,’ California Management Review, Spring 1986, p. 62; ‘Causes of Failure in Network Organisation,’ California Management Review, Summer, 1992, pp. 53–72 6 Raymond E Miles and Charles C Snow, ‘The New Network Firm: A Spherical Structure Built on Human Investment Philosophy,’ Organisational Dynamics, Spring, 1995, pp. 5–18 7 Fred E Luthans, op. cit. p. 107 8 Venkatraman and John C Hendrson, ‘Real Strategies for Virtual Organising,’ Sloan Management Review, Fall, 1998, pp. 33–48 9 ‘The Virtual Corporation,’ Business Week, February, 1993, pp. 98–100 10 Fred E Luthans, op. cit. p. 108 11 Stephen Robbins and Seema Sanghi, Organisational Behaviour, Dorling Kindersley India, New Delhi, India, 2006, p. 459 12 Fred E Luthans, op. cit., pp. 59 – 61 13 William G Ouchi, Theory Z: How American Business Can Meet the Japanese Challenge, AddisonWesley, Reading, Mass, 1881 14 Thomas J Peter and Robert H Waterman, Jr., In Search of Excellence: Lessons from America’s BestRun Companies, Harper & Row, New York, 1982, p. 29 15 Amitai Etizioni, Modern Organisation, Prentice-Hall, Englewood Cliffs, 1964, p. 8 16 Basil Georgopolous and Arnold S. Tannenbaum, ‘A Study of Organisational Effectiveness,’ American Sociological Review, 1957, pp. 535–536 17 Chester Barnard, The Functions of the Executive, Harvard University Press, Cambridge, Mass, 1968, p. 7

ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. Organisation design governs behaviour of members in the organisation 2. Horizontal Organisation, Network (Organisation) Design, and Virtual Organisation Design 3. The digital or dot-com organisation

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4. Organisation culture is one of the determinants of organisational culture 5. Philosophy, norms, values, and ideology of organisation make organisation culture B. 1. (c), 2. (c), 3. (a), 4. (b), 5. (b), 6. (d)

CASE Employee Friendly Organisation Design, Culture and Climate SAS Inc was established in the 1970s. SAS practices employee friendly policies. Its co-founder and CEO, Dr. Jim Goodnight (born on 6 January, 1943) has created employee-centric corporate culture. He manages the largest and most successful private software company in the world, SAS Institute. He is amongst the richest Americans. The company has created a unique corporate culture. To create a satisfied work force, SAS Inc has always focused on two aspects of work culture—work life balance and work life benefits. The company believes that satisfied employees result in satisfied customers. Employees enjoy the perks offered by the company. The company considers employee perks as long-term investment in creative capital and not as employee retention costs. Employee-oriented policies contribute to increased job satisfaction and reduced employee turnover. Company has been enjoying sound position due to well-satisfied employees and loyal customers. The company has succeeded in creating the work place as the place to enjoy work. Analysts say that this philosophy had provided SAS with a competitive edge even during the economic crisis. On 18 Jun 2010, SAS was named No. 1 on Fortune’s ‘100 Best Companies to Work For’ list for 2010. Moreover, the company CEO did not want to make the company public even if that meant more profits for the company. According to Goodnight, converting private company into public company would destroy the company’s employee-focused organisational culture because it would have to work under the pressure of shareholders. Experts suggest that the SAS business model depics that employee loyalty and customer satisfaction are interlinked, and that this is the secret behind the company’s success. The company does everything possible to manage work life balance. However, critics contend that many of the work life initiatives and employee perks are unnecessary expenses. Too much employee-centric policies and practices affect objectivity in operations. The basis issue is: ‘How much should the company be employee-oriented?’ (Source: www.sas.com)

Questions for Discussion 1. 2. 3. 4. 5. 6.

What is the employee centric corporate culture? How is employee centric culture useful to the firm? How does the company view the employee perks and benefits? Discuss organisational culture at SAS Inc. What is the secret of success of SAS Inc? Do you think that too much employee orientation is fair? Why?

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Dynamics of Individual Behaviour Learning Objectives Upon completing this chapter, you will be able to: Define perception, outline its features and discuss Clarify concept of perceptual selectivity and identify factors affecting perception Define learning discuss its features and know about Identify and explain components in the learning process Define attitude, list its key characteristics, and outline the factors Explain how managerial actions can change employees’ attitudes Define personality and discuss the factors affecting personality Outline the ‘Big Five’ personality traits and the Myers-Briggs Type Indicator (MBTI)

INTRODUCTION A person’s reaction pattern—overall individual behaviour—to any stimulus depends on his psychographic profile. His thinking and acting patterns are, to a greater extent, governed by cognitive construct—perception, learning, attitudes, motivation, and personality. Due to individual’s distinct cognitive construct, honesty, sincerity, loyalty, favouritism, bribe and corruption, informal liaison with internal and external key position holders, and, in all, overall ethical issues have different meanings to different people in different situations. Truth for one is not the truth for another. It depends on who you are and under which situation you have to work. Two persons can see the same stimulus (thing, idea, or person) and interpret it differently due to the factors affecting the psychological profiles, including perception, learning, motivation, attitudes, and personality; these factors determine the reaction pattern to stimuli.1 Note: Additional reading material related to this chapter is available on the companion website of this book.

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Understanding individual behaviour is key to organisational behaviour. Psychology and social psychology have made significant contribution towards understanding of individual behaviour. These factors/forces can be referred as dynamics of individual behaviour.

DYNAMICS OF INDIVIDUAL BEHAVIOUR Many forces (dynamics) affect individual behaviour. The key dynamics that affect individual behaviour have been presented in Figure 17.1.

FIGURE 17.1 Dynamics (Factors, Components, or Forces) of Individual Behaviour This chapter deals with elementary explanation of perception, learning, attitudes, and personality. Chapters 19 and 20 explain relevant issues of motivation while Chapter 25 deals with key aspects of Positive Organisational Behaviour (POB). Forces in Evaluating Stimuli Values, perceptions, attitudes, learning, and motivation are the base to judge what is right and what is not. It was illustrated in case of TVM Estate Private Limited. Company’s top executive, Mr. Rahul Patel, proved that one could succeed without compromising with business ethics and personal values. But the question was: Would this business philosophy continue to work successfully over time? Other officials of the company wanted to change business norms to adjust with the contemporary business environment. The marketing executive, Mr. Amar Shah, faced many problems due to company’s strict ethics. He wanted the company to be little practical. He decided to put his views before top management. But, he thought it was a tough job.

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PERCEPTION Perception is important in understanding one’s behaviour and has direct application in organisational behaviour and management practices. Note that learning is the basic input in perceptual process. Human being has five senses to sensitise the stimuli (object, event, person, etc.), visual (ability to see), auditory (ability to hear), tactile (ability to touch), gustatory (ability to taste) and olfactory (ability to smell). Data are fed by these senses. The process of sensitising the stimuli by any of these senses is called as sensation. And, the process through which stimuli are attended, selected, and considered to draw a meaningful picture is called perception.

Definitions

Let us examine some definitions:

1. Fred E Luthans: "Perception is very complex cognitive process that yields a unique picture of the world that may be quite different from reality."1 2. Rao and Narayan: "Perception is a process whereby people select, organise and interpret sensory stimulations into meaningful information about their work environment."2 3. Stephen P Robbins: "Perception is a process by which individuals organise and interpret their sensory impressions in order to give meaning to their environment."3 It can be defined as: Perception is a process by which individuals organise and interpret their sensory impressions in order to give meaning to their environment. However, what one perceives can be totally different from reality. We can define the term as: Perception is one’s own views about any object, event, or person. It involves transforming raw data into meaningful picture. It is unique way of perceiving (looking at) the world.

Characteristics of Perception Key characteristics of perception include: 1. Perception is one of the complex cognitive variables that trigger behaviour. 2. It is a cause or base for behaviour. It affects or determines one’s behaviour. People have their perceptions on job assignment, pay, working conditions, relations with others, and so forth. 3. It is a process by which one selects, organises, and interprets stimuli to get meaningful picture of the world. 4. Perception differs from sensation. 5. It is one’s own way of looking at the world. It yields unique picture of the world. 6. It is essentially a psychological process. 7. Perceived world is not real world but has feeling of reality. 8. Perception is selective. Individual develops perception only on selected, (not all) stimuli he is confronted with. 9. Learning is the basic input in perception process. (It is filtering and evaluating factor). Motivation, attitudes, and personality factors also affect one’s perception process. 10. Perception depends on one’s needs. Selection, organisation, and interpretation of stimuli depend on one’s needs.

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Sensation and Perception Perception process starts with sensation. Sensation simply means to sensitise, or to have experience of any of the stimuli by any of the five senses. Physical senses, like seeing, hearing, touching, smelling, or tasting, involve sensation. Perception is concerned with selecting, organising and interpreting these sensitised stimuli to a draw meaningful picture or information about them. Table 17.1 differentiates between the concepts: TABLE 17.1

Difference between Sensation and Perception Sensation

Perception

1. It is basic process in perception.

1. Perception is developed on the basis of sensitised information.

2. It is general as no selection is made. All stimuli are given equal priority.

2. It is selective as only a few stimuli are selected.

3. It is compulsory. Normally, one cannot stop sensation.

3. It is optional. An individual may or may not select all what he sensitised.

4. It deals with very elementary behaviour and is determined by physical functioning.

4. Perception is more complex and broader than sensation.

5. It involves only sensitising stimuli. No further process is made.

5.

6. It has short life. It is temporary. It has no impact on behaviour

6. It is long-lasting in nature. It has enduring impact on behaviour.

7. Sensation is not affected by other cognitive forces, like motivation, personality, etc.

7. Perception is result of all these forces. It involves selection, organisation, and interpretation.

8. Sensation is important for private life.

8. Perception is important for personal as well as organisational life.

9. It can change immediately when stimuli change.

9.

ing.

ing.

10. It is simple and fast process. It takes no time.

10. It is complex and slow process. It takes some time.

Perceptual Process Perception formation is slow and complex process that undergoes a number of psychological processes. While explaining perception process, Joseph Reitz states: "Perception includes all those processes by which an individual receives information about his environment—seeing, hearing, feeling, tasting, and smelling. The study of these perceptual processes shows that their functioning is affected by three classes of variables—the objects or events being perceived, the environment in which perception occurs, and the individual doing the perceiving."4 It starts with inputs via sensation and ends with some outputs in terms of impact on behaviour. In fact, perception mechanism involves only three basic steps, selection, organisation, and interpretation. However, in order to understand continuity from beginning to the end, we consider five steps. Figure 17.2 shows steps in perception process.

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1. Inputs (Confrontation)

Perception starts with stimuli confrontation. A man comes in contact with several stimuli and uses them as inputs for developing perception. A stimulus is any person, event, or thing that is closely related to one’s environment; they provide inputs for person’s thinking and perception. Inputs contain the information about events, objects, and persons, which are fed by sensory organs. Environment is the prime source of perceptual inputs. Business environment is the source of inputs for perceptions regarding organisational decisions and behaviour. General environment provides the inputs for perceptions about general decisions and behaviour. This is pre-perception step. Information is fed in this step. Information is injected by sensation that can be further processed to develop perception. No perception can be developed without inputs.

FIGURE 17.2 Perceptual Process

2. Selection (Registration) The process of choosing certain stimuli for further processing is known as selection. Selection is also known as registration of stimuli. It is the first fundamental facet of the perceptual mechanism. All stimuli sensitised are not equally important, they are not related to one’s needs. Only relevant and important stimuli are given importance and are more likely to be selected for developing perception. Thus, selectivity facilitates reducing the perceptual overload. Personality characteristics of perceiver and characteristics of stimuli affect stimuli selection process. Normally, human being collects bits of information selectively depending on interest, needs, background, experience, and attitudes. Thus, a person usually selects such stimuli which are most important for him in a particular situation. Characteristics of stimuli, like size, intensity, contrast, repetition, motion, usefulness, novelty, familiarity, etc., affect the selection process. They draw one’s attention. The process of selecting only relevant stimuli is called perceptual selectivity.

3. Organisation

Organisation is another important facet in perceptual mechanism. While selection (or registration) is concerned with the external and internal factors that gain one’s attention, the perceptual organisation focuses on what takes place in the perceptional process once the information from the external situation is received. Two types of factors affect organisation figure-ground and grouping. Figure-ground suggests that perceived objects stand out as separate or distinct from their general background or group. Grouping is simply the meaningful arrangement of perceived inputs. It consists of modifying, adding, associating, and eliminating of information about the stimulus. Thus, perceived inputs are organised in meaningful way. Similar or identical stimuli are grouped together. People organise (or group) perceived inputs (objects, events, or persons) in various ways, such as proximity, closure, continuity, and simplification.

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(i) Proximity: Inputs perceived are grouped on the basis of proximity or nearness to determine the exact type or nature of stimuli and to understand the whole pattern. For example, employees in a particular department are identified as a group due to physical proximity and nature of work. (ii) Closure: Closure is used when a person has incomplete information. Closure is the technique to fill the gap or derive missing information. Insufficient information is converted into sufficient information. It consists of editing or revising the stimuli. Object is linked with similar available source or reference. (iii) Continuity: Continuity is closely related to closure principle, but it is slightly different. While closure is concerned with supplying missing information, continuity is concerned with connecting objects with continuously happening events. (iv) Similarity or Simplification: The principle states that similar stimuli are perceived as a common group. Due to similarity, person can easily attribute characteristics of a group to the event belonging to that group. When one is overloaded with information, he tries to simplify it to make it more meaningful and understandable. It is the way of smoothing or simplifying perceived inputs. How is an entrepreneur perceived? Priya Kumar, the corporate trainer and Best selling author of ‘I Am Another You’ holds her perception of entrepreneur as: ‘Vision and dream are enough to be entrepreneur. Entrepreneur is not a designation, it is a mentality. It is the way one thinks, not the title one owns. Not the capital, but attitudes and thinking are necessary. Self-driven, sociability (i.e., willingness and ability to meet, greet, motivate, and appreciate others.), reluctant to accept ‘NO’ and persistence to find out new ways till work is done, willingness to take responsibility, etc., can make a person a potential entrepreneur.’

4. Interpretation

Interpretation is the most significant aspect of perception. After selecting and organising the sensory inputs, the perceiver now interprets them to draw a meaningful picture. It involves making judgment about others (i.e. stimuli). It is affected by other psychological processes, like motivation, learning, attitudes, and personality. Even facial expressions and emotions (fear, anger, and pain) affect interpretation. This is the step where meaningful picture of the event (or stimulus) is drawn. It is the most important step in perceptual process. Without interpretation, perceived events are meaningless. One makes attributions, uses judgment, distorts (alters or twists) information, edits (adds, deletes, and/ or improves) information, and puts his own subjective feelings, opinions, and emotions to interpret the stimuli. Interpretation process is influenced by two types of factors: (1) Characteristics of the perceiver (including needs and motives, self concept, past experience, current emotional state, etc.), (2) Characteristics of the situation (including working climate and conditions, organisation culture, organisation structure, groups, and other physical, social and organisational factors). Interpretation is subjective and judgmental process. In organisational life, interpretation is affected by many factors (also known as shortcuts—shortcuts are treated as barriers to perceptional accuracy), such as hello effect, attribution, stereotyping, projection, impression,

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perceptual distortion, perceptual selectivity, and inference/implication. For more details refer Barriers in Perceptual Accuracy discussed in the next section).

5. Output (Behaviour or Feedback) Output is the result of perception. It is the feedback of the perception developed; the perceiver behaves or responds according to his perception. Output may be referred as reaction or behaviour. It consists of the impact of perception on one’s attitudes, opinions, beliefs, or actions. An employee's past behaviour may be changed or modified, and give a new or fresh outlook. Registration (selection), interpretation, and feedback (outcome) occur within the cognitive processes they are unobservable of the person. Only feedback, in form of person’s reaction or behaviour, is observable.

Barriers or Short-Cuts to Perceptual Accuracy Perception is a complex process and is affected by several factors. The factors hindering the accurate perception are known as barriers to accurate perception. We must try to eliminate or control these factors/barriers for perceiving stimuli (objects, things, or persons) accurately. The factors are discussed below: 1. Hello Effect: Under the hello effect, the stimulus is perceived on the basis of one trait or single basic characteristic. Single personality trait is given importance to draw general impression. For example, on the basis of regularity aspect, one may be considered a loyal and sincere employee. This generalisation may be erroneous. Similarly, intelligence, language fluency, appearance, dress code, or cooperativeness may be taken as the base to interpret the person. It is a short-cut method to develop perception. It may have positive as well as negative impacts on perception. 2. Stereotyping: The term ‘stereotyping’ refers to the tendency of perceiving a stimulus as part of a group, class or category. It involves drawing conclusions on the basis of characteristics of the group to which the stimulus belongs. Sex, place, profession, religion, caste, institute, etc., are used for the purpose. It may lead to wrong or irrelevant perception. For example, ‘MBAs can manage business well.’ It is not always true. In terms of gender, common generalisations or tendency that man is more confident than woman, man is less emotional than woman, man is more ambitious than woman, etc., are not always true. 3. Attribution: Attribution is a vital factor affecting perception of people at work place. Attribution refers to how people relate their behaviour with other causes. Cause and effect explanation is attached to behaviour. It is an essential process as it creates tendency to visualise identical variable differently. Two situations are evaluated differently based on attribution. For example, achievement of a successful person may be attributed to the organisation to which he belongs. Good behaviour may be attributed to policy rather than qualities of the person. There are two types of attribution—dispositional attribution and situational attribution. The former relates with internal factors like personality traits, while the latter refers to external factors like equipments, facilities, or social factors. Attribution concerns with persons’ personality traits as well as external factors. 4. Projection: Projection involves attributing one’s own characteristics to other people. For example, if you dare to speak against unjust behaviour of your boss, you assume or project that others also have such daring to react in the same way. Take another example, if

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7.

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one likes a challenging job, he projects (or assumes) that others also have the same mentality. Projection is concerned with one’s personality traits. For example, a hardworking and committed manager rewards those who work hard and remain committed to company’s interest. Projection is also taken as an attribution error. Impression: Perception is based only on a few primary traits. Evaluation is made on the basis of first impression. For example, person with an executive getup may be treated as a businessman. Perceptual Distortion: People who use perceptual defense mechanism interpret the stimuli in their own way. It is the way of protecting one’s own stand, interest, or act. It is also an attribution error. They distort (twist, or bend) what they see, hear, smell, or feel. They avoid viewing the actual events or ignore facts. They try to deny the reality by putting up a defense mechanism. For example, a person who is unable to face audience says that elocution ability is not necessary to succeed. For some students, bunking classes to sit in canteen may be normal phenomenon in college life! Corrupt people generalise corruption as: “Corruption is way of life, it is part of life, if you want of survive, you must compromise. It is a worldwide phenomenon and we cannot remain aloof.’’ Perceptual Selectivity: Perception is based on person’s own situation or field. One tries to interpret the problem in relation to his area of work, objectives, personal values and beliefs, interest, background, experience, etc. For example, marketing manager interprets a business problem from view point of marketing activities. (For more details, refer ‘Perceptual Selectivity’ in the later section.) Inference/implication: Limited information (regarding many aspects) and relevant assumptions are used to draw perception about any stimulus. On the basis of a little detail about one’s interest, intelligence, skills, confidence, etc., conclusion is drawn. (Impression and inference are closely related as they have more or less same implications and may be used interchangeably.)

Factors Affecting Perception All people may not have same perception regarding a stimulus (i.e., event, person, or thing) because perception depends on various factors. Person’s perception is framed, shaped, or modified by these factors. Knowledge of these factors can help understand why two persons have different perceptions for the same event. It must be clarified that factors affect any one or more aspects of perceptual process. Two types of factors—internal factors and external factors – affect perceptual mechanism (including selection, organisation, and interpretation of stimuli).

External or Non-cognitive Factors External factors are more relevant to selection or registration of stimuli. A large number of stimuli constantly confront us. They affect our senses. The basic question is: ‘How and why does an individual select only a few stimuli at a given time?’ Most questions can be answered by the principle of perceptual selectivity. Various internal and external factors affect perceptual selectivity. Some such factors include: 1. Intensity of stimuli 2. Size of perceived stimuli 3. Contrast

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4. Background 5. Proximity 6. Frequency or repetition 7. Motion and sound 8. Novelty and familiarity 9. Status of stimuli 10. Internal factors related to perceiver (Note: For more details, refer to 'Perceptual Selectivity.')

Internal or Cognitive Factors

Such factors are more relevant to organisation and interpreta-

tion. Internal factors include: 1. Needs or Motives: One always selects and evaluates given stimuli based on his current and expected needs. 2. Personality and Self-concept: Personality characteristics and self-concept affect interpretation. They also affect selection of stimuli. 3. Past experience: Depending upon past experience, one selects, organises and interprets the stimuli. 4. Attitudes: Attitudes determine favourableness and unfavourableness of the stimuli. 5. Current Emotional and Psychological State: Mental state of the perceiver is important. He may be frightened, confused, out of mood, or relaxed. 6. Situations: These include physical settings of the organisation, facilities, place, climate, comfort versus stress, etc. A situation may be encouraging and discouraging. Situation affects selection, organisation, and interpretation of stimuli. 7. Social Factors: Social factors, including social class, family, reference groups, and others, affect impression, hello effect, stereotyping, etc.

Perceptual Selectivity A large number of stimuli confront us through our senses, along with the impact of the total environmental situation. Person’s act of selectively interpreting what he sees on the basis of his interest, background, experience, and attitudes is called selective perception or perceptual selectivity. To answer the question: ‘How and why does one select only a few stimuli at a given time?’ We need to analyse the principle of perceptual of selectivity. The principle implies the role of attention in selecting particular stimuli for perception. People’s attention to stimuli depends on factors that are similar to characteristics of the stimuli. Some such factors that affect attention include intensity, size, contrast, repetition, motion (movement), and novelty and familiarity.5 These factors also termed as principles as they are basic facts related to perceptual selectivity. One develops perception (i.e., interpretation) only on selected stimuli. So, perceptual selectivity does not apply only to selection, but to the whole perception process. 1. Intensity: Stimuli with high intensity are more likely to be selected. The principle states that more intensive the external stimulus, the more likely it is to be selected. For example, loud noise against soft sound, strong odour against weak odour, and bright light against

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dim light are more likely to be perceived. An employee loudly speaking or shouting attracts attention of others. A shop with strong glaring light is likely to attract people. 2. Size: It is closely related to the intensity principle. The principle states that the larger the size of stimulus, the more likely it is to be selected. For example, taller man in a group attracts attention. Full page advertisement is more attention catching. 3. Contrast: Contrast factor implies that contrasting (different from others) is more eyecatching. A stimulus that looks different as compared to others is more likely to be selected. For example, a student without uniform would stand out against well-uniformed students. A white dressed man amongst black dressed group is more likely to be attended. Highlighted, underlined, and different coloured words are more capable to draw attention. 4. Repetition: This principle indicates that a repeated external stimulus gets more attention as compared to a single one. The higher the repetition of a stimulus, the more is the possibility of it being selected. More frequently published advertising message does create impact on the audience. Repeated instructions by supervisor create the desired effect on the workers. 5. Motion: Motion means speed or movement. The principle states that moving objects are more attention getting against stationary (fixed) objects. For example, moving materials can catch the attention of workers. 6. Novelty and Familiarity: The principle of novelty and familiarity states that novel and familiar object/situation is more likely to be attended. Moreover, new objects/events in familiar setting or familiar objects/events in a new setting can easily draw the attention of the perceiver. For example, job rotation tends to increase attention of employees. 7. Status: Stimuli with high or magnifying status among others are more likely to be attended. In a meeting, President of company can easily draw attention. 8. Internal Attention Factors: Apart from external attention factors, internal attention factors, including learning, motivation, and personality, are also responsible for perceptual selectivity. They constitute individual differences which have tremendous impact on one’s attention to stimuli. All external attention factors do not equally affect attention of all the people. Degree to which external attention factors affect one’s perception depends on the internal factors. Due to internal factors, same situation is perceived in completely differently ways. These factors individually or jointly affect perceptual selectivity. As a result, people select different stimuli for drawing perception. Knowledge of such factors seems necessary for a manager. These factors guide the manager about what he should do to help people concentrate on crucial issues.

LEARNING Learning is a dominant psychological process that determines one’s behaviour. Words of Costello and Zalkind are worth noting: "Every aspect of human behaviour is responsive to learning experience. Knowledge, language, skills, attitudes, value system, personality characteristics and others—all are learned." Similarly, all individual activities in the organisation, like loyalty,

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awareness of organisational, goals, job performance, etc., are learned. Study of dynamics of learning contributes to better understanding, prediction and control of organisational behaviour—the behaviour of the individuals, and groups in the organisation.

Definitions

Let’s examine a few definitions of the term:

Stephen Robbins and Seema Sanghi: "Learning is any relatively permanent change in behaviour that occurs as a result of experience."6 Dictionary of Psychology: "The process of acquiring ability to respond adequately to the situation which may or may not have been previously encountered, or the favourable modification of response tendencies consequent upon previous experience." We can define it as: Learning means acquisition of knowledge, skills, ability, expertise, etc., through study, experience, and practice that result into long-term change in one’s behaviour. Thus, learning can be explained as: Learning is a process of acquiring knowledge through conscious and systematic efforts that affect one’s subsequent behaviour for a long time.

Characteristics We can enlist salient features of learning as under: 1. Psychological Process: Learning is an important psychological process that determines individual behaviour. 2. Outcome of Past Experience: It is the result of past experience or practice. Past experience may be in the form of study, experience, or practice. 3. Change in Behaviour: Learning brings changes in the existing pattern of behaviour. It leads to improvement or deterioration in behaviour. Bad habits prejudice, hostility, etc., can also be learned. 4. Conscious and Deliberate: It is a conscious and deliberate (not automatic) process. 5. Need of Reinforcement: It needs reinforcement (any aspect that can strengthen learned things). If learned skills, knowledge, etc., are not reinforced, learned aspects tend to extinguish. Learning from Leaders Employees of Tata Group have learned the key characteristics of their leader, Ratan Tata. Employees and corporate world have learned that openness, fairness, neutrality, national spirit, high degree of dynamism, integrity, persistence, firm determination, etc., have been the base for the success story of Tata Group, that owns more than 90 companies in different industries. Anti-corruption attitude of Ajim Premji has taught a great lesson to his employees and corporate world that work can be done without compromising with ethics and values. Employees of Infosys Technologies have leaned from Narayan Murthy, the founder and chief mentor, that sober, fair, humble, open, and informal leader can lead the company to high success. In contrast, employees of Reliance Group and Adani Group have learned from their leaders, Dhirubahi and Gautam Adani respectively, that aggressiveness and diversification can be the key to transform mission into reality.

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6. Permanent Change: Behavioural change resulting from learning is relatively permanent. A temporary change due to any other reasons cannot be called learning. 7. Experience plus Practice: Behavioural change must be based on experience plus practice. Behavioural change due to physical maturation is not learning. 8. Input in Other Cognitive Processes: Learning is an input to perception, personality, motivation, and attitudes.

Principles of Learning Principles are facts related to learning. Psychologists have identified some truths to explain how learning takes place. These principles are important for students, teachers, practitioners, and researchers. Most principles have been derived from classical and operant theories of learning. Important principles have been discussed below:

1. Principle of Acquisition

Principle of acquisition suggests that people follow different patterns of acquiring new behaviour depending on the situation. In other words, different tasks follow certain types of patterns to learn. People learn certain things in a specific pattern depending upon types of tasks and situations. The principle works under five types of conditions/situations:

(a) Different tasks and different patterns of acquisition (b) Different tasks and same pattern of acquisition (c) Same task and same pattern of acquisition (d) Same task and different patterns of acquisition (e) Same or different tasks and different degrees of improvement Experts on the area explain the principle with the help of four general types of learning curves: (a) Decreasing Return Curve (b) Increasing Return Curve (c) S Learning Curve (d) Learning Plateau

2. Principle of Extinction The principle states that conditioned (or learned) response weakens if it is not reinforced, and, ultimately, it tends to extinction. A living being does not continue to exert conditioned response when it seems irrelevant. In short, only reinforced conditioned learning continues over time. When reinforcement is withdrawn, conditioned response starts disappearing gradually, and results into extinction. For example, a manager in a software company appreciated engineers’ regularity against actual outcomes. The engineers conditioned their response accordingly; they ensured punctuality. The same engineers were placed under a new manager who strongly preferred performance or actual outcomes over regularity. Engineers had to extinct (forget) the conditioned response and learn a new one, i.e., they had to emphasise on actual outcomes instead of simply maintaining regularity.

3. Principle of Spontaneous Recovery Principle of spontaneous recovery states that people follow non-reinforced conditioned response (i.e., prefer to extinguish non-reinforced behaviour), take rest for certain time, and then tend to return to conditioned response more

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intensively even though no reinforcement has taken place. The principle suggests that conditioned response does not totally disappear during extinction, but it is suppressed for a temporary period. There is possibility of exerting conditioned response in the future irrespective of the type of reinforcement. This type of response trend is called spontaneous recovery. People automatically resume their original behaviour after a short break. Thus, reinforcement is not always an important condition in learning. In absence of reinforcement, conditioned response may take place.

4. Principle of Generalisation In some cases, learning depends on generalisation. Generalisation suggests that a new stimulus and the original stimulus are responded to in the same way. It implies the same response to different stimuli. If the new stimulus is similar to the conditioned stimulus, it will also produce the conditioned response. Stimulus generalisation is also prevalent in operant conditioning. Similar cues are used to generalise the new stimulus. It has important implication in human learning. Without generalisation, people find it difficult to adapt to any new situation. One tries to fit the new situation with his conditioned (i.e., learned) situation. In two different stimuli, a person tries to find commonness and accordingly respond. However, generalisation in learning leads to erroneous decisions and creates many problems. For example, more productive and less productive workers may be responded equally (in the similar way) using other cues, like regularity, sincerity, faithfulness, discipline, etc.

5. Principle of Discrimination

Principle of discrimination is opposite to the principle of generalisation. The principle implies different response to similar stimuli. For example, a manager would perceive two highly productive supervisors differently based on degree of quality orientation. Supervisors learn that quality is more important along with productivity. They learn to continue emphasising on quality in the future.

6. Principle of Reinforcement Reinforcement is anything that increases strengthens the response and tends to induce repetition of behaviour. Reinforcement is an important principle in learning. Desirable consequences (or reinforcement) of the learned behaviour increase the strength of response, and also increase possibility of being repeated in the future, and vice versa. When particular behaviour is reinforced by positive means, like pay hike, facilities, appreciation, respect, and so forth, it is more likely that the same behaviour would be repeated in the future. Reinforcement may be positive or negative, may be intrinsic or extrinsic, or may be primary or secondary.

Learning Theories Knowledge, skills, abilities, etc., can be leaned in various ways. In other words, learning happens in a several forms. Patterns, ways, or forms by which one can learn can be referred as learning theories. There are four learning theories, also known as learning processes. They are discussed below:

1. Classical or Respondent Conditioning Classical conditioning is stimulus and response (S-R) theory of learning. The theory was developed by Ivan Pavlov, a famous Russian psychologist. He conducted an experiment on a dog to find out how learning occurred. In his experiment, he presented a piece of meat (unconditional stimulus) to the dog. He noticed a great deal

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of saliva dripping from the dog’s mouth (unconditional response). Next time, he rang a bell (neutral stimulus), the dog had no salivation. Further, he presented a piece of meat with ringing bell several times. Then Pavlov rang the bell without a piece of meat, the dog, astonishingly, salivated to bell. Thus, the dog had been classically conditioned to salivate (conditional response) to the sound of bell (conditional stimuli). He also performed the same experiment with a black square with bell. Learning is not always reflexive (automatic or spontaneous), it is voluntary (intended); it is not elicited, but emitted. This experiment has a lasting impact on understanding about how learning occurs. Observe Figure 17.3. Conditioned Stimulus (S)

Response (R)

Learning – New or Learned Behaviour

FIGURE 17.3 Respondent Conditioning Learning The theory implies that human being responds to learned stimuli. It is assumed that behaviour can be learned by repetitive association between stimulus and response (S-R). If anything is to be repeated, reinforcement can be acquired. For example, if company imposes punishment and penalties an irregular and indisciplined employees, and offers rewards to regular and sincere employees, the employees can learn what they need to do to avoid penalties, and to avail rewards. However, social scientists and behaviourists do not agree with this theory stating that behaviour cannot be explained with classical conditionally. It has limited practical value.

2. Operant Conditioning Operant is defined as the behaviour that produces effect. It is responsestimulus (R-S) theory of learning. According to the theory, learning occurs as a consequence of behaviour. Consequences associated with behaviour generate the learned (new or same) behaviour. Knowledge, skills, and expertise can be acquired through operant conditioning. This learning is based on the notion that reward follows behaviour. More clearly, reward does not generate behaviour, but right behaviour (response) generates (leads to) reward. Learning occurs due to consequences of response. If consequences are rewarded, people will condition behaviour. Reinforcement (in terms of rewarding, paying, promoting, appreciating, etc.) strengthens behaviour and increases likelihood of repeating the same behaviour. The theory is based on Skinnerian Psychology, Skinner’s experiments on pigeons. Operant conditioning is voluntary behaviour and it is determined, maintained, and controlled by its consequences. It is voluntary response to environment stimuli. In order to make people learn, manager must concentrate on results of behaviour. Behaviour can be changed by changing the consequences. Figure 17.4 shows how behaviour occurs. It is assumed that human being explores his environment and acts upon it. He reinforces only to the correct response. Behaviour depends on consequences and not on stimuli. If behaviour is rewarded, one is more likely to behave in the same way, otherwise he modifies it. For example, if a student who has studied hard gets first class, he learns that his success is the result of hardwork. He learns that in order to get the first class, one must work hard. It can be concluded that behavioural consequences that are rewarding increase the rate of response,

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and vice versa. Behaviour can be learned, shaped, maintained, and controlled by its consequences (outputs). Four types of consequences are used as reinforcements:

FIGURE 17.4 Operant Conditioning Learning (a) Positive: Positive reinforcement is associated with the right behaviour. Desired consequences are positively rewarded. Positive reinforcement is used to continue the behavior. (b) Negative: Undesired consequences are negatively rewarded. It is used to change behaviour. (c) Extinction: Consequences are not rewarded (or responsed). It leads to extinction (or destroying) of the behaviour. (d) Punishment: Consequences lead to withdrawal of rewards either to change or extinct particular behaviour.

3. Observational Learning

This is social learning theory. People learn from various role models, like parents, teachers, peers, leaders, superior, etc. The models have significant influence on other’s behaviour. This is the simplest theory (form) of learning. New behaviour can be learned by observation. Simply, one observes behaviour of others and acts (behaves) accordingly. For example, if at person observes that people in the organisation are rewarded for specific type of behaviour, he thinks that he also would be rewarded if he behaves in the same manner. He learns by observing the relationship among behaviour, performance, and rewards. There is no need to make any self-experiment. Others experiments teach how to behave. Management can do a lot to inspire this form of learning. Organisation’s right policies and practices can teach a good lesson to others. Good examples are used as the base to impart good behaviour.

4. Cognitive Learning

Cognition is a process by which mind gets knowledge. Cognitive learning is based on one’s thinking, insight, emotions, perception, and motivation. It is also called insightful learning or perceptual learning. One can learn by knowing how events and objects, behaviour and rewards are interrelated. The theory consists of relationship between cognitive environment, cues, and expectation. It is important to learn the right behaviour for the first time. The theory is based on Edward Talman’s experiment on white rats. He concluded that many types of behaviours were learned by cognition. Living being forms a cognitive map to know how reward is obtained. He tries to associate his cognitive cues (his mental calculations or cognitive map) with choice behaviour that ultimately results into rewards. If he gets rewards, his cues and expectancy get strengthened and learning occurs. To Talman, cognition is an

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important linking factor between stimulus-environment and behaviour. For example, employees know that higher salaries, promotions and better working conditions depend on better productivity. They learn that if they want rewards, they must improve their productivity.

Components of (or Steps In) Learning Process A person receives a variety of stimulus inputs, such as pay, facility, appreciation, praise, etc., that make him behave in a specific way. When specific stimulus is associated with specific response in a permanent manner, learning occurs. In other words, when person responds to specific stimuli in a specific manner repeatedly, it can be said that learning has occurred. Our response is conditioned (determined) by learned experiments. Psychologists consider six steps (or components) in learning process. See Figure 17.5. 1.

– Existence of Unmet Needs Generalisation

2.

– Readiness to React Discrimination

3.

– Hints and Temptation

4.

– Practicing New Behaviour

Positive Reinforcement to Elicit Repeated Response

Negative Reinforcement to Extinct or Modify Response

5.

– Responding to New Behaviour

Retention

Extinction 6.

– Possibility of Retaining Learned Response

Spontaneous Recovery

FIGURE 17.5 Components of Learning Process

1. Existence of Needs Needs compel man to learn new behaviour. A person has several needs, some are primary needs while some are secondary. Needs are similar to wishes, desires, requirements, or wants. They show lackness or deprivation of something. Needs result into restlessness situation. Food, shelter, love, safety, etc., are primary needs while respect,

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power, affiliation, etc., are secondary needs. Unmet needs create physiological imbalance. The imbalance makes the person work to restore balance. Thus, existence of unmet needs is the precondition for learning to occur. People learn something to fulfill needs. In absence of needs, learning does not take place. Learning occurs in expectation of satisfying some needs.

2. Drives All needs are not equally important for learning to occur. Only activated needs (motives) with high degree of intensity to satisfy them become drives. In other words, intensified needs are motives, and person’s strongly preferred motives are drives. Drives are aroused (activated) needs (strong stimuli) with readiness to response. They show person’s readiness to react/respond. Drives are the base for motivation. They indicate the increased probability of efforts without specifying the nature of activity. Individuals often operate under many drives. There are two types of drives—primary or physiological drives and secondary or psychological drives. Both are closely related. Drives keep him ready to respond, but, at this stage, he is not clear what to do to get the desired reward. 3. Cues and Stimuli Actual learning starts from this step. Cues are used to interpret stimuli. Stimuli are incentives or objects existing in the environment that can satisfy human needs. Cues are guidelines or hints to elicit specific response to avail the incentives. They help to perceive or learn the stimuli in the right way. They show what way one should behave to get the desired rewards. Cues determine important aspects of one’s response and make it easy to elicit specific response. (a) Generalisation: Generalisation (simplification) is concerned with generalising among various stimuli and cues and eliciting similar response to a new stimuli. If stimuli are exactly alike or are closely related, they have same probability of evoking a specific response. Due to generalisation, a person is not required to relearn completely each of the new tasks or objects that he confronts frequently. It assists people to readjust with new jobs. An individual can borrow from the past learning experience to adjust more smoothly to new learning situations. Generalisation may result into false conclusion. (b) Discrimination: It is opposite to generalisation. An individual does not elicit same response to all stimuli. He discriminates/differentiates among stimuli and responds differently. It has wide applicability in organisational behaviour.

4. Response

Stimuli elicit response. Learned (new) experience leads to, or is expressed in the form of, specific response (or behaviour). Response may be in physical form or may be attitudes, familiarity, changed perception, etc. However, response in the form of observable behaviour is preferable. It must be operationally defined. Due to learned experience, one starts behaving in a particular way. His learning is reflected in form of specific behaviour/ response.

5. Reinforcement

Reinforcement relates to strengthening or supporting new response followed by learning. It is fundamental condition of learning. It implies responding to person’s modified behaviour by suitable means. Reinforcement can be defined as the environmental events affecting probability of occurrence of response with which they are associated. Clearly, response

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accompanied or closely followed by positive reinforcement (i.e., sources or means of satisfaction) is more likely to occur than those that are closely related to negative reinforcement (resulting into dissatisfaction). Reinforcement may be positive or negative. Appreciation, recognition, acceptance, respect, monetary rewards, etc., constitute positive reinforcement. Whereas penalty, criticism, punishment, humiliation, etc., are some forms of negative reinforcement. Positive reinforcement helps in retaining new behaviour and increasing possibility of repetition, whereas negative reinforcement is used for modifying or eliminating undesirable response, i.e., to make people unlearn what they have learned.

6. Retention All that we learn is not retained. Some learned behaviours are retained while others may be forgotten. Retention is defined as the stability of learned behaviour over time. The opposite of retention is forgetting. A person retains the behaviour (learned experience) which seems compatible (meaningful, rewarding, or matching with situation). He continues exhibiting learned experience as long as it is matching with the given situation. People tend to extinct some learned behaviours while some extinguished (left) behaviours may be recovered after a time gap. (a) Extinction: Extinction is specific form of forgetting. It may be defined as loss of memory. In fact, well-learned response is difficult to extinct completely. Once something is learned, it is never truly unlearned. When response is not compatible with a given situation and is not positively rewarded or reinforced, there is tendency for conditioned response to disappear or decrease. (b) Spontaneous Recovery: Spontaneous recovery refers to the return (or appearance) of conditioned response after extinction without reinforcement. In some cases, people recover response tendencies that have been extinguished for many years. And, in case the response is reinforced (supported), it becomes strong and starts to elicit repeatedly. Every new situation demands learning. Every time, the person follows the same pattern of acquiring/learning new behaviour. Some learned behaviours last for longer time, some undergo modifications, while some seem useless and are forgotten. We must note that once a particular behaviour is learned, complete extinction seems impossible. Irrelevant learned experiences may exist in suppressed form. New learned behaviours occur continuously to adjust with the demand of the situation.

ATTITUDES Like personality, attitudes are also complex cognitive processes. Attitudes are important part of personality. They form cognitive judgment that affects one’s perception, learning, motivation, and personality. Human being evaluates events, situations, persons, things, etc., differently due to the attitudes he holds. Attitudes are one of the powerful factors determining individual response toward any stimulus. One perceives/evaluates the stimuli (things, persons, events, etc.) and assigns positive or negative attribute according to one’s attitudes. Response depends on learned preferences and interest. Attitude is cognitive aspect that always remains inside the person. We cannot see attitude but can see behaviour that is triggered by it. Individual

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behaviour is the outcome of learned experience. Learned experiences or preferences are called as attitudes. They may be positive, negative, or neutral.

Definitions It is difficult to define ‘attitude’ as it covers many aspects and factors. However, social scientists and psychologists have attempted to define the term. Some common definitions are: 1. Fred E Luthans: "An attitude is a persistent tendency to feel and behave in a particular way towards some objects."7 2. G W Allport has used readiness, tendency to respond, predisposition to act, etc., to define the term. He defines: "Attitude is mental and neural state of readiness, organised through experience exerting specific directive influence upon the individual’s response to people, objects and situations with which it is related."8 3. Stephen Robbins: "Attitudes are evaluative statements— either favourable or unfavorable—concerning objects, people, or events. They reflect how one feels about something."9 4. Daniel Katz and Scotland: "Attitude is a tendency or predisposition to evaluate an object or symbol in a certain way. Evaluation consists of attributing goodness or badness, or desirable and undesirable qualities to an object."10 Thus, the term can be defined as: Attitude describes a person’s enduring (long lasting) favourable or unfavourable cognitive (internal) evaluation, emotional feeling, and action tendencies towards some object, idea, or person. It determines person’s liking and disliking. More clearly, we can define attitude as: Attitude refers to the way a person feels about and is disposed (reacts or behaves) towards an object (thing, event, people, profession, or anything). Two things involved in attitudes are: How he feels about the object? and How he is disposed to act towards the object?

Characteristics Careful analysis of several definitions of attitude suggest following common points or characteristics: 1. Attitude is abstract phenomenon that cannot be seen. We can see behaviour that has resulted from attitude. 2. It is evaluative in nature. It is expressed in terms of favourability or desirability. 3. It indicates readiness tendency of an individual to react in a specific way. 4. Attribute and value are different. Values are concerned with object or situation that represents our belief about ideal conduct. Attitudes are narrower and they indicate our feelings, thoughts, and behavioural tendencies towards a specific object or situation. Values are input in attitudes. 5. It indicates predisposition (disposition means natural way of behaving towards others) or tendency to react immediately. 6. It is most pervasive as people have attitudes about many topics that are related to them. Attitudes can help predict work behaviour. 7. It is complex psychological structure as it is determined by number of variables. It is characterised by multiplicity. 8. It varies in direction and intensity and extent of consciousness.

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9. Attitude is related to needs. Any object, thing, or person supporting one’s needs is attributed positive qualities. 10. Attitudes are learned or acquired. They are not inherent. Relevant culture primarily contributes to our values and attitudes. HP holds Positive Attitude for Employees Delhi based HP (Hewlett-Packard India), a leading IT company, believes that ‘people are here to do a great job.’ All employees are treated like mature adults. There are no supervisors in HP. Even bosses in the company proudly say: ‘My team members are far more knowledgeable about their lines of business. I can only learn from them.’ Even a fresh recruit in HP is given all kinds of resource back up and a team to do things in a novel way. All such attempts are fully backed by top management. At head office in Delhi, open circles in office encourage informality and ease of communication between employees. Across HP, flexi-time is rigourously followed depending on convenience of the employees. Every attempt is made to provide excellent opportunity for vertical growth of employees. Company’s positive attitudes contribute positively to employees’ morale and productivity.

Functions of Attitudes Attitudes perform many functions. They are among most important considerations in HR policies and practices. They help in predicting employees’ behaviour. People must hold positive attitudes toward organisational objectives, policies, rules, procedures, and relationship. Knowledge and understanding of attitudes help people adapt to their respective work environment. Daniel Katz11 stated following four functions.

1. The Adjustment Function Attitudes assist people to adjust with their work environment. They help reveal a number of facts and, therefore, can be used to treat employees well. On the basis of the type of attitudes the employees hold about pay, promotion, work conditions, relations, and overall treatment, management tries to provide better work environment to which people can adjust comfortably. Attitudes also serve as base for the future behaviour. Management tries to know the type of attitudes the employees hold for different aspects, and accordingly policies are formulated.

2. The Ego-defensive Function

Attitudes also help people defend their ego (self-image). People (superior, subordinates, or peers) try to justify their beliefs and actions to defend their ego. Their attitudes help them convince themselves. For example, conflict between seniors and juniors can be justified on the basis of their attitudes. Senior executive expresses his attitudes, ‘I am experienced, but my juniors are more qualified, innovative, energetic, and knowledgeable.’ Juniors express their attitudes, ‘Though we are more qualified, our superior is more skillful, balanced, mature, and experienced.’ This type of justification helps them protect their ego, even while accepting the facts. For children and parents, students and teachers, and workers and supervisors, attitudes serve as ego-defensive mechanism.

3. The Value-expression Function

Values are cognitive component of attitudes. They are expressed through attitudes. They show ideal or preferable (personally and socially) conduct.

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For example, a top company executive with high value for national service states, ‘We must give priority to our country’s problems. As good citizens, our conducts must be supportive to national interest.’ He expresses his values for national service in terms of his strong positive attitudes. ‘We value our customers’ means we have positive attitudes toward customer needs, wants, and interests.

4. The Knowledge Function Attitudes supply people the knowledge to understand and interpret the phenomena. They help supply standards and frames of reference that allow people to organise and explain the world around them.12 However, attitudes may not be factual, but they provide the base to relate the matter. Attitudes of some respectable founders, position holders, philosophers, and authors serve as base to judge if the thing is right or wrong. For example, anticorruption attitudes of Ajim Premji of Wipro Corporation teach people that corruption must be prohibited; it must be avoided. Factors Affecting Attitude Formation We know that attitudes are basically learned. People are not born with specific sets of attitudes. They are acquired through the process of learning. All those factors that contribute to learning may be the factors that affect attitude formation. Attitudes reflect person’s previous reinforcement history. A person evaluates certain things in particular way due to the set of his attitudes. And attitudes can be shaped, changed, replaced, or modified by a number of factors. Most common factors are experience, association, family, personality, peer group, social factors, etc.

1. Experience Person learns attitudes by experience. His past experiences about superior, salary, performance, job design, work group affiliation, and managerial capabilities always affect his attitudes at work. If one has positive favourable or satisfactory experience, he develops and holds attitudes accordingly. When he changes the organisation or workplace, these attitudes go with him. Past experience is responsible for individual difference towards honesty, loyalty, commitment, respect, etc. 2. Association and Reference Groups An individual interacts with many associations and reference groups continuously. Therefore, associations and reference groups to which he belongs have tremendous influence on his attitudes. Person’s attitudes tend to be similar or identical with associations and reference groups. Value, norms, priorities, orientation, etc., of such groups have definite impact on members. In the same way, place, religion, caste and community, educational background, sex, age, income class, etc., of such groups have strong influence on the person’s attitudes. 3. Family

Family is a primary group to which one belongs. Right from birth, it has strong influence on one’s attitudes. An individual develops some attitudes from family members. Attitudes of family members (such as parents, grandparents, brothers, sisters, uncles, etc.) affect children. Family culture and background determine the way one evaluates an object. Research done by social psychologists concludes that there is positive correlation between attitudes of parents and attitudes of children in many specific areas. Generally, attitudes of family on religious values, achievement, career, birth-death rituals, purity or sacredness, faithfulness,

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dedication to work, respect for elders, etc., affect all members of the family. This factor seems to be of more significance where children live longer with the family.

4. Society Every society is based on certain values, standards, and restrictions. A person belonging to a particular society maintains parity with social constitution. Culture, education, language, and structure of the society fix the boundary for its members in the initial stage. Individual, in the initial age, is forced to accept such attitudes. For example, individuals belong to Indian society and American society differ significantly in their attitudes. We find tremendous difference in their attitudes on morality, sincerity, regularity, approach to life, approach to work and pleasure, science and technology, patriotism, national spirit, individualism, etc. 5. Personality Personality is one of the most powerful determinants of one’s attitudes. Personality, over and above aforesaid factors, determines attitudes. It is the unique way of a person to respond to situations or influence others. Personality itself is made up of a number of social and psychological determinants. Personality characteristics, like self-confidence, initiative ability, dynamism, individuality, ambition, extrovertness, alertness, imagination, and so on, have direct impact on attitudes. For example, people have different attitudes towards challenging job, responsibility, promotion and transfer, etc. 6. Culture and Religious Values

Cultural and religious values and norms are also prime determinants of one’s attitudes. They specify certain norms to judge right or wrong, and desirable or undesirable. A person always seeks reference of his culture and religion to evaluate an event, object, or any other aspect related to work and life. Due to cultural and religious impacts, people in the same organisation, working in the same department, and performing almost similar work, have different attitudes towards a number of aspects.

Barriers to Attitudinal Change Attitudes are basically learned. The things that can be learned can also be unlearned, changed, modified or replaced. Employees’ attitudes can be changed to adjust with firm’s requirements. All factors that contribute to learning may be considered while changing attitudes. However, it is not easy. There are some barriers to changing attitudes. Fred E. Luthans13 describes following two barriers to changing attitudes: 1. Prior Commitments: Commitment means promise, assurance, vow, or pledge. When people make advance commitments to a particular course of action, they are not willing to change it. For example, marketing manager says, ‘We have committed to serve our valued customers with a standard product at fair price. We cannot compromise with our commitment. We must adhere to our promise.’ Company CEO says, ‘Your proposal is against our values and cannot be accepted.’ Prior commitments prevent them from changing their attitudes. 2. Insufficient Information: People are not ready to change because they do not find any strong reason to do so. They lack information to justify the need to change their attitudes. For example, when the company President requested the trade union leader to change his attitudes in favour of the new project, the latter argued, ‘Can you please tell me why I should change my attitudes? You tell me how my fellows would be benefitted?’ He argued because he did not have sufficient information to justify the request of the company president.

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In today’s fast changing world, one has to change his attitudes. Sometimes, attitudinal change seems inevitable for a company as well a country. Following part describe some organisational measures to change attitudes.

How to Change Attitudes (Organisational Measures/Actions/Strategies to change attitudes) Important issues are: ‘Can attitudes be changed? How can attitudes be changed?’ We know that attitudes determine one’s behaviour. To change behaviour, a manager needs to change attitudes. It is not easy because of barriers and, also, it is a slow process and requires divergent efforts. Fred E Luthans, an eminent authority in organisational behaviour, et al, suggested following actions (or measures) to change employees’ attitudes: 1. Commitment to Change: People must be prepared to change their attitudes. It is possible when people feel a commitment to a particular course of action and are willing to change. Managers must create a situation that demand employees’ firm determination to change their attitudes. 2. Providing Information: Employees must be provided with sufficient information that explains why they need to change their attitudes. New information would change people’s beliefs and attitudes. Clear information with evidence can remove wrong beliefs, and, finally, attitudes can be changed. They would start evaluating things differently. 3. Provide Relevant Training: Suitable training programme can be instrumental in changing person’s irrelevant beliefs and, hence, attitudes. Coaching, discussion, persuasion, examples, and other training methods are used to help people change their attitudes. 4. Provide Time and Consistent Feedback: Attitudes are enduring in nature. They cannot be changed immediately. People must be allowed sufficient time to change them. During the course of attitude change, they must be given the right feedback in form of moral support and encouragement. Feedback reinforces their attitude changing efforts. Gradually, they shift to new attitudes on the stimuli. 5. Use of Fear: It is common strategy to change attitudes through use of fear. However, the degree of fear is more important. Too high or too low degree of fear does not make sense. Moderate degree of fear makes people think positively and helps them believe the fact, and finally they change their attitudes. Fear creates a situation in which individuals assume that changing attitudes is more desirable. 6. Influence of Friends or Peers: Persuasion by friends or peers is another way of changing attitudes. Friends and co-workers have more persuasive control over an individual. People has more trust in friends; they believes that friends are well-wishers and, therefore, respect their suggestions to change attitudes. Similarly, social ostracism by friends and co-workers force people to change attitudes. Their present attitudes disqualify them to be part of group. 7. Co-opting Approach: Co-opting approach consists of involving those whose attitudes are not consistent. They must be involved in discussion and decision-making about the matter relevant to their interest. Active involvement makes them realise the facts and they start believing that their beliefs were wrong and need to be changed. Those who oppose and those who have negative attitudes toward management policies are invited to be part of policy makers. They immediately come to know what is right or wrong.

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Attitudes affect tremendously behaviour of people in formal organisation. Positive attitudes results in positive behaviour. For healthy relations and high operational efficiency, employees’ appropriate attitudes seem essential. People join the organisation with their original attitudes. Organisation must take suitable actions to change them as per situation.

VALUES Values are closely related to attitudes. Every nation, every company, and every department holds the values relevant to life and work environment. They are the basic conviction that society holds about all activities of life. They are indicative of ideal human conduct, or preferred behaviour. For example, company’s top executive may say, ‘This deal is against our values, we cannot compromise with company’s values.’ Values are reflected in form of traditions or customs. They govern (shape and regulate) each and every act of the company and behaviour of people in it. They are reflective of our priorities, emphasis, and are treated as the standards of preferable conduct. Values are relatively stable. However, they undergo changes in the long run. Other terms similar to values are principles, ethics, morals, ideals, or standards.

Definitions

Stephen Robbins states: "Values are basic convictions that a specific mode of conduct or end-state of existence is personally or socially preferable to an opposite or converse mode of conduct or end-state of existence."14 We can define values as: Values are culturally imported, socially approved (or imposed), and religiously sanctioned preferable behaviour (act, habit, and pattern). Relevant culture seems more significant for imparting values in followers. Culture varies from place to place, nation to nation, and company to company, due to climate conditions, economic conditions, and other aspects. Country culture and company (i.e., corporate culture) influence the formation, nurturing, and maintenance of values.

Value System Value system implies a hierarchy based on ranking of an individual’s values in terms of their intensity.15 It shows the relative importance assigned to different values related to pleasure, self-respect, individualism, concern for others, honesty, equality and justice, and so forth. Types of Values

Milton Rokeach16 has classified values into two groups, terminal values and

instrumental values. Terminal Values: Terminal values refer to desirable end-states (or outcomes). These values are the goals the person desires to achieve in his life. Table 17.2 shows some terminal values. Instrumental Values: Instrumental values refer to preferable modes of behaviour to realise the terminal values. They are means or instruments to achieve the desirable end-states.

Values for Different Position Holders

Be clear that all values are not relevant to all types of activities and groups. We find considerable overlaping among different groups. Even, different cultures have their unique sets of values. Frederick and Waber17 suggested different terminal and instrumental values for three types of groups, executives, union members, and activists. Different groups rank values differently. However, some instrumental values (for example,

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457

Some Examples of Terminal and Instrumental Values Terminal Values

Instrumental Values

1. A comfortable life (a personal life)

1. Ambitious (hardworking and spring ) 2. Broad minded (open minded)

3. Equality (brotherhood and equal opportunity for all)

3. Cheerful (lightened or joyful)

4. Family security (taking care of loved ones)

4. Courageous (standing up for your belief)

5. Freedom (independence and free choice)

5. Forgiving (willing to pardon others)

6. Happiness (contentedness)

6. Helpful (working for the welfare of others) 7. Imaginative (daring and creative)

8. National security (protection from attack) 9. Pleasure (an enjoyable, leisurely life) 10. Self-respect (self-esteem)

10. Obedient (dutiful and respectful)

11. Friendship (close companionship)

11. Polite (courteous and well-mannered)

12. Wisdom (matured and understandable life)

12. Responsible (dependable, reliable)

(Source: Based on Milton Rokeach, op. cit.) honest, capable, etc.,) and terminal values (for example, family security, freedom, etc.) seem equally significant in all groups. In addition to these three groups, other groups or classes in society, based on caste, religion, profession, etc., hold sets of values different from others. Table 17.3 outlines first five terminal and instrumental values for different position holders. TABLE 17.3

Value Ranking of Different Groups (Top Five Only)

Executive Terminal Values 1. Self respect

Instrumental Values 1. Honest

Union Leader Terminal Values

Instrumental Values

Activist Terminal Values

Instrumental Values

1. Family secu- 1. Responsible rity

1. Equality

1. Honest

2. Family secu- 2. Responsible rity

2. Freedom

2. Honest

2. A world at peace

2. Helpful

3. Freedom

3. Happiness

3. Courageous

3. Family security 3. Courageous

4. A sense of 4. Ambitious accomplishment

4. Self respect

4. Independent

4. Self respect

4. Responsible

5. Happiness

5. Mature love

5. Capable

5. Freedom

5. Capable

3. Capable

5. Independent

(Source: Based on W. C. Frederick and J. Weber, op. cit.)

Values Across Cultures Different cultures have different values. Cultures differ from country to country as they have different geographical, economic, climatic and security issues. Culture plays an important role in formulation, adoption, development, maintenance,

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and alteration of values. Different cultures exhibit different sets of values. Greet Hofstede18 conducted a survey of more than 116,000 IBM employees from 40 countries about their workrelated values. He concluded that managers and employees vary on five value dimensions of national cultures; the dimensions are power distance, individualism v/s collectivism, achievement v/s nurturing, uncertainty avoidance, and long-term v/s short-term orientation. 1. Power Distance: It implies the degree to which the culture of a particular nation accepts that power in institutions and organisations is unequally distributed. It ranges from high power (unequal) distance to low power (equal) distance. 2. Individualism v/s Collectivism: Individualism refers to the degree to which people in a country prefer to act as individuals rather than members of groups. Collectivism implies low degree of individualism. 3. Achievement v/s Nurturing: It shows how far quality of life is valued by the people against materialistic life (achievement orientation). Achievement value is reflected in form of assertiveness, acquisition of money and material means, and degree of competition. Nurturing implies the degree to which people value (prefer) relationships, and, so, sensitivity and concern for welfare of others in society. 4. Uncertainty Avoidance: It shows degree to which people in a country prefer structured (well-planned or calculated) approach to avoid unstructured (uncertain) situation. It shows how far people are well-prepared to avoid uncertainty. High uncertainty avoidance leads to over consciousness in acts, and it manifests greater consciousness, nervousness, stress, and aggressiveness. 5. Long-term v/s Short-term Orientation: People with long-term orientation give more emphasis on future, value shift, and persistence, while people with short-term orientation give more emphasis on the past and present. They prioritise tradition and fulfilling social obligations. Table 17.4 exhibits cultural dimensions in some countries. TABLE 17.4 Country

Examples of Cultural Dimensions in Some Countries Power Distance

Individualism v/s Collectivism

Achievement v/s Nurturing

Uncertainty Avoidance

Long-term v/s Short-term Orientation

United States

Low

High v/s Low

High v/s Low

Low

Low v/s High

China

High

Low v/s High

Moderate

Moderate

High v/s Low

Japan

Moderate

Moderate

High v/s Low

Moderate

Moderate

France

High

Low v/s High

Moderate

High

Low v/s High

Germany

Low

High v/s Low

High v/s Low

Moderate

Moderate

Russia

High

Moderate

Low v/s High

High

Low v/s High

West Africa

High

Low v/s High

Moderate

Moderate

Low v/s Low

Hong Kong

High

Low v/s High

High v/s Low

Low

High v/s Low

(Source: Based on Milton Rokeach, The Nature of Human Values, New York, Free Press, 1973)

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Table 17.4 shows value differences across cultures. Indian situation tends to reveal a mixed picture due to considerable diversities. For example, metro cities show a different picture compared to suburban and rural segments. In the same way, some states, including Gujarat, Maharashtra, Kerala and other, comparatively progressive/rich states, have different degrees of these values compared to Uttar Pradesh, Bihar, Orissa, and other moderately/less progressive states. Similarly, across religions in India, values tend to be quite different. However, overall picture shows that we pursue moderate degree of many of these values.

Significance of Values Values are personal judgment that determines whether specific mode of conduct is personally or socially preferable. All of us have hierarchy of values that form our value system. Based on the value system that we hold, we judge/assign relative importance to freedom, relations, pleasure, self-respect, honesty, sincerity, regularity, commitment, obedience, equality, and such other aspects. Values are basic input in our response to a number of stimuli in organisational and personal life. They affect attitudes, perception, personality, satisfaction, motivation and morale, and significance of final outcomes. They tend to be relatively stable (or less flexible) and enduring. A major portion of our values is established in our early years. Parents, teachers, friends, relatives, spiritual leaders, and formal rulers have significant role in our value formation. Major contribution to our values comes from the culture to which we belong. Parents, teachers, etc., are just mediators or agents that impart (or institutionalise) cultural values.

Values and Attitudes Values and attitudes are closely associated terms. Values are cognitive component of attitudes. They are key input in attitude formation. Central values are expressed in the form of attitudes. Other words similar to, or closely related to, values are principles, ethics, morals, ideals, or standards.

PERSONALITY Personality is one of the prime factors determining individual response to any stimulus. One’s pattern of working or way of responding depends one's personality. For example, Mahatma Gandhi used non-violence strategy while Subashchandra Bose, Bhagat Singh, Chandrasekhar Azad, and others used aggressive strategies to influence others (i.e., Indian citizens and British rulers). Sardar Valabhbhai Patel was the symbol of firmness or strictness. Personality is a unique/distinctive way to influence others. One responds in a specific way due to one’s personality. Narayan Murthy, Ratan Tata, Kumar Manglam Birla, and many others hold impressive personalities and exert desired influence over others. Evaluation is also based on one’s personality. Most politicians, film stars, artists, managers, and even common man exhibit specific ways to influence/impress others to achieve their objectives. All these show their personality aspects. Personality is a complex and multidimensional construct. It seems difficult to define clearly. Attitudes, values, learning, and perceptions are key inputs in personality construct. The term personality has been derived from Latin wtord per sona which means ‘to speak through.’ People used the term to indicate the dress the actors used to wear in ancient Rome and Greece. Thus,

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traditionally, personality refers to external appearance to influence others. However, academicians include three aspects: (i) External appearance and behaviour (ii) Inner awareness of self as permanent organising force (iii) Particular set of measurable traits, both inner and outer (or physical and mental characteristics)

Definitions Personality is complex and multidimensional construct that is not easy to define. Some common definitions are given below: 1. Fred E Luthans: "Personality means how people affect others, and how they understand and view themselves. It also involves their pattern of inner and outer measurable traits and person-situation interaction."19 2. Stephen Robbins and Seema Sanghi: "Personality is the sum total of ways in which an individual reacts and interacts with others."20 3. G W Allport: "Personality is dynamic organisation of those psychological systems within the individual that determine his unique adjustments to his environment."21 Thus, the term can be defined as: Personality is a unique way, or a distinctive set of characteristics, to influence or impress others. It depends on physical and mental characteristics and the current situation. Finally, we can say: Personality is a set of relatively stable characteristics and tendencies that determine our thoughts, feelings, and actions or behaviour that has continuity over time, and it cannot be easily understood.

Characteristics We can list following characteristics of personality: 1. Personality is the sum total or aggregate of qualities (or properties) of a person. 2. It is one of the determinants of individual behaviour. 3. It contains a stable set of characteristics or qualities. They cannot be changed easily. 4. It can be determined in relation to specific activities, situation, or work. 5. It is distinctive way of responding to any stimuli or situation. It assesses person-situation interaction. 6. It seeks adjustment. Person can adjust the situation as per his personality. Development, survival, evolution, etc., depend on personality. 7. It is complex and multidimensional construct that is difficult to understand and analyse. Perception, attitudes, values, learning, etc., are inputs in it. 8. It is partially measurable. Some personality characteristics can be measured using appropriate tools. 9. It can be developed through learning. It can be improved or changed. 10. It has two-way impact. It determines the level of influence created on others’ behaviour and others’ influence on one’s behaviour.

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11. Situation is an important aspect in personality. Impact or development of personality depends on the situation.

Factors or Determinants of Personality Personality is the sum total of qualities and traits. A wide variety of factors influence personality. Many forces and sources play role in its development. A person’s personality is the outcome of the net impact of all these variables. Figure 17.6 shows main factors affecting personality.

FIGURE 17.6 Factors affecting Personality

1. Biological Determinants

Biological contributions/factors are concerned with physical aspects of human being. In biological determinants, we can consider: (a) Role of Heredity: Heredity plays a vital role in personality. However, geneticists faced many problems in gathering information scientifically on human being. General conclusions drawn indicate that some physical and psychological characteristics are transmitted through heredity. Some recent studies have proved that some aspects of human personality are at least partially affected by heredity. Some aspects of human personality, like aggressiveness, sensitivity, verbal and mathematical ability, musical ability, intelligence, and others are transmitted from one generation to the next. Especially, intelligence is largely inherited. (b) Biofeedback Process: Biofeedback is concerned with involuntary (done without conscious control) functions, such as brainwave patterns, fluctuations in blood pressure, skin temperature, etc. They are beyond control of human being. It is concerned with functioning of brain, heart, and skin. Each person has different capacity to regulate these

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functions. However, definite conclusions have not been drawn. However, personality qualities like patience, self confidence, tolerance capacity, balance, courage, etc., are affected by biofeedback. (c) Physical Characteristics: Physical characteristics are vital in the study of personality. Beauty, colour, height, body figure/structure, hair style, eyes, physical strengths, and many other characteristics have definite impact on one’s personality. (d) Role of Maturity: People of different age groups respond differently to the situation. Mental (not physical) maturity is more important. Fast maturing person has different personality than slow maturing person. Again, maturity is also affected by many factors, like education, training, family background, food, circumstances, etc. (e) Role of Brain: It is also an important biological factor that affects personality. Work done with ESB, Electrical Stimulation of Brain, and SBP, Split Brain Psychology, concluded that brain has definite impact on one’s personality. Despite various experiments, brain still holds many secrets to be disclosed.

2. Cultural Factors

Culture has remained a dominant factor of personality. Culture is reflected in the form of way of living, way of working, and way of worshiping. Culture is complex of religious values and rituals, social norms, beliefs, customs, and superstitions, celebrating festivals and social events, and techniques of dealing with environment. Culture teaches its members what to do and what not to do. It trains them to exert response in a particular way. Every response of an individual is dominated by the culture to which he belongs. It fixes the limit of behaviour. Cultural values are transmitted from one generation to the next through socialisation and institutionalisation processes. Particularly, culture determines our attitudes toward individualism, independence/freedom, competition and cooperation, sacrifice, national spirit, ambition, hobby, science and technology, simplicity and materialism, equality and fairness, and other human qualities. We can see a vast difference between personalities of people belonging to the eastern culture and the western culture.

3. Family Related Factors Family is most powerful primary group that affects personality. The socio-economic status of the family, number of members in the family, birth order, and background and education of parents and other family members do affect one’s personality to a great extent. Family shapes, modifies, and controls the personality of its members. It selects, interprets, and disposes the culture, which is prime controller of person’s personality. Overall home environment has tremendous impact on personality. There are three factors related to family. (a) Early Family Treatment: Parents’ role is significant in shaping personality of their children at an early age. Parents and, to some extent, elders, serve as models for children. They try to imitate parents and elders. Personality of the child born and brought up in a discouraging, filled with hatred, and cold family is quite different from one brought up in a supporting family. In short, treatment of family shapes children’s personality. (b) Birth Order: Birth order has also produced significant and interesting, but inconclusive, results. It was found that the first-born, and the only child, in a family has strong need for affiliation, and the child finds it difficult to adjust with different and difficult situations.

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(c) Impact of Groups and Associations: Person is known by the company he keeps. Family’s interactions with other associations and groups also have notable impact on its members. Person’s values, attitudes, and behaviour are similar to members of such groups. Our personality continues being shaped throughout life by people and groups we interact with.

4. Situational Factors

A person’s personality is the product or outcome of the overall situation. Personality is reflective of the situation in which a person has been living or working. Every person is continuously responding to his situation/environment. His response is dependent upon demand of the situation. For example, if situation is challenging, threatening, or risky, the person responds accordingly. Situation exerts an important pressure on individual and he tries to adjust by responding differently. One needs to develop different qualities or abilities to adjust effectively with the situation. Situation affects in two ways—the first is, the situation in which one is born, has grown up, and developed (i.e., social climate); and the second is, the situation in which a person is presently working (i.e., organisational climate). Situation either encourages or discourages an individual to behave in a specific way. It consists of a large number of variables, like freedom, challenges, competition, encouragement, facilities, risk and uncertainties, participation, training, relations, support, leadership style, rewarding and punishing system, types of work groups, place of working, natural climate/ atmosphere, etc., that affect one’s personality.

The ‘Big Five’ Personality Traits There are a number of personality traits (also known as long-term predispositions tendencies or inclinations) that affect behaviour. Many years ago, about 18,000 words were found to describe personality. Even after combining words with similar meanings, there still remained 171 personality traits. Practically, such a huge number is difficult to use or measure. They have been reduced to five core personality traits, called the Five Factor Model (FFM), also known as the Big Fives. These traits have been found valid in many studies over the years, and across different cultures.22 These five traits are largely independent factors of personality. They are not strictly stable as individual’s personality profile is subject to change over time. In same way, different job profiles need, more or less, different traits. Table 17.5 shows the five personality traits. TABLE 17.5 No.

The ‘Big Five’ Personality Traits23 Core Traits

Descriptive Characteristics of High Scorers

1

Consciousness

Dependable (reliable), hardworking, organised, self-disciplined, persistent, responsible

2

Emotional Stability

Calm, secure, happy, unworried

3

Agreeableness

Cooperative, warm, caring, good-natured, courteous, trusting

4

Extroversion

Sociable, outgoing, talkative, assertive, gregarious (broad minded, unreserved)

5

Openness to Experience imaginative

Let us briefly comment on each group of traits:

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1. Consciousness: Consciousness implies regulating the activities by conscience (i.e., a sense of right or wrong). Consciousness refers to doing things carefully and deliberately. Person with high degree of consciousness is reliable, hardworking, organised, self-disciplined, persistent, and responsible. Consciousness traits are important for effective performance. 2. Emotional Stability: This trait is indicative of patience while dealing with others. Some executives are capable of maintaining emotional stability by absorbing actions, views, feelings, anger, and attitudes. Their emotional stability is reflected in the form of traits like calm, secure, self-confident, happy, unworried, etc. In today’s uncertain business environment and stressful job, emotional stability is needed. A man with high emotional stability can take a balanced decision. 3. Agreeableness: It refers to accepting others warmly. Man with high level of agreeableness traits always welcomes others and actively attends to their views, proposals, requests, and problems. Highly agreeable people are cooperative, warm, caring, good natured, courteous, and trusting. This personality trait plays a crucial role in interpersonal relations and participative decision-making. The trait is capable of generating positive behaviour. 4. Extroversion: This trait shows person’s active interest in external world. He likes to meet and interact with others. The trait seems significant for developing and maintaining relationships with others. Extroversion is reflected through sociability, outgoingness, talkativeness, gregariousness, and assertiveness. He always tries to develop and nurture relations with others. 5. Openness to Experience: This trait implies person’s willingness to learn something new, something different. Managers are expected to be open (i.e., always ready) to new job experience. He must be ready to learn, absorb, and integrate new job situation with previous experience and knowledge. A person with high degree of openness to experience tends to be curious, intelligent, creative, cultured, artistic, sensitive, flexible, and imaginative. A dynamic manager must be a life-time learner. He can bring new air to the organisation and make significant contribution in keeping the organisation up-to-date.

Level of Personality Traits and Personality

Degree of the ‘Big-Five’ personality traits and their impact on personality has been explained in Figure 17.7. Person’s personality depends on how many and what degree of above traits he holds. High level of these personality traits makes one’s personality impressive. On the other hand, low level of these traits and high level of anti-personality traits (like shy, careless, impulsive, dull, lazy, etc.) affect one’s personality adversely.

The Myers-Briggs Type Indicator (MBTI) Compared to the Big Five Model, the ‘Myers-Briggs Type Indicator’ is an old theory. However, it is popular and widely used theory of personality explanation. It is used for real world career counselling, team building, conflict management, and analysing management styles. Katharine Briggs and Isabel Briggs-Myers, the mother-daughter team, developed a personality test containing two broad categories, four dimensions, and sixteen traits. Note that the MyersBriggs Type Indicator (MBTI) is based on original work of Swiss psychiatrist, Carl Jung, in the 1920s. He classified people into two types, introverts and extroverts with two basic processes,

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perception and judgment. Then, he further divided perception into sensing and intuiting, and judgment into thinking and feeling. He came out with four personality dimensions (or types of traits) as listed below:

FIGURE 17.7 Type of Personality Traits and Personality 1. Extrovert/introvert 2. Perceiving/judging 3. Sensing/intuiting 4. Thinking/feeling According to him, all people have these four dimensions in common, but they differ in the combination of their preferences for each of them.

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Based on Jung’s pioneering work, in 1940, Katharine Briggs and Isabel Briggs-Myers developed the MBTI. The theory is based on test of 100 questions or items related to four dimensions (see Table 17.6). The participants were asked to explain how they usually felt or acted in a particular situation. The 100 question test tried to measure the participants’ preferences on the four pairs of traits that yielded sixteen distinct types. The questions were related to: 1. How people prefer to focus their energies, i.e., extroverts (E) v/s introverts (I). 2. How people give attention and collect information, i.e., sensing (S) v/s intuiting (N). 3. How people process and evaluate information and make decisions, i.e., thinking (T) v/s feeling (F), and 4. How people orient themselves with outside world, i.e., judging (J) v/s perceiving (P). Table 17.6 outlines four major dimensions and resulting sixteen combinations, four from each major dimension. TABLE 17.6

Myers-Briggs Type Indicators ESTJ Type Indicators

Extroversion (E)

INFP Type Indicators Introversion (I)

Outgoing

Quiet

Interacting

Concentrating

Speaks, then thinks

Thinks then speaks

Gregarious Sensing (S)

Intuiting (N)

Practical

General

Details

Possibilities

Concentrate

Theoretical Abstract

Thinking (T)

Feeling (F)

Analytical

Subjective

Head

Heart

Rules

Circumstances

Justice Judging (J)

Mercy Perceiving (P)

Structured

Flexible

Time oriented

Open ended

Decisive

Exploring

Organised

Spontaneous

(Based on Jung Theory Dimensions and the Myers-Briggs Type Indicator: Fred E Luthans, Organisational Behaviour, 2005, p. 205)

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Thus, people’s personality can be measured by sixteen indicators of four different dimensions. People have two types of personality traits/indicators—ESTJ Type Indicators and INFP Type Indicators. Their behaviour is governed by these indicators. Fred Luthans notes that most managers tend to follow the ESTJ (i.e., extroversion, to interact with others, sensing see the world realistically, thinking make decisions objectively and decisively, and judging, use judgment for structure, time, order, etc.) Thus, people with ESTJs seem to organisers, realistic, logical, analytical, decisive, etc., while INFPs seem to be conceptualising, innovative, individualistic, independent, and flexible. Both indicators are important for personality development. The Myers-Briggs Type Indicator is a very good framework for analysing personality traits. It helps in predicting occupational choice. These four dimensions and sixteen traits carry a number of practical behavioural implications. However, more research support is necessary. Many American companies, including AT&T, Exxon, Honeywell (for management development programme) and Hewlett-Packard (HP) for team building, have used the MBTI for different purposes.24 High level of these five personality traits can make one’s personality more impressive. On the other hand, low level of these traits makes personality ineffective. Manager should try to cultivate these traits within himself and in his subordinates. Proper training can help in imparting these traits.

Personality Development There are different views on personality development. Study of and research on the development stages of personality are important for gaining insight into human behaviour. Experts opine that psychological and physical stages simultaneously occur in development of personality. Also, heredity, environment or situation, maturity, learning, and some other variables contribute significantly to it. Accordingly to Fred E Luthans, personality development can be divided into two separate, but closely related, approaches. The first approach is to identify specific physiological and psychological stages that occur in development of human personality. This approach is theoretical in nature. The second approach is to identify the important determinants of personality. Determinants are empirically based.25 In this part, we discuss well known stages of personality development. Determinants (or factors) have been discussed separately earlier in the chapter.

Stages of Personality Development A number of writers and experts contributed to the stages of personality development. Dominant among them include (1) Sigmund Freud, (2) Erik Erikson, (3) Daniel Levinson, (4) T Hall, and (5) Chris Argyris. We briefly outline their work on in the personality development.

Freudian Stages of Personality Development Perhaps Sigmund Freud26 was the first to develop a meaningful stage theory of personality development. Sigmund identified five psychosexual stages in personality development. To him, these five stages are main driving force behind the personality. The psychosexual development stages are:

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1. The Oral Stage: The stage begins from the birth and lasts upto the age one year. It is purely a dependency stage. During this stage, the biological drives are reduced through the mouth. Excessive, sufficient or insufficient amount of stimulation (inputs/nutrition) during this stage affects one’s personality characteristics in the future. 2. The Anal Stage: The duration of the stage is from one year to three years of age. It is same as compulsive stage. Specific toilet training is given during the stage. The early toilet treatment/training carries significant impact on one’s personality. The stage contributes to personality characteristics like punctuality, orderliness, obstinacy, dinginess (dirtiness), and cleanliness. 3. The Phallic Stage: The stage starts from three years and lasts upto four years. It is the stage of psychosexual development. During the stage, children identify themselves with the parent of the same sex. Children take more interest in genitals (sexual organs). Conflict or confusion during the stage affects normal personality later on. 4. The Latency Period: The stage exists between 4 to 6 years of age. Children join school and concentrate on developing relations with classmates and friends. During this stage, children develop interest in social knowledge and skills necessary for their work. They try to understand the school environment. Type of treatment the child receives during this stage carries a permanent impact on personality development. The stage contributes to dynamism, self-confidence, flexibility, sociability, etc., aspects of personality. 5. The Genital Stage: Genital means related to sex or reproductive system. It is the mature stage. The stage normally starts from teenage and lasts upto adulthood. This is the stage when sexual interest emerges. Type of treatment, guidance, and support children receive affect their personality development. In today’s situation, the Freudian stages seem less relevant, even absurd. Modern psychologist does not agree with these stages. Particularly, the terms he used, such as ‘oral’ and ‘genital,’ were not proper. The stages emphasise more on sexual and biological factors. However, Freudian theory has remained valuable to gain insight for initiating meaningful study of personality. It provides a strong base for further research on personality development.

Erik Erikson’s Stages of Personality Development Freudian stages of personality development have been criticised for over emphasis on sexual and biological factors. Erik Erikson27 gives relatively more attention to social adaptation. According to him, social issues are more important in personality development and human relationships. Crisis plays crucial role in the personality development. Erik Erikson has proposed eight psychosocial stages of personality development: 1. Mouth and Senses (or Infancy Stage): The stage lasts up to one year. 2. Eliminative Organ and Masculine (or Early Childhood Stage): The stage begins from one year and lasts till three years. 3. Locomotive and Genital (Playing Stage): The stage runs between 3 to 5 years of age. 4. Latency Stage (Schooling Stage): This stage is from 6 to 11 years. 5. Puberty and Adolescence Stage: The stage duration is from 12 to 19 years. 6. Early Adulthood: The stage is from 20 to 24 years.

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7. Young and Middle Adulthood Stage: The stage starts from 25 years and lasts till 65 years. 8. Mature or Late Adulthood Stage: The stage begins after 65 years of age. Psychosocial crisis occur in each of these stages, and each crisis must be optimally resolved for normal and fulfilling personality. Crisis is critical time or emergency that demands special decisions and actions. All segments of social framework (society), including parents, other family members, relatives, friends, teachers, preachers, social organisations, and government agencies play different roles across cultures. Personality of people depends on type of (psychosocial) treatment they receive in successive stages. Most of the personality characteristics, such as confidence, sociability, individualism, self-confidence, tolerance, persistence, and many others, depend on people’s crisis resolving efforts and type of assistance or treatment they receive from others.

Daniel Levinson’s Adult Life Stages Daniel Levinson developed Adult Life Stages that undergo personality development. His work has attracted considerable attention. According to him, life structure evolves through a relatively orderly sequence throughout the adult years.28 Adult life stages, compared to other stages, tend to be more event-oriented. For example, marriage, parenthood, buying house and car, developing relations, and other important events take place during adult stages. This stage of life has much to do with personality development. His work can be described in terms of (1) Stable Periods (or Division) of Adulthood, and (2) Transitional Periods. Stable Periods (or Division) of Adulthood: He divides adulthood into four stable periods, with variability of maximum two or three years: 1. Entering the adult world (ages 28 to 33 years) 2. Settling down (ages 33 to 45 years) 3. Entering middle adulthood (ages 50 to 55 years) 4. Culmination of middle adulthood (ages 60 to 65 years) Transitional Periods: Daniel Levinson identified four transitional periods (or stages): 1. Age-thirty Transition (age 28 to 33 years) 2. Mid-life Transition (age 40 to 45 years) 3. Age-fifty Transition (age 50 to 55 years) 4. Late Adult Transition (age 60 to 65 five) Adult life stage has institutive and popular appeal. It has a number important events like promotion, shift in lifestyle, developing new relationships, building networks, change in job, stable career and life, and finally tension-free retired life. However, the theory has little research base. During adulthood stages, events and occasions play vital role in personality development. Type of social and organisational climate plays in important role during adulthood stage.

Douglas T Hall’s Career-stage Model Douglas T Hall29 tried to synthesise Levinson’s Theory, Erikson’s contribution, and other theories of personality development into overall model of career stage. According to him, there are four major career stages that provide platform for personality development.

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1. Career Stage 1: Exploration Stage: The young employee tries to search for an identity. He undergoes considerable self-examination, role tryouts, and different jobs. This stage is a very unstable and relatively unproductive period in one’s career. The stage begins from 15 years and lasts till 25 years. 2. Career Stage 2: Establishment Stage: This is the stage of settling down. He develops need for intimacy. This stage is characterised by growing and productive period in one’s career. The stage ranges from 25 to 45 years. 3. Career Stage 3: Maintenance Stage: The employee stablises at a particular level. He develops the need for generativity and assumes paternalistic and mentor role for juniors. This stage runs from 45 to 65 years. 4. Career Stage 4: Decline Stage: It is self-explanatory stage. He is satisfied with his life choices and overall career. This stage begins after 65 years. The career-stage model has received some empirical base. This is the stage when individuals gain a better understanding of their future. Individuals find scope for successful career planning and development process.

Charis Argyris’ Immaturity to Maturity Dimension As against strict stage approach to personality development, Charis Argyris30 has identified specific dimensions of the human personality development. He opines that human personality does not follow precise stages, but it progresses along a continuum (i.e., a range) from immaturity to maturity, like an infant to an adult. At any age, people can have different degrees of development. He proposes seven dimensions, as shown in the Table 17.7. TABLE 17.7

The Immaturity-Maturity Continuum

Immaturity Characteristics

Maturity Characteristics

1. Passivity

Activity

2. Dependence

Independence

3. Few ways of behaving

Diverse behaviour

4. Shallow interest

Deep interest

5. Short time perspective

Long time perspective

6. Subordinate position

Superordinate position

7. Lack of self awareness and control

Self awareness and Control

(Based on Chris Argyris, Personality and Organisation, Harper, New York, 1957, p. 50) He gives the following explanation: 1. Seven dimensions show only of the total personality. Personality also depends on one’s perception, self-concept, adaptation and adjustment. 2. From infant to adult, the seven dimensions experience continuous changes. 3. This mode does not predict specific behaviour, but serves as a method of describing and measuring any individual in the culture.

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4. The dimensions are based on latent (hidden) characteristics of personality, and it differs from observable behaviour.

Personality Theories Based on research studies, psychologists and behaviourists have derived personality-related facts and conclusions. Their generalisations about personality can be called as personality theories. Personality theories can be classified into following four groups:

Psychological Theory Main contributors to psychological theory were Sigmund Freud, Carl Jung, and Alfred Adler, et al. In this theory, Sigmund’s contribution has remained significant. He concluded that unconscious framework motivates man to act in a particular way. Unconscious framework contains three interrelated aspects: 1. The Id: Id is a source of psychic energy. It is said to be unconscious part of human personality. It seeks satisfaction of biological needs, such as hunger, thirst, sex, etc. Biological needs, throughout the life, force human being to think and act in a specific manner. Id assumes that human tries to remove tension by satisfying biological needs through forming a mental image of the object. The Id concept seems more illusionary. It is a spontaneous response to stimuli. 2. The Ego: Ego is self-centric explanation related to ‘I’, ‘My’, or ‘self.’ It is psychological construct of thinking about oneself. As against the Id, it is conscious and logical part of human personality as it is based on realities of external environment. Ego is directed to get real pleasure by accepting reality. It is deliberate response to the stimuli. 3. Super Ego: Super ego is based on personal and social values, norms, and ethics. Super ego judges the behaviour or action as right or wrong in relation to a given situation. It is ethical part of human personality. It guides reaction pattern. It is ideal/desirable response to the stimuli. Psychological theory provides a base to explain human personality. But it lacks scientific base and has failed to provide adequate explanation for personality. Moreover, it does not consider social factors.

Socio-psychological Theory Main contributors to this theory include Alder, Fromni, Horney, and others. Psychological characteristics of a person are affected by social environment. Thus, social environment shapes one’s personality. The individual and society cannot exist in isolation. The theory emphasises on following social aspects that shape one’s personality: 1. 2. 3. 4. 5. 6. 7.

Building social relations Making socially relevant work Viewing people positively Developing positive attitudes Career planning and networking Balancing between work and life Developing interpersonal skills

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The theory assumes that social and psychological needs play an important role in shaping personality. Therefore, the manager should try to shape personality of his employees through satisfying social and psychological needs.

Trait Theory

Alport and Cattell (for more details, refer ‘Trait Theory of Leadership,’ Chapter 21) contributed to the Trait Theory. Traits are basic characteristics or qualities of people. Some common traits are used to compare or distinguish people. Allport identified six types of values/traits that go into personality construct:

1. Religious traits or values 2. Social values 3. Economic values 4. Political values 5. Aesthetic values 6. Theoretical values Individuals differ in terms of these values. This distinctiveness determines human personality. Cattell developed same types of traits, but he classified them into two groups, surface traits (wise-foolish, affectionate-cold, honest-dishonest, etc.) and source traits (maturity, good nature, trustworthiness, etc.). Individuals hide their feelings (i.e., source traits) and exhibit desirable traits (i.e., surface traits). Traits theory explains relationship between traits and behaviour. It shows important traits that make an effective personality.

Holistic Theory This theory treats an individual as a whole. It is based on self-concept. It is also known organismic theory or self theory. Carl Roger, Abraham Maslow, Frederic Herzberg, and Lewin were the main contributors to this theory. The theory consists of four factors related to self-concept (that affect personality): 1. Self-image: Self image is how a person believes about himself. It is a set of beliefs about oneself. It answers: Who/what is he? Personality is what a person believes of himself. Selfimage affects tremendously one’s personality. 2. Ideal Self: It shows an ideal or expected conduct. It shows the way one likes to be. It answers: What he aught to be? 3. Looking Glass-self: It is belief of a person about how others perceive his characteristics and qualities. 4. Real Life: This is reality concept. It shows what one actually is. It indicates real characteristics, values, and attitudes. One adjusts with himself based on others’ response and environmental demand. Self-concept helps a person to understand himself, others, and other things. The concept is vital for perception, personality, and overall behaviour.

Personality and OB Personality is one’s own unique way of influencing or impressing others. Organisation is deliberate creation of structure to achieve specific ends; and Organisational Behaviour (OB)

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is a science that helps one to manage behaviour. Personality is a powerful determinant of human behaviour. It carries many practical implications for better managing. Therefore, it is imperative to discuss how personality affects OB. Personality of influencer and influenced is important aspect to be stressed. Clearly, how much influence can be made on others behaviour depends on who influences (i.e., personality of influencer, for example, manager), and whom (i.e., personality of influenced, for example, subordinates). The right type of personality (specific personality traits) can generate the right behaviour. Figure 17.8 shows that behaviour of people depends on their personality profile. In relation to impact of personality on behaviour, following personality related aspects are worth discussing:

1. Locus of Control

Locus of control is an important aspect of personality. Locus of control implies the extent to which one believes that he can control the events affecting him. Locus of control affects one’s personality and carries specific influence on others’ behaviour. It may be internal locus of control or external locus of control. Internal locus of control is the belief of a person that his behaviour determines important events that happen to him. People with strong internal locus of control can be successful in their jobs, career, and, also, life. They perform the job better, cope with stress effectively, and prefer challenging jobs that give better rewards. External locus of control is the belief of a person that chance, luck, fate, or others roles determine what happens to him. External locus of control may create problems for people in jobs, career, and life. People with moderately strong internal locus of control can do better job.

2. Self-monitoring Abilities Self-monitoring is the sensitivity or ability of a person to adjust or adapt to the demand of the situation. A person with high self-monitoring ability can easily cope with situational requirements. High monitoring is reflected in better conservationists, good leaders, and efficient performers. Self-monitored people are more likely to be selected for better posts or promoted to high position. Self-monitoring ability affects their behaviour.

3. Type A and Type B Personalities Type A and Type B personalities behave/react differently in different situations. A person with of Type A personality profile can be summarised as always moving, walks rapidly, talks rapidly, impatient, does two things at once, can’t cope with leisure time, aggressive, competitive, always feels time pressure, and so forth. Type B profile is opposite to Type A. He is not concerned about time, is mild-mannered, is never in a hurry, has patience, relaxes without guilt, plays for fun not to win, and so forth. Distinctive characteristics of Type A and Type B personalities carry valuable implications for OB, and consequently, managing people at work. Compared to Type B, Type A people can be highly competitive, but less creative, and can be easily predictable. They concentrate on quantity of work, not quality. They are more vulnerable to stress and frustration. Figure 17.8 shows how personality profiles (Type A and Type B) affect resulting behaviour. While dealing with employees at work, the above discussed personality aspects must be considered. They provide better insight into why people behave in a specific way for specific stimuli in a specific situation. As shown in Figure 17.8, resulting behaviour depends on interplay of three factors.

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FIGURE 17.8

SUMMARY Perception, learning, motivation, attitudes, and personality are key factors determining individual behaviour. Perception is very complex cognitive process that yields a unique picture of the world that may be quite different from reality. Perception and sensation are closely related, but different. Perception process starts with sensation. Sensation is the basic process in perception process. Perception process consists of five steps: (1) Inputs (confrontation, (2) Selection (registration), (3) Organisation, (4) Interpretation , and (5) Output (behaviour or feedback). Selectively interpreting what one sees on the basis of one’s interest, background, experience, and attitudes is called perceptual selectivity. Learning is any relatively permanent change in behaviour that occurs as a result of experience. Learning principles are the truths that explain how learning takes place. Main principles are: (1) Principle of Acquisition, (2) Principle of Extinction, (3) Principle of Spontaneous Recovery, (4) Principle of Generalisation, (5) Principle of Discrimination, and (6) Principle of Reinforcement. Four theories of learning are (1) Classical or Respondent Conditioning, (2) Operant Conditioning, (3) Observational Learning, and (4) Cognitive Learning. Existence of needs, drives, cues and stimuli, response, reinforcement and retention are components of learning process.

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Attitude is a persistent tendency to feel and behave in a particular way towards some objects. Attitudes and values are closely related, but are different. Attitudes depend on many factors like experience, association and reference groups, family, society, personality, and culture and religious values. systematic attempts can change the attitudes. Personality is the sum total of ways in which an individual reacts and interacts with others. One’s personality is affected by four types of factors, such as biological, cultural, social, and situational. Personality theories can be classified into following four groups, Psychological Theory, Sociopsychological Theory, Trait Theory, and Holistic Theory. Personality affects behaviour. Mainly, Locus of Control, Self-monitoring Abilities, and Personality Profile are key issues to understand reciprocal affect of OB. A number of writers contributed to the stages of personality development. Dominant among them are Sigmund Freud, Erik Erikson, Daniel Levinson, T Hall, and Chris Argyris. The ‘Big Five’ Personality traits is the framework that suggests five types of major personality traits including consciousness, emotional stability, agreeableness, extraversion, and openness to experience

KEY TERMS Perception Sensation Perception Process Perception Selectivity Learning and Learning Process The Myers-Briggs Type Indicator (MBTI)

Learning Principles and Theories Attitudes Barriers to Attitudinal Change Values Value System Type of Values

Significance of Value Personality Personality Development Stages The ‘Big Five’ Personality Traits

EXERCISES Objective Type Questions A. Answer the following: 1. Name five human senses. 2. State three phases of perception. 3. Write any three types of stimuli. 4. Write any four internal factors affecting perception. 5. State four learning principles. B. Choose the correct option (MCQs): 1. Motivation, learning, perception, attitudes, etc., affecting individual behaviour are known as (a) Cognitive factors (b) External factors

6. Define extinction. 7. Define attitudes. 8. Write any four managerial actions to change attitudes. 9. Define personality. 10. Write the ‘Big Five’ Personality Traits. (c) Group factors (d) Personality factors 2. Which is a person’s unique way of looking at the worldly stimuli that in-

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volves transforming raw information into meaningful picture of the stimuli? (a) Attitudes (b) Learning (c) Perception (d) Personality 3. Permanent change in behaviour resulting from the experience is (a) Attitude (b) Perception (c) Learning (d) personality 4. In which one of the steps in perception process, short-cuts like halo effect, stereotyping, attribution, impression, etc., are used? (a) Selection (b) Organisation (c) Interpretation (d) Outputs 5. Which learning theory implies that learning occurs due to consequences of behaviour (R-S)? (a) Operant Conditioning (b) Classical or Respondent Conditioning

(c) Observational Learning (d) Cognitive Learning 6. Which one is a tendency to evaluate stimulus in a certain way. Evaluation consists of attributing goodness or badness to an object. (a) Learning (b) Perception (c) Motivation (d) Attitude 7. Which one of the following is a unique way or a distinctive set of characteristics to influence or impress others? (a) Perception (b) Personality (c) Attitudes (d) Learning 8. Sociable, outgoing, talkative, assertive, and gregarious are included in which one of the ‘Big Five’ traits? (a) Consciousness (b) Agreeableness (c) Emotional stability (d) Extroversion

Descriptive Questions 1. What is perception? State its features. How does perception differ from sensation? 2. Discuss the perception process. 3. What is learning? List its features. What is the role of learning in OB? 4. Explain: (a) Learning Principles (b) Learning Theories 5. Describe components of learning process. 6. Explain: (a) Reinforcement (b) Retention

7. What is attitude? Describe it features. 8. ‘One’s attitudes are result of a number of factors.’ Comment an the statement and discuss important factors affecting attitude formation. 9. Can attitudes be changed? Suggest managerial actions to change attitudes. 10. Define personality. Explain its features. (Please see the companion website of this book for more exercise on this chapter.)

Assignments 1. Give students some stimuli, such as politics, film, private company job, business, particular teacher, or any other. Ask them to de-

velop perception and attitudes about them. Also tell them to describe why they have such perception with reference to factors.

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2. Students are assigned to enlist at least five personality traits they think are more

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important. They should also to prepare a comprehensive list compiling all traits.

REFERENCES 1 Fred E Luthans, Organisational Behaviour, McGraw-Hill, New York, International Editon, 2005, p.166 2 Rao and Narayan, Organisational Theory and Behaviour, Himalaya Publishing House, New Delhi, 1990 3 Stephen P Robbins, Organisational Behaviour, Prentice-Hall of India, New Delhi, 2000 4 J. H. Reitz, Behaviour In Organisation, Richard D. Ervin Inc., Illonis, 1977, p. 129 5 Fred E Luthans, op. cit., p. 172 6 Stephen Robbins and Seema Sanghi, Organisational Behaviour, Dorling Kindersley, New Delhi, India, 2006, p. 45 7 Fred E Luthans, op. cit., 206 8 G W Allport and H S Odbert, Traits Names: A Psychological Study, Psychological Monographs, Vol. 4, 1936, pp. 211– 214. 9 Stephen P Robbins, op. cit. 10 Daniel Katz and Scotland, ‘A Functional Approach to the Study of Attitudes,’ The Journal of Opinion Quarterly, Summer, 1960, pp 162 – 204 11 Ibid. 12 Fred E Luthans, op. cit, p. 209 13 Ibid., p. 209 14 Stephen Robbins and Seema Sanghi, op. cit., p. 622 15 Ibid., p. 67 16 Milton Rokeach, The Nature of Human Values, Free Press, New York, 1973 (Stated in Stephen Robbins, op.cit., p. 67) 17 W C Frederick and J Weber, ‘The Values of Corporate Managers, and Their Critics: An Empirical Description and Normative Imlication,’ Business Ethics: Research Issues and Empirical Study, Greenwich, CT: JAI Press, 1990, pp. 123 – 44. (Stated in Stephen Robbins and Seema Sanghi, op cit., p.68) 18 G. Hofstede, Cultural Consequences: International Differences in Work Related Values, Beverly Hills, CA: Sage 1980, and his subsequent publication works on the topic (quoted in Stephen Robbins and Seema Sanghi, op. cit., p. 69.) 19 Fred E. Luthans, Organisational Behaviour, McGraw-Hill, New Yourk, 1995, p.114 20 Stephen Robbins and Seema Sanghi, op. cit., p. 94 21 G W Allport, Personality: A Psychological Interpretation, Rinehart & Winston, New York, 1937, p. 48 22 Fred E Luthans, Organisational Behaviour (2005), p. 202 23 Ibid., p. 202 24 Ibid., p. 205 25 Ibid., p. 205 26 Ibid., p.119 27 Erik Erikson, Childhoold and Society, 2nd ed., Norton, New York, 1963, and Walter Mischel, Introduction to Personality, Holt, New York, 1971, pp. 39–41

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28 Daniel J. Levinson, The Seasons of a Man’s Life, Knopf, New York, 1978, p. 49 29 Douglas T Hall, Career in Organisations, Goodyear’s, Santa Monica, California, 1976, p. 57 30 Charis Argyris, Personality and Organisation, Harper, New York, 1957, p. 50–53

ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. B.

Visual, auditory, tactile, gustatory, olfactory Selection, organisation, and interpretation Persons, things, and events Needs, personality, past experience and attitudes Principle of Acquisition, Principle of Extinction, Principle of Spontaneous Recovery, and Principle of Generalisation Extinction is specific form of forgetting An attitude is a persistent tendency to feel and behave in a particular way towards some objects. (Fred Luthans) Provide information, provide relevant training, provide time and consistent feedback, and use of fear. (Students can write other actions, too.) Personality is a unique way or distinctive set of characteristics to influence or impress others Consciousness, Emotional Stability, Agreeableness, Extraversion, Openness to Experience 1. (a), 2. (c), 3. (c), 4. (c), 5. (a), 6. (d), 7. (b), 8. (d)

CASE Nothing is Absolutely Right or Wrong, But Perception and Attitudes—A Story of Contract and Corruption TVM Estate Private Limited, a Surat-based construction company, had been in the construction business since 2001. Company was led by Rahul Patel, a simple, honest, and sincere man. In construction industry, he was labeled as ‘the exception.’ He never compromised with his values and business ethics. The firm had successfully completed many medium and large sized commercial and residential projects. The group was respected for honesty and commitment. Customers and clients held the company in high esteem. He was against short-cut ways to get things done. On many events, he quoted: ‘If we are doing the right thing, we need not compromise with values. We must not do anything wrong that we cannot respect ourselves. We must exploit opportunities, not the people, or public property.’ However, many employees, including top executives, believed that too much good could not always work. Other executives of TVM Estate believed that one must change with the system when system cannot be changed. Over insistence on ethics could restrict the progress. Fortunately, the company had been working successfully since its inception. Amar Shah, the marketing manager, who had been with the company for the last five years, had faced many practical problems due to company’s strict business ethics. One day, he found an opportunity. The local authority was planning to construct an overbridge. Immediately, he met key position holders of the local body. He was disappointed as they asked for (secret deal) commission which was against company’s norms. With little compromise, contract could be won easily.

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Mr. Amar was confused. He could not decide what to do. He thought: ‘We must do it. To take bribe is a sin but we can’t survive without giving the same. We don’t like malpractices, but it is the demand of the situation. From top to bottom in politics and bureaucratic system, honest deal seems illegal! Nowadays, consideration is treated as part of corporate life; it’s an alternative way to get the work done. Our ideology will harm our company’s interest. It is not the matter of fairness; it is the matter of our business. Our intention is pure; we will provide better quality work and services. Will the boss permit us to do so?’ He met another senior officer and discussed the issue. Meeting ended without conclusion and both of them decided to meet the chairman.

Questions for Discussion 1. What makes TVM Estate a reputed firm in the industry? 2. ‘Nothing is absolutely right or wrong, but perception and attitudes.’ Discuss the statement with reference to Indian business environment. 3. How would you perceive the current business environment? 4. Do you think that Rahul Patel’s business philosophy can work in modern business? Why? 5. How will you look at Amar’s approach to business? 6. Accordingly to you, what would be the expected reaction of Mr. Rahul Patel? 7. As an expert, advise the company CEO what he should do in this matter?

CHAPTER

18

Dynamics of Groups and Teams Learning Objectives Upon completing this chapter, you will be able to: Define group dynamics and outline factors affecting it Discuss formal and informal groups in organisation and group formation Clarify the term ‘team’ and describe team building (management) Discuss various aspects of transactional analysis Examine Johari Window

INTRODUCTION An organisation is made of groups. Organisation behaviour studies behaviour of individuals and groups. However, groups are the prime focus in organisational behaviour. This chapter describes four topics: 1. Group Dynamics 2. Dynamics of Teams 3. Transactional Analysis (TA) 4. Johari Window 1

GROUP DYNAMICS In simple words, group dynamics refers to the study and analysis of various dimensions of a group. Dynamics itself is a science that studies forces, movements, and motions of things. Note: Additional reading material related to this chapter is available on the companion website of this book.

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When it is applied to a group, it implies a branch of organisational behaviour that studies the forces operating within it. Kurt Lewin, a social scientist, was the first to popularise the term ‘group dynamics.’ Group dynamics consists of all techniques used to understand various dynamics (forces and processes) of groups, including role playing, brainstorming, collaborative decision-making, participative management, sensitivity training, team building, transactional analysis, the Johari Window, group therapy, etc.

Definitions

Let us examine a few definitions of group dynamics:

Fred E Luthans: "Group dynamics is concerned with the interactions and forces among group members in a social situation. When the concept is applied to the study of organisational behaviour, the focus is on the dynamics of members of formal and informal groups and teams in the organisation."1 Kurt Lewin, the father of group dynamics, defines: "Group dynamics is viewed from the perspective of internal nature of groups, how they form, their structure and processes, and how they function and affect individual members, other groups, and organisation as a whole.”2 We can define the term in simple but comprehensive way as: Group dynamics refers to the study of group forces and processes. It describes internal nature of groups, their formation, and structures. It explains how and why groups are formed, and the way they affect individuals, other groups and the organisation. The definitions reveal three views, first is that group dynamics describes how a group should be organised and conducted. It emphasises on democratic leadership, member participation, and overall cooperation. The second is that group dynamics consists of a set of techniques to understand group behaviour. It involves role playing, brainstorming, focus groups, leaderless groups, sensitivity training, team building, transactional analysis, the Johari Window, group therapy, and so forth. Moreover, the third view of group dynamics is internal nature of groups, their formation, structures and processes, and the way they affect individual members, other groups, and the organisation. The last view is more important.

Conditions or Factors in Group Dynamics Behaviour of various groups depends on a number of factors. These factors can be classified into four groups:

1. Organisation-related Factors

Main organisational factors affecting group dynamics

include: (i) Organisational Design or Structure (ii) Organisation Strategy (iii) Type of Leadership (iv) Decision-making Process (v) Communication (vi) Authority Structures (vii) Formal Regulations (viii) Organisational Resources

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(ix) Performance Evaluation and Reward System (x) Human Resource Selection Process (xi) Organisational Culture, etc.

2. Member-related Factors Factors related to group members are: (i) Member Characteristics and Behaviour (ii) Goals and Expectation of Members (iii) Past Experience of Members

3. Group-related Factors Group-related factors include: (i) Groups Norms (ii) Group Goals (iii) Group Cohesiveness

4. Job/Work-related Factors Important job-related factors include: (i) (ii) (iii) (iv) (v)

Type of Job Physical Work Settings Type of Supervision Risk and Facilities Need of Group Efforts to Perform the Work

Groups in Organisation Individuals constitute the group and several groups constitute the organisation. A group is an important unit for sociological and psychological analysis to understand organisational behaviour. It affects the behaviour of its members, other groups, and the whole organisation. It is important for a manager to know how groups are formed. Group dynamics is concerned with the study of important aspects related to group formation and group behaviour. Group dynamics involves both types of groups—formal groups and informal groups. Formal groups are created by deliberate actions of organisation while informal groups are spontaneously created. This chapter describes important issues related to groups and their dynamics.

Definitions

Group has been defined as under:

G C Homans: "A group is any number of people who share goals, often communicate with each other over a period of time, and are few enough so that each individual may communicate with all the others, person-to person."3 John M Ivancevich and Michel T Matteson: "A group exists in an organisation when, its members (1) are motivated to join, (2) perceive the group as a unified unit of interacting people, (3) contribute in various amounts to the group processes (that is, some people contribute more time or energy to the group than others), and (4) reach agreements and disagreements through various forms of interactions."4

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In simple words, the term ‘group’ can be defined as: A group is collection of two or more people who have common objectives or interests and interact with each other to accomplish their objectives, are aware of each other and perceive themselves to be a part of a group. More clearly, it can be said: A group is collection of two or more interdependent and interacting persons who have come together to achieve a common goal.

Characteristics of Group In order to understand group dynamics (or group behaviour), one must analyse and understand key characteristics of groups. These characteristic may be referred as elements or components of group. 1. Membership: Membership in group is selective. An individual is granted membership on the basis of commonality of interest, willingness to extend cooperation, and conformation with group norms. An individual may be member of several groups. 2. Leadership: A group cannot work without a leader. While formal leader is nominated by the authority, the informal leader emerges from the group. Leader is granted authority to make decision, to take action, and to seek conformity. 3. Formal Hierarchy or Status: A group and its members have specific position in the organisation depending upon the purpose for which the group is formulated and the task they perform. However, situation is different in case of informal group. Similarly, a group and its members have socially defined position or rank. They have high or low status, esteemed or ordinary status. 4. Composition: A group consists of different types of members. Most group activities require a variety of skills and knowledge. Research studies show that heterogeneous groups (those composed of dissimilar individuals in terms of gender, personalities, opinions, abilities, skills and perspectives) are likely to perform more effectively. A group shares a common demographic attribute, such as age, sex, race, educational level or length of service in the organisation. 5. Specific Task: Every group has its tasks to perform. Task depends on the group’s purpose to serve. 6. Interaction: Group members transact with each other. They transact in the form of discussion, decision-making, actions, and dealings with others. Communication is the key in interactions. 7. Group Norms: Every group has its norms (values, standards, and beliefs) and members are expected to conform to them. Norms are acceptable standards of behaviour within a group that are shared by the group’s members. Norms bind the group members together. Norms may be in the form of external appearance, too, for example, uniform. 8. Communication: Communication is an important process that keeps the group active and alive. All group processes and functions need communication. 9. Group Cohesiveness: Cohesiveness implies ‘stick together’ or ‘help each other.’ It refers to the group’s attractiveness for its members. Goal, size of group, social and cultural homogeneity, personality characteristics, type of communication, and leadership are dominant factors that affect degree of cohesiveness.

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10. Member Satisfaction: A group may be source of satisfaction or dissatisfaction. Freedom, goal attainment, status, and the overall treatment the member receives from the leader and other members determine degree of satisfaction. 11. Size: Size (i.e., number of members in a group) depends on type of group objective and the task to be performed. Normally, twelve or more members are good for obtaining diverse input; approximately seven members tend to be more effective for taking action. 12. Types: There can be several types of groups, like formal, informal, task force, team, delegation, etc.

Reasons, Needs or Factors for Group Formation

The basic questions are: Why do people form or join a group?, What makes people affiliate with one another? There can be several factors/ reasons that lead to group formation. (Note: Point 1 and point 10 are purely reasons or factors for group formation; they cannot be included in needs. Other points can be taken as common for reasons, needs, as well as factors. Be clear that they are common to both formal and informal groups). 1. Nearness and Similarity: People tend to form groups due to spatial or geographical proximity or nearness. (The classical theory that explains group affiliation on the basis of geographical proximity is known as propinquity.) Many times, people explain that they are in a group because they are working in the same department or area. Quite often, people automatically form a group due to common (similar) attitudes, values, life style, habits and hobbies, political and religious affiliations, interests and career orientation, and other similarities. 2. Survival: Group provides the members the warmth and support. Group extends all possible supports to its members to exist or survive. Group members consider each individual as a part of group and understand their duty to help others in the group. 3. Security: As a group, people can protect their economic interest. They exhibit more influence on authority to decide in their favour. 4. Social Needs: This is the strongest reasons for group formation. Individuals join or form groups to satisfy their intense social needs, such as affiliation, which can be met by belonging to a group or joining the team. 5. Recognition: Group provides recognition to its members. Each member receives from the group respect, appreciation, and special identity as a group member. 6. Economic Benefits: Employees form a group to work on a given project to avail group incentives. Some people strategically form a group to avail special economic benefits. It is particularly true when the assignments need collective/joint efforts. 7. Information and Development: Group is a source of information and development for its members. Each member can avail useful information from other members. In the same way, group assists its members in their development. 8. Solving Work Problems: By mutual cooperation among group members, work-related problems can be solved. A group consists of several members who are expert in their relative areas. Each member can seek moral support, technical expertise, or guidance from other members of the group.

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9. Group Efficacy (Synergy): Group efficacy (may be said as collective efficacy) implies strong belief of individuals that group efforts—unified efforts—can achieve superior results, or joint efforts can solve problems more easily than individual efforts. 10. Interaction: The simple rule is: ‘More the activities people share, the more would the interactions, and the stronger would be their sentiments to work together.’ People interact with one another to accomplish group goals through cooperation and mutual problem solving. 11. Other Reasons: Besides the reasons already discussed, there are some other reasons listed below: (a) Feeling of self-esteem (b) Achieving goals (c) Empowering members (d) Becoming leader (e) Enhancing status The reasons discussed above are interrelated, hence there may be some duplication. In a nutshell, it can be stated that propinquity (geographical proximity), balance (similar values and attitudes), and interactions (exchange theory), stated later, to achieve goals, protect interest, and satisfaction of economic and social needs are main forces making individual join group(s).

Group Formation (or Development) Process Group formation process consists of stages that the members follows to form/join a group. B W Tuckman,5 in his article, explains the five stage group development model. According to him, group is formed through five distinct stages: forming, storming, norming, performing, and adjourning. Let’s briefly comment on these stages. Stage 1: Forming: It is initial stage of group formation. A new member is not clear about purpose to form a group; he has little information about tasks, need for joint efforts, other members, leadership, and other aspects. The step is characterised by uncertainties and confusion. He simply observes others’ behaviour, events, and issues to decide what type of behaviour is fit. Finally, he identifies himself as part of a group. Stage 2: Storming: Now, group members experience conflict with others and face confrontation. They experience conflict about status, level, and group leadership. When position and leadership are finalised, the members become integral part of the group. Stage 3: Norming (Normalising): This is the stage of being normal in work and behaviour. Conflicts, confusion, and confrontation among group members tend to decline. They start behaving normally. The group members develop cohesiveness—degree to which group members are attracted to each other and are motivated to stay in the group. They start cooperating and collaborating with each other, develop close relations, and exhibit cohesiveness. Members adjust with situation and become accustomed to routine life. Group members formulate common goals and work procedures. Stage 4: Performing: At this stage, the group becomes fully functional. This is the stage of putting group efforts and exhibiting better group performance. Group members put sincere efforts jointly in pursuit of common goals. They try to improve their work performance.

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Stage 5: Adjourning: This is the stage of departing from the group. The stage is particularly applicable to temporary (or ad hoc) groups. Temporary groups, like committees, commissions, taskforce, etc., are adjourned when task/job is completed. However, permanent formal groups do not experience this phenomenon. They are long-lasting and continue functioning over time.

Theories/Approaches of Group Formation There are many explanations regarding why people join groups. Logical and practical explanations can be referred as theories of group dynamics. Basic theories of group dynamics include: 1. Propinquity Theory: Geographical proximity/nearness promote group cohesiveness. 2. Interaction Theory: Activities, interactions, and sentiments lead to group formation. 3. Balance Theory: Common attitudes and values that people hold make groups 4. Exchange Theory: Reward-costs-outcomes of interactions attract people to form groups. Other three theories are input in this theory.

Formal and Informal Groups Organisation involves two types of groups, formal group and informal group. Formal groups are deliberately created to achieve organisational objectives while informal groups come into existence spontaneously. Existence of informal groups can neither be ignored nor restricted. Formal group is deliberately and purposefully created. It is created to meet organisation’s requirements. It has specific objectives, rules, and defined relationship. Each member in the formal group has clear-cut authority and responsibility. His position and status are clarified. Formal group has to functions as per the policies, rules, and procedures of the organisation. Such group may be temporary or permanent in nature. Informal group, on the other hand, is created automatically or spontaneously due to interactions among people in the organisation. Informal group does not have defined objectives and specified scope. It comes into existence to satisfy members’ social and psychological needs which formal structure cannot satisfy. It is not created for organisation’s needs; people with similar nature, likings, and feelings may form an informal group. Friendship groups, membership groups, reference groups, and interest groups are common informal groups. Normally, informal groups come into being for political, friendship, or common interest reasons. Informal group—often referred as informal organisation—is created due to limitations of formal organisation. It is natural way of grouping of people in their work situation. Such groups are more influential and have considerable impact on organisation’s overall efficiency. These groups seem inevitable as they satisfy certain needs that formal organisation cannot. Dynamics of informal groups are more vital in study of organisational behaviour. Difference between formal and informal groups has been discussed in Table 18.1. TABLE 18.1

1.

Difference between Formal and Informal Groups

Points

Formal Group

Informal Group

Origin

Formal group is created by deliberate actions of management. It is need-based group which is created to meet organisation’s requirements.

Informal group is created spontaneously by members to satisfy their social and psychological needs. It is formed due to similarity of nature, attitudes, interest, and liking and disliking.

(contd)

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Formal Group

Informal Group

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2.

Authority Structure

Member derives authority from superior through delegation. Flow of authority is downward. Formal leaders, based on formal authority, may or may not be accepted and respected by others.

All members are equal. They derive authority from interpersonal relationship. A person with greater ability to satisfy needs of members can be a leader. He is always accepted and respected by others.

3.

Tenure or Stability

Formal group is stable in nature and continues for a long time. Members may be changed to adjust with situation.

Informal group is quite unstable. It is based on liking and disliking and other associated features. If the group loses its attractiveness, members leave it.

4.

Behaviour of Members

Behaviour of members is governed Behaviour of members is governed by prescribed policies, rules, and by group norms, beliefs, and valprocedures. ues. Those who dislike norms and values can leave the group.

5.

Communication Pattern

Communication takes place as per the needs of members. Message is sent and received as per norms of members. Direction and channel are not prescribed. It may not be reby the organisation. It is related to lated to organisation’s functioning. It may be personal. organisation’s functioning only.

6.

Size of Group

Size of formal group is based on Normally, size of informal group organisation’s requirement. It must tends to be small so as to have propbe adequate in size. er interactions among members, and to maintain group cohesiveness.

7.

Abolition

Formal group is created by organi- Informal group is created by memsation’s deliberate actions and can bers and cannot be abolished by be abolished by similar actions. management. Any attempt to abolish it affects adversely organisa-

8.

Purpose

Formal group is created for the Informal group is created to satisfy legitimate objectives of organisa- social and psychological needs of tion. members in a formal organisation.

9.

Number of Groups

There are many groups and subgroups in an organisation, as per the need of the organisation. A person is a member of only one group. There is no overlapping of membership.

10.

Controllability

Formal groups are controllable. Informal groups are not controllaTheir behaviour can be shaped ble. Their behaviour is shaped and formal groups. tions.

11.

Depiction

Formal group is depicted in formal organisation chart.

Communication takes place as per the prescribed pattern. Message is sent and received as per organisation’s policies. Message, chan-

There may be many informal groups operating within the organisation. A person is member of many informal groups. There is overlapping of membership.

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Functions or Uses of Formal Groups Formal groups are deliberately formed by an organisation to carry out formal activities in pursuit of its goals. Functions of formal groups depend on organisation structure, policies, rules, procedures, and other relevant variables. Uses or functions of formal groups have been listed below: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Achieving goals Benefits of specialisation Advantage of synergy Source of job satisfaction Source of social needs Solving work-related problems Effective allocation of resources Delegating authority and assignment of responsibilities Defining roles and status Formal design and organisational chart Facility for interaction and communication

Functions or Uses of Informal Groups/Organisation Informal organisation is, in fact, difficult to portray in form of charts, but performs a number of functions, some of them are desirable for formal organisation. Main functions, uses, or practical benefits of informal groups and organisation include: 1. Group Integrity: Informal group binds people together. Norms, interests, and values of informal organisation help to preserve group integrity. 2. Social Satisfaction: Informal group provides social satisfaction to its members. People can satisfy their social needs by joining informal groups. Informal groups become the source of status, recognition, and respect. They help in reducing boredom and monotony, and improving employee’s performance. Their innovative and creative ideas get materialised. 3. Solving Work Problem: Informal groups can help their members to solve job-related problems. Members can receive help from other members of informal groups; they can share knowledge and can assist in group decision-making. The groups offer their members moral support necessary to build confidence. 4. Prescribing Norms and Values: Informal organisation prescribes standards, norms, and values that its members have to practice. Abstract concepts of honesty, sincerity, loyalty, devotion, self-sacrifice, etc., can get immediate recognition by informal organisation. It helps in differentiating between right or wrong. Such standards are often found consistent with professional norms of the organisation. 5. Protection of Members: Informal organisation protects its members from outside pressure. Top level management, or even trade unions, cannot work against interests of members. 6. Collaborating Efforts: All members in a group have same values, attitudes, and interests. Informal groups can develop collaboration that formal groups cannot. Efforts of informal groups create synergy that can maximise their contribution to organisation’s objectives.

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7. Supporting Management: Informal organisation can extend support to management in many ways. It helps to build consensus, implement changes, improve/review decisions, and, in all, reduce workload of management. 8. Filling Communication Gap: It makes communication perfect (or effective). It plugs the deficiencies that exist in formal communication. The message spreads fast as informal group keeps its members informed. It has potential to improve formal communication. 9. Emotional Support: Informal group satisfies psychological needs of members, including love, affection, esteem, etc. It works as a safety valve for employees’ emotion. It helps employees release their emotional pressure and release tension and anxiety. It is a source of sympathy and moral support. 10. Contribution to Organisation Efficiency: Note that informal organisation does not always work against formal organisation. It has potential to contribute to organisational operational efficiency. It can force its members to contribute positively to improve operational efficiency of organisation. Resistance to change and dysfunctional conflicts can be restricted by informal organisation. Certain virtues can be successfully imparted to its members.

Limitations/Problems of Informal Group Informal groups are uncontrollable. They are not always useful; they create many problems for the organisation. Sometimes, organisation loses its objectivity due to abnormal pressure of informal organisation. Some practical problems have been listed here: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Resistance to change Restriction of output Source of role conflict (conflict between formal and informal roles) Source of rumour (miscommunication) Inertia (inactivity or lethargy) Aggressive conformity (i.e., forceful conformation) Narrow vision and rigidity Source of rebellion Source of conspiracy Compulsion on organisation to accept unjust demands

Group Structure To understand group dynamics, we need to analyse the structure of a group. Formal groups are formally structured while informal groups are unstructured. Suitable group structure leads to efficient group performance, better relations, and sound decision-making. Managers need to concentrate on following key components or elements that make a group: 1. Group Norms: Norms are acceptable standards of behaviour that all members have to observe. They may be related to time, work, performance, or behaviour. Due to standards, all members behave in a similar pattern. Employees have to modify their values, priorities, and attitudes to comply with the group norms.

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2. Roles: A role consists of a set of expectations that people hold from the given position holder. Each role carries specific behaviour pattern; different roles expect different types of behaviour patterns. Role perception, role expectation, role ambiguity, and role conflict are some issues related to roles. Employees must perceive the role correctly. 3. Group Cohesiveness: Cohesiveness implies ‘stick together’ or ‘help each other.’ It refers to the group’s attractiveness for its members. Goal, size of group, social and cultural homogeneity, personality characteristics, type of communication, and leadership are important factors that affect degree of cohesiveness. More and frequent interaction, small group, agreed upon common goal, etc., lead to high level of cohesiveness among group members. 4. Group Leadership: Group leadership is a powerful component of group structure. Depending upon needs and type of situation, a leader uses different styles to maintain a balance among group efforts. Leader makes the group work effectively and efficiently. Leadership is responsible for communication, motivation, and supervision which affects group performance. 5. Status: A status is position or rank given to members by others. Members in a group have high or low status as per the work they perform and responsibility they carry. High status holders have more authority (or right) and freedom to decide and command. 6. Group Size: Group size (i.e., number of members in a group) is an important component of group structure. Size of group depends on type of work. However, small groups can prove more effective. 7. Group Composition: Group members have different cultures, qualifications, skills, experience, gender, races, and personality characteristics. Heterogeneity promotes creativity. However, diversified group members are difficult to manage. Components of formal group structure discussed above, such as norms, roles, group leadership, group status, group size, and group composition, are equally applicable to informal groups, too. However, they are not formally (legitimately) determined. These aspects are informally prescribed and all group members have to abide by them.

DYNAMICS OF TEAMS AND TEAM BUILDING Group dynamics serves as the base to understand dynamics of teams. Team and group are, to some extent, similar and are used interchangeably. However, teams and teamwork are more popular in today’s organisations. Actually, the concept was developed and applied in Japan in the 1950s, particularly to deal with quality problems. Now, it is a widely used term in almost all human activities. TQM (Total Quality Management), HPWPs (High Performance Work Practices), MBO (Management By Objectives), and other similar approaches for better performance emphasise on teamwork.

Definitions of Team As stated in the former part, though team and group are used interchangeably, they are not same. Team differs from group mainly in form of outcomes or performance results. Teams are used for high performance results. They are revised version of traditional formal groups. They have collective and synergic effects on final outcomes. Committee, commission,

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board, taskforce, Quality Control (QC), etc., are popular forms of team. The term ‘team’ can be defined as: In simple words, team can be defined as: Team is a group of individuals with the ability to do special tasks, who prefer to work collectively for specific purpose, have shared leadership, and bear individual and collective accountability. More clearly, team is viewed as: Team is well-planned, well-organised, and well-defined small formal group of people, each of them tends to be expert in his respective area, and the team has more specific goals to achieve.

Characteristics of Team Team can be characterised as under: 1. Collective Work-products: The result is based on collective efforts of team members. Its efficiency is measured in terms of team’s collective outcomes. 2. Synergic Effects: Synergy states that the whole is better (more) than the sum of its parts. Team members collectively contribute more than what each of them can individually contribute. For example, synergy implies: 2 + 2 = 5, instead of 4. 3. Improved Version of Formal Group: Traditional form of group has been refined into team. Team also has some features of group, more specific features are added to make the group a team. 4. Small Size or Limited Members: Normally, team consists of limited members. Number of members depends on type of work and diversified skills and expertise needed to do each of team activities effectively. 5. Rewarding Pattern: Team members are rewarded collectively as well as individually. 6. Complementary Membership Role: Members complement each other. Each member has a critical role, and team cannot work effectively in the absence of any of the members. Contribution of each team member greatly influences the success of the team efforts. 7. Emphasis: In contrast to group, team discusses, decides, and does real work. Team emphasises on high degree of professionalism rather than bossism. 8. Shared Leadership: Team members have shared leadership. Each of the members in a team is expert in his relative areas and tends to be a leader. The team has shared leadership roles. 9. Accountability: Team has individual, mutual, and joint accountability. 10. Specific Purpose: Team has clear and specific purpose and each member has critical role in achieving expected ends. 11. Interacting Style: Team encourages open-ended and active problem solving meetings. Every team meeting tends to be more objective oriented. 12. Members' Characteristics (or Expertise): Team is made of experts. Each member in the team tends to be an expert in one or more areas, matured in behaviour, and volunteer in contribution. Members struggle for team’s collective performance.

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Popular Forms of Team Modern business organisations perform their operations through teams. Some popular forms of team include Cross-functional Teams, Virtual Teams, Self-managed Teams, and Problem-solving Teams.

1. Cross-functional Teams Normally, all teams are cross-functional teams. This team consists of some specialists and supporting staff. It is constituted by drawing expert personnel from different functional areas or departments. The experts of the team perform specific tasks supplementary to each other. The main purpose is to take decisions, solve problems, and carry out assignments in those areas which cannot be done by one specific department. For example, a team of doctors works in emergency ward to treat critical patients. In the same way, teachers with different disciplines can constitute a cross-functional team to teach and train students in different disciplines. For example, B-school may be managed by team of teachers who belong to management, computer science, mathematics, economics as well as practicing managers. David Chaudron6 suggested five steps to improve performance of cross-functional teams. 1. Choosing members carefully 2. Clearly establishing purpose of team 3. Ensuring that everyone understands how the group would function 4. Conducting intensive team building up front so that everyone learns how to interact effectively 5. Achieving noticeable results so that morale remains high and members can see the impact of their efforts.

2. Virtual Teams Working pattern of virtual teams is similar to virtual organisations. (For virtual organisation, refer Chapter 16). We cannot see team members working collectively, but they work invisibly. More clearly, in a virtual team, there are no face-to-face interactions among team members. J Lipnack and J Stamps, and others, define virtual team as: "Virtual teams are groups of people who work interdependently with shared purpose across space, time, and organisation boundaries, using technology to communicate and collaborate."7 With the advent of advanced information technology, increasing globalisation, and need for speedy transactions, face-to-face interactions among members of teams are no longer necessary. Using electronic links, like e-mail, chat rooms, phone, video conferencing, faxes, satellite transmissions, and websites, members can communicate and transact comfortably at considerable distances. E-mails, video conferencing, and chatrooms are used for collecting data, gathering ideas, and negotiating with others. It has been experienced that virtual teams are more flexible and can work more effectively than face-to-face interactions. However, virtual teams cannot be applied to all types of interactions. They are more suitable for knowledge-based tasks in remote areas. Virtual teams are being increasingly used for global partnering and outsourcing. Their success of depends on type of operations, type of people and training, use of suitable modes of information technology, and other conditions. In order to make virtual teams operationally effective, and to meet the future challenges, more research and skillful application are necessary.

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3. Self-managed Teams

Self-managed teams are managed automatically, without external control. Egalitarian (free, open, or classless) cultural values in today’s most organisations and empowerment movement are increasingly emphasising on self-managed teams. Self-managed team is known as empowered team. Dale E Yeatts and Cloyd Hyten8 define the term as: "Selfmanaged teams are groups of members who are responsible for managing and performing technical tasks that results into a product or service being delivered to internal or external customers." Teams are independent in performing their operations. Self-managed teams are empowered to hire staff, organise activities, and purchase necessary inputs and facilities without formal approval of higher authority. It has been observed in many research studies that selfmanaged teams have more positive impacts on productivity and can work more successfully. Such teams lead to increased job satisfaction, better customer services, and high commitment to organisation. However, it is not a fool-proof option to get work done.

Key features Self-managed teams can be characterised as: (i) (ii) (iii) (iv) (v)

Self-managed teams set their goals, complete their work, and review the same. They are responsible to plan and control their own work processes. They are empowered to perform managerial and leadership functions. Self-managed teams are empowered to hire staff and organise activities independently. To complete their work, they can purchase necessary inputs and facilities without formal approval of higher authority. (vi) They have their own budget and coordination scheme to work with others. (vii) They buy and hold necessary inventories or inputs to complete their work. (viii) They take care of quality of their work, the outsider is not needed. (ix) They are responsible to select and train the staff needed. (x) They take sole responsibility of resulting outcomes.

Practical Problems

There are some practical problems, both at individual and organisational level, that affect effectiveness of self-managed teams. Individual problems include (1) unwillingness of team members to give up the past practices, i.e., their power and positions, (2) all team members may not be equally capable, they may not have ability, knowledge and skills to contribute towards team efforts, (3) all team members may not be ready to take individual and/or collective responsibility, and (4) team members may face conflict, task of team may not be accepted by an individual as his task. Even, team effectiveness is adversely affected by organisational level problems. They include: (1) team as a whole may find little incentive to work better; incentives, rewards, or compensations are offered on the basis of individual performance, (2) it is difficult to form team that can perform different activities effectively, and (3) self-managed team demand high degree of conformity, understanding, maturity, and compromise, which are difficult to achieve.

4. Problem-solving Teams

Problem-solving teams are also known as corrective teams. Such teams are constituted to solve specific problems the organisation faces. The members of these teams are selected from those areas where the problems requiring solutions exist. They may

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be selected from one or more departments. Problem-solving teams consist of experts who have rich experience and are capable of tackling problems. Team members apply appropriate methodologies and techniques to go deep into the problems, search appropriate alternative solutions, evaluate the alternatives, and finally select specific solution to problems. Team Building Skills Transform Flop Story of TVS into a Successful One In 1986, TVS Group failed to position it product due to severe competition. Also, workers’ problem resulted into lock-out. Shrinivason emphasised on team building to come out of troubles. He began gathering a supportive team of professionals, took keen interest in appointing the right people (including blue-collar employees) into the company, permitted them to enjoy a lot of freedom, linked rewards with performance, pursued quality consciousness, empowered workers, and built excellent interpersonal relations with workers. His team building efforts could bring the company on track within two years. After some failure models, TVS Motor revamped its product portfolio and offered many successful models, including TVS Fiero, TVS Victor, TVS Centra, and some others. The company also maintains its hold in moped segment.

Making Team Effective Organisation contains many teams. Teams try to achieve objectives and work on behalf of the organisation. All teams must function effectively to contribute positively. Team building consists of two tasks—to create a team carefully, and to make team operate effectively. To create teams and to make them function effectively to achieve specific objectives in time require special managerial efforts. Enhancing team effectiveness involves four approaches/ways. (1) team building, (2) collaboration, (3) team leadership, and (4) understanding cultural values.9 The first approach, team building, is a key issue in team effectiveness. This approach has been discussed in detail while other approaches have been briefly described in the following part:

1. Team Building—Creating Team Team building involves deliberate efforts. It involves activities designed to construct, develop, and sustain groups of people who are working together to achieve common goals, with a commitment to take collective responsibility.10 Groups require time and training to convert them into productive and cohesive teams. However, a long development processes is not always necessary. Efforts are made to make members learn teamwork and understand their roles more clearly, make effective decisions, and pursue specific group goals. Team building demands the right members and the right type of efforts. Team building is an important OD technique, too. Effective team building establishes a sense of partnership. It allows its members to see the team as a unit and an attractive arrangement of work. Members must be ready to share collective intelligence and must experience a sense of power. Free flow of idea generation can support team building. The programme must fit with corporate culture, have well-designed goals, and allow members to use their skills. Team members must be emotionally intelligent, must be ready to do what they promise, and must be ready to sacrifice personal benefits.

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Competitive Advantages of Team Building Effective team can offer a number of competitive advantages to the firm. Teams must be monitored and evaluated continuously on: (i) Emphasis on team mission (ii) Effective problem solving (iii) Development of interpersonal skills (iv) Open and participative climate (v) Successful goal achievements (vi) Feeling of empowerment (vii) Improved communication (viii) Positive roles and norms (ix) Level of job satisfaction and happiness (x) Team resiliency level (xi) Team efficacy

Team Building Programme Team building programme in a large industrial unit consists of six steps (as described by Fred E Luthans): (i) Team Skills Workshop: Organisation must arrange a workshop to teach experience based exercises to help people unfreeze (forget) obsolete skills and get them accept the change. (ii) Data Collection: Using questionnaire survey, data are collected on organisational climate and culture, supervisory behaviour, job contents, and other aspects. (iii) Data Confrontation: Experts present the teams with the data and permit open discussion on problem areas. They make constructive suggestions. (iv) Action Planning: The teams develop specific plans for the change to be actually carried out on the job. (v) Team Building: Teams try to find actual barriers to effectiveness and decide about overcome these barriers and agree upon the plans. (vi) Intergroup Building: Meetings are held between various interdependent teams for accomplishment of goals. The purpose is to establish collaboration on shared goals and problems, and to generalise OD efforts for the total organisation. The programme takes time to complete team building. Outside consultants in team building play an important role.

2. Collaboration—Developing Team Spirit It consists of injecting team spirit or intimacy, to work effectively. Collaboration is closely related to group efforts, intelligent cooperation, teamwork, or partnership. It involves making team members work collectively as well-united unit. Even capable leader cannot work alone; he needs support of other people. For the purpose, (1) a leader has to assemble a group of capable people, (2) he has to ensure collaborative efforts by effectively organising to make them contribute their best creative efforts. Collaboration involves improving interpersonal interactions in group setting. Leader and team members must learn/develop collaborative skills.

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Twelve Tips (Cs) for Team Building Susan M Heathfield suggests following twelve tips (each tip starts with alphabet ‘C’) to ensure work teams contribute most effectively to business success: 1. Clear Expectations: Executive must clearly communicate what he expects from his fellowmen. 2. Commitment: Make the members feel that their contribution is essential for team mission. 3. Context: Make them understand how teams can help the organisation to achieve organisational goals. 4. Competence: Make the team members feel that they have knowledge, skill and capability to perform the task for which the team has been formulated. 5. Charter: (Charter means agreeing for assignment) Make them take responsibility to perform assigned work. 6. Control: Make employees feel that they have enough freedom and empowerment to accomplish their targets. 7. Collaboration: Make them work in collaborative manner. 8. Communication: Give and receive performance feedback honestly. 9. Creative Innovation: Permit team members to apply their creative skills, reward those who take reasonable risk, and provide them training, guidance, and scope to stimulate their new thinking. 10. Consequences: Supply team members with rewards and recognition for their contribution to success. 11. Coordination: Provide effective leadership to assist group members attain the desired results through better coordination. 12. Cultural Change: Make the members feel that team-based, collaborative, and empowering organisational culture is the need of the time. Try to impart team-based culture. (Source: http://humanresources.about.com)

3. Team Leadership—Providing Team Leadership Leader has pivotal role in improving the team effectiveness. His influence on team performance depends on how he selects the members and what tactics he uses to influence them. Leader needs to understand team members perfectly to treat and train them objectively. He must do everything possible to reduce distance. They must be made feel that leader is one of them. Team-oriented climate must be created by eliminating special treatments to leader. He should behave as a facilitator rather than a boss. He must not order, but propose. While deciding, he must work with them. He should be clear, neutral, and balanced while deciding and dealing with different people. He must try to win trust of team members to be accepted and respected. Acceptable leadership is precondition to make the team effective. 4. Understanding Cultural Values in Global Situations—Making Team Members Sensible to Each Other National culture remains a key factor in explaining pattern of relationship in teams. Due to globalisation, a global team (made of experts of different nationalities)

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has to work collectively. Team members hold different cultural values as they belong to different cultures. Cultural differences lead to heterogeneity. Cultural diversities prevent them from understanding and working in a collaborative manner. Cultural obstacles must be overcome to make the team effective. Here, selection of team members is a key issue in creating the global team. To reduce cultural diversities, organisation must create hybrid team culture. Normally, following guidelines can help make global team effective: (i) Adapting to each culture by respecting each others’ cultural values. (ii) Changing implementation of team for each culture, i.e., based on national culture, teamwork must be implemented. Involvement or consideration depends on national culture of particular nation. (iii) Respecting local laws, team must be formulated as per local laws and legal provisions in force.

5. Other Guidelines

In addition to these four guidelines, experts and practitioners have given some suggestions to improve team effectiveness. To make team processes effective, organisation should follow guidelines stated below:

(i) Setting superordinated goals to integrate efforts of several teams and their members (ii) Concentrat on high priority problem, and creating climate of trust (iii) Careful selection of team members, reasonable team size, and skills and role clarity (iv) Overcoming problems related to diversity (v) Creating right (supporting) organisational climate and culture (vi) Formulating carefully objectives, policies, rules, and procedures (vii) Designing interdependent tasks to building team cohesiveness (viii) Permutting people to form team voluntarily. Force or coercion has negative impact on team performance (ix) Group goal setting may be problem solving techniques. People must be inspired to develop group efficacy (x) Continuing research to find out different and innovative ways to improve teamwork (xi) Providing positive feedback, recognition, and team reward (xii) Ensuring meaningful motivation (collective and individual rewards and appreciation), improving communication and relations, etc.

TRANSACTIONAL ANALYSIS (TA) Perception, learning, motivation, attitudes, etc., are used for analysing individual behaviour. TA is used to analyse and improve interpersonal behaviour while Group Dynamics is used for analysing group behaviour. TA was originally developed by Eric Berne for psychotherapy to treat patients in 1950s. It was a clinical instrument. Later on, Eric Berne, Thomas Harris, and Jongeward extended its application to ordinary interactions. Thomas Harris’s book ‘I’m OK - You’re OK’ further popularised TA.11 Now, it has become a popular tool for management trainees, and is widely used in

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variety of fields, like management, education, military, etc. Many companies have sponsored TA programmes for their managerial personnel, key position holders, and customer service representatives. Questionnaire tool is used to identify people’s dominant ego states. As a tool of OD, TA attempts to develop more adult (ego) states in people and complementary transactions with others. TA is used in team building, too. However, more research is needed on TA for purposeful application, particularly for OD, and for organisational behavior, in general. Undoubtedly, TA has remained a popular concept and it carries wide appeal. TA is a method of analysing and understanding interpersonal behaviour. When people interact, there is social transaction in which one person responds to another. The study and analysis of these transactions between people are called transactional analysis. When any person responds or reacts to any stimulus, it is said to be a transaction. For example, if the manager orders the supervisor to carry out certain assignments, and if the supervisor reacts or responds in any way (i.e., obeying or ignoring), it is a transaction. Johari Window, discussed in the later part of the chapter, is also useful for analysing transactions. TA is one of the strategies or tools for OD (Organisational Development). It helps people better understand themselves and their effect on others. It is widely used to analyse group dynamics and interpersonal communication. It is useful to understand their own ego states, and those of others, to understand the principle behind transactions and games.

Areas (or Components) of Transactional Analysis Transactional analysis is a broad concept and it involves many areas. In this part, some key elements, such as self-awareness, ego states, analysis of transactions, stroking, and games analysis, have been elementarily discussed.

1. Analysis of Self-awareness

It implies knowing about ourselves. To what extent, a person is aware of himself affects his interpersonal transactions. Johari Window is a useful framework to analyse self-awareness.

2. Ego States (Structural Analysis)

Ego is not observable—it is a hypothetical construct. It is a major area of transactional analysis. It has prime role in human personality and behaviour. It is used to explain the complex dynamics of the human personality. Ego states are reflective of many aspects, like personality, attitudes, self-concept, maturity level, leadership, and desire for power and dominance. There are three types of ego states—child ego, adult ego, and parent ego. Ego states are indicative of one’s reaction pattern, i.e., reaction or response depends on type gego state. We may define ego states as: Ego states are made of, or are affected by, a number of factors, such as personal capabilities, qualifications, castes and communities, authority and positions, nationality, training, achievements, self-concept, and other personality characteristics. All those factors that affect one’s beliefs about oneself (or self-evaluation) are considered as contributors in ego states. Also, we can say: Ego is person’s conscious belief, psychological state, or pattern of thinking that governs his transactions with others. It is belief about oneself in relation to the other.

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Ego states are key input in TA. Three main ego states have been discussed below: (a) Child (C) Ego State: This is the state in which the person behaves (reacts) like an impulsive child. This state can be characterised as submissive, conforming, insubordinate (disobedient), emotional, joyful, truthful, innocent, rebellious, etc. The person with this ego state exhibits immature or child-like behaviour. In TA, the child ego state has nothing do with age or position. For example, a salesman with child ego state says: ‘I am crazy to follow the boss.’ (b) Adult (A) Ego State: In adult ego state, the person acts like a mature adult. His behaviour tends to be more balanced and rational. He collects information, carefully analyses the alternatives, and makes logical choices. He cares for others. Dealing with others, this state is characterised by fairness and objectivity. For example, salesman says: ‘Let me think whether your suggestion works effectively.’ (c) Parent (P) Ego State: In parent ego state, the person behaves like a dominating parent (father or mother). He treats others like children. He desires to protect and control others. Person operating from the parent ego state strongly believes (or insists) that others must do what he says. He sets standards and rules that others must follow. Rewards and punishment are the tools frequently used to make other behave as per parent specified standards. Any person, irrespective of age, status, position, or authority, can hold parent ego state. However, in an organisation, it is more relevant to higher position holders with authority to reward and/or punish. For example, salesman, though he is a subordinate, says: ‘I strongly believe your strategy may not work. You must follow my suggestion, it will definitely work.’

3. Analysis of Transactions Analysing transactions between ego states is the heart of TA. Normally, a person exhibits three types of egos, but, at a time, he operates from one state that dominates the remaining two states. Parent ego is more desirable state for effective relations. However, all three states are necessary for healthy personality. From the organisational behaviour point of view, more important aspect is how one ego state matches or conflicts with another state in interpersonal interaction (transactions). Transactions can be classified into the three groups: (a) Complementary Transactions: There are three possible complementary transactions: (1) Complementary transaction occurs when behaviour exhibited by superior from a particular ego state (for example, parent ego) receives appropriate and expected response from subordinate’s ego state (for example, child ego). More clearly, a boss operating from parent ego expects others to respond from child ego state, (i.e., as subordinates). (2) In the second case, complementary transaction occurs when both superior and subordinates interact/operate from the same ego states, (for example, adult ego state). Here, superior expects that his subordinate must behave as an adult, not as a child. (3) In the third case, complementary transaction occur when superior (operating from child ego state) expects that his subordinate is more experienced and matured (parent ego state), and must take care of his activities. In complementary transaction, the expectation of a person is key criterion. Transactions may be analysed from subordinate’s side, too. Complementary transactions are most effective for interpersonal relations, cooperation, and communication.

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(b) Cross Transactions: A cross transaction occurs when the behaviour exhibited by a person (superior, subordinate, or peer) is not responded by other in the expected or compatible ego state. For example, if boss (operating from parent ego state), expects his subordinate to obey and respect his orders (i.e., subordinate should operate from child ego state), but subordinate reacts as an adult by putting comments, it results into cross transaction. Note that cross transaction occurs in case of all three ego states. Cross transaction is the source of interpersonal conflict in an organisation. It leads to hurt feeling, insult, ignorance, and frustration. Such transactions always result into dysfunctional consequences for the organisation. (c) Ulterior (Unknown, Hidden or Mysterious) Transactions: Ulterior transactions are most complex. They are most unobvious form of transactions. Alike cross transactions, they damage interpersonal relations. Ulterior transactions occur when one person, at a time, operates from at least two ego states with two different situations. For example, boss says: ‘My door is always open for my subordinates. You are free to reveal your difficulties and problems.’ He operates from adult ego. But, when employees bring problem to him, he says: ‘Don’t disturb me with your problem, find an answer yourself.’ In this case, he operates from the parent ego. When one acts or reacts from different ego states and his reaction pattern is not fixed, consistent and predictable, the outcome is ulterior transactions. These ulterior transactions are most difficult to identify, analyse, and understand. They restrict interactions and create many problems for the organisation.

4. Life Script (Position) Analysis Life script is like a script of a role one has to play in drama. It is total description about a person. Person’s philosophy of life, goal, ambition, attitudes, etc., affect life script. It describes his total pattern of living in the world. It shows O.K. positions. For example, ‘I am (or am not) O.K., or You are (or are not) O.K.’ It is indicative of his belief about his position as well as position of others. 5. Stroking Stroke means act of hitting or giving a jerk. The concept of stroking is one of the important aspects of TA. In fact, it is the basic unit of motivation. People need cuddling, affection, recognition, and praise as strokes. Strokes fuel them and keep them active and satisfied. Stroking is concerned with recognition of another’s presence. The word stroking has its origin from the studies of needs that babies have for physical affection for complete psychological development. Now, it applies to all types of recognition. People seek recognition while interacting with others. Lack of stroking adversely affects both physical and psychological well-being of the person. Every one needs strokes. However, every one is not tuned by same strokes; different strokes are needed for different people. Again, which type of strokes one needs is dependent on many factors—individual level as well as organisational level. The concept of strokes is closely related to the learning concept of reinforcement. For example, positive strokes can be said as social reinforcement. There are two types of strokes—positive and negative. The stroke that makes one feels O.K. is a positive stroke. Word of recognition, affection, pat on the back, etc., are examples of positive strokes. As against this, the stroke that makes one feel as not O.K. is a negative stroke. Criticism, hating, and scolding are the examples of negative strokes. Both types of strokes affect behaviour of people.

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6. Games Analysis

People play games while reacting to others. Games, as defined by Fred E Luthans, are pattern of transactions that have surface logic but hidden meaning and attempt to draw in an unsuspecting participation.12 Game may be defined as: A game is an intelligent, calculated, or logical tactics with hidden meaning that can yield result in one’s favour. It always involves strategy and assumption, but does not always end with expected gain. The extent to which game results into desirable outcomes depends on a number of factors related to the player, opposite player, organisational setting, situations, and the luck as well. Games are played to get desired response, or to meet some expectations. Games always have win-lose outcomes, i.e., games end with benefits to one and loss to another. Both superior and subordinates play games for their benefits or significance. Most games are dysfunctional for productive interpersonal relations, i.e., they adversely affect organisational effeteness. Organisation should create such healthy climate in which people are not required to play games. Many OD (organisational development) techniques can be used to prevent people play unhealthy games. Hypocritical respect and smile, flattering to higher position holder, highlighting others’ mistakes and weaknesses, practicing temptations, submitting or admitting tactfully, sacrificing a little for gaining more, supporting persons with strong power position, behaving as neutral to create good image, and so forth, games are common transactions in organisational life. Every game has its expected end. Games are played to get favour of authority, promotion and priority, discriminative incentives, or to settle enmity. Sometimes, games are played due to envious or unhealthy mentality. Analysis of games elicits a lot of valuable information which can be used for improving relations, formulating policies, and creating healthy climate and culture.

JOHARI WINDOW Johari Window, a useful framework, was developed by Joseph Luft and Harry (Harrington) Ingham. Taking from the first names of its authors (‘Jo’ from Joseph and ‘Harri’ from Harrinton, constituting the word ‘Johari’), the framework Johari Window was developed in 1955, in the United States13. The technique or model is used for mapping personality awareness, and to identify several interpersonal styles. A Johari Window is a cognitive psychological tool that helps people better understand their interpersonal communication and relationships. It is primarily used in self-help groups and corporate settings as a heuristics exercises. In fact, it is a graphical representation of those aspects of our self that are known or unknown to us and known or unknown to others. (Some experts associate Johari Window with organisational development (OD), too.) Joseph Luft and Harrington Ingham developed this technique for analysing and understanding self awareness. Person’s level of self-awareness is, consciously or unconsciously, responsible for his behaviour. Awareness involves two aspects. (1) How much a person knows about him? and (2) How much others know about the person? Johari Window is one of the most useful models describing the process of human interaction. A four paned ‘window,’ as illustrated in Figure 18.1, divides personal awareness into four different types, as represented by its four quadrants—open, hidden, blind, and unknown.

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The lines dividing the four panes are like window shades. The proportion/size of these windows is subject to change as per individual personality. More open space is desirable.

FIGURE 18.1 Johari Window and Four Awareness Positions (Based on ‘Johari Window,’ Human Relations Training News, Vol. 5, no.1, 1961, p. 6-7, and relevant websites on the theory) There are four perspectives of oneself, they are known as windows. To some experts, the model is called Johari House with four rooms. There are four possible states of awareness.

1. The Open Self The person knows himself and allows others to know – he is fully aware of himself and others are also aware of him. There exists openness and compatibility. There is no reason to be defensive. The knowledge that the window represents can include not only factual information, but the person’s feelings, motives, behaviours, wants, needs and desires. It clearly describes ‘who I am.’ When the person first meets a new person, the size of the opening of this first quadrant is not very large, since there has been little time to exchange information. As the process of getting to know one another continues, the window shades move down or to the right, placing more information into the open window. The more is the size of open window, the less is the chance of interpersonal conflict, and the more healthy would be the relations.

2. The Blind Self

He doesn’t know about himself, but allows others to know him—he is not aware of himself, but others are aware of him. The ‘blind’ pane (or quadrant) represents things/aspects that the others know about the person, but that the person is unaware of. For example, one is impatient. Remember, the blind quadrant contains behaviour, feelings and motivation which are not accessible to the person, but which others can see. Feelings of inadequacy, incompetence, impotence, unworthiness, rejection, guilt, dependency, ambivalence for loved ones, and needs to control and manipulate are all difficult to face, and yet they can be seen by others (by our natural response). Not only weaknesses, many times, even one’s capabilities are not known to the person, but others do have knowledge of the same. For decreasing blind self and increasing open self, the other must give feedback and one must use it. Feedback of others plays crucial role in decreasing blind self.

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3. The Hidden Self The person knows himself, but doesn’t allow others to know him—he is fully aware of himself, but others are not aware of him. It is private space/chamber that others cannot see. He is not open for others to know. The ‘hidden’ pane/quadrant represents those things one knows about, but one does not want others to know. The person remains hidden for others because of fear of how they may react. He keeps his true feelings or attitudes secret, they are not open for the others. The person can enlarge open pane by disclosing the facts related to him. Again, there are vast amounts of information, virtually whole life’s story that is yet to be revealed to others. One way of decreasing hidden self and increasing open self consists of processes of self disclosure. It contains trusting others. When one feels comfortable, he is more likely to disclose more intimate details about himself.

4. The Dark Self The pane or window represents unknown or undiscovered self. It is the case of both the blind self and the hidden self. The person does not know himself and does not allow others to know him—he is not aware of himself and others are also not aware of him. The dark self is the most mysterious window. This pane shows closeness or darkness; it represents the presence of both the blind self and the hidden self. This window represents the most explosive situation. There is much misunderstanding, and interpersonal conflict is almost sure to arise. The ‘unknown’ quadrant represents things that neither the person knows about himself, nor others know about him. For example, one may not disclose a dream that he had. One does not know what implication the dream can have and one is not ready to disclose the same to others. This is quite obvious in case of a novel situation. The novel situation can trigger new awareness and personal growth. In an organisation, this is detrimental as it makes people shy, fearful, and closed. It restricts interactions among people. In order to increase the open self and decrease the dark self, attempt should be made to reduce blind self as well as hidden self. Practical Implications Johari Window is a useful framework to analyse our interpersonal transactions. It has a lot of valuable-practical implications to understand and improve behaviour of people. It is indicative of complex nature of man at work. It suggests that organisations must do something so as to enlarge open self by making the other three areas as small as possible. This is done by regular and honest exchange of feedback, and a willingness to disclose personal feelings. It can help analyse possible interpersonal conflict situations. It is a useful framework even to analyse ego states. The process of enlarging the open quadrant is called self-disclosure. Typically, as one shares something about self (moving information from hidden quadrant into the open), and if the other party is interested in getting to know him, they will reciprocate, by similarly disclosing information in their hidden quadrant. Johari Window can be applied to leadership to know how leaders perceives their own leadership style. It can help manager to see if there is any significant difference between how he perceives his own leadership style and how others in the organisation perceive his style. Thus, it determines whether there is discrepancy between self perception and perception of others. It directly implies the impact of attitudes, learning, perception, and personality on one’s response to others. Johari Window can have a number of implications for directing (leading, motivating, communicating, and supervising) human effort. Its implications can be incorporated in training programmes. Organisation climate and culture can make a significant contribution to enlarge one’s open self.

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SUMMARY Group dynamics studies the forces operating within a group. It describes internal nature of groups, their formation, and their structures. It explains how and why groups are formed, and the way they affect individuals, other groups, and the organisation. Four types of factors affect group dynamics, organisation related factors, member related factors, group related factors, and job/work related factors. A group is collection of two or more interdependent and interacting persons who have come together to achieve a common goal. Formal groups are created by deliberate actions of organisation while informal groups are spontaneously created. People form or join a group for several purposes. Informal groups are uncontrollable. They are not always useful; they invite many problems for organisation. B W Tuckman explains five stages of group formation, Forming, Storming, Norming, Performing, and Adjourning. Teams and teamwork are more popular in today’s organisations. Team differs from group mainly in form of outcomes or performance results. Team is a group of individuals with the ability to do special tasks, who prefer to work collectively for specific purpose, have share leadership, and bear individual and collective accountability. Cross-function Team, Virtual team, Self-managed Team, and Problem-solving Team are popular forms of team. To create teams and to make them function effectively to achieve specific objectives in time require special managerial efforts. Enhancing team effectiveness involves four approaches/ ways: (1) Team building, (2) Collaboration, (3) Team leadership, and (4) Understanding cultural values. TA was originally developed by Eric Berne for psychotherapy to treat patients in the 1950s. Now, it has become a popular tool for management trainees, and is widely used in variety of fields, like management, education, military, etc. TA is a method of analysing and understanding interpersonal behaviour. Self awareness, ego states, analysis of transactions, stroking, and games analysis are key elements of TA. Johari Window, a useful framework, was developed by Joseph Luft and Harry (Harrington) Ingham. It is a cognitive psychological tool that helps people better understand their interpersonal communication and relationships. There are four possible states of awareness, the Open Self, the Blind Self, the Hidden Self, and the Dark Self.

KEY TERMS Group Dynamics Formal and Informal Groups Group Formation Theories of Group Formation Functions and Problems of Informal Groups Dynamics of Teams

Cross-function Teams Virtual Teams Self-Managed Teams Problem-solving Teams Team Building Transactional Analysis (TA) Ego States Analysis of Transactions

Life Script (position) Analysis Stroking Games Analysis Johari Window The Open Self The Blind Self The Hidden Self The Dark Self

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EXERCISES Objective Type Questions A. Answer the following: 1. Who was the first to popularise group dynamics? 2. Write four set of factors affecting group dynamics. 3. What is a group? 4. Give any four reasons that lead to group formation.

5. Write four theories of group formation. 6. What are the four popular forms of team? 7. Whose book ‘I’m OK, You’re OK’ popularised TA? 8. Who developed the Johari Window?

B. Choose the correct option (MCQs): 1. An organisation is made of (a) Groups and teams (b) Resources and facilities (c) Buildings and offices (d) Top level management 2. Which aspects are studied in group dynamics? (a) Number of people in a group (b) Types of people in groups (c) Forces operating within a group (d) Size of group 3. Who developed group dynamics? (a) B W Tuckman (b) Kurt Lewin (c) David Chaudron (d) Eric Berne 4. With reference to group dynamics, type of job and physical work settings fall in (a) Organisation related factors (b) Group related factors (c) Member related factors (d) Job related factors 5. In B W Tuckman’s five-stage group formation process, name the third stage of group formation. (a) Performing (b) Adjourning (c) Norming (d) Storming

6. Which one theory assumes that geographical proximity promotes group cohesiveness? (a) Propinquity Theory (b) Exchange Theory (c) Balance Theory (d) Interaction Theory 7. Which one is not true? (a) Formal group is deliberately created (b) Informal group is created by external experts (c) Informal group is spontaneously created for social and psychological needs (d) Informal group performs a number of functions; some of them are desirable for organisations 8. Which team is constituted by drawing experts from various departments? (a) Cross-functional Team (b) Virtual Team (c) Self Managed Team (d) Problem-solving Team 9. Whose book I’m OK - You’re OK further popularised TA? (a) Keith Davis (b) Kurt Lewin (c) Eric Berne (d) Thomas Harris

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10. Person doesn’t know about himself, but allows others to know him. This window is called (a) Open Self

(b) Blind Self (c) Hidden Self (d) Dark Self

Descriptive Questions 1. What do you meant by group dynamics? Outline key factors affecting group dynamics. 2. What is a group? Explain its characteristics. Also state reasons for joining the group. 3. How does formal group differ from informal group? Briefly state functions and problems of informal groups. 4. Define team. List its features. Suggest techniques to make the team effective. 5. Explain: (a) Cross-function Teams (b) Virtual Teams

6. Discuss: (a) Self Managed Teams (a) Problem Solving Teams 7. Define the term ‘Transactional Analysis.’ Discuss key components of TA. 8. Explain: (a) Ego States (b) Analysis of Transaction 9. Write a descriptive note on Johari Window.

Assignments 1. Students are assigned the project to find what leading companies do for team building.

2. Ask each student in a group to apply the Johari Window to his/her case in relation to the group.

REFERENCES 1 Fred E Luthans, Organisational Behaviour, International Edition, McGraw-Hill Companies, New York, 2005, p. 440 2 Quoted in Fred Luthans, op. cit., p. 441 3 G C Homans, The Human Group, Brace and World Inc., New York, 1972 4 John M Ivancevich and Michel T Matteson, Organisational Behaviour and Management, Irwin Homewood, Illinois, 1993, p. 286 5 B. W. Tuckman, ‘Developmental Sequence in Small Groups,’ Psychological Bulletin, June 1965, pp. 384–399 6 David Chaudron, ‘How to Improve Cross-functional Teams,’ HR Focus, August, 1995, pp. 4–5 7 J Lipnack and J Stamps, Virtual Team, 2nd ed., Wiley, New York, 2002, and D L Duarte and N T Snyder, Mastering Virtual Teams, 2nd, ed., Jossey-Bass, San Francisco, 2001 8 Dale E Yeatts and Cloyd Hyten, High Performing Self Managed Work Teams: A comparison of Theory and Practice, Sage, Thousand Oaks, Cal., 1998 9 Fred E Luthans, Organisational Behaviour, op. cit, pp. 457–460 10 V S P Rao and V Hari Krishna, Management, Excel Book, New Delhi, 2010, p. 828 11 Fred E Luthans, Organisational Behaviour, McGraw-Hill , Book Company, New Delhi, 1989, p. 406 12 Ibid., pp. 409-410

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13 Joseph Luft and Harry Ingham, ‘The Johari Window, A Graphic Model of Interpersonal Awareness,’ Proceedings of the Western Training Laboratory in Group Development, Los Angeles, 1995

ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. Kurt Lewin 2. Organisation related factors, member related factors, group related factors, job/work related factors 3. A group is collection of two or more interdependent and interacting persons who have come together to achieve a common goal. 4. Survival, security, social needs, recognition, economic benefits. (Students can write other reasons, too) 5. Propinquity Theory, Interaction Theory, Balance Theory, Exchange Theory 6. Cross-functional team, virtual team, self-managed team, problem-solving team 7. Thomas Harris’s book 8. Joseph Luft and Harrington Ingham B. 1. (a), 2. (c), 3. (b), 4. (d), 5. (c), 6. (a), 7. (b), 8. (a), 9. (d), 10. (b)

CASE Successful CEOs are Capable Team-builders Team members create synergy. Team building skills and abilities are top most qualities that modern managers must hold. Business organisations are not managed by managers, but by teams. Business managers are actually team managers. Top executives are responsible for creating teams, motivating them, and improving team performance over time. Games like cricket, hockey, and football are based on team efforts. Giant commercial and missionary projects are undertaken by effective team efforts. During critical events, like wars, natural calamities (such as earthquake, tsunami, heavy rains, floods, etc.), only well-organised teams can make sense. Only a highly integrated and motivated team can successfully complete mammoth size projects. L&T, Reliance Group, Tata Group, Adani Group, TCS, Infosys, and other conglomerates emphasise on team building for improving profitability, customer-orientation, and corporate credit in society. CEOs with high profile team building skills can promise the organisations of bright future. Team building skill is a key to manage large business houses operating globally. For example, Paul Polman, CEO of an Anglo Dutch multinational, is known for his interpersonal and team building skills. He manages its multinational business across the world from Unilever headquarters at Blackfriars in central London through team building skills. He responds to emails from his senior executives, often even on Sundays. He follows an open door policy, encouraging employees to reach out to him, and he communicates directly with all global employees through email and videoconferences. Polman knows many of his 150 top leaders by name.

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Harish Manwani, Unilever’s president for Asia, Africa, and Central and Eastern Europe, manages business successfully through several teams. N. Chandrasekaran, 45, is the youngest CEO of India’s largest IT firm, Tata Consultancy Services (TCS). TCS is known for human relations and team building skills. Ratan Tata, chairman one of India’s largest conglomerates spent many years for building several teams to run business operations in different parts of the world. Tata Group owns more than 90 companies; each of them is managed by a well-thought team. Tata Motors, under the able leadership of Ratan Tata, implemented its ‘Nano Car’ project at Sanad in Gujarat, from Singur in West Bengal, within an exceptionally short time. Team building skills of Mr. Shrinivason transformed flop story of TVS Motors into a successful one. His team building efforts could bring the company on track within two years. Since the last few years, State Bank of India, world’s largest bank, has been emphasising on team building skills in its intensive training programmes for managers. SBI business performance and customer satisfaction have improved considerably in the last few quarters due to team building efforts. Late Dhrubhai Ambani and his two successors, Mukesh Ambani of Reliance Group and Anil Ambani of Anil Dhirubhani Ambani Group are recognised as successful team builders. Creating the US $6 billion (around Rs 24,000 crore) world’s largest green field refinery, constructed in 7,500 acres in a single location on a barren land, at Jamnagar within record time of less than 36 months (commissioned in December, 1999) was the result of team building efforts of Dhirubhai Ambani and his team leaders. The refinery project is an example of ‘absolutely impossible turned possible’ due to high profile managerial skills and team building efforts. About 2,500 engineers and around 75,000 workers worked under a few team leaders. While expressing his vision, Dhirubhai Ambani stated: ‘It is not merely a refinery and petrochemical complex. It is not just another largest plant. It is an inspiring temple of resurgent India.’ Experts across the globe are striving to generate more meaningful knowledge to improve team building skills. Just put the word ‘team’ or ‘team building’ in any search engine, you will find thousands of websites and connected web pages with countless articles, research findings, books, and related links to make the visitors understand what is team and team building, and how to be an effective team-builder. It shows significance of team building in today’s business world. HUL, M&M, L&T, Infosys Technologies, TCS, and many other Indian business groups run their training institutes to impart team building skills among their executives. Other companies hold special sessions for their top and middle order executives for the purpose. Some companies send their top officials to professionally managed training institutes to acquire this managerial skill. CEOs pursue several team building efforts. Experts in the field suggest fact-based tips or principles for effective team building. For example, Susan M Heathfield, in her article emphasises on twelve ‘Cs’, (1) Clear expectations, (2) Commitment, (3) Context, (4) Competence, (5) Charter, (6) Control, (7) Collaboration, (8) Communication, (9) Creative innovation, (10) Consequences, (11) Coordination and (12) Cultural change for team building. Most of these principles were evidently witnessed during construction of Reliance Refinery at Jamnagar in Gujarat. Fred E Luthans, a globally recognised behavioural science author, suggested six steps of team building programme, (1) Team skills workshop, (2) Data collection, (3) Data confrontation, (4) Action planning, (5) Team building, and (6) Inter-group building. (Sources: The case is based on multiple sources, like books, magazines (Forbes India), newspapers (The Economic Times), Audi-visual sources (films), relevant websites (www.forbesindiamagazine. com), and business news from other mass media.)

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Questions for Discussion 1. What is the significance of team building skills? 2. Name at least three business groups where key position holders hold exceptional team building skills. 3. Comment on Paul Polman’s team building skills. 4. ‘Excellent team building skills convert impossible into possible.’ Explain the statement with reference to Reliance Refinery Project. 5. What is the relevance of Susan M Heathfield’s ‘twelve Cs’ in team building efforts? 6. On the basis of the case, give five suggestions for team building.

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Motivation and Morale Learning Objectives Upon completing this chapter, you will be able to: Define motivation and describe exact nature of motivation Understand what is meant by needs, motives, and drives and learn about their relationship Explain the importance of motivation in management and OB Classify and summarise rewards and motives Define employee morale and explain its characteristics Describe morale building and list factors affecting employee morale

INTRODUCTION Motivation and morale are closely related terms. The former part of the chapter describes fundamentals of motivation while the latter part describes key aspects of morale. At the outset, it must be mentioned that motivation is important facet to understand individual behaviour. It is one of the techniques to direct efforts of people in formal organisation and plays an important role in study and practice of management. It is one of the powerful determinants of behavior, in general, and performance, in particular. The behaviourists consider motivation as triggering force leading to an action. To get work done, the manager has to motivate employees adequately and regularly. 1

MOTIVATION Motive and Motivation: Motivation is related to, or based on, motive. A motive is felt deficiency (or need). It can be referred as aroused or advanced need. Naturally, strong motives create high tension; tension forces a person to do something to satisfy the aroused needs (i.e., motives). Note: Additional reading material related to this chapter is available on the companion website of this book.

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The force that forces an organism to act (or to put certain amount of efforts) in specific direction is motivation. Relationship between needs, motives, and drives has been discussed later in this chapter. To motivate means to supply motives (or motivate others). It stimulates interest of person to act in a particular way. Thus, motivating is an act of the manager to create the work environment that activates the motives in individuals, while motivation is an act of an individual (employee) to respond to the motive-supplying work environment through exerting specific amount of efforts in specific direction. The similar words used to indicate motivation include desire, wants, wishes, aims, needs, drives, motives, willingness, incentives, etc. Motivation is closely related to motives. Motive can be defined as: A motive is an inner state that energises, activates or moves (hence motivation) and directs or channels behaviour toward goals.1

Definitions and Characteristics of Motivation Virtually, all people, both lay new and scholars, have their definitions of motivation. Technically, the term ‘motivation’ can be traced back to the Latin word ‘movere,’ which means to ‘move.’ Thus, it makes people exert efforts. Some standard definitions have been stated below: 1. William G Scott: "Motivation means a process of stimulating people to action to accomplish desired goals."2 2. George R Terry: "Motivation is the drive within an individual that drives him towards goal-directed action."3 3. Michael J Jucuius: "Motivation is the act of stimulating someone or oneself to get a desired course of action."4 In the same way, motivation can be defined as: Motivation is person’s willingness to exert certain level of efforts toward organisational goals, conditioned by the effort’s ability to satisfy some individual needs. It determines the degree of efforts towards any goal. The effort element is the measurement of motivation intensity. To motivate means to prepare (using all possible incentives) a man to put efforts. To be motivated means to be ready to put certain level of efforts. Thus, almost all definitions have common implications. We can draw some generalisations (characteristics) from the above stated definitions that necessarily describe the exact nature of motivation: 1. Meaning: Motivation is a process that stimulates people to put efforts in specific direction for accomplishment of goals. 2. Cognitive: Motivation is psychological/cognitive concept. It is the inner state. It is complex construct within human being. 3. Conditions: Existence of needs and desire (readiness or willingness) to satisfy those needs are preconditions or essential conditions to motivate, or to be motivated. A manager can only motivate the person who has unmet needs and is willing to satisfy the same. 4. Key Task: Motivation is the act of supplying motives (i.e., need satisfying means) to prompt people to put efforts. To be motivated means one is ready to put efforts.

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5. Continuity: Motivation is a continuous process. However, its intensity and direction are subject to change from time to time. A person is motivated to work on continuous basis in pursuit of his expectations, i.e., for satisfying needs, one after another. 6. Determinant of Behaviour: Motivation is one of the major determinants of human behaviour. Motivation, along with other determinants, like perception, personality, learning, and such others, determines the response, i.e., behaviour. 7. Expectancy: Motivation is based on expected satisfaction. It is concerned with putting efforts today for the future satisfaction. It is based on expected outcomes. There exists probability at every stage of motivation. 8. Individual Aspect: Motivation can be studied and applied on individual basis. Due to considerable diversities among people, they tend to be different in terms of needs, perception, skills, and abilities. 9. Role of Learning in Motivation: Motivation can be learned. One can learn through his or others’ experience and practice. On the basis of learned experience, he relates his efforts with performance, performance with rewards, and rewards with satisfaction. 10. Role of Perception in Motivation: Individual perception affects all stages of motivation. Motivation is perceived value of rewards for efforts. 11. Manager’s Role: Manager cannot motivate employees, but creates a situation (establishes and communicates effort-performance-reward relationship) that prompts or motivates employees to put certain level of efforts. 12. Different Types: Motivation may be financial or non-financial, may be continuous or intermittent, may be individual or group, may be offered or derived, and may be formal or informal. 13. Measurement of Motivation: Level of efforts is the main indicator (measuring yardstick) of the intensity of motivation. Highly motivated persons exert more efforts and struggle constantly towards better performance.

Relationship Between Needs, Motives and Drives Motivation involves relationship between needs, motives and drives. This part explains the three terms, and how they determine motivation force.

Needs

Need is key aspect in motivation. Human beings are motivated or can be motivated only if they have needs and they are eager to satisfy them. The best one word definition of need is deficiency. Need, thus, represents the state of lackness, or deprivation. More specifically, it is restlessness situation creating physiological and/or psychological imbalance. People activate, respond, or behave in a particular way to convert imbalance into balance. This is motivation. Abraham Maslow5 has classified needs in to five categories, which are hierarchically arranged. They are physiological needs, safety needs, love needs, esteem needs, and self-actualization.

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Motives Motive is felt deficiency, aroused need. When need is recognised, felt, or experienced with clarity, it becomes motive. Thus, motives are clearly expressed needs. ‘‘A motive is an inner state that energises, activates, or moves, and that directs or channels behaviour towards goals.’’6 Motives can be classified into three broad categories, (1) primary motives, (2) general motives, and (3) secondary motives. Drives

The world drive is closely related to strive, that indicates readiness to struggle. A drive is deficiency with direction. It is extended motive, i.e., a motive in an advanced stage is drive. It is an intensified or aroused motive. Motive is felt need and drive is felt need with direction. Drive is more relevant to motivation. It implies individual’s promptness to struggle in a specific way. If an individual is not ready to struggle, even though he has aroused need, there would be no motivation to work. Drives are action-oriented. For example, a man is deprived of food (i.e., need), it is expressed in form of hunger (i.e., motive), but he does not want food, or he wants food but does not like to make an effort, or he wants to make an effort but does not know how, and what should be done (lack of direction), this situation is lack of drive, and results into lack of motivation to work. In absence of drive, motivation is blocked or seized. Drive is one’s calculated action plan to put efforts. Actual motivation process begins with drive.

Motivation Process or Interacting Variables In Motivation Process Motivation process involves relationship among seven variables—needs, motives, drive, motivation level, performance, rewards, and satisfaction. Each of these variables is determined by relevant factors. Figure 19.1 shows how motivation works. Level of force/motivation begins with drive. In short, need is felt derivation, motive is expression of felt need, and drive is promptness to act. One makes efforts with expectation to satisfy needs (at present or in the future). What is interesting and divergent is that a man does not make efforts as and when he feels deprivation of something (i.e., need), he also thinks about the future needs. He makes efforts to satisfy needs that will arise in the future. Thus, motivation is concerned with both current needs as well as future-based needs.7 Motivation force (desire to work) starts with drive. At this stage, an individual has clear idea regarding what is to be done to meet needs, or to remove deprivation. Here, he is prompted to exert efforts. To what degree the promptness/drive is converted in motivation force (i.e., level of efforts) depends on a number of factors, as shown in Figure 19.1. The level of efforts depends on two main determinants, ones’ ability to work (physical and mental strengths) and role clarity (job knowledge), and willingness to work (intensity of desire to work). Again, willingness to work depends on level of value/valence one assigns to final outcomes/rewards or satisfaction as well as expectancy. Expectancy states the probability about effort-reward and effort-performance relationships. All these are inputs in amount and quality of efforts. If efforts are supported by job-related and other factors along with role perception and ability. Role perception and abilities affect at two levels in the model, on one hand, they determine how much efforts an individual can make, and on the other hand, they determine impact of efforts on performance. There may be

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satisfactory performance; if performance is accepted by organisation, there are rewards; if rewards are perceived as equitable, there is satisfaction. Throughout the process, perception, probability, and expectancy play a very significant role. The drive, thus, is a key aspect in motivation. Drive generates force, inspires action, and prompts efforts.8

FIGURE 19.1 Interacting Variables in Motivation Process (Needs to Satisfaction Cycle) Goal is the end result of motivation cycle. A goal is anything which alleviates a need and reduces a drive. Thus, attaining a goal tends to restore physiological and psychological balance and reduces or cuts off drive. Goals lead to rewards. But, to what degree realised-goal will result into reduced felt tension or alleviate needs depends upon resulting rewards and level of satisfaction. Rewards can lead to satisfaction only if they are perceived as equitable (i.e., equality perception). Note that level of efforts may or may not be equal to level of performance; level of performance may or may not be equal to level of rewards; and level of rewards may or may not be equal to level of satisfaction. Based on the above discussion, it can be concluded that motivation is complex, multidimensional, and individual process. It can simply be defined as a force that activates human being to act. It is something that makes a man work. Desired motivation and satisfaction is possible only when everything goes right. Goal and satisfaction are results of motivation—exerted efforts—and they are retrospectively determinants of level of efforts.9 Factors affecting individual’s motivation can be summarised as: 1. Personal factors, like ability, needs, expectancy, perception, and other personality factors. 2. Job-related factors, like nature of job, working conditions, attraction towards job, challenge, novelty, degree of monotony, and so forth. 3. Organisational factors, like reward policies and rules, facilities, approach toward employees, informal relations, communication, climate of trust and confidence, order, discipline, and so on.

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4. Situational factors, like technology, social and cultural environment, economic circumstances, overall industrial and general policy of government, etc. Above explained motivation concept and process remains same in every walk of life. Its implications are equally applicable to every type of organisation irrespective of size, place, nature, and activities.

Importance of Motivation Motivation plays an important role in study and practice of management. It is a vital concept, particularly, in study of human behaviour. Motivation has been recognised as one of the powerful determinants of behavior, in general, and of performance, in particular. The behaviourists consider motivation as triggering force leading to action. From the viewpoint of management fundamentals, motivation is one of the techniques to direct efforts of the employees. Management practices have transformed into global practices. Workforce diversities have complicated modern managers’ motivating task. What is more important is that manager’s main duty consists of motivating employees regularly and continuously to make them work. Right motivation is the base to solve majority of human problems in the organisation. The task of manager is to motivate men and manage the business. Effective motivation policies and practices can prove to be the master key to make people work willingly and enthusiastically. Suitable motivation policies and practices can improve employees’ performance. Somebody has rightly said: "Qualified, capable, and experienced employee can contribute adequately only if he is adequately motivated."10 Importance of motivation can be discussed in light of following points: 1. Base to understand human behaviour at work 2. Achievement of organisation’s objectives 3. Easy integration or coordination 4. Improved morale and higher job satisfaction 5. Motivation is an input for effective leadership and commutation 6. Better utilisation of productive resources 7. Lower turnover of employees and reduced absenteeism 8. Reduced resistance to change 9. Sense of belongingness and devotion to the organisation 10. Improved loyalty, regularity, and self-discipline 11. Higher efficiency and improved performance 12. Better/improved industrial relations 13. Easy availability of required employees 14. Good image and reputation

Rewards and Incentives Various incentives are offered to employees to motivate them to work. Incentives are referred as rewards or motives which human beings strive to get. It is obvious that needs serve as driving forces

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in human behaviour. The objects that satisfy these needs can be said as incentives. Incentives may be positive, such as promotion appreciation, involvement, high pay, bonus, etc., or may be negative, such as criticism, punishment, reduced pay, and so on. Similarly, incentives may be monetary or non-monetary; may be individual or group incentives. Sometimes, incentives are classified as intrinsic rewards (related to job characteristics and job satisfaction) and extrinsic rewards (offered by management). Human needs can be satisfied by variety of incentives. Common incentives have been briefly describes below.

Financial Incentives Financial incentives are also called monetary incentives as they are paid in form of money. Money is a powerful incentive to satisfy physical needs of daily life, and is also a base for gaining social position and power. Research on the area states that money is a dominant source of motivation as it is the base to satisfy almost all types and levels of needs, from primary needs to self-actualisation. For satisfying primary needs, money is most commonly sought incentive. Moreover, money has exchange value to get any thing in return. It is clear that a man first considers the amount of pay while deciding on work or efforts. This incentive can be offered in several forms as shown in Table 19.1. TABLE 19.1 Direct Rewards 2. Overtime pay

Indirect Rewards 2. Conveyance 3. Holiday pay

5. Bonus

5. Consumable items

6. Cash prizes

6. Recreational facilities 8. Domestic servant

1. Individual Financial Incentives They are paid on individual or personal basis. Individual incentives may be direct or indirect incentives. (a) Direct Incentives: Direct compensation involves direct payment for the efforts extended. Direct pay includes wage and salary, commission, overtime pay, profit sharing, fringe benefits, etc. (b) Indirect Incentives: They are paid indirectly. Such incentives include benefits, facilities, and amenities allowed to employees free of charge or at a concessional rate. They are generally allowed without discrimination. Indirect incentives cover housing facility, conveyance, medical allowance, domestic servant, food at low rate, consumable provisions, etc.

2. Collective Financial Incentives

Such incentives are paid collectively or jointly. They are offered to motivate individuals collectively. They promote group efforts, and bring better coordination. Examples of collective incentives are bonus, profit sharing, pension plan, etc.

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Non-Financial Incentives Employees have various needs. At all levels of management, people have socio-psychological needs that cannot be satisfied with money. However, at higher level management such incentives are more prevalent. Non-financial incentives are offered along with financial incentives for total satisfaction. In many cases, financial and nonfinancial incentives are interdependent or interconnected. For examples promotion involves higher pay along with status, authority, respect, challenging job, and so forth. Non-financial incentives are of three types—individual level, collective level, and organisational level. Table 19.2 shows different non-financial rewards/incentives. New Types of Leaves—A Source of Non-monitory Incentives Casual leave, sick leave, privilege leave, medical leave, earned leave, etc., are no more attractive. India Inc has evoked new varieties of leaves, such as bereavement (grief or mourning) leave, parental leave, sharing leave among employees (i.e., donated leave), leave for recognition, study leave, working at home, and emergency leave. For example, The Max group, for instance, has conceptualized self-development leave of up to one month for the employees to attain short-term courses and reward recognition leave whereby they are sent on a fully-reimbursed holiday along with this families. Accenture India has recently launched donated leave. The employees can receive additional or extra leaves from the fellow employees during a medical crisis or emergency. Dr Reddy’s Lab has a stint-oriented leave for employees who have been with the company for at least 10 years. This pharma major also allows parental leave for the employees who need occasional leaves to meet responsibility towards their kids, like attending a school meeting, or a function, or a medical emergency. Some IT companies, like Tata Consultancy Services and Infosys Technologies have started a bereavement leave scheme, which allows employees to avail special leave during loss in the family. On the day of Ayodhya verdict in September, 2010, Infosys Technologies declared emergency leave and was closed for a day. Experts opine that leaves allow the employee to fulfill his/her duties as a professional social being and family person. It also builds an emotional connect with the company. New leaves can severe as a powerful source of motivation. The leaves help satisfy social and psychological needs. They can boost employee morale and improve work-life balance, and ultimately lead to high productivity. (Source: Based on Writakar Mukherjee and Devina Sengupta, ‘A Leave for Every Season,’ The Economic Times, September, 2010)

1. Individual Level These incentives motivate people on individual basis. Such incentives are not for all individuals. They are related to job performance and are offered to some individuals only. Individual non-financial incentives have been listed in Table 19.2. 2. Collective Incentives

Employees may be motivated at group level. These incentives are offered to make them work collectively. It is believed that if a group is efficient, an individual tends to be efficient. Some collective non-financial incentives have been listed in Table 19.2.

3. Institutional or Organisational Level Incentives Such incentives are related to organisational climate or environment. Conducive, positive, and constructive atmosphere motivates

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employees to struggle for better performance. Proper work environment encourages them to work with enthusiasm and zeal. There are many non-financial institutional level incentives. TABLE 19.2 Individual Rewards

Collective Rewards

1. Status

Institutional Rewards 1. Good human relations

2. Promotion

2. Team spirit

2. Informal relations

3. Responsibility

3. Informal relations

3. Participation

4. Authority

4. Special dealings

4. Morale building

5. Recognition

5. Healthy competition

5. Discipline and regularity

6. Job security

6. Conducive policy

7. Respect

7. Group recognition

7. Appropriate location

8. Designation 9. Job satisfaction

9. Healthy climate 10. Special schemes 11. Company’s reputation 12. Job enrichment and job enlargement

A manager should consider suitable incentives for motivating employees. Type and number of incentives to be included in motivation plan depend on a number of factors, such as location, social environment, level of economic development, position of employees, company’s financial position, management philosophy, and likewise. Appropriate combination of incentives can improve motivation. Similarly, such incentives should be offered on a regular basis. At the right interval, modifications should be made to attract employees continuously.

MORALE The word ‘morale’ is a confused term. It conveys different meanings to different people. It is closely related to motivation, but is not same. In fact, morale is closely related to attitude of employees toward organisation. It shows the feeling the employees hold towards the company. It reflects general feeling of well-being, satisfaction, and happiness. It shows their overall satisfaction with the whole situation. It is the healthy and positive state of mind. We can define the term as:

Definitions

Morale can be defined as:

Theo Haimann: "Morale is the state of mind and emotions affecting the attitudes and williness to work, which, in turn, affect individual and organisational objectives."11

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Michael Jucius: "Morale is a state of mind or a willingness to work which, in turn, affects individual and organisational objectives."12 We can define the term as: Employee morale implies a total satisfaction an employee derives from his job, work group, his boss, organisation, and his general environment. Morale is treated as similar to job satisfaction. It is described in terms of the feeling of an employee towards his work, and, thus, it is a matter of work satisfaction. It is the combination of various aspects. It is sum total of their feelings and reactions towards the organisation. It shows the degree to which an individual derives satisfaction from his total job situation.

Criteria (Forms) of Morale Employee morale is reflected in many forms. The forms can be said as elements or criteria of morale, too. Forms or elements mainly include: 1. Favourableness of Attitudes: Morale is state of mind that determines employee’s favourable or unfavourable attitudes towards job, superior, and overall organisational climate. High morale is evident from employee’s strong positive attitudes. He assigns positive attributes towards all aspects related to his work and working environment. Low morale produces unfavourable attitudes. Employee’s attitudes are a powerful determinant of his response or behaviour. 2. Level of Enthusiasm: Morale determines how enthusiastically an employee is putting efforts for organisation’s objectives. Naturally, high morale is reflected in form of high degree of enthusiasm. The employee with high morale is found active. He struggles for achieving objectives and betterment of the organisation. He restlessly works for the interest of the organisation. 3. Willingness to Work and Cooperate: Morale promotes cooperation. The employee cooperates with his superior, subordinates, and colleagues. The higher the morale, the higher is the degree of cooperation. He is ready to work in a given situation without hesitation. He would accept all conditions related to the job wholeheartedly. 4. Voluntary Conformation with Rules, Policies, and Procedures: High morale leads to employee’s voluntary conformation with objectives, rules, policies, and procedures. He takes every action within limit of rules and policies, pays due respects to authority, and never works against formal conditions laid down by the organisation. He not only follow rules and procedures, but also helps in their implementation. When high morale prevails, every activity is performed within formal framework. Automatically, a sense of regularity, sincerity, self-discipline and self-control is developed. Healthy climate is created and a sense of belongingness is generated. 5. Other Criteria: Besides these four criteria, some criteria also reflect high employee morale. They are: (i) Team building (ii) Improved overall performance (iii) Reduced absenteeism and turnover (iv) Reduction in accidents and wastage of resources

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(v) (vi) (vii) (viii)

High level of commitment, sincerity, and loyalty Sound relations among organisational members Reduced degree of resistance to change Increased employees’ satisfaction

Characteristics of Morale Michael Jucius13 describes the nature of employee morale in question-answer form: 1. What is it?—Morale is an attitude of mind, an esprit de corps, a state of well-being, and an emotional force. 2. What does it do?—Morale affects output, quality of product, costs, co-operation, enthusiasm, discipline, initiative, and other ingredients of success. 3. Where does it reside?—Morale resides in the mind and emotions of individuals and in the reactions of their groups. 4. Whom does it affect?—Morale affects employees and the executives in their interactions. Ultimately, it affects the consumers and the community. 5. What does it affect?—Morale affects employee’s or group’s willingness to work and cooperate in the best interests of individuals and groups, and the organisation for which they work. On the basis of above questions and their answers, we can simply list characteristics of employee morale as: 1. Morale is basically a psychological concept. It is a mental process. 2. It not very specific or an exact term; it is a confused concept. It has different meanings for different people. 3. It is not similar to motivation, but it affects employees’ motivation. Compared to motivation, it is a wide and comprehensive term as it is the result of several interacting forces. Motivation depends on positive or negative means, morale always depends on positive and favourable means. It is closely related to job satisfaction, but is not exactly similar. 4. Morale is collective attitudes of employees towards a number of aspects related to the job. Thus, it is a group phenomenon. However, it is also said as individual phenomenon as it is concerned with individual’s feelings and attitudes. 5. Morale is a relative term. It may be high or low. If employees hold negative attitudes, their morale is low. 6. Morale can be said as indicator of employees’ attitudes towards their job, superior, work environment, etc. It is closely related, even similar, to job satisfaction. When an employee is satisfied with job, he holds high morale; job satisfaction leads to high morale. 7. Morale is dynamic. It can be changed or modified by managerial efforts. But, it takes a long time to build or change. It is a long-term process. 8. Morale is multidimensional. It is made of a complex mixture of several elements. 9. It is contagious as it spreads, or can be spreads, among others and forms common feelings toward some aspects.

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10. Morale is a concept, an intangible state. It is difficult to measure. However, it can be seen in terms of total behaviour or response of employees. Satisfactory behaviour is an indication of high morale. 11. It affects employee’s attitudes, willingness to work, degree of enthusiasm, and confirmation with organisation’s rules and regulations. 12. It affects discipline, cooperation, initiativeness, quality and cost of outputs, and, finally, the entire society.

Importance/ Role of Morale In fact, morale is considered an essential factor in the military. In this regard, the great emperor Napoleon’s words are worth noting. He stated: "In war, morale conditions make up threequarters of the game; the relative balance of manpower account for the remaining quarter." It is equally important in business management, too. There is positive correlation between morale and productivity. High morale is reflected in terms of team spirit, zeal, enthusiasm, loyalty, unconditional cooperation, discipline and regularity, and so forth, positive outcomes. High morale leads to high productivity. Every organisation tries to build and maintain high morale to achieve overall excellence. It is obvious that attitudes and sentiments strongly affect employees’ performance and satisfaction. An organisation can fulfill its obligations successfully in time. The company enjoys a good reputation and image in the market. Note that employees’ contribution in achieving objectives does not only depend on their abilities, but also level of morale towards the organisation. Thus, the role of higher morale can be described with reference to following points: 1. Higher morale leads to high degree of interest in work and higher productivity. 2. It results in high degree of enthusiasm. Employees put maximum efforts to achieve organisation goals. 3. Employees exhibit higher team spirit, sincerity, zeal, and loyalty. 4. High morale results in excellent performance and effective achievement of goals. 5. High morale is instrumental for easy integration and coordination. 6. Employees show high degree of cooperation, confidence and devotion to work. 7. High morale leads to self-discipline, self-control, and self-motivation. 8. High morale results in regularity and stability in staff. 9. Reduced complaints, better human relations, and more interest in organisation’s progress are positive outcomes of high morale. 10. It creates sense of belongingness. Employees develop strong loyalty. They are proud of being employees of the particular organisation. 11. When required, organisation can easily implement necessary changes. 12. It prevents others from doing anything against the organisation.

Morale Building How to promote morale? Note that high morale cannot be established automatically. Morale building is one of the basic responsibilities of every manager. Sound management is a

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precondition for building morale. It is the result of long-term and continuous efforts of management. It is the outcome of a number of steps taken by management for the interest of the employees. Management has to consider a number of issues to promote and maintain high degree of morale. Mainly, motivation policies and practices have an important role to play in this regard. Employee-centric Work climate at Proctor & Gamble India (P&G) Proctor and Gamble (P&G), a multinational FMCG major, has created a healthy work climate to boost employees’ morale. Key components of Proctor and Gamble’s work climate and working conditions include: 1. Freedom and assistance to employees to chart their career and learn the tricks of the trade on their own 2. Training and coaching for better performance 3. Peer group support 4. Open communication with superiors 5. Job rotations 6. Flexi-time, telecommuting, job sharing, compressed work weeks and reduced work hour 7. Soft (sympathetic) separation and laid-off policies and practices 8. Valuing employee’s feedback Company has created such a climate that employees believe it to be their work place, and that they are responsible for making work at P&G a great experience. Healthy work climate and working conditions are powerful source of motivation and can boost employee morale.

Managerial Actions Manager can undertake one or more of following actions to impart high morale: 1. Formulation of objectives, policies, rules, and procedures in objective manner, based on the impersonal needs of the organisation 2. Careful selection and training of employees 3. Suitable design of organisation and creation of suitable organisation climate and culture 4. Adequate and regular payment of wage/salary and provision of attractive incentives 5. Provision of non-monetary rewards, such as appreciation, praise, recognition, and respect 6. Positive attitude of management toward employees, or human relations approach 7. Employees’ involvement or participation in decision-making 8. Two-way effective communication 9. Provision for employees’ welfare activities 10. Job enrichment—making job attractive and interesting 11. Favourable job conditions—provision of necessary job-related facilities 12. Suitable mechanism for conflict (dispute) handling, indiscipline, and control

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Factors Affecting Employee Morale Morale is complex and multidimensional feelings or emotional state determined by many factors. Employee morale basically depends on two issues—employee’s characteristics and organisation’s attitudes toward employees. McFarland, F F Bradshaw and H E Krugman, Darrel E Roach, Philip B Applewhite, and some others have indicated more or less similar factors/ determinants of morale. These factors are related to employees, superior, and organisation. In fact, employee morale is determined by interplay of three sets of factors shown in Figure 19.2.

FIGURE 19.2 These factors are interrelated and have reciprocal effects. The factors are also referred as determinants of morale.

Organisation-related Factors

Organisation’s type, structure, size, degree of complexity, levels, etc., have direct impact on employees’ attitudes. Some organisation-related factors have been stated below: 1. Organisation’s philosophy, objectives, and approach toward employees 2. Design or structure and size of organisation 3. Job-related (or working) conditions—pay and other rewards, working hours, facilities, safety, etc. 4. Type of work and degree of specialisation, (interesting v/s boring, routine v/s novel, monotonous v/s variety-offering) 5. Workload and work pressure 6. Organisation climate—trust, fairness, equity, openness, etc. 7. Organisation culture—values, traditions, beliefs and attitudes, approach, etc. 8. Training and Development activities of organisation 9. Organisation’s personnel policies, procedures, rules, and regulations 10. Communication network 11. Human relations activities, informal relations, and socio-cultural events at workplace 12. Dispute handling mechanism

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Superior-related Factors

Attitudes, approach, and overall behaviour of superior 'towards subordinates, i.e., to what extent superiors are frank, unbiased, supportive, just, and friendly determine employees' morale. Superior-related factors affecting employee morale include: 1. 2. 3. 4. 5. 6.

Superiors' attitude toward subordinates Quality of supervision and approach towards workers Effective leadership and distribution of authority-responsibility Type and direction of communication Informal relations of superior with subordinates Attitudes of supervisor towards employees’ participation in decisions

Employee-related Factors

Characteristics of employees are prime factors that determine their attitudes (morale) towards work, superior, and, in general, towards the organisation. Such factors are reflective of their cultural, social, personal, economic, and psychological characteristics. These characteristics jointly constitute their morale level; they are reflected in terms of several indicators of their morale. Important factors have been listed below: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

General attitude towards organisation Ambition and expectations Degree of dedication and devotion towards work and workplace Friendliness and generous nature of employees A sense of personal wealth and belongingness A sense of participation, self-discipline, and self-control Age and stage of lifecycle Self-concept Job satisfaction—extrinsic and intrinsic rewards Approach and working of trade unions Associations and reference groups Educational and occupational level Employees’ off-the-job (other) activities Family (personal) life

SUMMARY Motivation plays an important role in study and practice of management and organisational behaviour. The behaviourists consider motivation as triggering force leading to action. From the viewpoint of management fundamentals, motivation is one of the techniques to direct efforts of people in formal organisation. The term ‘motivation’ can be traced back to the Latin word ‘movere,’ which means ‘to move.’ Thus, it makes people exert efforts. To motivate means to prepare (using all possible incentives) a man to put efforts. To be motivated means to be ready to put certain level of efforts.

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Motivation involves relationship between needs, motives, and drives. Need means deprivation of something; motive is expression of need, or aroused need; and drive is felt need with direction. Drive is one’s calculated action-plan to put efforts. Actual motivation process begins with drive. Motivation process involves seven stages, (1) Needs, (2) Motives, (3) Drives, (4) Motivation— Level of efforts, (5) Performance/goals, (6) Rewards, and (7) Satisfaction Motivation plays an important role in study and practice of management. Manager’s main duty consists of motivating employees to make them work. Right motivation is the base to solve majority of human problems in the organisation. Incentives are referred as rewards/benefits that employees want as return for their efforts. Rewards may be financial or non-financial. Financial rewards may be paid on individual basis or collectively. Non-financial rewards may be individual level, group level, or organisational level. Morale is closely related to motivation, but is not same. In fact, morale is closely related to the attitude of employees towards the organisation. Employee morale implies a total satisfaction an employee derives from his job, work group, boss, organisation, and his general environment. Favourableness of attitudes, level of enthusiasm, willingness to work and cooperate, voluntary conformation with rules, policies, and procedures, and some others, are ways through which morale is expressed. Morale building consists of some concrete managerial efforts to boost employee morale. Level of morale is affected by three set of factors, organisation-related factors, superior-related factors, and employee-related factors.

KEY TERMS Motivation Need, Motive and Drive Primary and Secondary Motives

Motivation Process Financial and Non-financial Motives

Morale and Morale Building Factors Affecting Morale

EXERCISES Objective Type Questions A. Answer the following: 1. Name three variables involved in motivation cycle. 2. Define motivation. 3. What is the speciality of secondary motives?

4. Name any four organisational factors affecting motivation. 5. Write five key non-financial individual rewards.

B. Choose the correct option (MCQs): 1. Which one of the statements is not true? (a) Motivation is one of the techniques of directing (b) Motivation has been derived from Latin word ‘movere’

(c) Motivation is external process (d) Motivation means a process of stimulating people to do action to accomplish desired goals

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2. Employee’s motivation is measured in the form of (a) Level of sales and profits (b) Level of efforts (c) Regularity and sincerity (d) Relations with others 3. What is the relation between motivation and satisfaction? (a) Motivation always leads to satisfaction (b) There is no relation between motivation and satisfaction (c) Motivation starts with satisfaction but never ends with satisfaction (d) Motivation depends on expected satisfaction 4. What is drive in motivation? (a) Drive is employee’s goal (b) Drive is input in motivation (c) Drive is expression of needs (d) Drive is readiness to exert efforts with direction 5. Secondary motives are (a) Included in primary motives (b) Learned

(c) Are not important for motivation (d) Physiologically based 6. What type of relation exists between morale and motivation? (a) Morale and motivation are exactly similar (b) Morale and motivation are closely related (c) There is no relation between motivation and morale (d) Motivation and morale are opposite to one another 7. Which is not included in factors affecting employees’ morale? (a) Organisation-related factors (b) Superior-related factors (c) Subordinate-related factors (d) Environment-related factors 8. In relation to forms of morale, find out the odd one. (a) Favourableness of attitudes (b) Level of enthusiasm (c) Willingness to work and cooperate (d) Strong desire for promotion

Descriptive Questions 1. Explain the term ‘motivation.’ Discuss its nature. 2. ‘Motivation is a key to manage.’ elaborate on the statement and discuss the role of motivation. 3. ‘Motivation is essentially the relationship among needs, motives, and drives.’ Comment. Also show the classification of motives. 4. ‘Motivation is based on rewards.’ Explain the statement and discuss various types of

rewards. Which factors do you consider while deciding on types of rewards? 5. Define employee morale and discuss its characteristics. 6. What is the importance of high employee morale? How is it promoted? 7. ‘Morale of employee is determined by interplay of several factors.’ Explain the statement and discuss important factors affecting morale.

Assignments 1. The students are assigned to describe how and why they are motivated to study. 2. Student can be assigned a project in which

they have to meet employees working in any organisation and study several aspects of morale.

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REFERENCES 1 Bernard Berelson and Gary A Steiner, Human Behaviour, Harcourt, Brace and World, New York, 1964, p. 240 2 William G. Scott, Organisation Theory, Richard D. Irwin, Homewood, III 1977, p. 75 3 George R Terry, Principles of Management, Richard D Irwin, Homewood, 1970 4 Michael J. Jucuius, Personnel Management, Richard D Irwin, Homewood, 1976 5 Abraham Maslow, ‘A Theory of Human Motivation,’ Psychological Review, July 1943 6 Bernard Burleson and Gary A Steiner, op. cit., p. 240 7 R B Rudani, ‘Motivation—A Study and Application of Porter-Lower Model in Higher Education in India with Special Reference to Gujarat,’ Ph. D. Thesis, 2002, pp. 28–36 8 Ibid, p. 33 9 Lyman Porter, Edward E Lawler, Behavior in Organisation, McGraw-Hill, New York, 1964, p. 58 10 Anonymous 11 Theo Haimann, Professional Management, Houghton, Boston, 1982 12 Michel Jucuius, op. cit, p. 422 13 Ibid.

ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. Needs, drives, and goals 2. Michael J. Jucuius: ‘Motivation is the act of stimulating someone or oneself to get a desired course of action.’ (One can write any definition) 3. Secondary motives are (can be) learned. 4. Reward policies and rules, facilities, approach towards employees, informal relations, and communication 5. Status, promotion, responsibility, recognition, and designation B. 1. (c), 2. (b), 3. (d), 4. (d), 5. (b) 6. (b), 7. (d), 8. (d)

CASE Need to Review Motivation Policies in Accordance with Global Management Practices Managers use different theories to motivate their valued workforce. In today’s situations, only pay and other monitory rewards are not enough to motivate employees to put their best efforts. Management practices have transformed into global. Globalisation and liberalisation have revolutionised the mindsets of both managers and managed. Global management practices have replaced local management practices. Active functioning of MNCs across the globe have made management practices common to all. Geographical and cultural diversities are disappearing gradually. Cosmopolitan employees perform their respective works in different companies. Workforce diversities have complicated modern managers’ motivating task. When everything is changing, one must change to take advantage of local and global opportunities. Global management scenario calls for initiating reforms. IT companies across the globe have

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introduced many innovative practices to keep employees happy at work. In this view, Turbo Machines Private Limited, a medium size unit, had called an urgent meeting of top officials to review its motivation policies with reference to below stated points: Pay package and other financial incentives Job enlargement and enrichment Authority and status—a source of motivation Flexibility and facilitates at workplace Recognition and appreciation of deserving employees in a grand function every year at factory premises (as closed appreciation is not very effective) Organising informal social functions/events every year and celebrating festivals Need to transform formal organisation to family unit Employee participation and empowerment Fruitful discussion took place. In the end, Mr. Tapas, senior manager, HRM, was asked to prepare a new motivation policy draft incorporating the above key aspects. They decided to meet after a month. The meeting ended.

Questions for Discussion 1. How would you perceive the current business environment? 2. ‘A firm must consider global motivation policies and practices while framing its motivation policy.’ Do you agree? Why? 3. State the three most relevant points from the given list, that need to be emphasised while framing the motivation draft. 4. Do you suggest any other key issue to be incorporated in motivation? 5. Comment on company’s proposal of new motivation policy. Does it make sense at all places? Why?

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Theories of Motivation Learning Objectives Upon completing this chapter, you will be able to: Explain the need of motivating theories and list several motivation theories Describe Maslow’s Need Hierarchy and Herzberg’s Two-Factor Theory Explain key elements of Theory X, Theory Y, and Theory Z Understand and explain Alderfer’s ERG Theory and Adam’s Equity Theory Outline McClelland’s Learned Need Theory Critically evaluate Vroom’s Expectancy Theory of Work Motivation Learn the Porter-Lawler Model of Motivation

INTRODUCTION Experts in the field of motivation have propounded a number of theories to explain the complex nature of motivation and to improve motivation practices. These theories are very good guidelines for practicing managers to understand and improve employees’ motivation. Theories can be classified into two broad categories—content theories and process theories. Content theories are concerned with the issue: What motivate(s) the employees? They suggest various ways or means to motivate employees. Maslow’s Need Hierarchy, Herzberg’s Two Factor Theory, Equity Theory, McClelland’s Achievement Theory, etc., can be included in content theories. The process theories, on the other hand, are concerned with the question: How are employees motivated? They suggest the process through which people are motivated. However, the process theories are more relevant to understand complex nature of motivation. Vroom’s Expectancy Theory, Porter-Lawler Model, etc., are examples of process theories of motivation. The present chapter adequately discusses important motivation theories, including: 1 Note: Additional reading material related to this chapter is available on the companion website of this book.

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Abraham Maslow’s Need Hierarchy Herzberg’s Two-Factor Theory McGregor’s Theory X and Theory Y Ouchi’s Theory Z Alderfer’s ERG Theory Adam’s Equity Theory McClelland’s Learned Need Theory Vroom’s Expectancy Theory of Work Motivation Porter-Lawler Model of Motivation Other Theories of Motivation (i) Cognitive Evaluation Theory (ii) Goal Setting Theory of Motivation (iii) Carrot and Stick Approach to Motivation (iv) Reinforcement (Motivation) Theory (v) Scientific Approach to Motivation (vi) Human Relations Approach to Motivation Out of the list, Vroom’s Expectancy Theory, Porter-Lawler Model, Cognitive Evaluation Theory, Goal-Setting Theory and Reinforcement Theory are process theories and the remaining are content theories of motivation. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

MASLOW’S NEED HIERARCHY Abraham H Maslow, a famous American social scientist, developed the Need Hierarchy Theory of Motivation based on the strengths of certain needs. This theory attempts to identify the needs that people have and discusses how these needs are prioritized. In his classic paper, he outlined the elements of an overall theory of motivation.1 His popular book, Motivation and Personality, published in New York, in 1954, also contains the theory. To him, human needs can be arranged in hierarchy, according to priority of needs. Hierarchy of needs has been depicted in Figure 20.1.

1. Physiological Needs The physiological needs are the basic (the most primary) needs in the hierarchy. They enjoy the highest priority and strength. People tend to satisfy these needs first. Unless these needs are satisfied at a reasonable level, they alone motivate people to work. People will not consider other needs till these needs are not met reasonably. Need for food, water, rest, shelter, etc., are physiological needs. People try to acquire necessities for their survival. Once these needs are satisfied, they no longer motivate people. 2. Safety Needs These needs arise only when physiological needs are satisfied at a reasonable level. In fact, degree of reasonableness is a relative term. Safety needs involve (1) job security, (2) protection from hazardous work, and (3) protection from mental hurts, like insult, partiality (discrimination) and criticism. In short, people desire to be secured economically,

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physically, and mentally. Unless these needs are satisfied to a reasonable degree, they serve as source of motivation, and people may not think of higher level needs in the hierarchy.

FIGURE 20.1 Maslow’s Hierarchy of Needs

3. Love (Affiliation or Social) Needs After first two needs are satisfied, the love and/or social needs become important. Man is a social being and tries to satisfy certain social needs. Social needs include need for belongingness, need to be accepted by group members, need for involvement, or affiliation, need for love and affection, etc. Maslow used the word ‘love,’ which has many misleading meanings. Therefore, it is advisable to refer these needs as ‘social needs.’ If, in any case, opportunities of social needs reduce, he may take vigorous actions to remove obstacles depriving him from social satisfaction. Emergence of informal groups in the organisation is due to strong social needs. People want such a work environment in which these needs can be satisfied easily. When these needs are satisfied, they cannot motivate people. Thus, these needs are a source of motivation as long as they are not satisfied. 4. Esteem Needs Esteem means respect, value, or high regard. These needs are considered as higher level needs. Here, ‘esteem’ involves both self-esteem (self-respect) and esteem (respect) from others. Everybody likes to be respected and honoured. Self-esteem includes feeling of competence, autonomy, independence, freedom, dominance, confidence, strengths, achievement and acquisition, personal values, etc. These aspects make a man respect himself. Esteem from others includes respect from others in terms of recognition, attention, appreciation, reputation or prestige, etc. Esteem needs arise only when former three needs are satisfied to a desired degree. The needs for power, achievement, and status can be considered in this level. They have feeling of personal worth, feeling of being unique and of being recognised. Satisfaction of these needs produces feeling of self-confidence, prestige, adequacy, worth, power, and control. Failure to satisfy these needs may create frustration. People desire such a work climate in which they are respected and recognised. 5. Self-Actualisation Needs These needs arise only when all the former needs have been met reasonably. These are the highest level needs. Self-actualisation is the need for self-fulfillment, a sense that a person’s maximum potential has been realised. He tries to be everything in his respective field by creativity, continuous development, and excellent performance.

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Self-actualization needs trigger an individual to reach the highest position, to achieve the most outstanding performance in his respective field. These needs indicate development of intrinsic capabilities to actualize his full potential. Self-actualization is self-fulfillment, or realisation of his maximum potential. It is more closely related to transforming his perception (of all his capabilities) into reality. It may be similar to fully self-contentment. It also implies control over environment factors. A man who has need for self-actualization will struggle restlessly to achieve the result for which he is capable of, or is worthy for.

Critical Evaluation According to Maslow, various levels are interdependent and overlapping. Each higher level need emerges only after lower level need is reasonably satisfied. The satisfied need may not motivate employees. The need, which is not satisfied, will provide strong motivation. Every satisfied need paves the way for higher need. Only active needs are given priority and can motivate man to actions. It is not the final answer to work motivation. And, in real life situation, this priority is hardly observed. This only suggests that a manager should be aware of various types of needs. The fact is that employees have diverse motives to work. Types of needs depend on nature and personality of person. There are some people who are constantly motivated by lower level needs. Again, what is satisfactory (reasonable) level of satisfaction is a big issue. Such classification depends on level of social and economic development. The universal applicability is also a question. Further, the order or priority may not work strictly; some people who are deprived of primary needs still prioritize higher level needs. It is difficult to apply this theory in practice as needs and satisfaction are the feeling and cannot be easily measured. In fact, this is too simple theory to analyse complex motivation at work.

HERZBERG’S TWO-FACTOR THEORY OF MOTIVATION In fact, Frederick Herzberg has extended Abraham Maslow’s Need Hierarchy Theory of Motivation. This theory falls in the category of the content theories. Frederick Herzberg2 and his associates from Case Western University conducted a motivation study on about 200 accountants and engineers employed by a firm in Pittsburgh, Pennsylvania (U.S.A.) in the 1950s. His aim was to identify the factors that were responsible for dissatisfaction among workers and the factors that were responsible for motivating workers. In his books, The Motivation to Work, New York, 1959, and Work and the Nature of Man, Cleveland, 1966, he explained the Two-Factor Theory. During the structured interview, employees were asked to describe few previous job experiences in which they felt ‘exceptionally good’ or ‘exceptionally bad’ about the job. They were also asked to rate the degree of their feelings in each experience. Herzberg, on the basis of analysis of the interviews, concluded that there were two categories of needs (or factors), essentially interdependent on each other, which could affect employees’ behaviour in different ways. The first category consists of job conditions which prevent dissatisfaction, but do not lead to strong motivation. This category of job conditions is referred as maintenance or hygiene factors. Hygiene factors are also known as job context, dissatisfiers or extrinsic factors. Another category of job conditions build strong motivation and high job

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satisfaction. However, their absence does not strongly prove dissatisfying. This category of job conditions is referred as motivators, which are also known as job contents, satisfiers or intrinsic factors. Table 20.1 shows ten hygiene factors and six motivators. Hygiene factors are related to job surroundings and/or job conditions. Their presence prevents dissatisfaction, but does not lead to strong motivation or satisfaction. They only prevent loss of employees’ normal performance. They cannot improve performance. These factors maintain minimum level of performance or reasonable level of satisfaction. And, therefore, they are known as maintenance factors. But, if they are absent, there is dissatisfaction (and affects adversely the minimum performance). When level of these factors is increased beyond limit, they may not improve satisfaction/motivation. However, any cut will have severe consequences and will lead to dissatisfaction. TABLE 20.1

Herzberg’s Two Factors—Hygiene Factors and Motivators Hygiene Factors Context Factors)

1. Policies and administration

1. Achievement

2. Technical supervision

2. Recognition

3. Interpersonal relations with superior

3. Advancement (through creative and challenging work)

4. Interpersonal relations with subordinates

4. Work itself

5. Interpersonal relations with peers (or coworkers) 5. Possibility of growth 6. Salary or Pay

6. Responsibility

7. Job security 8. Personal life 9. Work conditions 10. Status

On the other end, motivators increase level of motivation and/or satisfaction. If they are absent, the employees are not satisfied (but continue working to maintain minimum performance). Any decrease in motivators will not affect normal/usual performance. Their presence builds strong motivation. Any increase will definitely improve motivation or satisfaction. A manager should concentrate on these factors to improve motivation, performance, and/or satisfaction. Here, dissatisfaction and no satisfaction are both different.

Managerial Implications Careful analysis of the theory necessarily reveals following managerial implications: 1. A manager should maintain reasonable level of hygiene factors to keep employees reasonably satisfied or prevent dissatisfaction. 2. Along with reasonable level of hygiene factors, manager should provide motivators to motivate employees for higher performance. 3. Manager should also consider personality factors of employees. The employees may be classified into two parts—motivation seekers and maintenance seekers. Accordingly, appropriate combination of both types of factors should be made.

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4. He should concentrate more on job enrichment to make the job intrinsically attractive. Job enrichment provides more motivators. All motivators should be included in the job. 5. The manager should train the employees to be motivator seekers. 6. He should constantly study the desire of employees regarding what type of job contents they want. 7. Finally, the unique combination of both types of factors should be prepared to match the nature of employees to ensure higher degree of motivation, and composition (proportion) of both should be changed as per change in desire and expectation of employees.

Critical Evaluation Herzberg’s contribution remains valuable for practicing managers. It gives a fresh outlook. It answers why people are not motivated even though they are paid high wage and other benefits. It implies that human being wants something more than only maintenance factors. The theme of the theory remains an important guideline for manager to add and improve motivators. However, the theory has been criticised on several grounds. It is based on the notion/ assumption that the most of the employees are able to satisfy their lower order needs constantly and adequately. Therefore, they are not motivated by any further addition in hygiene factors. This is not correct. There are many employees of developing and underdeveloped countries who do not meet their primary needs and they are still motivated strongly only by addition in maintenance factors. In fact, relative importance of both types of factors depends on individual needs and personality characteristics on one hand, and economic conditions of the country on the other hand. There are a number of methodological problems with the theory. His theory is based on limited sample of middle class employees, accountants and engineers of American origin. So, generalisation is always doubtful. It is just an extension of Maslow’s theory. It only contributes to identify factors that determine employee’s motivation. It cannot help in analysing complex process of motivation. It is not a final solution to motivation problem.

McGREGOR’S THEORY X AND THEORY Y Theory X and Theory Y are two management perspectives or approaches basically related to function of management. These theories may be included in motivation as well leadership aspects of direction. (Ironically, Theory X and Theory Y are more closely related to leadership than motivation). In fact, these theories constitute a general approach to directing function as well as whole management. These theories were developed by Douglas McGregor. He was professor of management in Massachusetts Institute of Technology. He elaborated two opposite sets of assumptions about employees, which are known as Theory X and Theory Y. His book, Human Side of Enterprise, New York, 1960, elaborates on these theories. According to him, efficiency of management in dealing with people is based on ability of manager/leader to make correct assumptions about employees. Management action to direct human being involves certain assumptions, generalisation, and hypothesis relating to human behaviour and human nature.3 According to him, in what way people should be directed depends on certain assumptions a manager makes regarding employees’ characteristics, nature, or type of behaviour. As per assumptions, manager decides on ways and methods to direct them. Let us discuss each of them individually.

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Theory X This is a traditional theory. Here, assumptions about employees are negative and management approach is strict and autocratic. Assumptions and relevant managerial approach (actions) of Theory X have been stated below:

Managerial Assumptions Theory X is based on following assumptions: 1. The average man is by nature indolent (don’t like to work), he works as little as possible. 2. Because most people dislike work, they have to be pushed, closely supervised, coerced, persuaded and even punished to make them help in achieving organisation’s objectives. 3. Most people are lazy; they lack ambitions, desire security as major goal, dislike responsibility, and prefer to be led. 4. They are inherently self-centered, and have little concern for (or are indifferent to) organisational goals. 5. They are by nature resistant to change. 6. Man is gullible, not very bright, ready to be duped (easily cheated) of the charlatan (skill to pretend), and the demagogue (skilled orator).

Managerial Actions With respect to Theory X, McGregor makes following suggestions: 1. With these type of people, management should direct efforts of people by motivating them, controlling their actions, and modifying their behaviour to fit them with needs of the organisation. 2. Management is responsible for organising productive resources, like time, money, material, equipment, and people in the interest of economic ends. 3. Without active intervention by management, people would be passive, even resistant to organisational needs. They must be persuaded, rewarded, punished, and controlled; their activities must be directed. Manager with such assumptions tries to structure, control, and supervise his employees’ activities. He believes that external control, strict discipline, and close supervision must be used to deal with irresponsible, unreliable, and immature people.

Theory Y Douglas McGregor stated that Theory X is not always effective in all organisations. He developed Theory Y, an alternative theory of human behaviour. The theory represents democratic approach and offers the employees greater scope for creativity and responsibility. This theory makes positive assumptions about employees and suggests humanitarian approach of management. McGregor describes Theory Y as:

Managerial Assumptions Theory Y makes following assumptions: 1. Work is as natural as play. The average human being does not inherently dislike work. His attitude towards work depends on his work-related experience. Depending upon situations, work may be a source of satisfaction or punishment.

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2. Commitment to objectives is a function of the rewards associated with their achievement. 3. Motivation occurs at social esteem and self-actualization levels as well as at physiological and security levels. 4. People, by nature, are not resistant to organisational needs. In proper human relations climate, the average person can learn to accept and seek responsibility. He can be taught to accept responsibility. Work avoidance, lack of ambition, and overemphasis on security are consequences of (unfavourable) experience, not inherent characteristics. 5. Most people have capacity to exercise a relatively high degree of imagination, ingenuity, and creativity in the solution of organisation’s problems. 6. Under the conditions of modern industrial life, the intellectual potentialities of the average human being are only partially utilised. 7. Management is responsible for organising productive resources of enterprise for interest of economic ends (goals). 8. Motivation to work, potential for development, capacity to assume responsibility, and readiness to direct behaviour towards organisational goals are all present in people. It is the responsibility of the management to make it possible for people to recognise and develop these human qualities for themselves. 9. The essential task of management is to arrange organisational conditions and methods of operations so that people can achieve their own goals best by directing their own efforts towards organisational objectives. 10. External control, threat, close supervision, threat of punishment, etc., are not the only ways to get people to do things towards organisational goals. People will exercise selfcontrol and self-direction to achieve objectives to which they are committed.

Managerial Actions With respect to Theory Y, McGregor makes following innovative suggestions: 1. Greater Decentralisation and Delegation of Authority: To make employees free from close control and to satisfy their needs of freedom, and to help them develop a sense of responsibility. 2. Job Enlargement: To increase responsibility among rank and file workers and to provide opportunities for satisfying social and ego needs. 3. Participative and Consultative Management: To offer the employees more opportunities to participate in decision-making. 4. Joint Target Setting and Self Evaluation: Target setting by consulting employees to make them achieve their targets, and to direct self-evaluation of performance periodically. The assumptions of Theory Y suggest a new approach in management. This theory is based on positive assumptions about human being. A manager can get the best result by proper treatment of employees. A man has the potential to contribute maximum to the objectives of the organisation. Human behaviour depends on type of managerial treatment.

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Managerial Implications McGregor has given two different and opposite perspectives of administrative actions. One is traditional, characterised by autocratic and control centered, while the other is modern, characterised by participation and decentralisation. Careful analysis of both the theories can provide following implications for practicing managers: 1. Theory Y is more realistic, having greater potential for being a good manager. It is modern theory and manager should try to apply it while managing people. 2. The contribution of McGregor advocates contingency approach to leadership. 3. A manager should be judicious while using any of the theories. The decision depends on a detailed analysis of employees’ mentality. 4. The manager should not follow Theory X all the time. He should try to move form Theory X to Theory Y. This is possible by appropriate training. 5. This is not a ready answer as to which approach is applicable. They only suggest the different perspectives to deal with people. 6. People can be changed by suitable treatment. A manager is responsible to create and maintain a conducive work environment that leads to mutual agreement between organisation and employees to achieve goals. 7. If the employees are positively treated, they may enjoy the work, show initiative and imagination, and observe self-discipline and self-control. 8. The real management practices fall in-between the two extremes. One should make an appropriate combination of both the theories.

OUCHI’S THEORY Z William G Ouchi developed Theory Z. The theory suggests specific organisational culture in which employees are treated differently than what was traditionally believed, and management adopts a fresh idea in managing various issues. In fact, letter ‘Z’ suggests nothing; it is merely the last letter of the alphabet. We may state that Theory Z implies the ultimate limit of freedom and positive consideration. William Ouchi4 was the first to point out the importance of organisational culture. He developed a fresh idea on leadership and motivation, based on Japanese management style. In fact, many American managers have studied Ouchi’s book to gain insight regarding how the successful Japanese systems are different from their own, and how their firm might successfully modify its culture by drawing clues from these concepts. The theory is based on comparative study of Japanese and American management practices. Theory Z is a combination of two traditional theories—American Theory and Japanese Theory. Ouchi, by combining two traditional theories, developed Theory Z to modify American corporate culture and help firms compete more effectively with the Japanese firms. Ouchi has suggested five broad features of Theory Z. Features or elements have been presented in Figure 20.2.

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3. Employee Involvement

4. No Formal Structure

5. Coordination of Human Beings

FIGURE 20.2 Elements of Ouchi’s Theory Z

1. Trust Trust is the first postulate of Theory Z. According to Ouchi, trust means trust among employees, supervisors, work groups, unions, management, and government. He states that trust, integrity, and openness are closely related. These are essential ingredients of effective organisation. By these principles, employees tend to be more cooperative, and possibility of conflict can be minimised.

2. Strong Bond Between Organisation and Employees There should be strong bond between employees and management. William Ouchi has suggested various methods to strengthen bond between management and employees. Such methods (similar to Japanese Management’s characteristics) include: (i) (ii) (iii) (iv) (v) (vi)

Lifetime employment or stability in staff Slower evaluation and promotion of employees Horizontal movement of employees to reduce stagnation Career planning for employees Emphasising on long-term expectations of employees Communication and involvement with superior

3. Employee Involvement

It is an important aspect of Theory Z. It implies meaningful and deliberate participation of employees in certain decisions affecting them. When they are not involved during decision process, they must be informed later on. Management should consider employees’ suggestions and views before making decisions. In short, joint decisionmaking should be promoted to seek cooperation and commitment of employees. Involvement prevents conflict and other unexpected events from occurring like strike, lockout, etc. It also boosts employees’ morale toward organisation.

4. No Formal Structure

Theory Z suggests perfect teamwork with cooperation, along with sharing information, resources, and plans, instead of formal structure for the organisation. Ouchi has cited an example of a basketball team, which plays well together and solves all problems without formal reporting and minimum specialisation. In the same way, an inte-

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grated organisation does not need any chart, or any visible structure. It gives more emphasis on rotation aspect of employee placement, which provides opportunity to each employee to see how his work affects others, and is affected by others. This can enable him to develop team spirit, which is an important aspect for success.

5. Coordination of Human Beings Leader’s role is to coordinate people, and not technology, for higher productivity. This task involves developing people’s skills, creation of new structures, provision of incentives to employees, and a new philosophy of management. By this, commitment of employees towards development of a less-selfish-more-cooperative approach to work can be achieved. Leader should try to develop trust by complete openness and frankness. High degree of coordination is key to achieve the desired goals.

Critical Evaluation It can be observed that Theory Z is not merely a motivation technique, but involves a complete transformation of management actions. The clues from the theory may be applied to India to a certain degree to improve mentality of both employees and management. Theory Z is the base for imparting commitment, devotion, integrity, and high level of coordination. The features discussed are special case of Japanese culture. Therefore, certain questions have been raised against applicability of Theory Z in India (and other countries), especially, on following aspects: 1. Life time employment is impractical and, hence, impossible. 2. Developing common culture and imbibing a class feeling are difficult to achieve. 3. Participation has its limitations in Indian context. 4. Lack of formal structure creates many problems. 5. Horizontal movement (employee rotation) is also not possible due to certain practical problems. However, Theory Z provides useful base for formulating and modifying motivation policies and practices.

ALDERFER’S ERG THEORY Clayton P. Alderfer, who was associated with the Yale University, developed the ERG Theory of Motivation. The theory is an improvement over Maslow’s Need Hierarchy. His work was based on empirical evidence. He revised Maslow’s work and labeled it as ERG Theory. His work was published in the magazine, Organisational Behaviour and Human Performance, in May 1969, under the title, ‘An Empirical Test of a New Theory of Human Needs.’ C P Alderfer stated that there are three types of needs, as against five needs stated by Maslow. Such needs are Existence Needs, Relatedness Needs, and Growth Needs. Hence, his worked is labeled as the ERG Theory.

Existence Needs

Existence needs are concerned with providing basic materials for existence requirements. They are similar to physiological and safety needs mentioned by Maslow. Human being is motivated to obtain such basic requirements to ensure one’s existence. Clearly, such needs are food, water, shelter, protection, etc.

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Relatedness Needs

These needs imply the desire for maintaining important interpersonal relationship. Social and esteem needs can be said as relatedness needs. Man, being a social being, needs to satisfy them. (Note: For more details, refer 'social needs in Maslow’s Need Hierarchy').

Growth Needs This is the last group of needs. Growth needs indicate intrinsic desire for personal growth. Self-actualization and, to some extent, esteem needs may be taken as a growth needs. Person tries to actualize all his capacities. He wants the performance, or excellence, that he is capable of. (Note: For more detail, refer ‘self-actualization needs in Maslow’s Need Hierarchy.') Managerial Implications In fact, this is also content theory and emphasises on human needs. Man is motivated to work in order to satisfy certain needs. The theory is similar to Maslow’s. However, it shows different indications: 1. As against Maslow’s theory, the ERG theory states that more than one need may be active/operative at the same time. Human being tries to satisfy all needs at a time, and not one-by-one, as shown by Maslow. 2. There is nothing like hierarchy. It is not the case that the higher level needs are active only when lower level needs are satisfied. His theory does not follow the rigid order as suggested by Maslow. 3. The theory indicates that when a person fails to satisfy higher level needs, he returns to lower level needs. Frustration leads to a regression to lower level needs (i.e., frustrationregression dimension leads to backward movement). For example, if one fails to meet social needs, he may return to more money and better working conditions. 4. Irrespective of level of needs, he can be motivated for any need, for example, a man may struggle to satisfy growth needs even though existence and related needs are not satisfied. 5. The theory is more consistent with individual differences among people. It is more valid version of needs hierarchy.

ADAM’S EQUITY THEORY OF MOTIVATION American expert James Stacy Adam developed the Equity Theory. It was published in the journal, Experimental Social Psychology, 1965, New York, titled, ‘Inequality in Social Exchange’. The theory is also known as Adam’s Inequity Theory of Motivation. It is cognitive-centered theory as it is basically concerned with the person himselfs—his beliefs, feelings, or perception. The basic theme of the theory is: Individual compares his job inputs and outputs with those of others and then responds so as to eliminate an inequity. He compares his output-input ratio with those performing similar work within or outside the organisation. And, if his output-input ratio is equal to theirs, he feels equality and is satisfied. Otherwise, he feels inequity and is dissatisfied. Theme/central idea: The equity theory recognises that individuals are not concerned only with absolute amount of rewards they receive for their efforts, but are also concerned with

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what others receive for the same job. They make judgment on the basis of comparison of their outputs-inputs ratio with that of others. And, when they perceive imbalance/inequality, tension is created. This tension provides the base for motivation. They exert positive or negative efforts to strive for equality.

Variables Equity theory consists of two variables—inputs and outputs: Inputs: Inputs imply: What does a person offer to an organisation? Input variables include efforts, time, expertise, experience, education (qualifications), training, abilities and skills, sincerity, loyalty, etc. Outputs: Outputs imply: What does the organisation offer to a person? Output variables include pay, status, promotion, appreciation, recognition, respect, protection (security), personal development, and other monetary and non-monetary benefits.

Ratios

Person ‘A’ and other person ‘B’ ratios can be symbolically calculated as under:

Person ‘A’ determines his ratio as: Ratio of person ‘A’ = Person’s Outcome (OA) ÷ Person’s Inputs (IA) = OA ÷ IA Ratio of other person ‘B’ is determined as: Ratios of Person ‘B’ = Other’s Outcome (OB) ÷ Other’s Inputs (IB) = OB ÷ IB Possible Ratios: There are three possibilities: 1. OA ÷ IA > OB ÷ IB. Person’s ratio is higher than other’s. He feels positive inequality, or 2. OA ÷ IA < OB ÷ IB. Person’s ratio is less than other’s. He feels negative inequality, or 3. OA ÷ IA = OB ÷ IB. Person’s ratio is equal to that of other’s. He feels equality. The first case is not serious as he gets more than other (his ratio is higher). It is also a situation of inequality. However, he feels guiltiness as it does not seem fair. In second case, it is a serious situation as he gets less than others (his ratio is lower). He feels inequality and remains strongly dissatisfied. He thinks that organisation is doing injustice to him. The third case is an ideal situation, which hardly exists. Person is satisfied as he gets exactly same as other (his ratio is just equal to other’s). He feels equality and remains satisfied. Note that output-input ratio is based on person’s perception or personal feeling. What he thinks is more important. It may be different from reality. When person perceives inequality, he reacts/responds differently.

Individual Response to Different Payment Systems Person’s perception of equity of rewards differs in case of time-based payment and piece-based payment (see Table 20.2.)

1. In case of time-based payment (i) When he is overpaid (ratio is high), he tries to produce more and/or better quality to reduce inequality. So, he tries to increase his input portion. Thus, he can offer more benefits to the organisation.

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(ii) When he is underpaid (ratio is low), he tries to produce less and/or poor quality to reduce inequality. He tries to reduce his input portion. He can offer less benefit to the organisation. (iii) When he is equally paid, he maintains status quo.

2. In case of piece-based payment (i) When he is overpaid, he tries to produce fewer units of higher quality. He can reduce his pay and/or can offer more to the organisation. He may continue producing same units but of better quality to offer more to organisation. He concentrates more on quality. (ii) When is underpaid, he tries to produce a large number of low quality units. He concentrates more on quantity. Higher quantity ensures more payment and low quality results into fewer benefits to organisation. He gets more and offers less. So, degree of inequality can be reduced. (iii) When he is equally paid, he maintains status quo. TABLE 20.2

Personal Reactions to Inequality of Reward

Payment to Employees He will increase quantity and qual- He will increase quality with less ity of products by more efforts. (or same) number of items. He will produce less quantity and/ He will produce a more items with or lower quality. low quality.

Thus, if the person’s perceived ratio is not equal to others, he strives/struggles to restore the ratio to equality. He can restore the ratio by (1) increasing/decreasing his inputs—benefits to organisation, and/or (2) increasing/decreasing his outputs—his benefits from organisation. The striving to restore equality is used as the explanation of work motivation. The strength of this motivation is in direct proportion to perceived inequality.

Actions 1. 2. 3. 4. 5. 6. 7.

Person’s motivation may be expressed in several possible forms or actions:

He alters his inputs. He alters his outputs. He distorts (changes) his perception of inputs. He distorts his perception of outputs. He leaves the field/job and considers his act as a fight against injustice. He changes the reference (others to whom he compares his ratio). He tries to change other’s inputs and outputs.

Critical Evaluation Equity theory makes a manager realise that perception of equality is a source of motivation. Individual feeling or perception is one of the major determinants of motivation force. These

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aspects must be incorporated while designing motivation system. The benefits offered must be equal to that of perceived. He must do something so that one can perceive the equality between his output and input. Training can make the difference. Undoubtedly, the theory is capable of contributing to both theory and practice of motivation.

Limitations Following are some of the limitations: 1. Fred E Luthans wrote that practical experiments revealed quite opposite results. Lower rewards can be increased by more efforts. 2. Practically, it is difficult to measure perception of people about output-input ratios. 3. The theory doesn’t show clearly specific actions a person should take to re-establish equity when inequity is perceived. 4. An individual hardly accepts that he is getting more rewards than others. Most problems are of low return, negative inequality. 5. The theory doesn’t consider all motivation factors. Only personal perception is the basic consideration. 6. There is no standard measurement for efforts (inputs) and rewards. So, exact comparison with others is not possible. 7. It is difficult to find identical base for comparison. Ratio compared with other may be misleading. A lot depends on reference, i.e., to whom one compares his ratio. 8. If underpaid employee tries to reduce efforts, quantity or quality, to balance the ratio, there are chances of further reduction in his pay, or he may be asked to leave the organisation. Similarly, there are more chances that overpaid employee’s efforts to contribute more to organisation results into more benefits. Inequality—whether positive or negative—may, instead of being equal, continue despite of relevant efforts.

McCLELLAND’S ACHIEVEMENT (OR LEARNED NEED) THEORY OF MOTIVATION David C. McClelland was a famous psychologist from Harvard University. He visited a number of countries to study achievement drive of several world-class leaders. He attempted to explain motivation through secondary motives. To him, secondary motives are unquestionably the most important in motivation. He clarified that when human society developed economically and became complex, primary motives gave way to secondary motives in motivating behaviour. The secondary motives can be learned. More clearly, those motives, which can be developed, obtained or learned, are called secondary motives/needs. A number of important human motives meet these criteria. Learning principles of reinforcement is conceptually and practically related to motivation. To him, three major secondary motives are: power, achievement and affiliation, which are commonly referred as nPOW, nACH, and nAFF, respectively. However, his theory is mainly associated with achievement motive. Security and status are also some other important secondary motives. He and his associates made substantial research, especially, for achievement needs. He pointed out that, in motivation, there is always learning. One can develop motives by learning. His three secondary motives have been depicted in Figure 20.3.

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1. Power Motive or the Need for Power (nPOW)

Power is an important secondary motive. Power itself is a source of motivation and pleasure. It is source of money, status, position, recognition, etc. Power need is the need to manipulate others or desire for superiority. People always like to have power irrespective of their worthiness. It is only the power that can distinguish one from others without authority. Power need plays in important role in politics, business, government, education, military, etc. It has significant implication for organisational as well as informal leadership.

Characteristics Characteristics of people with higher power motive have been listed below: (i) Need for power is a desire to have impact on others, they want to be influential and like to control others. (ii) People with higher need for power enjoy being ‘in charge.’ They are willing to accept responsibilities. (iii) They prefer competitive and status oriented situation. They give more importance to gaining influence and prestige rather than effective performance. (iv) They seek leadership, and are extrovert, ambitious, and strict in work. Successful leader always needs power. (v) They hold less desire for achievement and affiliation.

It is the desire to manipulate others or desire for superiority.

McClelland’s Three Secondary Motives

It is the desire to perform in terms of excellence; to be successful in competitive situation.

It is the desire for friendly and close interpersonal relationships.

FIGURE 20.3 McClelland’s Secondary Motives

2. Achievement Motive or the Need for Achievement (nACH) This is the most important secondary motive in this theory. That is why the theory is also known as McClelland’s Achievement Theory. He has given more attention to this motive. Simply, achievement motive can be expressed as a desire to perform in terms of standard of excellence. It also indicates the desire to be successful in competitive situation. This motive can be learned. One who wants to multiply his gain can be called an achiever. People with high degree of achievement motive significantly differ from others in terms of job preference, job place, risk, performance, competition, efforts, etc. They like job situation with personal responsibility, feedback, and intermediate degree of risk.

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Characteristics Characteristics of people with high achievement motive have been listed below: (i) They are moderate risk takers. (ii) They hold strong desire to do excellent job, different from others. (iii) They can attain personal responsibility to find solution to problem. (iv) They prefer competitive situations. (v) They do not prefer success by chance; they are competitive and look for challenges. (vi) They have their own special method and theory to work. (vii) They exert immediate feedback. (viii) They are satisfied with accomplishment of work, and not material rewards associated with it. (ix) They are preoccupied (persistent), work restlessly and are optimistic. (x) They take interest in interaction and communication. (xi) They are concerned equally with people and production. (xii) They avoid affiliation and relations.

3. Affiliation Motive or the Need for Affiliation (nAFF) This is also an important secondary motive. It implies the desire for friendly and close interpersonal relationship. It is the desire to be liked and accepted by others. Individual with high affiliation motive strives for friendship and prefers cooperative situation rather than competitive one, and desires relations involving a high degree of mutual understanding. Characteristics Characteristics of people with high affiliation motive include: (i) They give more importance to relations than work. (ii) They are sensitive and always care for others. (iii) They are always eager to build relations with others. They are willing to accept others and wish be accepted by them. (iv) They are extrovert, open, and less ambitious. (v) They prefer friendly and cooperative work situation, avoid competition and conflict. (vi) They have less desire for power and achievement.

Managerial Implications Careful analysis of McClelland’s motivation theory reveals following managerial implications: (i) Employees always have different degrees of the three motives. They significantly differ in terms of priority for each. (ii) High degree of achievement motive is essential for individuals, organisation, and the society. (iii) People are not borne with achievement motive. They can be trained to be high achievers; to make them achieve highest goals. They must be provided model of high achiever to imitate.

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(iv) People working in middle cadre jobs have strong desire for achievement. (v) Employees should be given knowledge about themselves. (vi) Secondary motives, compared to primary motives, are more powerful. Organisation must help employees fulfill reasonably their secondary motives. (vii) These three motives should be carefully considered while designing organisation’s motivation system.

VROOM’S EXPECTANCY THEORY OF WORK MOTIVATION Victor S. Vroom’s theory is known as Vroom’s Expectancy Theory of Work Motivation. It is one of the process theories that identifies the key variables in the motivation process. His work has inspired a lot of research work. His popular book, Work and Motivation, New York, 1964, contains the expectancy theory. The theory is based on two disciplines—psychology and economics. Note that Victor Vroom was first to formulate the expectancy theory directly aimed at work motivation. Vroom believed that the content theories of motivation were inadequate explanation of complex motivation process. Figure 20.4 summarises the Vroom’s expectancy theory of work motivation. The model contains three variables—valence, instrumentality, and expectancy. Therefore, it is also called the VIE Theory of Work Motivation. According to Vroom, motivation is a product (outcome) of three variables—how much one wants a reward (valence), one’s estimate of the probability that efforts will result into successful performance (expectancy) and one’s estimate that performance will result into rewards (instrumentality). Mathematically, motivation can be expressed as: M= V I E.

FIGURE 20.4 Victor Vroom’s Expectancy Theory of Work Motivation (Based on Victor S. Vroom’s Work and Motivation, New York, 1964)

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Variables in the Vroom’s Theory Vroom’s Expectancy Theory mainly involves three variables—valence, expectancy, and instrumentality.

1. Valence

Valence indicates the strength of a person’s preference for particular outcomes. It is, thus, the desire or aspiration for particular outcome or result. Other terms similar to valence are value, incentives, attitudes and expected utility. It differs from person to person. For example, every individual does not have equal preference for promotion. Valence with expectancy determines level of motivation force that leads to the first level outcomes. Expectancy is the chance that effort will lead to desired level of performance (the first level outcomes). Valence may be positive, zero, or negative. Positive valence plus high expectancy (i.e., efforts will lead to desired level of performance and satisfaction) lead to strong motivation. It is called positive valence. Zero valence with any level of expectancy will lead to indifferent situation. If valence is negative for whatever level of expectancy, it results into negative motivation.

2. Expectancy Expectancy is the probability (ranging from 0 to 1) that particular action (level of efforts) will result into particular first level outcome. It may be high or low. High expectancy with positive valence leads to strong motivation to work. It shows relationship between efforts and first level outcome. 3. Instrumentality Instrumentality indicates the degree to which the first level outcome (for example, superior performance) will lead to the desired second level outcome (for example, promotion or more pay). It may be high, low, or zero. High degree of instrumentality, along with positive valance and high expectancy, leads to strong motivation to action. It shows relationship between first level outcome and second level outcome. Interplay (or product) of these three variables determines strength of motivation. In short, the strength of motivation to perform a certain act will depend on the algebraic sum of products of the valence for outcome (including instrumentality) times (i.e., multiplied by) the expectancy. Symbolically, it can be expressed as Motivation Force = Valence (and Instrumentality) Expectancy Individual can be strongly motivated if all the variables are positively interrelated, i.e., positive valence multiplied by high instrumentality multiplied by high probability. Illustration: A company has decided to offer promotion to some employees. Promotion has positive impacts on pay, authority, and status. Suppose an individual has high valence for promotion. Promotion (second level outcome) depends on better performance (first level outcome), and the first level outcome depends on level of efforts (motivation). If he has strong desire for promotion (strong valance) and assumes that his certain level of efforts have high possibility of leading to better performance (high expectancy), and there are high chances that better performance will lead to promotion, and promotion will lead to satisfaction (high instrumentality), he is strongly motivated and exerts more efforts.

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The strength of tendency to act in a certain way depends on the strength of an expectation that the act (efforts) will be followed by a given outcome, and on the attractiveness of that outcome to the individual. The theory focuses on three types of relationships: 1. Effort-performance relationship (expectancy) implies the probability perceived by the individual that exerting a given amount of effort will lead to performance. 2. Performance-reward relationship (instrumentality) implies the degree to which the individual believes that performing at a particular level will lead to the attainment of a desired outcome. 3. Rewards-personal goals relationship implies the degree to which organisational rewards satisfy an individual’s personal goals, or the attractiveness of those potential rewards for the individual. In summary, the key to expectancy theory is the understanding of an individual’s goals and the linkage between effort and performance, between performance and rewards, and, finally, between rewards and individual goal satisfaction.

Characteristics of Vroom’s Theory The theory can be summarised as: 1. It is one of the most ambitious and advanced theories. It is sophisticated theory that explains complex interplay of various variables. The theory is more suitable for scholars and scientists than practitioners. 2. It is a complete theory of motivation that explains how, how much, and why people behave in a particular way. 3. Expectancy (calculated probability) plays important role in every stage of motivation. 4. It has wide applicability as it considers employees’ needs, organisational rewards system, and basic human psychology. 5. It is cognitive model of work motivation. It emphasises on processes within human being. 6. It is based on individual differences. Motivation force depends on individual calculation of how much rewards will be available for certain amount of efforts. It assumes that motivation is an individual concern, not group concern. 7. Motivation can be expressed mathematically: M = V I E.

Managerial Implications Following implications can be derived from Vroom’s expectancy theory: 1. The model provides considerable knowledge to practicing manager to understand what goes in motivation. 2. It suggests that manager has to do something that arouses value, interest, and preference for particular level of performance and different rewards. 3. Manager must clearly lay down conditions regarding level of performance leading to final rewards. Motivation policy must be clearly communicated to the employees concerned. The policy should be such that employees can reasonably assume probability.

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4. Choice of alternative action depends on what the employee thinks he will get. Employees must be involved in formulating motivation policy. 5. Reward should be tied with performance; performance should be adequately rewarded. Reward should be equitable to level of performance. Manager must try to know whether his employees are getting what they expected. 6. Motivation is individual concern, and not of the group. It suggests that individual differences should be kept in mind while designing reward system. 7. Expected behaviour is more important. But, past experience plays an important role in projecting what will happen in the future. 8. The theory advises the manager to select employees with required abilities, assign reasonable tasks and goals, and make sure that employees have needed skills and abilities to do the task, and provide training if needed. 9. Finally, the theory suggests that manager must ask three question to understand his employees’ motivation to work: (1) What reward do you want? (2) Do you believe your efforts will result into successful performance? (3) How likely is it that you will receive the desired rewards by successful performance?

Limitations The theory is, no doubt, a comprehensive explanation of complex motivation. But, it is not free from limitations. Critics give a number of arguments against Vroom’s expectancy theory. Let us summarise key limitations: 1. The theory fails to consider the employee’s ability to perform work. High valence multiplied by high expectancy will not necessarily lead to high performance and/or high reward if one is not capable to understand and perform the work. 2. Full empirical test is not possible. There are a number of technical and methodological problems with the model. Validity remains a big question. 3. It is a complex model to understand as well as apply. It attempts to mirror the complex nature of motivation. 4. It simply states the way people are motivated. It does not suggest directly what a manager should do to improve employees’ motivation. From theory point of view, it can be appreciated. 5. It is an overly rational model. Normally, people do not sit down with pen and paper to calculate effort-performance or performance-reward probability.

PORTER-LAWLER MODEL OF WORK MOTIVATION5 The Porter-Lawler Model is the most comprehensive explanation of work motivation and is inclusive of major content and process theories of motivation. This is a model rather than a theory. The model explains complex process of motivation diagrammatically. It contains nine variables. The model is associated with two experts Lyman W Porter and Edward E Lawler.6 So, it is known as the Porter-Lawler Model.

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The model is based on the study conducted by L W Porter and E E Lawler on seven state owned units and three private units. The purpose of the study was to know responses of employees regarding pay and satisfaction. The model has brought forth significant turn from the traditionally believed relationships among efforts, performance, rewards, and satisfaction.

FIGURE 20.5 Porter-Lawler Model of Work Motivation (Based on Lyman Porter and Edward E Lawler III, Managerial Attitudes and Performance, Irwin, Homewood III, 1968, p. 165) The Porter-Lawler model is based on fundamental premises: Motivation—force or level of efforts—is not equal to satisfaction and/or performance. In fact, motivation, performance, and satisfaction are three different variables, and they are related differently than what was traditionally assumed. The model is inclusive of all individual psychological factors affecting individual behavior, such as perception, learning, personality, beliefs and attitudes, etc. The model explains what nine variables undergo in complex motivation process, as shown in Figure 20.5.

Stages of Motivation Nine variables of the model can be expressed into four stages of motivation, as under: 1. Stage I: Efforts (Variable 3) It is the result of variable 1 and variable 2. 2. Stage II: Performance (Variable 6) It is the result of variable 3, variable 4, and variable 5. 3. Stage III: Equitable Rewards (Variable 8) It is the result of variable 6 and variable number 7(A) and 7(B). 4. Stage IV: Satisfaction (Variable 9) It is the final outcome and the result of interplay of all the variables in the model.

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Efforts, performance, rewards, and satisfaction are not always equal. Efforts are greater than, equal to or less than performance; performance is greater than, equal to or less than rewards; rewards are greater than, equal to or less than satisfaction. Thus, symbolically they are expressed in Figure 20.6:

FIGURE 20.6 Main Variables of the Model Expected performance, rewards, and satisfaction are key inputs in motivation force (level of efforts).

Variable 1: Value of Rewards

Value of reward implies the degree of one’s preference for particular reward; to what extent one wants something. It is same as valence in Vroom’s Expectancy Theory. If one assigns high value to the reward, it has direct and considerable impact on level of efforts (motivation), and vice-versa. Value of reward is individual matter. Other words similar to value of reward are valence, incentives, attitudes, expected utility or desirability. Personal, cultural, social, organisational, and situational factors affect degree of attractiveness and desirability (i.e., value) of rewards. Pay, promotion, security, respect, recognition, appreciation, etc., are assigned different values by different people.7 So, motivation starts from rewards/satisfaction. It ranges from –1 to +1. When value for reward is negative (–), an individual has strong avoidance approach. Zero (0) value implies that he is indifferent in receiving rewards. He has neutral position. He is not responding to rewards. Positive (+) 1 implies strong value. He has strong desire and is ready to strive/struggle to make rewards available.

Variable 2: Perceived Effort-Reward Probability Box number 2 in the model represents perceived effort-reward probability. Perceived probability determines the relationship between level of efforts and level of performance. It ranges from 0 to 1. This variable refers to the employee’s perception of probability that certain rewards depend upon specific amount of efforts. Here, the word ‘perceived’ is more closely related to ‘estimated’ or ‘calculated.’ If an individual is sure that particular amount of efforts will definitely lead to desired (equal or more) performance, and finally the rewards, the probability will be high, i.e., near 1. When he estimates that efforts will not lead to equal rewards, probability is low. But, when he is sure that for whatever level of efforts there is no reward, the probability is zero. It can be said that efforts start from (expected) performance and (expected) rewards. This variable carries a number of managerial implications. Variable 3: Efforts Box number 3 in the model represents efforts. ‘Efforts’ in the model refer to the amount of energy exerted by an employee on the given task.8 They consist of physical and mental exertion, stress, attempts, struggle, or depreciation. They are also expressed in term of energy or capacity extended towards work. They are sum of various aspects, such as sincerity, morale, skills, knowledge, ability, time, stamina, efficiency, etc. Efforts depend on person’s total capacity or ability to do something. They are more closely related to motivation (force).

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Efforts and ability are different. Efforts (force or motivation) may be equal to ability or less than ability. Efforts imply the applied or employed energy/ability. Thus, efforts are equivalent to motivation force. Amount of efforts depends on the interplay of the value of reward (variable 1) and perceived effort-reward probability (variable 2). The level of efforts resulting from interaction of these two variables is roughly equivalent to motivation force. Normally, an employee would not exert his total energy, but it depends upon how much value he has for a specific reward, and how favourably he perceives probability regarding efforts and reward relationship. Value of rewards is the input in efforts. And it depends on level of satisfaction. The individual must believe that efforts lead to rewards and rewards must lead to satisfaction in order to be motivated. Thus, it can be said that motivation starts from satisfaction. At any time, level of efforts or motivation force for any job is determined by interplay of (1) perceived value of rewards, (2) perceived effort-reward probability, (3) perceived effort-performance relationship, (4) perceived performance-reward relationship, and (5) perceived reward-satisfaction relationship.

Variable 4: Abilities and Traits

As shown in the model, efforts do not lead to performance directly. They are mediated by abilities and traits. Abilities and traits make significant difference between efforts and performance. As per the Webster’s new Dictionary: ability can be defined as the power to do. Abilities include job knowledge, skills, and talent (intellectual capacity) to perform job.9 The Webster’s New Dictionary defines traits as the features or lineament; distinguishing features of character or mind; a touch (of quality).10 Traits are of two types – original traits and acquired traits. Original traits are birth related, acquired inherently, while acquired traits which are achievement related which can be acquired through study, training, and practice. Traits, like intelligence, enthusiasm, initiativeness, sympathy, empathy, self-confidence, analytical ability, memory, fairness, extroversion, aggressiveness, dominance, tactfulness, ambition, resourcefulness, judgment and many others, play a crucial role in effortperformance relationships. Similarly, height, weight, colour, structure/appearance, tolerance, stamina, vigour, strength, sturdiness, style, smile, and many other traits are physical characteristics that affect impact of efforts on performance. Abilities and traits are closely related. Abilities depend on traits. Physical abilities are determined by physical traits and mental abilities are determined by mental traits, as mentioned earlier. So, total ability is dependent on person’s total number of traits. A manager must ensure that employees have necessary abilities and traits before he expects desired results from them. And, employees should not struggle for expected results when they do not possess needed abilities and traits. In formulating motivation policy, traits and abilities of employees should be considered carefully to avoid maladjustment.

Variable 5: Role Perception Role perception, along with abilities and traits, determines impact of efforts exerted on level of performance. It is another variable that intermediates between efforts and performance relationship. Role can be defined as expectations, contribution, functions or task. An employee must know accurately what is expected of him. Thus, role is total way of working. In an organisation, a person may have any of these roles, such as worker, supervisor, clerk, officer, executive, manager, president, etc., and each role demands particular way of working/behaviour. Each role has values, attitudes, position, and degree of authority and responsibility. It is important that he must perceive his role correctly to satisfy others'

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expectations. When a person perceives his role correctly (i.e., correctly interprets the position/ work), he can justify others’ expectations. In short, correct role perception is characterised by ‘righteousness’ in all important regards, like objectives, requirements of job, understanding, time, place, methods, process, behaviour, and many such aspects. If correct role is not perceived, a great deal of efforts result into ineffective performance. Role perception depends on many factors, like personal characteristics, characteristics of work, references, past experience, organisational climate, etc. It can be said that adequate efforts with required abilities and traits result into desired performance only when they are supported by right perception. A manager should help employees develop fairly correct role perception.

Variable 6: Performance According to the Webster’s New Dictionary, performance is the act of performing or carrying out duty. Performance represents the pragmatic (practical) result that organisations are able to measure objectively.11 Performance is expectation of the organisation. It implies carrying out the work successfully. It can be evaluated either absolutely or relatively. Absolute evaluation is made in relation to norms, standard, time, input-output relations, and other criteria, while comparative/relative evaluation is based on comparison with others inside and/or outside the organisation. Likewise performance is measured in form of quantity and/ or quality. Qualitative measurement depends on level of satisfaction, relations, morale, respect, image, and other behaviour measures whereas quantitative measurement depends on amount of profits, sales, input-output relations, level of wastage, accuracy, time, regularity, sincerity, and many other similar physical standards. When work assigned to an individual is completed according to norms of the organisation, it can be said that performance is satisfactory. Degree to which it is achieved determines organisation’s success. Furthermore, it is output for organisation and is used as input (base) for employees’ satisfaction, i.e., a base for determining reward. Performance is the outcome of efforts (determined by value of reward and perceived effort-reward probability) mediated by abilities and traits, and role perception. It depends on combinations of all three variables: (1) level of efforts (Box 3), abilities and traits (Box 4), and role perception (Box 5). Performance is a key determinant of reward. To conclude, variables 1 and 2 determine level of efforts and 3 and 4 determine the effect of efforts on performance. Expected (perceived) performance affects level of efforts. Therefore, performance is input in efforts (See variable 2).

Variable 7: Rewards Box number 7 in the model represents rewards. Performance leads to rewards. Reward is the second level outcome. In normal situation, if performance is up to the standard (even more than the standard), rewards are awarded or are due. According to the Webster’s New Dictionary reward is something which is given in return for something done. Rewards are tools, means, or motivators that tempt people to work. Other words similar to reward are compensation, return, incentive, motivational tool, benefit, outcome, etc. Motivation starts and ends with reward (and satisfaction). There are different forms of rewards. However, rewards offered on individual basis are more meaningful and relevant to induce a person to exert more efforts. They can easily be linked with individual performance. Also, it is easy to administer such rewards. For improving motivation, it is necessary to link rewards with level of performance. (For more details, refer ‘Classification of Rewards,’ Chapter 19.)

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Variable 7 (A) and (B): Intrinsic Rewards and Extrinsic Rewards

In the model, Box number 7(A) and Box number 7(B) represent intrinsic rewards and extrinsic rewards, respectively. The rewards indicate combination of both. For a person, equitable rewards include both types of rewards—intrinsic as well as extrinsic.

Intrinsic rewards are internally related. They are concerned with person himself, such as self-satisfaction, interest, pride, justification, realisation, and happiness. Generally, a person, at self-actualization level is motivated by intrinsic rewards. Intrinsic motivation (efforts to get intrinsic rewards) is a self-propelling force which constantly keeps individuals motivated to engage in diligent work behaviour.11 Intrinsic rewards are those feelings of joy, self-esteem and sense of competence that individuals feel when they do a good job. They are ‘mediated by person himself.’12 On intrinsic rewards, the organisation has no control except making work intrinsically attractive. Extrinsic rewards are external and very often artificial. They have no direct relation with behaviour itself. Pay and other financial incentives, working conditions, etc., can be extrinsic rewards. They are more closely associated with behavioural approach while intrinsic reward is more associated with the cognitive approach. Intrinsic factors are directly related to actual performance of the job and extrinsic factors are related to the environment in which job is being performed. Extrinsic rewards, being external or environmental, are offered by other. On the other hand, internal rewards, being internal or cognitive, are derived by employees themselves.

Variable 8: Perceived Equitable Rewards

Box number 8 in the model represents equitable rewards. Perceived equitable rewards vitally affect the performance-satisfaction relationship. They reflect the fair or reasonable level of rewards that the individual feels he should be granted for a given level of performance. They are self-rated rewards. They imply what is fair/equitable/reasonable according to the person. It is person’s estimate and is not always justifiable. It depends on many factors. Therefore, perceived equitable rewards may be less than, equal to, or more than the actual rewards granted. The rewards must be equitable in order to motivate the person strongly. Many personal, job-related, and organisation-related factors affect equitable rewards Thus, decision on what is equitable for employees is very sensitive. Much care and precaution are necessary to make organisation’s rewards as ‘equitable rewards.’

Variable 9: Satisfaction Throughout the model, satisfaction remains an important variable. Equitable rewards lead to satisfaction. It is the final stage of efforts exerted. Term satisfaction is feeling of equality between what is perceived to be offered and what is actually offered. Satisfaction simply means fulfillment, to be contented, or to be pleased. Satisfaction also means solution of problem, actualization of expectations, or removing lackness. The model begins and ends with satisfaction. It is interesting to mention that employee’s efforts (i.e., level of motivation) for satisfaction start from satisfaction itself. So, satisfaction is an input in motivation for getting satisfaction. Satisfaction is the cause as well as the result; input as well as the output. Satisfaction is closely related to all major variables of the model. It occurs only when everything goes right, i.e., righteousness prevails in every input of the model, from efforts to satisfaction.

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One’s total satisfaction depends upon type, quality, and quantity of rewards plus job content variables. Experts and practiceners have advocated maintaining high degree of satisfaction as it has positive impacts on employees’ behaviour. It is the solution of major organisational problems.

Evaluation of the Model The model is not a single model but is a combination of various theories on the subject. It is a sincere attempt to coordinate key ideas of all motivation theories. The model has adequately and appropriately considered the vital variables of individual behavior, like perception, attitudes, personality, learning, beliefs, job satisfaction, morale, communication, leadership, and a wide range of other related variables. It is all-in-one motivation theory. This is a contingency model and recognises that there is no universal principle for explaining everyone’s motivation. Motivation is based on a number of ‘ifs’ and ‘thens.’ If inferences of the model are followed judicially, a purposeful motivation policy can be formulated. Finally, usefulness of the model is dependent on ability, expertise, and experience of the manager. The Porter-Lawler model is more applications oriented than any other model/theory; it is still complex and has proved to be a difficult way to bridge the gap to actual management practice. The Porter-Lawler model has definitely made a significant contribution to the better understanding of work motivation and the relationship between performance and satisfaction. There is an acute need to make the model practice oriented. Yet, more intensive research work is expected in this area. No theory is an ultimate solution to direct the efforts of people in the formal organisation. Every theory has its applicability and problems. Every theory is based on explicit or implicit assumptions about employees, work environment, and overall social and cultural climate. The Porter-Lawler model seems more comprehensive; it is inclusive of all (contents and process) theories of motivation. Its implications have more practical value in the present situation.

OTHER THEORIES OF MOTIVATION Apart from the theories discussed above, there are some theories of motivation that carry valuable implications for practicing managers. Important among them have been briefly discussed below:

Cognitive Evaluation Theory It is based on the notion: Introduction of extrinsic rewards, such as pay, for work efforts that was previously intrinsically rewarding due to the pleasure associated with the contents of the work itself tend to decrease overall motivation.13 When extrinsic rewards are given to someone for performing an interesting task, it causes intrinsic interest in the task itself to decline.14 Traditionally, motivation theories believed that intrinsic motivation, such as achievement, responsibility, competence, contentedness, were independent of extrinsic rewards, like pay, good supervisor, pleasant working conditions, etc. Stimulation of extrinsic rewards do not affect intrinsic pleasure. But

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cognitive evaluation theory assumes that when extrinsic rewards are used by organisation as payoff for superior performance, intrinsic interest in the task itself tends to decline. It happens because the individual experiences a loss of control over his behaviour so that the previous intrinsic motivation declines. This theory has been extensively researched and a large number of generalisations have been drawn. The theory produces confusion as to what a manager should do. It carries a lot of ambiguities. The theory may have limited applicability.

Goal Setting Theory Edwin Locke,15 in 1968, initiated primary base for the Goal Setting Theory. He proposed that goals are major source of work motivation. But real credit goes to Ryan16 for developing this theory. The Goal Setting Theory is more or less similar to process theories discussed in this chapter. Goal is the central issue in motivating efforts of management and employee’s motivation to work. Goals tell the employees what needs to done and how much efforts to be made. Specific goals produce higher level of performance. He says that goal setting is most important concept of motivation. Once goals are appropriately set, people respond by putting efforts that yield some performance. Goal setting process/task is more relevant to the study and application of motivation, in particular, and of OB, in general. In modern management theory and practice, the Goal Setting Theory carries a number valuable implications. Locke’s Goal Setting Theory of Work Motivation consists of five variables17 as shown in Figure 20.7.

FIGURE 20.7 Edwin Locke Goal Setting Theory Motivation depends on values and value judgment related to goals (same as value of rewards). Person’s emotions and desires (same as needs) determine what they want (goals). The goal setting theory is more or less similar to process theories (particularly, the Porter-Lawler Model) discussed in this chapter.

Basic Theme or Key Implications of the Goal Setting Theory

Basic Goal Setting Theory

and intensive research studies reveal following facts: 1. Goal clarity or specificity has direct impact on performance. People will do better if they get feedback on how well they are progressing towards their goals. 2. Employee participation in goal setting can produce better performance. If employees are given opportunity to set their goals, they work harder. When they participate in goal setting, they are more likely to accept even a difficult goal. 3. Goal itself acts as an internal stimulus. Performance depends on what type of goals are, who sets them and how. Rewards should be directly linked with the goals.

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4. Feedback is crucial aspect in goal setting and, subsequently, goal achieving (resulting performance). Performance consequences, feedback or reinforcement (by organisation) lead to repeat behaviour. Feedback helps them to find out discrepancy between what they are doing and what they should do. 5. In addition to feedback, four other factors that affect goal-performance relationship are goal commitment, adequate self efficacy, task characteristics, and national culture. 18 In a nutshell, the theory emphasises on involvement of employees in organisational goal setting, setting challenging and specific individual goals, providing continuous performance feedback, and establishing and implementing appropriate reward system as motivational means for desirable performance. It is difficult to describe all key aspects of Goal Setting Theory as Edwin Locke edited his theory several times in his different articles. He continued to refine/edit his theory from 1968 to 1986 in publications. So, it seems difficult to discuss it in precise manner.

Carrot and Stick Approach to Motivation Note that carrot and stick approach is closely associated with the reinforcement theory of motivation discussed later. Here, carrot means positive reinforcement or reward and stick means punishment. The carrot and stick approach came from the old story that the best way to make the donkey move ahead is to put a carrot in front of him or jab (strike) him with stick from behind. Carrot is reward for moving (i.e., desirable behaviour) and stick is punishment for not moving (i.e., undesirable behaviour). To motivate people, some carrots, in form of money, promotion, and other financial and non-financial rewards are used. Sometime, if required, sticks, in form of punishments or penalties, are imposed (like reduced pay, dismissal, insult, criticism, fear of termination of job, etc.,) to push them towards desired behaviour. Sticks are also used to prevent or extinct something undesirable. However, role of carrot is more important in modern management. Many theorists advocate that people should be adequately and regularly rewarded (i.e., carrots should be offered) to make them work more enthusiastically. Stick is also important to make people behave in a desirable way, but it should be used with care and caution. If fear of sticks can serve the purpose, actual sticks should not be used. However, application of stick is not outdated; it has its own significance, and still it seems more effective in contemporary management practices. Carrot and stick approach to motivation has been diagrammatically presented in Figure 20.8. The figure 20.8 explains how carrot and stick approach works in motivating and regulating behaviour. Carrot or stick is used as per organisation’s evaluation of performance. If performance is deemed desirable and satisfactory, carrot (positive reinforcement) is used, and stick (negative and punishing reinforcement) is used in opposite situation. Carrot can strengthen the same behaviour to avail the carrot repeatedly in the future, while stick leads to improved or modified behaviour to avoid stick and/or avail carrot in the future. Either is used to make people generate desirable behaviour/performance. Organisation can specify to the employees in advance what attracts carrot or stick in order to make them elicit the right behaviour. Contemporary management, too, follows the carrot and stick approach to manage employees’ behaviour.

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FIGURE 20.8 Carrot and Stick Approach to Motivation

Reinforcement (Motivation) Theory Reinforcement (or reinforcing) and reward (rewarding) are used interchangeably. However, there is a little difference. Reinforcement is anything that increases the strength of behaviour or tends to induce its repetition. Reinforcement means strengthening or supporting behaviour preceding it. The theory is based on learning theory/principle—operant conditioning—and, therefore, it is known as Operant Conditioning Theory of Motivation. Operant is defined as the behaviour that produces effect (Refer Learning Theories, Chapter 17). Here, consequences (for example, rewards or punishment) associated with behaviour generate the learned (new or same) behaviour (i.e., motivation to act). The theory assumes that behaviour is the function of its consequences. It indicates what happen to a person when he takes certain actions. Positive reinforcement (in terms of rewarding, paying, promoting, appreciating, etc.) strengthens behaviour and increases likelihood of repeating the same behaviour. B.F. Skinner has developed this theory. The theory is based on Skinnerian Psychology, Skinner’s experiments on pigeons. Actions that result into positive consequences (i.e., rewards) strengthen likelihood of same (or repeated) behaviour. For example, if a high performer (employee) is rewarded with high pay, promotion, and appreciation, he is more likely to repeat the same behaviour, i.e., he would continue to achieve better performance. Reinforcement based motivation process has been explained in Figure 20.9. Level of employee’s first time motivation depends on his characteristics and organisational setup, climate, and culture. His efforts lead to certain performance. Organisation applies reinforcement depending upon desirability of level of performance. It may practice any one of four reinforcements, or mix of them. Employee learns relationship between his performance and consequences associated with it. His subsequent behaviour or motivation depends on type and degree of reinforcement the organisation has applied. Thus, he reinforces (or strengthens)

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his belief. He learns: What should he do to get desirable reinforcement, or to avoid undesirable one? Reinforcement leads to behavioural modification.

FIGURE 20.9 Reinforcement Theory of Motivation

Types of Reinforcements Different types of reinforcements (means of responding to specific behaviour) are used for motivating employees to act in a specific manner. Some reinforcement means strengthen behaviour and increase the probability of repetition while others reinforcement means (related to extinction and punishment) weaken or modify behaviour and reduce repetition. Manager uses following reinforcements to make employees elicit the desired behaviour:

1. Positive Reinforcement It consists of responding with desirable consequences (rewards), such as pay, bonus, recognition and respect, promotion, privileges, etc. They lead to positive behaviour. Positive reinforcement means strengthening and increased repetition of desirable behaviour.

2. Negative Reinforcement Using negative reinforcement in form of strict control, close supervision, harassment, threatening, etc., the organisation can make the employee behave in positive manner. Negative reinforcement also strengthens and repeats desirable behavior due to fear or threat of undesirable consequences, or withdrawal or termination of positive consequences. Due to provision of negative reinforcement, employee is motivated to elicit positive behaviour. If employee behaves positively, such negative reinforcements are removed. However, negative reinforcement should not be treated as similar to punishment. 3. Extinction Extinction is used to weaken undesirable behaviour and its repetition. It is like non-reinforcement or not responding to behaviour. Note that extinction is less painful than punishment as it does not involve direct application of negative consequences. Here, feedback is denied. It is like absence of reinforcement. It may make the employee improve behaviour for positive consequences. For example, sales manager always rewards the salesman who achieves targets in time, but does not react at all when he fails, to teach a lesson that the latter has to improve performance. Employee tries to avoid the behaviour that prevents him from availing desirable events. Extinction probably leads to positive behaviour.

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4. Punishment Use of noxious (aversive and undesirable) stimuli to reduce or terminate undesirable behaviour is punishment. It includes withdrawal/termination of positive rewards, or awarding with negative rewards, such as pay-cut, demotion, dismissal, etc. Punishment weakens and reduces the response/behaviour and its frequency. Punishment motivates (forces or makes) employees to change or modify behaviour. Sometimes, punishment seems to be effective measure. Punishment reduces undesirable behaviour, but may not generate/promote desirable behaviour. Suitable reinforcement is instrumental in making employees strongly motivated (put more efforts). Organisation, as per need, uses different types of reinforcement to maintain, increase, modify, or extinct behaviour. However, reinforcement theory ignores employee’s perception, feelings, attitudes, and expectations.

SCIENTIFIC APPROACH TO MOTIVATION F W Taylor and others developed Scientific Management. Principles of scientific management carry a number of motivational implications (Refer Chapter 2). The approach implies that people at work can be motivated through adequate pay (wage or salary). The theory advocates application of differential wage system and provision for financial incentives to motivate people to improve productivity.

HUMAN RELATIONS APPROACH TO MOTIVATION While the scientific management approach emphasises on pay for motivating people, the human relations approach stresses on relations. Interpersonal relations, encouraging climate, informal relations, participations, etc., are important non-monetary (or relationship oriented) aspects that affect motivation. Proper leadership, communication, and supervision can contribute to improved motivation. (For more details, refer ‘Human Relations Movement,’ Chapter 2). Motivation theories discussed in this chapter can improve manager’s understanding about what motivate(s) people and how they are motivated. Implications of these theories can be used to formulate and implement suitable motivation policies. A wise manager should try to learn possible and practical ways and methods from various motivation theories, and, in light of contemporary environment, he should develop appropriate motivation approach to seek maximum cooperation of employees.

SUMMARY Experts in the field of motivation have propounded a number of theories to explain complex nature of motivation and to improve motivation practices. Theories can be classified into two broad categories—content theories and process theories. Abraham H Maslow has developed the Need Hierarchy Theory of Motivation, based on strengths of certain needs. The theory considers physiological needs, safety needs, love (affiliation or social) needs, esteem needs, self-actualization needs. The theory has been criticised on the basis of assumptions and rigid hierarchy.

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Frederick Herzberg and his associates developed content theory, known as Hergbergs’ Two Factor Theory. It considers two sets of factors—hygiene factors and motivators. Hygiene factors prevent dissatisfaction and motivators leads to motivation and satisfaction. Theory X and Theory Y make assumptions about the man at work and suggest how a manager should direct him. Theory X makes negative assumptions about the man at work while the Theory Y makes positive assumptions. Based on the assumptions, Douglas McGregor suggested the directing and controlling pattern. William G Ouchi developed Theory Z. It is combination of American and Japanese management styles. Ouchi has suggested five broad features of Theory Z, such as trust, strong bond between organisation and employees, employee involvement, no formal structure, and coordination of human beings. Clayton P Alderfer stated three types of needs. They are existence needs, relatedness needs, and growth needs. Hence, his work is labeled as the ERG Theory. The theory suggests that there is nothing like hierarchy of needs. When a person fails to satisfy higher level needs, he returns to lower level needs. Irrespective of level of needs, one can be motivated for any needs. American expert James Stacy Adam, developed the Equity Theory. The equity theory recognises that individuals are not concerned only with absolute amount of rewards they receive for their efforts, but are concerned also with what others receive for the same job. Input-output ratio is taken as the base to judge the equity of rewards. David C McClelland, a famous psychologist from Harvard University, explains motivation through secondary motives. He considers three motives that motivate a man to work—power, achievement, and affiliation. He and his associates made substantial research especially for achievement needs. Victor S Vroom developed Expectancy Theory of Work Motivation. It is one of the process theories. The model is built around three variables—valence, instrumentality, and expectancy. Interplay (or product) of these three variables determines strength of motivation. Porter and Lawler have refined, revised, and expanded Victor H Vroom’s theory into Expectancy Model. The model depicts relationships among nine variables. The model considers vital variables of individual behaviour, such as perception, attitudes, personality, learning, beliefs, job satisfaction, morale, communication, and a wide range of other related variables. Other motivation theories, including Cognitive Evaluation Theory, Goal Setting Theory of Motivation, Carrot and Stick Approach to Motivation, Reinforcement (Motivation) Theory, Scientific Approach to Motivation, and Human Relations Approach to Motivation, have some useful and interesting implications.

KEY TERMS Motivation Motivation Theory Need Hierarchy Two-factor Theory Theory X and Theory Y Theory Z ERG Theory Equity Theory Learned Need Theory

Expectancy Theory of Work Motivation Porter-Lawler Model of Motivation Cognitive Evaluation Theory Goal Setting Theory of Motivation

Carrot and Stick Approach to Motivation Reinforcement (Motivation) Theory Scientific Approach to Motivation Human Relations Approach to Motivation

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EXERCISES Objective Type Questions 1. Answer the following: 1. Name the five needs of Maslow’s Need Hierarchy. 2. By which name are the hygiene factors known? 3. Write key variables of Vroom’s Expectancy Theory.

4. How many variables does Porter-Lawler Model involve? 5. What is ERG in Alderfer’s Theory?

2. Choose the correct option (MCQs): 1. Which is the third order need in Maslow’s Need Hierachy? (a) Self-actualization needs (b) Physiological needs (c) Social needs (d) Safety needs 2. Who developed the Two-factor Theory of motivation? (a) Abraham Maslow (b) Stacy Adam (c) Porter-Lawler (d) Frederick Herzberg 3. How many variables does Victor S Vroom consider in his expectancy theory? (a) Nine (b) Three (c) Four (d) Five 4. In which theory of motivation, is the reward input in motivation? (a) Maslow’s Need Hierachy (b) Adam’s Equity Theory (c) Porter-Lawler Model (d) McClelland’s Learned Need Theory 5. Which motivation theory emphasises more on achievement drive? (a) McClelland’s Learned Need Theory (b) Maslow’s Need Hierarchy (c) Adam’s Equity Theory (d) Porter-Lawler Model 6. Which one is the most comprehensive explanation of work motivation?

7.

8.

9.

10.

(a) Vroom’s Expectancy Theory (b) Porter-Lawler Model (c) Adam’s Equity Theory (d) McClelland’s Learned Need Theory Choose the motivation theory that explains work motivation mathematically. (a) Porter-Lawler Model (b) Vroom’s Expectancy Theory (c) Theory X and Theory Y (d) Ouchi’s Theory Z Which theory is based on assumption about people at work? (a) McGregor’s Theory X and Theory Y (b) Adam’s Equity Theory (c) Maslow’s Need Hierarchy (d) McClelland’s Learned Need Theory Which one theory of motivation assumes that extrinsic rewards for better performance lead to reduced intrinsic pleasure associated with the job? (a) Cognitive Evaluation Theory (b) Goal Setting Theory (c) Carrot and Stick Approach (d) None The theory that proposes rewards for desirable behaviour and punishment for undesirable behaviour is labeled as (a) The Human Relations Approach (b) Carrot and Stick Approach to Motivation (c) Cognitive Evaluation Theory (d) Goal Setting Theory

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Descriptive Questions 1. Enumerate motivation theories. Discuss Maslow’s Need Hierarchy. 2. ‘Herzberg has extended Maslow’s Work.’ Do you agree? Why? 3. Critically examine Herzberg’s Two-factor Theory of Motivation. 4. Write a note on McGregor’s Theory X and Theory Y. What are the managerial implications of the theories? 5. ‘Theory Z is intermediate theory between Theory X and Theory Y.’ Comment. Discuss key aspects of Theory Z.

6. Discuss Alderfer’s ERG Theory of Motivation with managerial implications. 7. Elaborate on Adam’s Equity Theory. 8. Explain views of David C. McClelland on motivation. 9. Explain Vroom’s Expectancy Theory with a diagram. 10. Briefly explain the Porter-Lawler Model of Work Motivation with a diagram. State how is the Porter-Lawler Model a perfect theory of motivation.’

Assignments 1. Students are assigned a group project in which each of them has to check the practical utility of each theory of motivation. They can meet managers for the purpose. Then, students can be asked to rank the theories as per their practical utility.

2. Based on their practical study, the students can be directed to propose theoretically sound and practically feasible motivation theory/model with assumptions and detailed description.

REFERENCES 1 A. H. Maslow, ‘A Theory of Human Motivation,’ Psychological Review, July 1943, pp 370 – 396 2 Frederick Herzberg, Bernard Mausner and Barbara Synderman, The Motivation to Work, John Wiley, 1959, New York; and Frederick Herzberg, Work and the Nature of Man, World Publishing, Cleveland, 1966 3 Douglas McGregor, Human Side of Enterprise, McGraw-Hill, New York, 1960 4 William G Ouchi, Theory Z: How American Business Can Meet the Japanese Challenge, AddisonWesley, Reading, Mass, 1881 5 Comprehensive explanation of the model is based on R B Rudani’s original research work (Ph. D. Work) on the model. He tested the model in the field of higher education in some Indian universities. 6 Lyman W Porter and Edward E Lawler, Managerial Attitudes and Performance, Richard D Irwin, Homewood, III, 1968; Lyman W Porter and Edward E Lawler, Behaviour in Organisation, McGraw-Hill International, 1975; Edward E. Lawler, Pay and Organisational Effectiveness, McGraw-Hill, New York, 1971; Edward E Lawler, Motivation in Work Organisation, Brooks/ Cole, Monterey, California, 1973 7 Fred E Luthans, Organisational Behaviour, Tata McGraw-Hill, New Delhi, 5th ed. p. 192 8 Ibid., p. 193 9 Uma Sekaran, Organisational Behaviour—Text and Cases, Tata McGraw-Hill, New Delhi, 1989, p. 70 10 Uma Sekaran, op. cit., p. 61

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11 Fred E Luthans, op. cit. 12 E L Deci, Organisational Behaviour and Human Performance, Vol. 8, 1970, p. 218 – 19 13 R de Charms, ‘Personal Causation: The Internal Affective Determinants of Behaviour,’ Academic Press, New York, 1968 14 Stephen P Robbins and Seema Sanghi, Organisational Behaviour, 2005, p. 171 15 Edwin E. Locke, ‘Toward a Theory of Task Motivation and Incentives,’ Organisational Behaviour and Human Performance, May, 1968, pp. 157–189. 16 T. A. Ryan and P.C. Smith, Principles of Industrial Psychology, Ronald, New York, 1954; and T. A. Ryan, International Behaviour, Ronald, New York, 1970 17 Edwin E Locke, ‘Personnel Attitudes and Motivation’ Annual Review of Psychology, 1975, pp. 457 – 598 18 Stephen P Robbins and Seema Sanghi, Organsational Behaviour, 2005, p. 273

ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. 2. 3. 4. 5. B.

Physiological needs, safety needs, social needs, esteem needs, and self-actualization Hygiene factors are known as ‘maintenance factors’ Valence, expectancy, and instrumentality There are nine variables in the model Existence Needs, Relatedness Needs, Growth Needs 1. (c), 2. (d), 3. (b), 4. (c), 5. (a), 6. (b), 7. (b), 8. (a), 9. (a), 10. (b)

CASE Interpersonal Skills and Positive Approach—As Sources of Motivation Vishwakarma Machines and Tools Private Limited, is a reputed company engaged in manufacturing and marketing various products and components related to irrigation. At least 100 people, all male, were employed at different positions to carry out relevant works. Out of them, excluding office staff, 75 were workers and 5 were foremen and one was superintendent. The company had developed and marketed successfully various pumps of different capacities. Company was under the leadership of Mr. V M Varma, chief engineer, who acquired B E, mechanical engineering, from India, and MBA from Harvard University. He had been operational head for a decade. Mr. Varma was known for his innovative ideas. He was always enthusiastic in welcoming new ideas from customers, dealers, employees, and even from workers. He used to discuss any issue related to a new product with workers and foremen. He strongly believed that informal communication and relations could strengthen emotional bonds between management and the managed. He was also respected for honesty, integrity, and effective leadership. He created such as organisational culture and climate that people enjoyed their respective work. To him, informal relations, healthy climate, and non-monetory rewards could contribute to overall productivity. However, he believed in strict discipline. We believed that one should not insult fellow workers and one must take care of their esteem. He used to meet, greet, discuss, counsel, and take interest in others’ problems and difficulties. Since he took charge in the company, employee unrest had hardly illegible workplace. Company exported its products in seven countries. Due to excessive foreign tours, Mr. Varma requested the chairman to create a post

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of production manager to take care of production department. Top management approved of the same. Next month, Bhupendrasingh, ME from reputed Indian university, was appointed as the production manager. Previously, he was working as production engineer in Sigma Home Appliances. He was young and energetic with charming personality, but had no knowledge of management. He believed that strict control was the key to make people do their best. After a little induction and orientation, he was assigned the charge of production department. Bhupendrasingh believed in regularity and discipline. He emphasised on close control. Before a week, Mr. Varma proposed a new model as per the demand of one foreign agency. He briefed the issue in the meeting. New production manager, a superintendent, and all foremen attended the meeting. However, Bhupendrasingh did not like the involvement of foremen in the meeting. Next day, Mr. Varma went on foreign tour. One day, during working hours, a superintendent, two foremen, and three workers were found discussing actively the new product in superintendent’s office. Bhupendrasingh saw them. He scolded them openly for conducting meeting during office hours. Superintendent, Mr. Madhav Malhotra, explained the manager the fact. But, he was not convinced. He reprimanded the superintendent and the foremen. Immediately, he issued a show-cause notice to all involved in the meeting and demanded an explanation within a day. He circulated a notice that employees must not hold any meeting during office hours. Madhav felt insulted; he was confused. During his entire career, this was the first incident that he was openly insulted by someone. He was very sensitive and could not compromise with the issues affecting his self-respect. He decided to meet Mr. Varma, but he had gone on foreign tour and was expected to return after a month. The superintended did not reply to the notice. Without any intimation, he did not come to the factory. Two foremen went on leave. On learning about the incident, Mr. Varma shortened his tour and came back to India after ten days. Factory climate was disturbed and distorted. He realised that the situation was worse than what he had assumed. He started meeting every one informally. He met many employees personally after office hours. He talked twice to Bhupendrasingh on phone. At night, he met the MD and discussed the issue. The MD directed Mr. Varma to hold a meeting next day.

Questions for Discussion 1. Which key leadership and motivational qualities does the chief engineer possess? 2. What is your opinion about V M Varma’s interpersonal skills? 3. ‘Managerial knowledge seems inevitable to deal with employees effectively.’ Give your opinion. 4. How would look at the meeting hold in Mr. Madhav Malhorta’s office during office hours? Was it fair to hold the meeting during office hours? Why? 5. Do you think that decision of Mr. Madhav and two foremen was right? What else could have been done?

CHAPTER

21

Leadership Learning Objectives Upon completing this chapter, you will be able to: Define leadership and describe its role in OB Summarise the Traits Theories and the Behavioural Theories of Leadership Examine Likert’s Four Systems Explain Hersey and Blanchard’s Life-cycle Theory of Leadership Describe views of Tannenbaum and Schmidt on Leadership Styles Critically examine the Fiedler’s Contingency Theory Outline Path-Goal Theory of Leadership Explain Blake and Mouton’s Managerial Grid

INTRODUCTION This chapter describes relevant topics of leadership in two parts: 1. Fundamentals of Leadership: Definitions, features, styles, importance, formal and informal leader, leaders’ roles, etc. 2. Leadership Theories: Main leadership theories

FUNDAMENTALS OF LEADERSHIP With reference to business management, leadership is one of the techniques of directing. However, organisational behaviour view point, it is one of the powerful factors that affects/ determines subordinates’ behaviour. Leader has crucial role to play in today’s large, complex,1 Note: Additional reading material related to this chapter is available on the companion website of this book.

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and dynamic organisations. Positive organisational behaviour and organisational effectiveness largely depend on type of leadership. Undoubtedly, all organisational problems are human problems; and all human problems can be attributed to poor leadership. All human problems can be prevented, minimised and/or solved by effective leadership. Today’s leader is not a boss, he has to be a mentor to make people work for organisational goals. It is the leader who can make people realise their potentialities to do an excellent job. Note that leadership effectiveness does not depend on who is the leader, but on what he is doing. A leader performs many functions. He leads, motivates, communicates, and supervises employees to get them to contribute in the best possible ways. Leadership involves guiding and inspiring people towards achievement of goals. Since human being is key consideration in determining overall performance, leadership has significant role to play. This function is directly related with complex human factor in organisation and has potential to contribute in improving overall employees’ behaviour and, finally, the performance of the enterprise. It is said: ‘Take care of people; people will take care of your organisation.’

Definitions of Leadership Management experts, behaviourists, and practitioners have defined the term in their own words. Some popular definitions are stated below: 1. Barnard Keys and Thomas Case: "Leadership is the process of influencing and supporting others to work enthusiastically towards achieving objectives."1 2. Keith Davis: "Leadership refers to the ability to persuade others to seek defined objectives enthusiastically."2 3. Weihrich, Cannice and Koontz: "Leadership is the art or process of influencing people so that they will strive willingly and enthusiastically towards the achievement of group goals."3 4. Stephen Robbins and Seema Sanghi: "Leadership is the ability to influence a group towards the achievement of goals."4 Leadership is closely concerned with influencing followers. In this context, it can be defined as: Leadership is referred to the ability of a person (leader or manager) to influence subordinates to carry out assignment with confidence and zeal. Leadership is reflected through leader’s special way (called leadership style) to lead others. His activities, functions, and style can be said as leadership. Thus, ‘Leadership is what a leader does.’ His style depends upon a large number of factors. In this regard, we can express the term in form of mathematical equation as: L = f (L, F, S) Thus, leadership is function of Leader (personality characteristics of leader), Followers (type and characteristics of followers), and Situation (type of situation in which he has to lead followers).

Characteristics of Leadership Now, based on these definitions, let’s identify the key characteristics of leadership. 1. Leadership is linking pin between management and subordinates. 2. It is goal-oriented.

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3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

Leadership is exercised by leadership style. It is all level and universal activity. It is one of the determinants of employees’ behaviour at work. It involves personal qualities—both birth-related and acquired. It is relationship between followers and leader. It is an act of influencing behaviour of followers. Leadership is a part of managership. Authority is essential for leadership, but not indispensable element. It is dynamic and is deeply affected by situation. Effectiveness of leadership depends on followers. Full inclusion, initiatives, and cooperation of employees determine leaders’ effectiveness. Great followers can make a great leader. 13. Leadership may be formal or informal; may be positive or negative; may be autocratic, democratic or free form.

Importance of Leadership Leadership is one of the directing techniques that directs people in an organisation. It is an important factor determining degree of success in any walk of human activities. It is also a prime factor that affects behaviour of people in the organisation. This function is among the most important functions because it is directly concerned with human element at work. In today’s organisation, a manager has to become an effective leader. Experts and management practitioners believe: ‘Management is nothing but leadership.’ Manager’s duty consists of more leadership than managership. It is due to the fact that he has to get the work done through efforts of people. Quality of work, industrial relations, and overall operational efficiency depend on type of leadership. Richard Brajer, CEO of Lip Science Inc., says: ‘‘Leadership is not about being front-andcentre, but nurturing an environment where everyone can achieve their potential.’’ Steve Vamos, CEO of Microsoft, Australia, states: ‘'The role of leader is to create environments where others can do great work—and then to get out of the way.’’ Someone has rightly quoted: ‘‘Take care of people; people will take care to your work.’’ P F Drucker has stated: ‘‘Leadership is the most essential resource of any business enterprise.’’ Peter Darbee, CEO of Pacific Gas & Electric Company, quoted: ‘‘A leader needs to first be able to dream great dreams, and establish a vision.’’ Degree to which people contribute to the goals depends on how they are led. It is leadership that makes people work effectively. It can be said that successful leadership is the master key to solve any problem in the organisation. Following points describe the importance of leadership: 1. Understanding and Solving Human Problems: Leadership deals with the most vital and complex element, i.e., human being. Every problem is human problem. If human problems are solved, almost all problems can be solved automatically. Capable leader can do it.

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2. Motivating Employees: Right motivation is the magic stick to make people work as per plan. The higher the motivation is, the better the performance will be. A good leader himself is a source of motivation. By using appropriate means, tools or techniques, he motivates employees to put maximum efforts in attainment of organisational goals. 3. Creating Confidence: It is leadership that creates confidence among employees through proper guidance, instructions, encouragement, and supervision. Employees can realise or actualize their own capabilities and qualities by proper leadership. 4. Building Morale: Morale is an attitude or feelings of employees towards the organisation. Morale is reflected in terms of degree of enthusiasm to work, willingness to cooperate, and voluntary conformation with rules and regulations. Employees with high morale can work for excellent performance. Leadership is important for building morale. 5. Effective Communication: Information is as important as circulation of blood in human body. It keeps organisation alive, active, and integrated. Flow of information depends upon leadership. In the complex and large organisation, communication has a pivotal role to play. Capable leader can set up and maintain a suitable communication network that facilitates smooth flow of information across the organisation. Effective leaders communicate their messages in inspirational manner using vivid stories, symbols, slogans, ceremonies, etc. 6. Maintaining Cooperation and Avoiding Competition: Effective leadership prevents unnecessary competition among individuals, groups and departments, and promotes cooperation. He prevents dysfunctional conflicts to surface. 7. Preventing Unexpected Events: Successful leadership prevents unexpected events like strikes, lockouts, mass leaves and such other similar events. It does not only save valuable resources, but can also create good image and reputation. 8. Creating Conducive Climate: A capable leader can create and maintain healthy work climate in which people can enjoy the work. Organisation can flourish speedily in positive, constructive, and healthy work climate. Leader can make the organisation work as a family. 9. Implementing Change: Change must be invited and implemented as and when necessary for survival and growth. It is treated as an essential phenomenon. However, it is hard to implement all the necessary changes due to resistance of employees. Effective leadership can be instrumental in reducing degree of resistance. 10. Stability in Staff: Successful leadership reduces unnecessary turnover of employees and ensures stability in staff. Leader treats employees positively, takes care of their needs, and tries to solve their problems. People tend to be permanent employees of organisation. 11. Others: Besides these points, role of leadership can be explained with reference to some other dimensions: (a) Fighting with environment and creating new environment (b) Articulating and describing an ideological vision (c) Role modeling for employees (d) External representation (e) Image building

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(f) Imparting passion and self-sacrifice in the interest of well-being of organisation and employees as well

Leader v/s Manager (Leadership v/s Managership) Though some similarity exists, leader (or leadership) and manager (or managership) are not identical. In recent times, as against manager, a leader requires different qualities and skills. Table 21.1 outlines the key differences between the two: TABLE 21.1 No.

Difference between Leader and Manager Key Points

Leader

Manager

1.

Response to Environment

Leader challenges the environ- Manager respects the environmental forces and does not sur- mental forces and prefers to render. surrender.

2.

Opportunity

He creates opportunities.

3.

Perception of problem

He transforms problems into op- He tries to avoid or solve probportunities. lems.

4.

Goal

To survive and grow over time.

5.

Qualities and Skills

He must possess leadership He needs managerial skills. He qualities, such as empathy, must be able to plan, organise, sympathy, interpersonal skills, staff, direct and control human efforts. Managerial qualities are vision, resilience, hope, care for more important. He also needs others, and so forth. He must leadership qualities. have managerial qualities, too, but leadership qualities seem to be crucial.

6.

Position and Role

Leader occupies the highest (or key) position in organisation. Leader includes chief mentor, founder, MD, or Chairman.

and Training

not always necessary.

8.

Ownership

Mostly, the leader holds considerable portion of equity in the company. He is owner. He represents the whole business group or organisation. A leader can appoint managers.

9.

Type of Rewards

Leader is entitled for ownership Mostly, manager is paid salary and commissions. He is also huge remuneration and perquiSometimes, he holds equity. sites, and other facilities.

He exploits opportunities.

To achieve short-term objectives or targets.

Normally, manager is placed under a leader. Manager includes general manager, CEO, COO, senior executives, departmental heads, or area managers. They are mandatory.

7.

Manager may not be equity holder. He is employee. He represents particular department. A manager cannot appoint a leader.

(Contd.)

Leadership No.

Key Points

Leader

571

Manager

10.

Examples

Late Dhirubhai Ambani of Reli- Under a leader, all top and midance Group, Gautam Adani of dle order salary paid position Adani Group, Kumar Mangalam holders are managers. Birla of Birla Group, Bill Gates of Microsoft, Narayan Murthy of Infosys, Ajim Premji of Wipro are leaders.

11.

Number of Positions

Leader holds many positions Normally, a manager has limin many organisations, govern- ited positions. However, some managers hold several positions inside and outside the oragencies. ganisation.

12.

Applicability of human activities, such as and profession. However, a business, unions, politics, reli- manager can be appointed to manage other activities under a leader. etc.

13.

Tasks and Decisions

He is responsible to coordinate different groups, branches, and companies. He takes crucial, long-term, controversial, risky, and costly decisions.

He is responsible for performance of his department. He takes routine and repeated decisions.

14.

Tenure or Stability

Leader plays a long innings. He leads the groups for many years. He cannot be easily replaced or removed.

Manager has a limited and/or uncertain time to play. He can be removed, replaced, or transferred as per need. He continues as long as his services seem necessary.

15.

Style

Leadership style depends on his characteristics, followers’ characteristics, and situation. He himself can decide his style.

His style depends on his personal characteristics and organisational policies. Mostly, he is asked to follow organisational policies and practices. He has little freedom to choose style.

Table 21.1 states key differences between leader and manager; there can still be more points of differences. The professional manager tends to be different from a business leader. However, a leader is required to be manager in order to manage the managers (people). Same is true with manager. A manager, at any level, has to be a leader to lead his followers, to get the work done through people. Some leadership qualities and skills are common for manager. All differences discussed in the table are not very strict; the readers should take the differences as loose explanation.

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Leadership Style Leadership is practiced by leadership style. James Stoner defines leadership style as: ‘‘Styles are the various patterns of behaviour favoured by leaders during the process of directing and influencing workers.’’ The leadership style is a way, method or pattern of the leader to lead followers. It represents leader’s philosophy, skills, and attitude in practice. Thus, a style comprises of total pattern of exercising leadership. Leadership style depends upon various factors. A leader should prefer a style that suits all key aspects, like his personality, nature of followers, situation, objective of organisation, and so forth. The leader should follow the matching style to get desired response from followers. What is more important is that leadership style should not be static and permanent. It must change with the change in the situations. Lack of Leadership is the Topmost Crisis A survey of 250 executives from medium and large size 50 Indian companies—including Reliance Industries, Indian Oil Corporation, Bharat Heavy Electrics, Bharat Petroleum Corporation, et al.—revealed following facts: 1. 96% agreed that lack of political leadership is the main crisis, followed by 95%-crisis of leadership in all walks of life, followed by 94%-global warming crisis, followed by 92%crisis of faith in government, followed 91%-increasing corruption is the biggest crisis. 2. On key characteristics of leader, most executives emphasised on physical fitness, total integrity, courage to take challenge, ability to take initiative, good listening, and enough confidence. 3. 92% respondents agreed that participative style could be more effective while 8% believed that authoritarian style could make sense. Narayan Murthy and Azim Premji might be considered as inspiring role models for their values and leadership styles. (Source: Dr. S K Sharma, et al., ‘Leadership Approach and Attributes in Strategy Implementation in Indian Companies,’ The Chartered Accountant, September, 2011, pp. 87 – 92.)

Classification/Types of Leadership Styles There can be different leadership styles. Use of any particular style depends on a number of factors. Figure 21.1 shows classification of leadership: On the basis of motivation, leadership style can be classified as positive style and negative style. It shows the way to lead followers mainly by motivating them. A positive leadership style is one in which leader leads followers positively. All positive means—appreciation, praise, rewards, participation, considerations, and so forth—are used to lead them. Whereas negative leadership style uses negative means—criticism, punishment, penalty, ignorance, insult, and so forth—to influence followers. On the basis of employee consideration, there are two leadership styles, employee-oriented style and task-oriented style. Employee-oriented style emphasises on employees consideration. Interest/welfare of employees is given priority. Every decision is taken in light of benefits. Here employees are in the centre of every decision. While task-oriented style prioritises the task over employees. Task/work is more important than worker. It is also known as task directed or hard nosed style.

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FIGURE 21.1 On the basis of modern theories of leadership (charismatic theory and transformational theory) three leadership styles have been identified, envisioning style, energising style, and enabling style. They can be included in positive leadership styles, too. Envisioning style is concerned with the leader’s role to help subordinate clarify the vision. In this style, leader creates a picture of the desired future state (vision) that followers can identify with them. Leader clarifies vision and sets high goals and expectations. Energising style is concerned with making people generate energy. It is a way of motivating employees to put maximum efforts (energy) with confidence in pursuit of goals. Enabling style is concerned with enabling the people to perform challenging jobs. Leader tries to empower them and offers personal support to do the difficult job effectively. Based on use of authority, there are three leadership styles, autocratic style, democratic style, and free rein style. These styles are based on traditional leadership theories. This is relevant class of leadership styles as leadership is exercised by the use of authority. In autocratic leadership style, a leader is whole and sole. Decision-making is fully centralised and he tries to get work done by any means. He limits communication with followers. Contrarily, the participative leadership style is characterised by involvement of followers in decision-making and twoway communication. Whereas, the free rein style is liberated way to lead followers. It is also known as free-form style or laissez-faire style, in which leader plays minimum role. Employees are given more freedom to decide and work. Other leadership styles, like positive, negative, employee-oriented, and so forth can be part of this classification. Authority based leadership styles have been discussed in the subsequent part of the chapter.

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Leadership Styles Based on Use of Authority Authority/power based classification of leadership styles is more relevant to business management, because a leader exercises his style by authority. Authority means the right to decide. Based on the extent to which decisionmaking right is reserved, the style may be autocratic, democratic or free rein. Based on situation, every style has its merits, demerits, and applicability. No particular style is applicable in all situations at all times. This group of styles has been discussed in detail.

Autocratic Leadership Style Adolph Hitler and Napoleon were strict autocrats. The person who exercises this style is known as autocrat. This style is also known as authoritarian style. Leader prefers to centralise all decision-making rights. He formally structures the work situation for his employees. Employees are forced to work as per the instructions of the leader. He takes full authority and assumes full responsibility. The style offers strong rewards and strict punishment. It is also called directive style. Autocratic leader may be strict autocrat, benevolent autocrat, or incompetent autocrat. A strict autocrat’s pattern of influencing subordinates is negative, like criticising, threatening, imposing penalties, fear, ignorance, insult, etc. He does everything for organisation’s benefits. He is concerned more with objectives of the organisation. On the other end, benevolent autocrat also centralises decision-making, but style of motivation is positive. He does everything for benefits of employees. Teachers and parents are examples of benevolent leaders. Incompetent autocratic style is neither based on structure and authority nor on motivation patterns. The style is followed only to hide the leader’s incompetence. He tries to overlook his weaknesses. He prefers to be closed before his subordinates. Merits, demerits and applicability have been stated as under: Merits: Autocratic leadership style offers following merits: (i) There are many people who prefer to work under centralised authority structure and strict discipline. (ii) It provides strong motivation to work. (iii) It permits quick decisions and prompt actions. (iv) It avoids confusions as only one person openly assigns work. (v) It is extremely successful in case of critical time or emergency. (vi) It maintains unity of command and strict discipline. (vii) It preserves top secrets. Demerits: Possible demerits of autocratic style are: (i) People dislike this style when the style is strict and motivation is negative. (ii) It is not consistent with modern management theory and practice. (iii) Highly qualified, creative, and intelligent people hardly prefer over-dominated style. (iv) Many times, employees have to follow wrong decision as the style does not permit review of decision. As a result, organisations as well as employees have to suffer. (v) There is full possibility of conflict. Conflict spoils healthy relations. (vi) It has very limited applicability; it is hardly used in business and profession. (vii) When this style is followed, it is difficult to implement change. High degree of resistance to change prevails.

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Applicability: Autocratic style is applicable in following situations: (i) When subordinates lack knowledge about company’s goals (ii) When employees are untrained and inexperienced (iii) When company wants little error to occur (iv) When high degree of speed and precision are required (v) When the top secrets are to be preserved (vi) When there is emergency (vii) When company wants to use this style as a disciplinary technique to maintain strict discipline and close control

Democratic Leadership Style

Azim Premji of Wipro Corporation and Narayan Murthy of Infosys Technologies, Ratan Tata of Tata Group, and Anand Mahindra of M&M Group of companies are the best examples of democratic leadership style. In the same way, CEOs of Google India and Procter & Gamble also widely practice democratic leadership style. Employees enjoy democratic environment to participate in decisions, make suggestions, and oppose unfair things. There exists elder-younger relationship in the organisation, instead of superiorsubordinate relationship. This style is also known as participative leadership style. Here, employees are treated as human beings rather than as tools for getting work done. Naturally, leader decentralises authority and permits participative decision-making. Before taking any decision, he consults his subordinates and decides accordingly. Therefore, it is also called as consultative leadership style. Organisation works as a social group. Employees are informed about conditions affecting their jobs, and are encouraged to express views and make suggestions. This style is consistent with contemporary management theory and practice. There is two-way rigorous communication. However, degree of freedom/involvement depends upon a number of variables. Let’s evaluate this style.

Merits: A democratic leadership style has following advantages over other leadership styles: (i) Democratic style is highly motivating technique as employees are given chance to express their views and suggestions. (ii) It leads to improved decision-making. Employees’ creativity can be materialised. (iii) It improves employees’ productivity because they are part of decisions. (iv) It can be a coordinating device; it promotes coordination. (v) Resistance to change hardly occurs. (vi) It creates a sense of responsibility because employees are also deciders. (vii) It provides stability in staff and avoids unnecessary turnover. (viii) It promotes healthy industrial relations and eliminates possibilities of strikes, lockouts, bandh, etc. Demerits: In today’s large and complex organisation, democratic style should be used with care and caution. The style can be used to the extent the employees possess a sense of responsibility and the ability of participate. It requires a mental revolution on both sides—employer and employees. Possible demerits include:

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(i) (ii) (iii) (iv)

This style is advisable only when workers perceive the importance of participation. It is time consuming style and, obviously, decision is delayed. The use of this style is based on the willingness and ability of employees to participate. It affects adversely the authority and position of superior. It is difficult to get work done with immature and undisciplined employees. (v) Sometimes, minimum intervention is required, the style may not make sense. (vi) As a result of freedom to participate in decision-making and informal interactions, it is possible that order, discipline, and regularity are adversely affected. (vii) It is meaningless to involve employees in a matter which is not concerned with them. (viii) There is problem of disclosure of secrecy. Top secrets cannot be preserved. Applicability: Democratic style can be practised under following situations: (i) When goals and objectives are well communicated and subordinated have accepted them whole heartily. (ii) When the work is non-strategic or non-confidential (iii) When company wants to use participation as a motivation technique (iv) When leader really wishes to hear employees before making decisions (v) When subordinates are actively willing and competent to participate (vi) When employees are mature and disciplined (vii) When normal conditions prevail and decision is of routine nature (viii) When it is compulsory (may be mandatory) to consult employees and to take their consent

Free Rein Leadership Style It is also known as laissez-faire leadership. It is a special type of leadership in which power and responsibility both are avoided. It permits complete freedom on part of employees, and minimises active role of leader. In reality, this style has a little practical value in business and profession. It can be applied in religious, social, and missionary activities. The task of leader is to specify goals, summarise policies and rules, and provide required inputs. Then, leader withdraws from the task and allows followers to set objectives and determine ways to achieve them. Entire work is left to subordinates. Unless it is extremely necessary, the leader does not interfere or disturb his employees. Flow of communication is free and multidirectional. All subordinates work as family members and enjoy equal rights. It is based on the principles of self-motivation, self-control and self-discipline. Merits: Possible merits of free rein leadership are as under: (i) It gives the subordinates sufficient opportunity to develop independent personality. (ii) It promotes self-motivation, self-control, and self-discipline. (iii) It creates a sense of responsibility and belongingness. (iv) It avoids competition and encourages cooperation. (v) There is a rare chance for deteriorating management-employees relations. Demerits: Demerits of this style have been stated as under: (i) It is a rare case in business. It may be applied in social, religious, and missionary activities.

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(ii) It can be applied only when the employees are highly capable, self-motivated and selfcontrolled. Practically, it is not possible. (iii) It promotes situation of indecision. (iv) To arrive at full consent, unreasonable compromises are made that affect objectivity of organisation. (v) There is full chance of indiscipline, misuse of resources, and disorder. Applicability: As noted earlier, free rein style has very limited applicability in economic activities. However, it can be applied under following situations: (i) When purpose of organisation is to serve than to earn (ii) When highly qualified and perfectly trained employees are employed (iii) When work is so simple and easy that it requires no intervention (iv) When employees are highly dedicated and devoted, and they have a sense of self-discipline and self-control (v) When employees know everything about work and work environment Practically, neither pure autocratic nor pure democratic, nor pure free rein style is observed. Every leadership consists of these three styles, but in different proportions, depending on the leader, the followers, and the situation.

Role, Functions or Activities of Effective Leader A leader, in business management, has much comprehensive and multiple roles to play. He has to work as a manager, head of group, elected leader of trade union, informal leader (head) of group, or departmental head. He has to protect his followers along with his formal responsibilities. In every department, there is a leader; at every level there is a leader. For example, a foreman is a leader for workers, sales officer is a leader for sales force, general manager is a leader for the entire organisation, and likewise. (The owner, the CEO, or general manager can also be said to be a leader). As a manager, leadership involves additional tasks. For our discussion, a personal who is elected, selected, appointed, or imposed head of a groups is a leader. He is the person who has to make the group work most effectively for mutual gain. Leadership means what a leader does. Role of leader consists of functions and activities a leader has to carry out. Thus, role of a leader can be determined by the functions he performs. He has to fight on different fronts for the interest of his organisation. Practically, it is difficult to describe the role as it contains a number of divergent functions or activities. Formal leader’s role differs significantly from that of informal leader. A formal leader is representative of both top authority as well as his subordinates. A leader is the representative of a group or department. He has to deal with all matters on behalf of the group and strive to protect interest of followers. He is well-wisher of groups.

Roles or Functions of Leader Normally, in business management, leader (particularly formal leader) is responsible to perform following roles: 1. Deciding on goals 2. Observing discipline and order – He must make people of group behave as per the prescribed policies, rules, and procedures

578 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

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Formulating suitable groups Providing necessary inputs and facilities Directing employees (motivating, communicating, and supervising employees) Coordinating efforts Building morale Avoiding conflicts and promoting cooperation Building relations (external and internal relations) Creating healthy climate and culture Arbitrating between followers and top authority Representing groups/department Employees’ development and welfare Helping authority and employees in all possible ways Balancing between higher authority and employees

Informal and Formal Leader A leader arises in many situations. Both formal and informal situations require effective leadership. Differences between formal leader and informal leader are gives in Table 21.2.

Leadership Qualities The Greatman Theory of leadership suggests that most major events, revolutions, and organisations are based on noble work of a few great (and outstanding) leaders. Historic figures, including Winston Churchill, Abraham Lincoln, Mahatma Gandhi, Sardar Patel, Alexander, Julius Caesar, Napoleon Bonaparte, and other prominent historic heroes exhibited special qualities while leading. In the same way, successful domestic and foreign business leaders hold some qualities that have separated them from the crowd. It shows that leaders are born and cannot be made. The qualities that could make them the great personalities include: 1. Intelligence 2. Communication skills 3. Sociability 4. Emotional balance 5. Technical skills 6. Teaching and coaching skills 7. High level of energy 8. Patience and persistence 9. Human relations skills 10. Self-motivation 11. Self confidence (Self efficacy) 12. Resiliency

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Only leadership qualities (or virtues) can contribute very little. Qualities can make a person only a good human being, but not an effective leader. Qualities must be accompanied by leadership skills. Skills include the identifiable set of actions that a leader exhibits while leading others. Leadership competence is outcome of leader’s qualities and skills. Now, we will discuss leadership skills. TABLE 21.2 No.

Differences between Formal Leader and Informal Leader Key Points

Formal Leader

Informal Leader

1.

Emergence of Leadership

Formal leader emerges to achieve Informal leader emerges to satisfy needs of organisation. expectations of followers.

2.

Procedure

Formal leader is appointed or Informal leader is elected or seelected by formal procedures. lected by the virtue of his qualities/abilities to satisfy needs of members.

3.

Need of Authority

Authority is must.

4.

Acceptance of Leader

He may or may not be accepted He is always accepted by memand respected. bers and they exhibit due respect for him.

6.

Tenure

Decided by the organisation, he Decided by followers, he contincontinues as long as he is able ues as long as he is capable to to contribute to organisation’s ef- protect followers’ interest or meet their expectations.

7.

Objective

He is responsible to direct people He is responsible to meet expecand achieve organisational ob- tations of followers and protect jectives. their interest.

8.

Degree of Success

Success depends on a number of factors and it may not be sure. It depends on leader’s ability to get the work done.

9.

Responsibility

Formal leader is accountable to Informal leader, on the other the higher authority and is re- hand, is not responsible to top authority, but must try sincerely to meet expectations of followers.

10.

Qualities Needed

The leaders need social and However, social and human qualmanagerial qualities. ities are more important in case of informal leader.

11.

Degree of Intimacy

Normally, a leader exhibits low Intimacy level is normally high. intimacy for followers.

12.

Style Used

Depending upon situation, a Usually, democratic leadership leader practices mix of autocratic, style is practiced. However, in democratic or free rein style. certain cases, he may use benevolent autocratic style

No need of authority, but personal power and capacity.

5.

Informal leader mostly succeeds as followers extend full support. Success depends on ability of leader to meet expectations of members.

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Paul Polman, CEO of Unilever—A True Visionary Leader Unilever, a multinational FMCG giant, meets everyday needs of billions of people across the world for nutrition, hygiene, and personal care with brands and helps people feel good, look good and get more out of life. A few weeks ago, Paul Polman, CEO of Unilever, the world’s second biggest consumer packaged goods marketer, called a global investors meet in Singapore. In the meet, he laid down his big, audacious long-term goal: Double Unilever’s revenues from $40 billion to $80 billion. Today, about half of that revenue comes from developing and emerging markets. Polman hopes to push up the contribution to 70 per cent in five years time. About mentors, Paul Polman says, ‘I've had many mentors throughout my career, but above all my wife (Kim) and my father have been constants.’ Referring to contribution of mentors, Mr. Paul says: ‘Both my wife and my father have helped me keep my feet on the ground, maintain right level of humility and respect for others, and retain my integrity. My father's advice ‘Never forget where you came from’ has stayed with me since I left the Netherlands for the US, 35 years ago.’ Till Polman joined Unilever, the company had the image of a lumbering giant, unable to defend its turf against competition. He has re-energised the lumbering consumer goods giant and brought ambition back into the minds of its senior executives. Today, suddenly, there’s a spring in its step. And the man at the centre of it is attracting admirers inside the company. Polman knows many of his 150 top leaders by name. Today, the new Unilever culture of openness and performance is winning support. In driving the plan, Polman has led from the front. He is known for his interpersonal and team building skills. He responds to emails from his senior executives, often even on Sundays. He follows an open door policy, encouraging employees to reach out to him, and he communicates directly with all its global employees through email and videoconferences. Manwani (Unilever’s president for Asia, Africa, Central and Eastern Europe) said that employee engagement scores at HUL had improved dramatically in recent months. Apart from Unilever’s market share gains in Asia, this is the other real sign that a new Unilever may rise under Polman’s leadership. Nitin Paranipe, CEO & MD, Hindustan Unilever, says that Paul has made significant changes among the top 100 leaders of the company to promote sound performance culture. Executives now have fewer goals and larger variable pay to aim for. Mr. Paul has been recognised as the ‘Person of the Year’ by business magazine India Forbes (December, 2010). (Sources: Based on India Forbes, December 31, 2010; and http://business.in.com/article/ person-of-the-year, accessed on 23 December, 2010)

Leadership Skills A leader must possess necessary skills to lead followers effectively in pursuit of organisational goals. Leadership skills mean leadership qualities in action. Skills imply leader’s proficiency, expertise, and talent to behave and perform effectively. Skills are not similar to traits; they are related to behavior and are exhibited in form of styles. They consist of identifiable set of actions that a leader takes which fetch specific outcomes. Different situations demand different skills. They seem contradictory and

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paradoxical in many incidents. Moreover, they are interrelated and overlapping (common). An effective leader must be multi-skilled to cope with different situations. Leader’s styles, roles, and qualities are closely related to leadership skills, but are not same. Michael J. Marquart and Dean W Engel,6 Robert M. Fullmer,7 Warren Blank,8 Whetten and Cameron9, and others, identified various leadership skills through studies, and published the same in several sources. Some common skills have been listed below: 1. Cultural flexibility 2. Managing time and stress 3. Communication skills (including good listening) 4. HRD skills 5. Creativity 6. Motivating and influencing others 7. Setting goals and articulating a vision 8. Team building and role modeling 9. Managing conflict and crisis management 10. Managing change 11. Recognising, defining, and solving problems 12. Delegating skills 13. Decision-making 14. Self-awareness 15. Self-management of learning This is not a complete list. There can be more skills. A leader while interacting with higher position holders, peers, and followers develops different skills that seem necessary to handle the situation. Relevant traits (qualities) and suitable styles, accompanied by necessary skills, make a person an effective leader.

Role of Leadership in Organisational Behaviour Leadership is a prime factor influencing employee’s behaviour. Leadership behaviour implies leader’s qualities, skills, and style in practice. Modern leader in business organisation has to be both manager as well as leader. He plays vital role in generating positive behaviour. He can shape, change, and extinguish follower’s behaviour as per need. Almost all key variables of organisational behaviour, including communication, motivation, supervision, perception, learning, attitudes, all aspects of positive organisational behaviour, morale building, and so forth, largely depend on who is the leader and how he leads. In today’s context, leader has many things to do, such as: 1. Creating a challenging environment to develop among employees the entrepreneurial skills vital for organisational development. 2. Leader has prime role for creating teams and team building. 3. Building confidence and letting employees use their skills to solve their problems; teaching them to solve their problems.

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4. Explaining—suggesting, guiding, supervising, clarifying, and demonstrating—what they need to do to pursue the goals. 5. Encouraging them to participate in the decision-making related to various work-related aspects. He plays important role in empowering followers. 6. Explaining the rationale behind his instructions and directives to make them understand why particular work is to be done. 7. Making employees understand the career paths that are available in the organisation. Counseling and guiding them so that they can make informed and balanced decisions. 8. Handling conflict and promoting cooperation. 9. Identifying and inviting useful changes and preparing followers to adopt the same without resistance. 10. Leader has prime role for generating positive behaviour. He can contribute to emotional intelligence, self-efficacy, optimism, hope, resiliency, etc. 11. Leadership role must be emphasised in relation to the new environment. He needs to do everything possible to update followers and organisation to cope with ever-changing, uncertain, and challenging business environment. 12. Leadership is crucial in new working patterns. Many jobs are performed away from their work sites, or at home by telecommuters, where day-to-day personal contact is not possible. This type of working pattern needs different ways or tactics of leading employees. Leadership is pivotal in study and practice of behaviour science. It is versatile factor that affects almost every aspect of organisational behaviour. In the same way, it is greatly affected by many internal and external forces. Despite considerate controversy about nature, qualities, styles, and perspective, leadership remains the single most dominating factor in understanding, generating, shaping, modifying, and controlling human behaviour at work. Today’s leaders are professionally qualified managers who have to play dual roles—as a leader and as a manager.

LEADERSHIP THEORIES AND IMPLICATIONS Management scientists, behaviourists, and practitioners have evoked a number of theories to guide practicing manager to lead employees effectively. Each theory has some thing special to teach, to emphasise. Similarly, each theory is based on some assumptions regarding people, work, situations, and leader’s attitudes. Some theories are traditional, while some are modern. This part describes key elements of eight important leadership theories. 1. Trait Theory of Leadership 2. Behavioural Theories 3. Likert’s Four Systems of Management 4. Hersey and Blanchard’s Life-cycle 5. Fiedler’s Contingency Theory 6. Path-Goal Theory of Leadership 7. Views of Tannenbaum and Schmidt on Leadership Styles 8. Managerial Grid by Blake and Mouton

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Trait Theory of Leadership Trait theory of leadership is traditional explanation of leadership effectiveness. This theory is based on the issue: ‘What characteristics or traits make a person the leader?’ It is assumed that a person who possesses certain traits can be a successful leader. Traits mean enduring (physical and mental/psychological) qualities or characteristics of a person. This approach was popular from 1930 to 1950. Trait theory can be traced back to the ancient Greeks and Romans. The theory assumes that leaders are borne, not made. The ‘great person’ theory of leadership states that individuals are born either with or without the necessary traits relevant to leadership. That is to say, successful leaders had/have natural leadership abilities to lead. Leadership abilities are God-gifted, cannot be acquired.

Leadership Traits

Different experts emphasised on different traits that make a leader successful. Table 21.3 shows leadership traits. TABLE 21.3

Leadership Traits

Ralf M. Stogdill 1.

Physical traits, including height, weight, structure, energy, stamina, health, and appearance, etc.

2.

Intelligence, including analytical ability, speed, comprehensiveness, memory, etc.

3.

, including courage, tolerance, stability/balance, etc.

4.

Sociability, including ability to mix, interpersonal skills, empathy, etc.

5.

Will/willpower, including initiative, persistence, ambition, initiativeness, etc.

6.

Dominance, including ability to control, or mastery over others.

7.

Surgency, including enthusiasm, gentility, impressiveness, talkativeness, nobleness, etc. (Source Ralf M. Stogdill, ‘Personal Factors Associated with Leadership—A Survey of the Literature,’ Journal of Psychology, New York, January, 1848.)

E. E. Ghiselli 1.

Observation

2.

Achievement

3.

Motivation/inspiration

4. 5.

Intelligence

6.

Decision-making

7.

Self-actualization (Source

Exploration in Managerial Talents

125 studies, conducted from 1904 to 1947, suggested 32 traits. While 164 studies, conducted from 1948 to 1970, identified 38 traits/leadership qualities. To conclude, we can list following common traits: 1. Physical traits 2. Personality 3. Intelligence

584 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.

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Maturity Self-motivation Enthusiasm, spirit Practicability Emotional stability Empathy Communication skills Social skills Sense of responsibility Initiativeness Creativity Dominance Self-confidence Ambition

Limitations The Trait Approach suffers from following limitations: 1. We can list traits of a successful leader. However, a list cannot be prepared in advance to determine degree of success. 2. Traits may not be useful in all situations. 3. Different studies conducted so far have provided different traits. There is no uniformity. 4. It is difficult to arrive at universally accepted and clear-cut list of traits. 5. No trait can be measured independently. All traits seem complementary to each other. 6. Traits/qualities can be acquired through training or practice. 7. Situation is one of the powerful determinants of leadership effectiveness, but is not considered at all. 8. For different works, levels, and times, different traits are needed. A leader, successful in one area, may not be successful in another one. 9. It is a simple explanation of leadership problem and practice. In today’s situation, it may not work fully. 10. There is no guarantee that a person holding above qualities will definitely succeed.

Behavioural Theory of Leadership Traits theory failed to generate meaningful and useful conclusions. Researchers draw definite implications from behavioural aspect that can improve leadership practices. The theory depends on the specific behaviour the leader exhibits. It is assumed that behavioural approach can provide more definite answers about the nature of leadership and can have more practical implications. The theory suggests that leader’s behaviour plays critical role to lead others effectively. And, if specific behaviour can be identified, it would be easy to train others. There are a number of studies that look at behavioural approach/style.

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The most popular studies on Behaviour Leadership include: 1. The Ohio State Study 2. The University of Michigan Study 3. Scandinavian Studies 4. Continuous Leadership

The Ohio State Studies The Ohio State Study began in the late 1940s. The Bureau of Business Research at Ohio State University initiate a series of studies on leadership effectiveness. The study was conducted by an interdisciplinary team of researchers, comprising of psychologists, sociologists, and economists. They developed and used a special tool/questionnaire. The Leader Behaviour Description Questionnaire (LBDQ) was used to analyse leadership in various groups and situations. The studies were made on several personnel of Air Force, Navy department, manufacturing units, colleges, and other civilian groups. The study tried to find out independent dimensions of leader’s behaviour. The study finally described two dimensions— initiating structure and consideration.

Initiating Structure Initiating structure refers to the extent to which a leader defines and structures his role to influence the subordinates for attainment of goals. It includes specific behaviour of leader to organise the work, work relationships, and goals. Leader is said to be high in initiating structure if he specifies goals, assigns particular tasks, and determines standards of performance and the deadline to complete the work.

Consideration Consideration refers to the extent to which a leader has mutual trust, respect, and regard for his employees’ feelings. He must show comfort, well-being, status and satisfaction for his employees. Leader with high consideration helps subordinates solve problems, practices friendly approach, and treats them equally. It was found out that leader high in initiating structure and consideration (a ‘high-high’ leader) could achieve high performance and satisfaction of subordinates more frequently than the leader with low on either initiating structure or consideration, or both. It was suggested that the ‘high-high’ style, generally, in normal situation, resulted in positive outcome. However, situational factors must be integrated with the theory.

The University of Michigan Studies This study was undertaken at the University of Michigan Survey Research Center during the same interval as the Ohio State study. It was aimed at determining characteristics of leader related to performance effectiveness. The study also came out with two dimensions of leadership behaviour—employee-oriented and production-oriented. Employee oriented leader can be described as emphasising interpersonal relations. He takes interest in the needs of subordinates and he accepts individual differences among members. On the other hand, product-oriented leader emphasises the technical or task aspects of the job. The study favoured strongly the leader who was employee-oriented in behaviour. Employee-oriented leader was associated with higher group productivity and higher job satisfaction, and vice versa.

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Both studies emphasise on leaders’ response or behaviour to achieve goals. Leader may have varying degrees of preference to employees and work. The behaviour theory concludes that leader must emphasise both employees and task to achieve effective results.

Scandinavian Studies Ohio State and Michigan Studies are more relevant in stable economies across the globe. They were applicable during 1940 to 1960. During this time, there were two types of economies—developed economies, for example, US and European countries, and underdeveloped economies, for example, most of African and Asian countries. But, after 1990s, a new type of economics emerged which were labeled ‘developing countries’ or ‘progressive countries.’ They required development oriented leadership behaviour. Research studies conducted in Finland and Sweden concluded that a leader should exhibit development oriented behaviour in developing countries. Scandinavian Studies10 consider the third dimension ‘development Orientation’ along with task orientation and employee orientation. Leader should stress on creativity, innovation, and experiments to generate new and challenging ideas. He should be prepared to invite and implement changes that accelerate economic growth. Development oriented leaders can develop more competent and satisfied subordinates. Continuous/Continuing Leadership

Some behavioural experts, including Lewin, Lippitt, White, McMurree and others, suggested continuous leadership behaviour.11 They suggested three types of leaderhip behaviours, autocratic, democratic (including participative and consultative), and laissez-fare (or free-reign) leadership. Depending upon situation, a leader shifts from one to another style continuously. He applies strict autocratic style but when he feels that strict autocratic style does not fit with the time, he shifts to benevolent style. In view of modern management, he may shift to democratic style or free style. But when he feels that democratic style doesn’t work, he again applies benevolent style. Thus, he continuously adjusts his behaviour (style) as per need at different intervals. None of styles work effectively over time; leader must change his behaviour as per demand of situation.

Likert’s Four Systems of Management (Leadership) Rensis Likert was director in Institute of Social Research, University of Michigan, U.S.A. He is known for his outstanding contribution in the field of management and organisational behaviour. Rensis Likert and his associates conducted an intensive study on patterns and styles of managers for three decades and developed an interesting theory, popularly known as Likert’s Four Systems of Management. The theory is important to understand leadership behaviour. He has explained this theory in his book.12 He has explained leadership styles in form of a continuum of four systems of management. For developing four systems of management, he considered about eight variables, such as leadership, motivation, communication, interaction influence, decision-making process, goal setting, role of informal groups, and control process. Therefore, it is not purely a leadership theory, but it can be said to be management theory as, apart from leadership, various other variables have been considered for developing the four system theory.

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However, our discussion is only limited to following three leadership variables: 1. Confidence and trust in subordinates 2. Subordinates’ feeling of freedom 3. Superior seeking involvement with subordinates On the basis of varying degrees of these three variables, four systems have been developed. Likert’s Four Systems Theory of Management, in relation to leadership styles, consists of four styles, as follows: 1. Exploitative Autocrat (System 1) 2. Benevolent Autocrat (System 2) 3. Participative (System 3) 4. Democratic (System 4) Table 21.4 summarises these four systems of management, called Systems of Management Leadership. (Likert Four Systems of Management covers, in all, eight variables as stated in the former part, but here only three variables directly related to leadership have been considered). Manager who operates under System 1 is very authoritarian and actually tries to exploit workers. The benevolent autocrat in System 2 keeps strict control and never delegates authority to subordinates, but he does it for their best interest. In System 3, manager uses a consultative style, and allows participation in decision-making, but he reserves the right to make the final decision. Manager with System 4 follows democratic style. He gives some directions to workers, but provides for total participation and decision by consensus and majority. TABLE 21.4

Rensis Likert’s Four Systems of Management (Leadership)

Leadership Variables

System 1 (Exploitative Autocratic)

System 2 (Benevolent Autocratic)

System 3 (Participative)

holds Manager holds no Manager holds a Manager Trust in Subordilittle trust and con- substantial (but not nates in subordinates dence and trust. He nates still desires to control decisions

System 4 (Democratic) Manager

holds dence and trust in subordinates in all relevant matters

Subordinates’ Feel- Subordinates do ing of Freedom not at all feel free to discuss job-related things with their superior

Subordinates do not feel very free to discuss job-related things with their superior

Subordinates feel rather (somewhat) free to discuss jobrelated things with their superior

Subordinates feel completely free to discuss job-related things with their superior

Superior’s Involve- Superior rarely gets ment with Subordi- ideas and opinions nates of subordinates in solving job problems

Superior sometimes gets idea and opinions of subordinates in solving job problems

Superior usually gets ideas and opinions from subordinates and usually tries to make constructive use of them

Superior always gets ideas and opinions from his subordinates and usually tries to make constructive use of them

(Based on Rensis Likert, The Human Organization, McGraw-Hill, New York, 1967, p. 4.)

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From his work, it is observed that he gave more emphasis on System 4. His study in U.S.A. concluded that high producing departments in several organisations were marked by Systems 3 and 4 (participative and democratic styles) while low producing units fell under Systems 1 and 2 (exploitative autocrat and benevolent autocrat). According to Likert, this was due to the extent to which participation and supportive relationships were practiced. With reference to System 4, he also identified three variables, (1) use of supportive relationships by manager, (2) use of group decision-making and group methods of supervision, and (3) high performance goals.

Impact of Intervening Variables and Time

There are three intervening variables that affect the relationship between leadership and performance in complex organisation. They include causal variables, intervening variables, and end result variables. Given below is the impact of intervening variables and time:

1. Causal variables: These are the independent variables that determine the results of the organisation. They include only controllable variables like organisational structure, policies, decisions, and leadership style, skills, and behaviour. They are treated as inputs. 2. Intervening variables: These variables reflect internal climate of organisation. Goals, loyalties, perceptions, and motivations are some important intervening variables. They affect interpersonal relations, motivation, communication, work climate, and decisionmaking in organisation. 3. End result variables: These are the dependent variables or the outcomes of organisation, such as productivity, service, costs, quality, and earnings. According to Likert, there is no direct cause-effect relationship between leadership style (causal variable) and productivity or earning (an end result variable). Intervening variables should also be considered. For example, moving to a system 1 of management may lead to improvement in profit, but it deteriorates these intervening variables like motivation, loyalties, relations, etc. System 1 increases profits, but, in the long run, profits decrease as a result of impact of intervening variables. System 4 leads to decrease in profits, but over time, as a result of positive impact of intervening variables, profits will increase. Thus, time lag between intervention (for example, change causal variables like leadership styles from System 1 to 4) and end results become extremely important to Likert’s scheme. Likert concludes: "Changes in the causal variables towards System 4 apparently require an appreciable period of time before the impact of the things fully manifests in corresponding improvement in end result variables."13

Hersey and Blanchard’s Life-Cycle (Situational Approach to Leadership) Hersey and Blanchard developed situational based leadership theory, known as Life-Cycle or Situational Approach to Leadership. The theory has been used as a major training device at Fortune 500 companies, such as Bank of America, IBM, Mobil Oil, Xerox, etc. It was also used in military training. It is also a popular approach to management/leadership. It is an extension of Managerial Grid Approach of Leadership developed by Blake and Mouton. It focuses on the followers. This theory explains that leadership style is contingent on the level of followers’ maturity. Reference of the theory is available from their article14 and the book.15

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Fundamental questions are: ‘Why to focus on the followers'? And, ‘what is meant by the term ‘maturity’?’ The emphasis on the followers in leadership effectiveness reflects the reality that it is they who accept or reject the leader. Regardless of what a leader does, effectiveness depends on the actions of his followers. This is an important dimension. The term, maturity, as defined by these two experts, is ‘an ability and willingness of people to take responsibility for directing their own behaviour.’ It has two components, the first is, job maturity (knowledge, ability and experience to perform job tasks without direction from others). High job maturity doesn’t need direction of others, and vice versa. And, the second is, psychological maturity (willingness or motivation to do something.) High psychological maturity does not need external encouragement as they are intrinsically motivated, and vice versa. Observe Figure 21.2.

Leadership Styles Hersey and Blanchard identified two major leadership dimensions – task and relationship. Each can be high or low, and, then, combining them, they developed four styles.

FIGURE 21.2 Hersey and Blanchard’s Life-cycle (or Situational) Model (Based on Hersey and Blanchard’s Situational Leadership Model, ‘Management of Organisational Behaviour: Utilization of Human Resource,’ 3rd ed., Prentice-Hall, Englewood, Cliffs, N.J., 1977, p. 170) Task Dimension: Here, task or work to be done is given priority. The leader organises and defines roles for members/subordinates of the work group. He explains the tasks that members

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have to do. He decides what, when, how, and where they are to do the tasks. The tasks are formally structured and members are required to do as per the plan. Relationship Dimension: The leader has close and personal relationships with the members of the group. He maintains open communication with them. He provides psychological and emotional support. In short, relationship is given more emphasis. On the basis of different degree/level of task (behaviour) style and relationship (behaviour) style, Hersey and Blanchard developed four leadership styles. Each style comprises of different degrees of task and relationship. To them, in order to make leadership effective, each style must match with the level of maturity (determined by need for achievement, willingness to accept responsibility, and education/experience ability to do). 1. Telling Style: This is a high task and low relationship style. Employees are both unwilling and unable to take responsibility to do something. It is effective when followers are at a very low level of maturity, i.e., M1 level. Leader must tell what they have to do. 2. Selling Style: This is a high task and high relationship style. Employees are willing to work, but they lack ability. It is effective when followers are on low side of maturity, i.e., M2 level. They need supportive and directive leadership. 3. Participative Style: This is a low task and high relationship style. They have ability to work, but lack wiliness to work. It is effective when followers are on the high side of maturity, i.e., M3 level. They need to be motivated. 4. Delegating Style: This is a low task and low relationship style. They have both ability and willingness to work. It is effective when followers are at very high level of maturity, i.e., M4 level. Leader has minimum role to play (low task and low relationship.)

Level of Maturity Taking the lead from some of the Fielder’s work on situational variables, Hersey and Blanchard incorporated maturity of followers into the model. Level of maturity is identified by three criteria: 1. Need for (degree of) achievement 2. Willingness to take on responsibility 3. Amount of education and/or experience They recognise that there may be other important situational variables. But, in their theory, they focus only on three variables to determine the level of maturity. From these three variable two criteria have been considered—willingness to do something and ability to do something.

Stages of Maturity

The final component in Heresy and Blanchard’s theory is defining four

stages of maturity: 1. M1: People are both unable and unwilling take responsibility to do something. They are neither competent nor confident. It denotes very low level of maturity. 2. M2: People are unable but willing to do necessary job tasks. They are motivated to work but currently lack appropriate skills. It is low level of maturity. 3. M3: People are able but unwilling to do what the leader wants. Employees are capable to work but they lack motivation. It is high level of maturity.

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4. M4: People are both able and willing to do what is asked of them. It is very high level of maturity. Leadership styles based on different levels of task and relationship show maturity level of employees. Table 21.5 showing appropriate leadership styles with different level of maturity. TABLE 21.5

Summary of Level of Maturity, Leadership Styles, and Style Characteristics

Level of Followers’ Maturity and Their Characteristics

Matching Leadership Styles

Style Characterised by

M1 Level: Very low level of maturity. Employ- Telling ees are both unwilling and unable to work.

High task and Low relationship

M2 Level: Low level of maturity. Employees Selling are willing to work, but lack ability

High task and High relationship

M3 Level: High level of maturity. Employees Participating are able, but unwilling to work.

Low task and High relationship

M4 Level: Very high level of maturity. Employ- Delegating ees are both willing and able to work.

Low task and Low relationship

Note: Leader’s high/low relationship with employees is associated with employees’ willingness and unwillingness to work, while leader’s high/low task preference is associated with employees’ ability and inability to work

Implications Leader’s style or response depends on level of maturity of employees. Leader should apply his style depending upon what type of people are working: 1. At M1 (telling) stage, followers need clear and specific direction and motivation. Task and relationship both are emphasised. They are poor in task ability and willingness to work. Leader must do everything to make them work. They have low level of maturity and require strict task direction. 2. At M2 (selling) stage, it is task problem. Task must be emphasised. They are willing or motivated to work, but are not capable to work. A leader must improve their ability to do the task. 3. At M3 (participative) stage, it is motivation (relations) problem. Employees are capable, but they lack motivation to do something. The best way to solve the problem is to use supportive, non-directive and participative style to motivate them to make efforts. 4. At M4 (delegating) stage, the leader is not required to do much as followers are willing and able to take responsibility. When employees are mature, leader is not required to do much with task and/or relationship. Task and relationship both are less emphasised.

Limitations of the Theory Limitations of the theory include: 1. Leadership effectiveness cannot be determined only by maturity of employees. There can be other variables. 2. This theory is based on a questionnaire instrument. Therefore, limitations of the instrument become the limitations of the theory.

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3. It also failed to provide coherent, explicit rationale for the hypothesized relationship. 4. The theory considers only willingness and ability to work as two indicators of level of maturity. There can be more indicators. 5. Situation cannot be determined only by surface recognition of maturity alone. It is oversimplified model of leadership effectiveness. 6. It lacks empirical evidence. Recent empirical test did not find any support for the underlying assumption. 7. It is just an extension of former works on Managerial Grid, Ohio State Studies, Fiedler’s Contingency Theory, etc. It doesn’t contribute anything new.

Fiedler’s Contingency Theory Fred E. Fiedler, an eminent American social psychologist, developed the situation based theory, popularly known as the Fiedler’s Contingency Theory of Leadership. In his widely read book, ‘Theory of Leadership Effectiveness, 1967, New York, he explains how the contingency theory works. According to him, as such, there is nothing like ideal style of leadership applicable in all situations. Positive, participative and democratic styles are not always effective in all situations. Situation is a powerful determinant of type of leadership style. The word ‘contingency’ means dependence. The leadership style is contingent upon situation. Leadership style must fit with the situation prevailing in the organisation. A manager must analyse the situational variables and, on the basis of type of situation, he must apply appropriate leadership style. There should be proper match between leadership and type of situation.

Leadership Styles Fiedler used two leadership styles as: 1. Task Structured or Hard-nosed: Under this style, the leader gives more importance to the tasks to be completed. 2. Human Relations or Lenient: Under this style, the leader gives more importance to the relations with followers. The theory basically contains relationship between leadership style and favourableness of the situation. In order to determine type of leadership style, he developed the unique operational techniques—ASO and LPC. Assumed Similarity between Opposites (ASO): It calculates the degree of similarity between leader’s perception of most and least preferred co-workers. Least Preferred Co-workers (LPC): It calculates degree to which the leader favourably perceives the worst co-workers. When ASO exhibits higher score, i.e., a leader perceives high degree of similarity between opposites, and when LPC exhibits higher score, i.e., a leader gives favourable description of the least preferred coworkers, the human relations style should be used. When score of both is low, the task structured style should be used.

Situational Variables Leadership styles decided on the basis of these techniques must match with the type of situation. Degree of favourableness of situation can be determined by following three situational variables (may be said as contingency dimensions):

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1. Leader-member Relations: What type of relations prevails between a leader and a follower is an important variable in determining the degree of favourableness of the situation. If subordinates have confidence, trust, and respect for the leader, leader-member relations can be said as good, and vice versa. 2. Degree of Task Structure: If task is highly specified and can be done only in a particular way—rules, procedures, etc., are clearly specified, leaving no scope for different interpretation it is said as highly structured task and vice versa. 3. Leader Power Position: It refers to the extent to which leader possesses reward/punishment powers. If leader has power to reward or punish his subordinates, it can be said that power position is strong, and vice versa.

Types of Situations On the basis of these three situation variables, there are three types of situations (see Figure 21.3): 1. Highly Favourable Situation: Situation can be said as highly favourable when leadermember relation is good, task is highly structured, and leader has strong power position. 2. Highly Unfavourable Situation: Situation can be said as highly unfavourable when leader-member relation is poor, task is lowly structured, and leader has weak power position. 3. Moderately Favourable and Moderately Unfavourable Situation: Situation can be said as moderately unfavourable or moderately favourable when variables show mixed position, for example, relation is good, power position is strong, but task is not structured.

FIGURE 21.3 Fiedler’s Contingency Model of Leadership (Based on Fred E. Fiedler, ‘A Theory of Leadership Effectiveness,’ McGraw-Hill, New York, 1967, pp. 142 – 148)

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Performance is based on the proper match between types of leadership and favourableness of situation. Table 21.6 explains relationship between situation and leadership style. TABLE 21.6

Relationship among Situations, Leadership Styles and Performance

Favourableness of Situation

Performance High

Low

Highly Favourable

Task Structured

Human Relations

Moderately Favourable/unfavourable

Human Relations

Task Structured

Highly Unfavourable

Task Structured

Human Relations

Evaluation This theory has given a new mode of thinking. It states that leadership effectiveness depends on proper ‘match or fit’ approach between leadership style and type of situation. Variables used are important and relevant for practicing manager to judge the situation. Undoubtedly, the theory has contributed a lot to enrich conceptual and practical knowledge. He provided one of the major breakthroughs for leadership theory and practice. His views are comprehensive and versatile. Equally, the theory has provided adequate incentives to inspire further research. However, it is not the final answer to leadership practice and problem. There are some limitations. The critics have pointed out following issues: 1. The LPC is not reliable and universally applicable tool. It is the tool of measuring attitudes and feeling, and not personality or style. 2. The theory failed to emphasise leader’s influence on situation. It undermines role of leader in changing the situation. 3. The study or conclusion is based on small sample survey, so validity is a big question. 4. Situation is comprised of many variables. Here, only three variables have been taken into account. 5. Only two styles have been considered. In reality, proper combination is more practical than two extremes. 6. Employees’ satisfaction has not been considered, emphasis is only on leadership effectiveness. 7. It is not the ultimate solution of leadership problems. It is just a guideline.

Path-Goal Theory of Leadership Like Fielder’s Contingency Theory, Path-Goal Theory is a well-recognized leadership theory. Path-Goal theory of leadership is based on two directing techniques, leadership and motivation. It can be said that the Path-Goal theory is a motivation-based leadership theory as it has been derived from the expectancy framework of motivation. It is combination of situational leadership and Vroom’s Expectancy Model of Motivation. The theory is the most influential contingency approach to leadership. Based on the Basil S. Georgopoulas’ original concept16 (1957), Martin Evans17 and Robert House18 wrote separate papers and developed Path-Goal Theory in 1971.

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The theory emphasises on leaders’ role in clarifying for subordinates how they can achieve high performance and its associated rewards. The theory attempts to explain the impact of leadership behaviour on subordinates’ motivation, satisfaction, and performance. It focuses on leader’s job to provide followers with the information, support, or other resources necessary for them to achieve their goals. The theory is made of two words, path and goal. Path indicates that effective leaders clarify the path (way, route, or method), goal means outcome or expected results of employee’s efforts that avail them rewards. Leader shows the followers the path to help them reach their work goals, and makes their journey to goals easier by removing road blocks (difficulties and problems). Path-Goal Theory explains relationship between four leadership behaviours and two types of situational variables.

Leadership Behaviour Robert House identified four leadership behaviours: 1. The Directive Leader: He lets followers know what is expected of them. He schedules the work to be done and gives specific guidance as to how to achieve task goals. 2. The Supportive Leader: He behaves as a friend and shows concern for followers needs. No participation is permitted. 3. The Participative Leader: He follows participative style and consults followers, and uses their suggestions and requests before making any decision. But, decision-making is centralised. 4. The Achievement Oriented Leader: He sets challenging goals for his followers, expresses confidence in employees, and expects the followers to perform well (to their best capacity) for attaining the goals. All these styles have their applicability in different situations. Depending upon the situation, he must use the fit behaviour. Type of situation is determined by two variables, environmental variables and employee characteristics.

Situational Variables The Path-Goal Theory proposes two types of contingency (situational) variables (factors) that moderate (intermediate) the leadership behaviour-outcomes relationship. The variables include: 1. Environmental Contingency Variables 2. Subordinate Contingency Variables

Environmental Contingency Variables

Environmental contingency variables are outside

the control of a leader. They include: (i) Task Structure or Nature of Job: The task may be structured or unstructured. Structured task is well defined or well laid out. (ii) Formal Authority System: It refers to the degree to which authority is delegated to the leader to enable him to influence subordinates. (iii) Work Group: It refers to the type of group in organisation to which the subordinates belong.

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These variables determine the type of leadership style that is complementary if followers’ outcomes are to be maximised. Robert House and others note that leader behaviour will be acceptable and motivational when it complements the environment of subordinates by providing coaching, guidance, support and rewards, which are necessary for effective performance.

Subordinate Contingency Variables Such factors are characteristics of employees. They include: (i) Locus of Control: It shows alternative belief whether employee’s achievement is the outcome of his own efforts, i.e., internal locus of control, or the result of outside factors, i.e., external locus of control. This concept implies whether people believe that they can control the events, or events control them. (ii) Willingness to Accept Influence of Others: It refers to the degree to which employee is willing or unwilling to accept influence of others. (iii) Experience and Perceived Ability: Such factors refer to whether employee has ability and needed experience to perform the task. The characteristics determine how the environmental variables and leader behaviour are interpreted. Robert House and his associates note that leader behaviour will be acceptable if subordinates see such behaviour as either immediate source of satisfaction, or as instrumental to the future satisfaction. Figure 21.4 summarises the Path-Goal Theory of Leadership.

FIGURE 21.4 Path-Goal Theory of Leadership (Based on Martin Evans, ‘The Effect of Supervisory Behaviour on the Path-Goal Relationship,’ Organisational Behaviour and Human Performance, May 1970, pp. 277-295; Robert House, ‘A Path-Goal Theory of Leadership Effectiveness,’ Administrative Science Quarterly, September, 1971, pp. 321 – 338.) The theory proposes that leadership behaviour will be effective when it is matched with environmental factors that fit with employees’ characteristics. Clearly, leadership style (leader behaviour) must fit with situational as well as employee related factors if maximum outcomes are to be achieved. Leader behaviour must match with these two types of contingency factors.

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By using any of the four styles contingent upon situational factors, a leader attempts to influence subordinates’ perception, and motivates them. His attempts result into role clarity, goal expectancies, satisfaction, and better performance. But, in path-goal facilitation, the leader must use appropriate style (behaviour) contingent upon variables. To sum up, a leader’s role consists of: 1. Recognising and/or arousing subordinates’ needs for outcomes over which the leader has some control 2. Clarifying goals 3. Clearing the path, making the path easier to travel by coaching and direction 4. Increasing opportunities for personal satisfaction contingent on effective performance 5. Helping subordinates clarify expectancies 6. Providing support 7. Offering rewards to employees 8. Reducing hurdles, barriers, and frustrations By using appropriate style contingent on the situational factors, leader attempts to make the path of subordinates’ goals as easy as possible.

Implications On the basis of sample based research findings, following implications can be drawn: 1. Directive leadership leads to greater satisfaction when tasks are ambiguous (unstructured) or stressful, rather than when they are highly structured and well laid. 2. Supportive leadership results in high employee performance and satisfaction when employees are performing structured tasks. Directive leadership style is likely to be perceived as redundant among employees with high perceived ability, or with considerable experience. Supportive style, some studies note, has its most positive effect on subordinates who work on stressful, frustrating, and dissatisfying tasks. 3. Participative Style will be more satisfying to employees with internal locus of control. In non-repetitive and ego-involving tasks, employees are more satisfied with participative style. 4. Achievement oriented leadership will increase employees’ expectancies, that efforts will lead to high performance when tasks are ambiguously structured and subordinates are confident that their efforts would pay off in effective performance. The important aspect is that leader behaviour is the balancing factor between environmental variables and employees’ characteristics. By suitable leadership behaviour (style), a leader can compensate for things lacking in employees or work setting. Research evidences support the logic. However, leader has no role to play when tasks are clearly laid out and/or employees’ have the ability and experience to handle the task without leadership. And, if directive behaviour is used in this case, it leads to ineffectiveness because employees perceive such directive behaviour as redundant, or even insulating. The theory is more or less similar to Fielder’s Contingency Theory.

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Views of Tannenbaum and Schmidt on Leadership Styles There are various styles of leadership. They fall between two extremes—very strict and very free. They can be depicted in form of continuum from very strict to very free. It is obvious that neither autocratic (very strict) nor democratic (very free) leadership style is always fit for any organisation. These are the two extremes. The real practice lies in between these two extremes. For ease of presentation, the leadership styles can be broadly substituted in form of ‘boss centered’ and ‘subordinate centered’, as expressed by Tannenbaum and Schmidt in their classic leadership continuum. Figure 21.5 shows summary continuum of leadership styles based on classical studies and theories of leadership styles. They have also developed a continuum of leadership behavior, as given in Figure 21.6. The figure presents a range of leadership behaviours available to a manager. Left side shows maximum control/strictness maintained by a manager, and the right side shows the maximum freedom to subordinates. Neither extreme is absolute. Similarly, authority and freedom are also not free from limitations. The important question is: ‘At which point along the continuum should a manager adopt his behaviour?’ ‘At which level along the continuum, a manager should prefer to improve overall performance?’ It is difficult to answer as a ready-made solution does not exit. The level depends upon three aspects: 1. Characteristics of manager, including his values, perceptions, feeling of security, and confidence in subordinates. 2. Characteristics of subordinates, including need for independence, a sense of responsibility, values, ability to understand situations and take decisions, interest in problem, and so on. 3. Characteristics of situation, including type of organisation, structure, policies, group effectiveness, etc.

FIGURE 21.5 Summary Continuum of Leadership Styles

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As shown in Figure 21.6, each type of action represents the degree of authority used by the leader and degree of freedom that subordinates can enjoy in relation to their superior. Tannenbaum and Schmidt developed another pattern of choosing leadership behaviour. They opine that in the age of constant changes in social system, organisational environment and other variables, the old continuum they developed is no longer valid. Organisation has to interact constantly with external environment and is affected by changes in it. Therefore, more external situational factors should be considered, and, consequently, more complex continuum can be prepared. In a new and complex continuum, they consider manager power and influence (leader/ manager) as one extreme and non-manager power and influence (subordinates) as another extreme. Both can share area of freedom by constantly interacting/adjusting with environment, both external and internal. A manager has to consider following aspects: 1. Himself 2. The individuals and groups with whom he is dealing 3. Organisational climate and culture 4. Broader external environment

FIGURE 21.6 The Tannenbaum and Schmidt Continuum of Leadership Behaviour (Based on Robert Tannenbaum and Wartern H. Schmidt, ‘How to Choose a Leadership Pattern,’ Harvard Business Review, March-April 1958, p. 96) Degree to which a manager understands these factors correctly and behaves appropriately determines his success/effectiveness. They asserted: ‘‘The successful manager of men can be primarily characterised neither as a strong leader nor as a permissive one. Rather he is one who maintains a high degree of batting average in accurately assessing the forces that determine what his most appropriate behaviour at a given time should be, and in actually being able to behave accordingly. Being both insightful and flexile, he is less likely to see the problem of leadership as a dilemma.’’19

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Managerial Grid by Robert Blake and Jane Mouton There are a number of approaches to the study and practice of leadership. This is true even for leadership styles. One such well-known approach to the study of leadership style is the Managerial Grid developed by Blake and Mouton.20 The Managerial Grid Model (1957) is behavioural leadership model. This model originally identified five different leadership styles based on the concern for people and the concern for production. In fact, their approach is based on task-oriented and relation-oriented styles of leadership discussed in other leadership theories. According to them, degree of task orientation (production concern) and relation orientation (people concern) differ in different situations. Leadership Styles Blake and Mouton have considered two types of leadership styles— production-oriented and people-oriented. The two leadership styles, each of nine levels, make nineby-nine matrix outlining total 81 different leadership styles.

FIGURE 21.7 Managerial Grid (Based on Robert R. Blake and Jane S. Mouton, ‘Managerial Facades,’ Advanced Management Journal, July 1966, p. 31) They have used phase ‘concern for’ to indicate degree of emphasis on people or production. In other words, ‘concern for production/relation’ means attitude of leader or superior towards production and relations. Concern for production indicates attitude of leader towards a variety of things, like quality of product, procedures and processes, creativeness of research, quality of staff services, work efficiency, and volume of production. Concern for people includes degree of personal commitment towards goal achievement, maintaining self-esteem of workers, responsibility based on trust, satisfying interpersonal relations, etc. There are nine levels to measure intensity or degree of leaders’ concern for production and concern for people. There can be 81 (9 9) possible leadership styles, each of which contains

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different degree of these two sets of factors. Out of 81 possible combinations, Managerial Grid identifies five leadership styles based upon these two sets of factors, as shown in Figure 21.7. Each style indicates proportionate relationship (relative importance) between employee concern and production concern. 1. Impoverished Style (1, 1): Impoverished style requires exertion of minimum efforts to get work done and sustain organisational morale. Leader has low concern with people as well as production. 2. Country Club Style (1, 9): In country club style, thoughtful attention is given to employees’ needs to create friendly and comfortable organisation atmosphere and work tempo. Concern for people is given maximum importance. 3. Task Style (9, 1): Task style is opposite to previous one. Work conditions are arranged in such a way that human elements have little interference on the results. It is production oriented style. More emphasis is given to production than people. 4. Middle Road Style (5, 5): Middle road style is a balanced approach. It is aimed at adequate performance through balance of work requirement and maintaining satisfactory morale. Both aspects—task as well as employees—are given equal importance. 5. Team Style (9, 9): Here, both task and workers are equally emphasised. Work is accomplished from committed people with interdependence through a common stake in organisation purpose, and with trust and respect.

Managerial Implications It is observed that each style indicates relative contents of concern for production or people. Style (9, 9) is the most desirable leader behaviour as both aspects are given more importance. In fact, Blake and Mouton have developed a training programme that attempts to change manager toward (9, 9) managerial style. Managerial grid is closely related to production-people oriented style as explained by Ohio State University. But, managerial grid measures the predisposition of a manager, while Ohio State Framework examines how others perceive leader’s actions. Managerial grid analyses leadership style from viewpoint of managers. It is a useful device to identify and classify managerial styles. It shows what will happen if either of concerns is given relatively more importance. In practice, a number of styles are possible, but managerial grid considers only corners and mid-point (five styles only). However, these extreme limits and balanced position are hardly found in actual practice. Despite this, managerial grid is a useful device to understand and analyse managerial behaviour. It can improve managerial understanding, knowledge, and practice. It also indirectly suggests that, depending upon the real situation, relative importance of concern with people or concern with production should be decided. Managerial grid potentially helps practicing manager to decide his managerial behaviour in relation to prevailing situation. Other Modern Leadership Theories Modern leadership theories emphasise on fact-based approaches, methods, and applications. The theories discussed in the previous part are, no doubt, useful to understand nature of leadership and improve leadership effectiveness. But, traditional and some modern theories discussed in the previous part of the chapter seem inadequate explanation in the modern business context. The corporate environment has changed drastically and has demanded the

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leader to do different jobs than what traditional leaders have been doing since long. In the crossculture and ever-changing global business environments, these theories seem less capable to contribute in leadership effectiveness. A few global research studies recently conducted state that there is need to go beyond the traditional leadership theories and approaches. In this view, a number of new leadership theories have emerged in recent years. Modern theories include the charismatic leadership theory and the transformational leadership theory.

The Charismatic Leadership Theory

Charismatic leadership theory assumes that a leader who has charisma (charm, magnetism, or attraction) can effectively command followers to do the intended things. Charisma refers to charm, attraction or impression. It is the power to inspire admiration or enthusiasm in other people.21 Charismatic leadership implies leader’s profound and extraordinary effect on followers due to personal abilities.

Characteristics of Charismatic Leaders

Robert House22 (first four characteristics) and Bernard M. Bass (last three) suggested following characteristics of charismatic leaders: 23

1. 2. 3. 4. 5. 6. 7.

Self-confidence and confidence in subordinates High expectations for subordinates Ideological vision Use of personal example (i.e., to be role model for followers) Superior debating and persuasive skills Technical skills Ability to foster attitudinal, behavioural, and emotional changes in followers

Followers of the leader identify with the leader and the mission of the leader, exhibit extreme loyalty to, and confidence in, the leader, emulate the leader’s values and behaviour, and derive self esteem from their relationship with the leader.24 The charismatic leader can prepare his followers to do things that, in ordinary case, they cannot do. Followers are ready to change, do anything, even run through fire, jump from mountain, fall into a well, walk barefoot through broken glass, or do anything on the call of the leader. In fact, charismatic leadership is more closely related to politics and religion. However, it has potential to apply in business. When Mahatma Gandhi invoked Indian citizens to fight for freedom against the British rule, many Indians submitted/sacrificed everything they held to follow Mahatma Gandhi. They were ready to do anything. Charismatic leader can create miracles. People exert full confidence in charismatic leader and are ready to do what the leader wants them to do. Charismatic leadership theory assumes that leader makes the followers perform beyond expectations. Glorious, impressive, and gorgeous personality of leader attracts followers. Followers are proud of their leader and prefer to follow him unconditionally. Recent studies provide research support to charismatic theory. However, more conclusive research is needed in this area. Charismatic leadership theory must be discussed in relation to task, nature of people, and type of situation. Crisis and status quo may promote charismatic leadership. There are some ethical issues. Charisma of leader makes him a hero. But, when the hero misuses followers’ sentiment for his personal end or undue advantage, it results into personalised gain. This is common phenomenon in politics and religion.

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The Transformational Leadership Theory

In fact, transformation leadership theory is inclusive of charismatic leadership theory as the leader with charisma can transform things – behaviour of people, structure of organisation, and other relevant aspects. Bernard M. Bass25 opines that charismatic leadership is really a component of the broad based transformational leadership theory. Transformational leadership demands a leader to possess belong charisma. Nelson Mandela, Mahatma Gandhi, Sardar Valabhabhai Patel, Rajiv Gandhi, et al, are transformational leaders in politics; Swami Vivekananda, Valabhacharya, Dayanand Saraswati, Pandurang Shastri, alias ‘Dada,’ Adi Sankaracharya, et al, are transformational leaders in religious and social fields; JRD Tata, Ratan Tata, Kumar Mangalam Birla, Rahul Bajaj, Ajim Premji, Dhirubahi Ambani, to name a few, can be referred as transformational leaders in business. We find transformational leaders in other fields, too, like science, education, art, and so forth Kumar Mangalam Birla, a True Tranformational Leader Kumar Mangalam Birla, chairman of US$ 29 billion Aditya Birla Group—a global conglomerate with operations spanning 27 countries—is a true transformational leader. He initiated silent but strong reforms in the Birla Group ever since he resumed the charge of the traditional, conservative Marwari Group after sudden and untimely death of Aditya V. Birla, the founder of Birla Group of companies. Kumar Mangalam Birla, the soft spoken chartered accountant and MBA from the London Business School, inherited more than Rs. 15,000 crore business. Under his dynamic and transformational leadership, the Group’s performance started improving. He initiated all round reforms and completely transformed the Group’s business. To transform existing commodity business of cement, aluminum and fertilizers, he brought drastic reforms. He appointed high profile and capable professionals, changed mindsets of employees, acquired businesses (for example, Madura Garments from Coates Vyella, Indal from Alcan, PSI Data System from Group Bull, and so forth), and shed old businesses. Birla Group, right from the beginning, believed that talented employees were the greatest assets of the diversified business. Mr. Kumar Mangalam quietly searched for talented executives from blue chip companies, offered them top salaries, and encouraged them to deliver best results independently. His efforts made sense. All companies of the group— including Hindalco, Grasim, Indian Rayon, Indo Gulf, etc.—have undergone major reforms. A soft-spoken, introvert person has transformed the old group into a modern giant within 7 years. The group, after TATA Group, is the second largest business group in India. Due to visionary leadership and effective business strategies, the Group’s turnover jumped from Rs. 15,000 crore to Rs. 28,000 crore in less than a decade. Not only in business, in social projects, too, he has brought many reforms. He developed concept of 'sustainable livelihood' which has transcended (replaced) ‘cheque book philanthropy.’ To him, it is unwise to keep on giving endlessly money directly to the poor or deprived people. Instead, resources should be channelised to ensure that people have the wherewithal (means) to assist them to earn their livelihood with productive activities. He says, ‘Give a hungry man fish for a day, he will eat it and the next day, he would be hungry again. Instead, if you teach him how to fish, he would be able to feed himself and his family for a lifetime.’ Besides, the Group has been making valuable contribution for check dams, irrigation, land development, soil and water conservation,

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posture development, social forestry, horticulture, farmer training, widow and dowryless mass marriages, women empowerment, and what not. To excel in social contribution, the Group collaborated with are UNFPA, SIFSA, CARE India, Habitat for Humanity International, UNICEF and the World Bank. Due to solid managerial and leadership skills, he is recognised as one of the most successful businessman of India. An iconic figure, Mr. Birla holds several key positions on various regulatory and professional boards. He is a director in the Central Board of Directors of the Reserve Bank of India and Chairman of the Staff Sub-Committee of the Central Board of the Reserve Bank of India. He serves on the Prime Minister of India's Advisory Council on Trade and Industry. He also served as the Chairman of Securities and Exchange Board of India's (SEBI) Committee on Corporate Governance. In recognition of his exemplary contribution, the Banaras Hindu University awarded the D. Litt (Honoris Causa) Degree to him. Other universities also awarded Mr. Birla with many prestigious honurs. Apart from these, he occupies many reputed posts in a number of statutory bodies, organisations, and associations. On academic front, he is the Chancellor of BITS, Pilani, Hyderabad, Goa and Dubai. He is on the Asian Regional Advisory Board of London Business School. He has been included in The Economic Times Corporate Advisory Board. To salute his entrepreneurial excellence and exemplary contribution to Indian business, AIMA conferred its ‘Honorary Fellowship’ on him, and the National HRD Network named him ‘The Outstanding Businessman of the Year.’2006. He is also recipient of several other awards such as, "Entrepreneur of the Decade Award—2009" awarded by the Bombay Management Association; "The Corporate Role Model Award—2008" by Amity International Business School; "Business Leader of the Year—2010" by All India Management Association (AIMA), and many such awards of national and international standards. (Sources: Based on VSP Rao and Hari Krishna, Management, Excel Books, New Delhi, 2010, p. 186; www.adityabirla.com/the_group/km_birla; www.mapsofindia.com/whois-who/business) Transformational leadership is reflected in form of merger and acquisition (M&A), strategic alliance with other firms within and outside the country, ideological and structural reforms, innovative management practices, and approaches towards employees, customers, competitors, other stakeholders, and the nation. James Macgregor Burns26 is associated with the transformational and transactional leadership. Transformational leadership theory emphasises on leader’s ability to shift or change the values, beliefs, and needs of his followers. Bernard Bass27 states that transformational leadership leads to superior performance by inviting and implementing changes in organisation. He suggests that fostering transformational leadership through policies of recruitment, selection, training, and development will pay off in the health, well-being, and effective performance of today’s organisations. Note that leaders’ transformational efforts do not always fetch positive outcomes. He may be right, but due to uncontrollable situational variables, the desired outcomes may not be achieved. In India, Public sector is miserably deprived of transformational leadership. Gradually, public sector companies are transforming from traditional bureaucratic style to professionally managed companies. Due to dynamic transformational leadership in public sector, many

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companies have exhibited excellent performance in recent years. Till today, we need transformational leaders in politics, education, non-profit organisations, business, and other fields to bring about many transforms.

Characteristics of Transformational Leader

Tichy and Devann28 conducted interviews of top executives and found out following characteristics of effective transformational leaders: 1. 2. 3. 4. 5. 6. 7.

Transformational leaders identify themselves as change agents. They are courageous. They believe in people. They are value driven. They are life long learners. They have the ability to deal with complexity, ambiguity, and uncertainty. They are visionaries.

Constituents of Transformational Leadership Bernard M. Bass29 describes four elements of transformational leadership: 1. Individual Consideration: The leader attends to followers’ needs and acts as mentor and trainer to them. He follows open communication, assumes full support, and places challenges before them. He recognises, respects, and celebrates the contribution of his followers. He does everything for their self-development. 2. Intellectual Stimulation: The leader attempts to improve intellectual level of followers. He stimulates creativity in them. He extends all support to those who think and work differently. He, thus, gives more importance to nurture and develop innovative skills in his followers. 3. Inspirational Motivation: Transformational leader articulates the vision that can appeal and inspire the followers. He motivates them to actualize their vision by setting and achieving high standard of performance. He uses effective communication to convert followers into self-motivated individuals. 4. Role and Identification Model: Transformational leadership makes the employees follow the leader's pattern of thinking and working. They assume leader’s goal as their own and struggle endlessly to realise it. Followers are proud of their leader and they internalise attitudes and goals of their leader. They remain persistent in actualising leader’s vision even when he is not present. Transformational leadership must be practiced with care. Too high expectations and drastic changes may create difficulty for followers, and hence entire organisation may suffer. Leader’s unjustifiable move to transform the organisation may lead to frustration. Transformation must be gradual to help others to cope with it.

Followership Theory/Style of Leadership Note that modern leadership theories are situation based and followers constitute a the key variable in the situation. Thus, the Followership Leadership Style or Approach is treated as modern

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theory or style. Here, followers control or influence the leader’s behaviour. Followers’ style, not leader’s style, is a key input leading to efforts towards organisational effectiveness and outcomes. It emphasises on role of followers in attaining goals. The theory states that it is not the leader alone whose leading qualities and skills determine the degree of success, but followers (i.e., their qualities and skills) also carry significant impact on the outcomes. A leader cannot be effective unless his followers are effective. The right followers can produce effective leaders. A research study finds that subordinates affect leaders and their behaviour as much as leaders and their behaviour affect subordinates.30 Unless followers are capable and willing workers, even most effective leader has little chance to succeed. Followers’ contribution depends upon their role. Magnifying followers’ role can help the organisation take benefits of employees’ talents, skills, and creativity. All situational leadership theories are based, more or less on followers’ characteristics. Leadership style must suit with followers’ characteristics (or maturity level, as mentioned in the Hersey and Blanchard’s Situational Theory). Even Fred Fiedler, in his contingency theory recognised the role of followers while deciding on leadership style (Refer ‘leader-member relations’ as situational variable in the theory). Participative and democratic leadership styles, employee empowerment, participative decision-making, etc., are indicative of followership style. The theory requires more research base to make meaningful generalisations.

Followership Styles Interestingly, the followership style is reflected in form of followers’ response/reaction to leader’s action. Their reaction pattern is same as their style to influence leader or situation. Followership theory of leadership proposes following follower-centric styles:31 1. Yes Boss Style: Followers prefer to follow leader’s instructions and order without any discrepancy. Their style is quite cooperative in nature. 2. No Boss Style: They dare to say ‘no’ to leader. They ignore leader’s instructions and orders. They have different views and are not ready to abide with leader’s expectations. 3. Escaping Style: Followers respond to the leader positively, they accept his orders, but prefer to escape implementing orders and instructions. 4. Gambling Style: They are reluctant to accept leader’s orders, but, anyhow, they carry out his orders. 5. Intellectual Arrogant (or Egoistical) Style: The style is followed when followers are more qualified, experienced, and capable than the leader. They assume that they are more intelligent than him and they respond in an arrogant manner. 6. Critical Style: Followers do not react to leader’s instructions or decisions immediately, but they crucially evaluate the instructions to check their worthiness. They try to find pros and cons of leaders’ decisions. If leader’s instruction or order seems useful, they follow it. In opposite case, they insist that leader must modify the same. However, they carry out orders even when leader does not modify the orders. They are committed to follow the order, in original form or modified. Followers’ style must match with that of the leader in order to achieve better coordination— the key for effective management. Manager can get the work done through followers only if his leading style suits perfectly the style of the followers. Conflict between the two affects their relations, and, hence, the final outcome.

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Matching Followers’ Style with Leadership Style

In addition to the match between leadership style and followership style, situation is also a vital consideration. Followers’ style discussed above needs to be adjusted with situational/environmental variables. Mere followers’ liking and disliking in not enough, environmental need or situational pressure demands modification in followers’ style and/or leadership style. Observe Figure 21.8.

FIGURE 21.8 Matching followers’ Style with Leadership Style and Situation For example, if the issue is related to new technology or firm’s survival, growth and development, followers must not use ‘No boss style’ or ‘Escaping style.’ However, ‘Critical style’ can make sense. In short, in order to achieve better relations and sound performance, there should be perfect match between leadership style, followership style and the situation. Proper match between followership style and leadership style in relation to situation leads to desirable outcomes.

Other Theories Over and above charismatic, transformational, followership, and other leadership theories discussed in the former part, there are some other theories to explain leadership phenomenon. They are listed below: (a) The Social Cognitive Leadership Theory (b) The Substitute Leadership Theory (c) The Positive and Authentic Leadership Theory Each leadership theory discussed in this chapter has something special to emphasise. Each is based on explicit or implicit assumptions, and each theory teaches the practicing manager how to be effective leader. Theories contribute to improving managers’ knowledge and leadership practices. Though most theories were developed many years ago, they are still treated as base to understand organisational behaviour. They have reasonable utility and none of them is totally outdated. Especially, contingency theories are more relevant to modern organisational life. Recently developed leadership theories—charismatic leadership theory, transformational leadership theory, social cognitive leadership theory, substitutes leadership theory, and Authentic leadership theory—have attracted attention of modern thinkers, academicians,

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and practitioners. Considerable research studies are being conducted on modern theories across the world to understand and improve leadership behaviour in today’s situation.

SUMMARY With reference to business management, leadership is one of the techniques of directing. However, from organisational behaviour view point, it is one of the powerful factors that affects/ determines subordinates’ behaviour. Leadership refers to the ability to persuade others to seek defined objectives enthusiastically. Leadership is important for understanding and solving human problems, motivating employees, creating confidence, building morale, ensuring effective communication, maintaining cooperation and avoiding competition, preventing unexpected events, creating conducive climate, implementing change, and so forth. The leadership style is a way, method or pattern of the leader to lead followers. Authority based leadership styles are autocratic style, democratic style, and free rein style. A leader holds several qualities and performs several formal and informal roles in the organisation. There are many leadership theories; each theory has something special to emphasise, based on some assumptions, and each has merits and demerits. Key leadership theories are Trait Theory of Leadership, Behavioural Theories, Likert’s Four Systems, Hersey and Blanchard’s Life-cycle, Fiedler’s Contingency Theory, Path-Goal Theory, Views of Tannenbaum and Schmidt on Leadership Styles, Managerial Grid by Blake and Mouton, etc. Theories contribute to improving managers’ knowledge and leadership practices. They have reasonable utility and none of them is totally outdated. Recently developed leadership theories – Charismatic Leadership Theory, Transformational Leadership Theory, Social Cognitive Leadership Theory, Substitutes Leadership Theory, and Authentic Leadership Theory—have attracted attention of modern thinkers, academicians, and practitioners.

KEY TERMS Leader and Leadership Leadership Qualities and Skills Leadership Style Autocratic Style Democratic Style Free reign Style Leadership Theories

Trait Theory of Leadership Behavioural Theories Likert’s Four Systems Hersey and Blanchard’s Life-cycle Theory Fiedler’s Contingency Theory

Path-Goal Theory Views of Tannenbaum and Schmidt on Leadership Styles Managerial Grid by Blake and Mouton Charismatic and Transformational Leader

EXERCISES Objective Type Questions A. Answer the following: 1. Define leadership style.

2. State leadership styles based on use of authority.

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3. Mention four leadership skills. 4. What does the term ‘traits’ mean? 5. Name the theory developed by Fred E. Fiedler. 6. Who developed Path-Goal Theory? 7. Which two studies are associated with

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Behavioural Theory of Leadership? 8. Write Likert’s Four Systems. 9. Write full form of ASO and LPC in Fiedler’s theory. 10. Name two modern theories.

B. Choose the correct option (MCQs): 1. Who developed Life Cycle Theory? (a) Hersey and Blanchard (b) Fred E. Luthans (c) Fred E. Fiedler (d) Keith Davis 2. Autocratic leadership style is based on (a) Authority (b) Motivation (c) Employee orientation (d) Modern leadership style 3. Which of the following is not an authority based leadership style? (a) Democratic style (b) Energising style (c) Autocratic style (d) Free rein style 4 Which of the following is not consistent in leadership? (a) Benevolent autocrat (b) Incompetent autocrat (c) Strict autocrat (d) Interesting autocrat 5. Informal leader can be recognised by (a) His position in organisation (b) His strict behaviour (c) His ability to understand followers and satisfy their expectations (d) His relation with influential people within and outside the organisation 6. In managerial grid, in all, how many different styles are possible? (a) 18 (b) 81

7.

8.

9.

10.

(c) 88 (d) 08 Telling style is characterised by (a) High task and high relationship (b) Low task and high relationship (c) Low task and low relationship (d) High task and low relationship What does M1 in Hersay and Blanchard’s theory indicate? (a) People are both unable and unwilling to take responsibility to do something (b) People are unable but willing to do the necessary job tasks (c) People are able but unwilling to do what the leader wants (d) People are both able and willing to do what is asked of them What does M4 in Hersay and Blanchard’s theory imply? (a) Low level of maturity (a) Moderate level of maturity (a) High level of maturity (a) No maturity In charismatic leadership, what does term ‘charisma’ refer to? (a) Leader’s authority (b) Leader’s position and status (c) Leader’s charm, attraction or impression (d) Leader’s connection power

Descriptive Questions 1. What is leadership? Explain its role in management.

2. Show classification of leadership style. Give elementary idea of each style.

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3. ‘In today’s context, leader has a more challenging role.’ Comment on the statement and discuss what role the leader has to play. Give a list of leadership qualities and leadership skills. 4. Explain Trait Theory of Leadership. How does it differ from Behaviour Theory? 5. Explain Hersey and Blanchard’s Lifecycle. 6. Critically examine Likert’s Four System Theory.

7. Explain Blake and Mouton’s Managerial Grid. 8. ‘Situational Theories are more comprehensive explanation of leadership.’ Elaborate on the statement with reference to various situational leadership styles. 9. Critically evaluate Fiedler’s Contingency Theory. 10. Explain Path-Goal Theory of Leadership.

Assignments 1. Each student in a group may assigned a project to list key leadership qualities of any of the successful Indian entrepreneurs —from all possible sources—including Dhirubhai Ambani, Gautam Adani, Narayan Murthy, Ratan Tata, Ghansyam Birla,

Azim Premji, and many others. They may, then, be asked to compile all qualities and find out 12 unique qualities the Indian business heros hold. 2. Ask the students which leadership style they apply in their group and why.

REFERENCES 1 Barnard Keys and Thomas Case, ‘How to Become an Influential Manager,’ Academy of Management Executive, November, 1990, pp. 38–52 2 Keith Davis, Human Behaviour at Work, Tata McGraw-Hill, New Delhi, 1967, p. 96 3 Weihrich, Cannice, and Koontz, Management—A Global and Entrepreneurial Perspective, Tata McGraw-Hill, New Delhi, 2008, p. 347 4 Stephen Robbins and Seema Sanghi, Organisational Behaviour, Dorling Kindersley, New Delhi, India, 2006, p. 315 5 Robert House and Philip M Podsakoff, ‘Leadership Effectiveness: Past Perspective and Future Directions of Research,’ Organisational Behaviour: The State of the Science, Erlbaum, Hillsdale, N. J., 1994, pp. 58 – 64 6 Michael J. Marqaurt and Dean W. Engel, ‘HRD Competencies for a Shrinking World,’ Training and Development, May 1993, pp. 62 – 64 7 Robert M Fullmer, et al, ‘Developing Leaders: How Winning Companies Keep on Winning,’ Sloan Management Review, Fall 2000, pp. 49 – 59 8 Warren Blank, The 108 Skills of Natural born Leaders, AMACOM, New York, 2001 9 David A Whetten and Kim S. Cameron, Developing Management Skills, Harper Collins, New York, 1991, p. 8 10 P. Subba Rao, Management and Organisational Behaviour, HPH, Mumbai, 2008, pp. 412-413 11 Ibid., p. 413 12 Rensis Likert, The Human Organization, McGraw-Hill, New York, 1967, p. 4. 13 Ibid, p. 4 14 Hersey and Blanchard, ‘So You Want to Know your Leadership Style?’ Training and Development Journal, February 1974.

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15 Hersey and Blanchard, Management of Organizational Behaviour, 4th ed., Prentice-Hall, 1982, pp 150 – 61 16 Basil S. Georgopoulas, Mahoney, and Jones, ‘A Path-Goal Approach to Productivity,’ Journal of Applied Psychology, December 1957, pp. 345 – 353 17 Martin Evans, ‘The Effect of Supervisory Behaviour on the Path-Goal Relationship,’ Organisational Behaviour and Human Performance, May1970, pp. 277 – 295 18 Robert House, ‘A Path-Goal Theory of Leadership Effectiveness,’ Administrative Science Quarterly, September, 1971, pp. 321 – 338 19 Robert Tannenbaum and Warren H. Schmidt: ‘How to Choose a Leadership Pattern,’ Harvard Business School Review, May-June 1973, pp. 162 – 80 20 R. R. Blake and J. S. Mouton, The Managerial Grid, Houston: Gulf Publishing Co., 1964; and R. R. Blake and J. S. Mouton, The Managerial Grid III: The Key to Leadership Excellence, Houston: Gulf Publishing Co. 1985 21 Oxford English Dictionary 22 Robert House, ‘A 1976 Theory of Charismatic Leadership,’ Leadership: The Cutting Edge, pp 189 – 207 23 Barnard M. Bass, Leadership and Performance Beyond Expectations, Free Press, New York, 1985, pp. 54 – 61 24 Robert House, op. cit. 25 op. cit. 26 J. M. Burns, Leadership, Harper & Row, New York, 1978 27 Barnard Bass, ‘From Transactional to Transformational Leadership: Learning to Share the Vision,’ Organisational Dynamics, Winter, 1990, pp. 19–31 28 Noel M. Tichy and Mary Anne Devann, The Transformational Leader, Wiley, New York, 1986, and Noel M. Tichy and Mary Anne Devann, ‘The Transformational Leader,’ Training and Development Journal, July, 1986, pp. 30 – 32 29 Barnard Bass, op. cit., pp. 54 – 61 30 Fred E.Luthans, Organisational Behaviour, McGraw-Hill, New York, 10th ed., 2005, p. 554 31 P. Subba Rao, op. cit., pp.421 – 424

ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. The leadership style is a way, method or pattern of the leader to lead followers 2. Autocratic style, democratic style, and free rein style 3. Skills are: cultural flexibility, managing time and stress, communication skills, and HRD skills 4. Traits mean enduring physical and mental qualities or characteristics of a person 5. Fiedler’s Contingency Theory 6. Martin Evans and Robert House developed the Path-Goal Theory 7. The Ohio State Study and the University of Michigan Study are associated with the Behavioural Theory

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8. Exploitative Autocrati (System 1), Benevolent Autocrat (System 2), Participative (System 3), and Democratic (System 4) 9. ASO—Assumed Similarity between Opposites; LPC—Least Preferred Co-workers 10. Charismatic Leadership Theory and Transformational Leadership Theory B. 1. (a), 2. (a), 3. (b), 4. (d), 5. (c), 6. (b), 7. (d), 8. (a), 9. (c), 10. (c)

CASE The DNA of Indian Leadership After global economic slowdown, Indian companies have been recovering fast as compared to developed economies. Indian companies, until a decade ago relatively unknown outside the country, have come into focus over the last few years for their international competitiveness. Our leadership traits have been proving our special identity in the world. Many Indian leaders dare apply completely innovative practices and have achieved fabulous results. Alike American management and Japanese management, now, a new branch of management is emerging, i.e., Indian Management or Indian Leadership Style. Indian managers and leaders have discovered innovative ways of managing people at work. Top position holders (CEOs, chief mentors, Chairmen, etc.) in many leading groups, including Tata Group, Mahindra Group, Reliance Group, L&T, Aditya Birla Group, ITC, HUL, Wipro, Infosys, Google India, and many others, are known for their innovative pattern of managing and leading. Due to sound management skills, key position holders of prestigious Indian companies are occupying prestigious posts in many national and international statutory, business, education, and social agencies and organisations. Indian managers are mighty enough to teach managing community across the globe. In coming days, it would not be surprising when India becomes the origin of new management theories and that approaches. A few fundamental questions arise in our mind are: ‘Are Indian CEOs somehow better equipped than their eastern counterparts to deal with crises?’ ‘Are there unique characteristics in western style of management that offer them competitive advantage?’ ‘What are lessons to be learnt for the American CEOs?’ ‘What are the lessons that Indian CEOs can teach global business communities?’ A new study, titled ‘The DNA of Indian Leadership: The Governance, Management and Leadership of Leading Indian Firms’ by four management professors of University of Pennsylvania Peter Cappelli, Harbir Singh, Jitendra Singh and Michael Useem, attempted to answer these questions. They met many CEOs in India including Mukesh Ambani and NR Narayan Murthy. Each CEO in the study was asked a set of questions about leadership competencies, competitive advantage, and corporate governance. Indian management style is highly distinctive as compared to American management. The study concludes: 1. Indian leaders think in English, thanks to their Western education, but act in the Indian context. 2. They internalise western best practices but adapt them to India. 3. Indian leaders rely far more on intuition than their western counterparts. 4. Indian executives feel that strategic thinking, risk taking abilities, resilience, and setting the shared architecture of the firm are some of the most important leadership capabilities. 5. The other clear difference is the way Indian leaders perceive the role of their firms in society. They believe that firms must have a larger role beyond the narrow interests of their shareholders. It has been bringing positive transformation to society.

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6. The first priority of western CEOs’ is investors’ interest while Indian CEOs are far more preoccupied with long-term strategic vision, talent nurturing, and being the keepers of organisational culture. 7. However, some Indian CEOs pointed out that they tended to be hierarchical, which they viewed as a negative trait. However, it can also be a positive trait because of its inherent inventiveness and survival instinct. (Source: ‘The Economic Times Corporate Dossier,’ August, 2010)

Questions for Discussion 1. 2. 3. 4. 5. 6.

What was the effect of global economic slowdown on Indian companies? How would you perceive Indian managing and leading patterns? In the study, which questions were asked by the researchers to Indian CEOs? To which four main areas were the questions related? State five key leadership capabilities of Indian leaders. With reference to the key priority, how are Indian leaders different from Americans?

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Stress and Conflict Learning Objectives Upon completing this chapter, you will be able to: Define stress and enlist its key characteristics Examine desirability of stress and state stress as motivator Discuss reasons or causes of stress Summarise effects of stress and learn about stress coping strategies Define conflict, explain its features, and outline different views on conflict Explain optimum level conflict and its effect Identify causes leading to conflict and discuss conflict resolution techniques Highlight positive and negative outcomes of conflict

INTRODUCTION Stress and conflict are closely related terms, but are different. Both terms are realities of today’s large, complex, and uncertain organisations. These terms have been increasing emphasised in today’ work situations. Stress and conflict have reciprocal effect; stress may be source or reason for conflict, and some conflicts (for example, intra-individual—goal or role—conflicts) generate stress for some people. Conflict is viewed as disagreement or difference between two parties while stress is mental pressure people feel in the life. Both conflict and stress have important implications for understanding, modifying, and controlling human behaviour at work. Managers spend considerable time, money, and energy to manage stress and conflict. Conflict affects relations among people and work performance, whereas stress affects personal life and health, and, hence, it may affect normal work performance. First part of the chapter describes a few issues related to stress and the latter part is concerned with conflict and conflict management.1 Note: Additional reading material related to this chapter is available on the companion website of this book.

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STRESS AND STRESS MANAGEMENT The term ‘stress’ has been used in context with several aspects of management and organisational behaviour, such as stress management, job design and stress, work stress, job anxiety and stress, stress as motivator, and so forth. Stress is a form of distress (pain, grief, agony or misery) and it affects individual’s emotions, perception, and, ultimately, behaviour (i.e., response or reaction). It severely affects body and mind, and adversely affects performance. Naturally, stress affects normal and natural behaviour. Stress is reflected in form of abnormal behaviour. Person with stress seems angry, tense, worrisome (anxious), absent-minded, isolated, apathetic, moodless, silent, and reluctant to do routine activities. Undoubtedly, stress is an important issue in organisational behaviour. Stress, Anxiety, and Tension: Stress is mental pressure people feel in their life while adjusting to the situation. It is like distress. It operates in the psychological and physiological sphere. Anxiety is mental state of uneasiness. It operates only in emotional and psychological sphere. Tension or nervous tension, on the other hand, is mental pressure caused by forces pulling one another. It is, thus, result of stress. Distress, and Eustress, and Mild Stress: Distress is that part/type of stress that always has negative/dysfunctional outcomes, and it adversely affects people’s health and work performance. It is same as pain, suffering, or harassment. On the other hand, eustress implies positive or functional aspects of stress. It shows positive or functional contribution of stress to work performance. Mild stress indicates a desirable minimum level of stress which can contribute positively to efficient and effective working of organisation. Mild stress is essential. Its positive impacts have been discussed in ‘Desirability of Stress’ and ‘Optimum Stress’ later in this chapter. Consequences of Distress: Distress indicates negative aspects of stress. It is not desirable as it carries negative impacts on people’s physical and mental health, and results in suffering of work performance. It leads to a number of problems. Consequences of distress have been discussed in 'Impacts/consequences of Stress’ later on.

Definitions

Let us examine some definitions of stress:

Fred E. Luthans: "Stress is an adaptive response to an external situation that results in physical, psychological, and/or behavioural deviations for organisational participants."1 Keith Davis: "Stress is a general term applied to the pressure people feel in life."2 We can define the term as: Stress is condition of mind when people feel pressure while adjusting or adapting with situation they confront, and it results into physical, psychological, and behavioural changes.

Nature of Stress Key characteristics of stress include: 1. Personal: Stress refers to person’s reaction to a situation or event; it is not the situation or event itself. Capable, dynamic, enthusiastic, optimistic, hopeful, and resilient person is less vulnerable to stressing situations. He can control stress in any situation. For the same situation or event, different people feel different degrees of stress.

616 2. Adjusting Function: It is mental state or pressure that demands excessive (major) physical and psychological adjustments. It affects normal response and performance. 3. Common Phenomenon: It is a common phenomenon and is prevalent in all fields of human activities. A farmer, teacher, student, artist, politician, saint, actor, entrepreneur, manager, supervisor, worker, and so forth—all feel stress. 4. A Vital Issue to be Addressed: It is a major concern for contemporary society in general, and for effective human resource management in particular. It is always present in normal human mind. Its complete absence is difficult to feel. 5. Stress, Anxiety and Tension: Stress is not simply anxiety. Anxiety is mental state of uneasiness. It is associated with emotional and psychosocial sphere while stress operates in psychological and physiological spheres. Tension is result of stress. 6. Forms of Expressing Stress: It is reflected in varied forms, like anger, anxiety, violence, tension and boredom, plus physical wear and tear. It has a number of emotional, perceptual, and behavioural implications. 7. Emergence: Stress is caused or created. It arises due to many reasons/sources, like personal sources, financial sources, relational sources, occupational sources, etc. Managerial stress is a result of change in lifestyle and breaking down of traditional system, rapid expansion, and high level of competitiveness. Novelty, conflict, risks and uncertainly, lack of resources, over ambition, economic loss, performance pressure, etc., are common causes leading to stress. 8. Desirability: Stress is not always damaging or dysfunctional. It is, to some extent, essential and desirable. It is a source of motivation. Stress activates/makes man work, to put efforts. Optimum (or mild) stress leads to better performance. However, excessive stress is detrimental to health and, hence, performance. 9. Manageability: Stress is manageable or controllable. It can be regulated by self efforts and/or by administrative measures. Self efforts, including Yoga, exercises, psychological treatment, positive thinking, simple lifestyle, proper entertainment, and other such actions, help an individual manage stress. Proper work design and encouraging organisational climate can reduce employees’ stress level. 10. Effect of Situation: Situation creates stress, but not equally for all. Some people feel less stress even in challenging or frightening situation. Stress is more personal phenomenon (based on individual differences) than situational. Person’s physical, and, particularly, mental state is responsible for making a situation stressful.

Desirability of Stress—Stress as a Motivator Note that stress is not always counterproductive. It is an essential phenomenon. Stress activates people to do a better job. It is a kind of pressure that makes an individual put more efforts in pursuit of the desired outcomes. It is an important factor for maintaining and improving standard of performance. It is stress that keeps people active, alert, and engaged in work. In fact, stress is a source of motivation. Stress is not always a source of tension, it is a continuous

617 alertness or attentiveness that can be substituted with regularity and sincerity. Stress is driving force and nobody is completely free of it. Its degree is different. In fact, absence of stress results in lack of sincerity, carelessness, idleness, avoidance, and apathy. It is important, desirable, and essential, but its level must be reasonable. Excessive stress creates many problems for individuals as well as organisation. If stress level is too high, it is hazardous to health and leads to serious errors, bad decisions, heart and stomach ailments, insomnia, psychological disorders, severe fatigue, etc. If stress level is extremely low, people do not work sincerely, motivation is low, and they develop apathy. They withdraw physically and psychotically. Lack of interest, insincerity, lack of involvement, diverting from the job, dullness, etc., are result of absence of stress. Stress level should be neither too low nor too high. It should be reasonable. Reasonable level of stress is known as optimum stress, that produces desirable outcomes.

Optimum (or Mild) Level Stress Optimum level stress is that level of stress where people can work to their full capacity and can achieve the highest work performance. It is an ideal or tolerable level of stress. Optimum stress is result of joint systematic effort of individuals and organisation. All stressors must be considered carefully to avoid excessive detrimental stress level. Stress coping strategies, discussed later on, can help control stress, to maintain its level. There are various methods to create and maintain optimum or mild stress. Time management, time and motion studies, job rotation, changing methods of doing jobs, provision of incentives, clarity in authority and responsibility, etc., can help reduce excessive stress, or maintain optimum/mild level stress. Stressful person tries to collect relevant information, find innovative and better ways of doing the job. He works consciously in relation to time given. Most jobs, where accuracy, time, and responsibility are the prime elements, always involve certain level of stress. Optimum/tolerable/mild stress makes person attentive, sincere, and active. He performs better in presence of certain level of stress.

Sources (Reasons or Causes) of Stress—Stressors Stress is always present in human mind; its complete absence is difficult to feel. It arises due to a number of reasons or sources. Causes, reasons, or sources can be referred as stressors. There are many sources which potentially create stress. In organisational behaviour, job stress is more relevant than other types of stresses. Our discussion is limited to causes of job stress only. Fred E. Luthans3 identified four types of major sources, called the stressors. They are (1) Extra-organisational Stressors, (2) Organisational Stressors, (3) Group Stressors, and (4) Individual Stressors. With a little change, common sources of stress (i.e., stressors) can be classified into four main stressors, as shown in Figure 22.1.

1. External Sources Such sources are external to organisation. Organisation is an open system and is greatly affected by external environment. These stressors have direct impact on lifestyle of people in organisation, and finally on their jobs. They include:

618 (a) (b) (c) (d) (e) (f)

Social changes/reforms Technological changes Impacts of globalisation and culture diversity Economic and financial conditions Family life and community conditions Location factors—conditions of housing and convenience services, neighbourliness, noise and air pollution, and so forth (g) Difference in belief and values and problem of adjustment (h) Difference in job opportunities and reward

Common Sources of Stress– Types of Stressors

FIGURE 22.1

2. Organisational Sources

These stressors are associated with organisation itself. Structure of organisation may contain many potential stressors. Main organisational stressors include: (a) Administrative polices, rules, strategies, advanced technology, competitive pressure, and procedures (b) Organisational structure and design (in form of inflexibilities, complexities and ambiguities) (c) Organisational climate, poor working conditions, role and goal conflict, distrust, strict discipline and close supervision, frequent job change, and ineffective communication (d) Location of organisation and convenience facilities (e) Type of production process and products (f) Job design, including lack of clarity, inflexibility, role ambiguities, authority-responsibility, and inappropriate working time and reporting system (g) Improper decision-making system and process (h) Defective performance evaluation and control mechanism (biased or unjust performance evaluation, lack of feedback, tight control, use of negative corrective steps, etc.) (i) Change and development activities (restructuring, reengineering, merger and acquisition)

619 (j) Working conditions and facilities (crowded work area, noise, extreme heat or cold, strong odour, poor lighting, toxic chemicals, and lack of sufficient facilities)

3. Group-related Sources A group is made of individuals and it exhibits tremendous impact on individual behaviour. A group has many potential stressors, such as: (a) Degree of Cohesiveness: Lack of cohesiveness (or togetherness) is stress producing. (b) Degree of Social Support: Lack of social support creates stress for an individual. (c) Social norms and standards: Strict group norms and inability of person to comply with them create stress. (d) Degree of formalisation in Group: More formalisation is stress producing. Informal relations can help release stress. (e) Degree of Heterogeneity in Group: The higher the group heterogeneity (in form of caste, religion, sex, age, geography, cultural values, etc.), the higher will be the stress. (f) Interpersonal and Group Conflict: Conflict between two or more persons is an obvious source of stress. (g) Organisational Politics: Politics within a group can also be a potential source of stress. Envy, disliking, prejudice, hostility, power-chasing, etc., among group members can be possible stressors.

4. Individual Sources With same external, organisational, and group-related stressors, all people do not feel the same physiological and emotional pressure because of individual differences or different personality traits. The level to which one perceives stress in a particular situation depends on personal characteristics. These stressors are of great importance while selecting and training employees, and assigning jobs. One differs significantly in terms of motivation, perception, learning, attitudes, values, and personality. A particular stressor, for example, job transfer, may not be a stressor for all; to some people, it is an opportunity. (a) Type ‘A’ Personality Characteristics: Type ‘A’ personality traits, such as authoritarianism, rigidity, extremeness, spontaneity, emotionality, tolerance for ambiguity, anxiety, and need for achievement, are relevant to individual stress. The study on stress made by Friedman and Rosenman4 in terms of Type A and Type B personalities is worth mentioning in explaining individual stressors. Those people who belong to Type ‘A’ personality are hard working, eat, walk and talk rapidly, competent, highly productive, impatient, fast working, enthusiastic, egoistic, status conscious, result oriented, persistent, aggressive, and ambitious, and they always feel time pressure. They are hurrying and worrying personalities. These people are more vulnerable to stress. On the other hand, people with Type ‘B’ personality are relatively calm, composed, and patient. Because of such attitude towards life, they tend to feel less stressed out. (b) Personal Control over Situation: Stress level depends on person’s ability to control the situation. An individual with a little control over the situation experiences stress. (c) Feeling of Learned Helplessness: Those who experience helplessness in a given situation become the victim of stress. (d) Psychological Hardiness (or Endurance or Toughness Power): People with psychological hardiness or stamina are able to survive in every type of environment.

620 (e) Intra-individual Conflict: Conflict within individual arising due to frustration, goal incompatibility and role ambiguities, etc., creates stressing situations.

Consequences or Effects of Stress (Job Anxiety and Stress) Stress in not always harmful. Certain level of stress can potentially improve performance. However, constant stress beyond the tolerable level is not desirable for both the individual and the organisation. Heavy constant stress results into distress. Over stressful people resort to smoking, drinking, overeating and withdraw from work, and cannot behave in normal or natural way. Stress creates many psychosomatic problems. High or excessive level of stress creates three types of problems, as stated by Fred E. Luthans,5 Physical Problems, Psychological Problems, and Behavioural Problems.

1. Physical Problems Due to Stress

Stress strains physical health. Constant stress affects adversely normal metabolism and generates many physical problems. It creates following health problems:

(a) Decreases immunity (i.e., ability to fight with illness and infections). (b) Creates cardiovascular (heart related) problems, like blood pressure and heart diseases. Heart problems also create many other problems, including paralysis. (c) Leads to musculoskeletal (i.e., muscular and bone related) problems, such as tension, weakness, headaches, back pains, etc. (d) Creates gastrointestinal (i.e., digestion related) problems, like indigestion, diarrohea, constipation, acidity, and other stomach related diseases. Physical problems affect person’s normal work performance. Health problems also create social, economic, and emotional problems. People with poor health cannot work effectively and organisation’s performance suffers.

2. Psychological (Mental) Problems Due to Stress

Stress strains mental health also. It disturbs normal functioning of brain and creates many psychosomatic problems. It affects adversely our mind processes as well as mentality. In fact, mental condition affects physical health. Indirectly, psychological problems are cause-root of poor physical health. However, we discuss some psychological problems that excessive and constant stress creates. Particularly, anger, anxiety, depression, nervousness, irritability, tension, boredom, loss of memory, insomnia, absent mindedness (lack of attention and concentration), and many such mind related disorders are result of excessive stress. These mind disorders affect person’s job performance, interpersonal relations, leading style of executives, esteem level, and ultimately, organisation’s overall efficiency.

3. Behavioural Problems Due to Stress

Stress has direct impact on one’s behaviour. In fact, physical and psychological problems affect one’s behaviour. Our behaviour depends on physical and mental state. However, in this category, more emphasis is given to behaviour or response. Person with stress resorts to many unlawful or detrimental remedies to reduce stress level. Shockingly, the remedies or ways practiced to reduce stress can again be the source of

621 stress. Direct impacts of constant stress are exhibited in form of overeating, sleeplessness (or oversleeping), increased smoking and drinking. One becomes victim of other (permitted or restricted) alcoholic drug addictions. Abnormal behaviour is manifested in form of fast and careless driving, aggressiveness, tardiness, avoidance, increased absenteeism and turnover, frequent violation of rules and regulations, baseless quarrels, etc. Abnormal behaviour affects overall work climate. Routine work and relations suffer that have adverse impact on organisation’s efficiency and effectiveness. Behavioural symptoms of stress can be managed (reduced, controlled and/or restricted) by individual level and organisational level stress coping strategies.

How to Reduce Stress? Stress Coping Strategies (Perspectives of Stress Management) Conscious and sincere human efforts/actions to reduce or prevent stressful situations are called stress coping strategies. Excessive job stress affects employees’ health and job performance adversely. Individual and organisation must develop and adopt some stress coping strategies to reduce stress level. Stress coping strategies can be classified into two broad categories—individual level stress coping strategies, in which a person himself tries to keep stress under control, and organisational level stress coping strategies, in which organisation undertakes effective measures to reduce stress level of its managers and employees. Figure 22.2 depicts main stress coping strategies.

FIGURE 22.2

Organisation Level Stress Coping Strategies Organisation focuses on many aspects—job design, goal setting, organisational modification, changing organisational processes and design, decision-making skills, control techniques, change management, OD techniques, leadership styles, and so forth—to reduce employees’ stress and job anxiety. Organisational level stress

622 coping strategies mainly involve hammering on organisational stressors in order to prevent or reduce job stress of individual employees. Each of specific stressors (causes of stress) must be identified, minutely studied, and suitably modified. Type and number of stress coping strategies the organisation needs to initiate depends on causes of stress and management philosophy. Special stress coping organisational strategies consist of one or more of following actions:

1. Job Design Inappropriate job design is a major stressor (source of stress). Clearly, job (or the work/task to be performed) can be source of stress or satisfaction depending upon how it is designed and assigned. Organisation must design jobs for each group of employees carefully and, from time to time, necessary modifications must be made to keep employees stress-free. Special measures in this context include restructuring job duties, telecommunicating, job sharing, part-time work, flexible scheduling, release time for personal and family events, medical of leaves, reducing frequency of distanced business travelling, preference/interest based job, training for improving work related skills, improving standard inputs and facilities, etc. Job change techniques (including job enrichment, job enlargement, job rotation, etc.) can be meaningfully applied to keep employees happy with job assignments. 2. Job (Working) Conditions or Physical Condition

Suitable job design should be supported with better job conditions. These conditions include removing safety hazards, controlling noise, ensuring air circulation and ventilation, managing ideal temperature level, providing good to-from transportation facilities, augmenting necessary facilities and supports, ensuring conducive supervision etc. These can help reduce stress level of employees.

3. Organisational Structure/Design Organisation design has more potential to reduce or increase employees’ stress level. Reducing over formalisation, and objective, clear, and humanitarian HRM policies and practices have positive impact on reducing stress level. Clear and fair policies and rules, provision of suitable monetary and non-monetary incentives, well-defined roles and status, team building, clarity in responsibility and authority relations, reduced complexities, effective and acceptable leadership, decision-making process and employees’ involvement, easing rigid hierarchical structure, etc., have potential role for reducing and/or preventing employees’ stress. All aspects constituting organisational design must be considered for the purpose. Virtual organisation and virtual offices offer more freedom and can help employees work comfortably. Indiscriminative, fair, or just treatment to all employees, supportive work climate, and fact-based actions can keep employees’ stress level low.

4. Effective Communication

Effective communication is capable of solving any type of problems in the organisation, and stress of employees is no exception. Ambiguous communication works as a major stressor. Barriers in effective communication must be removed. Communication supports the interactions among employees. Suitable communication works as safety valve to release job related tension. All measures must be taken to make communication effective.

623 Corporate Stress Coping Strategies Some American companies take meaningful steps to make employees free from job related and off-the-job related problems. The companies’ Employee Assistance Programmes (EAPs) provide all kinds of support to deal with personal and job related problems resulting from family problems, transfer, demotion, possible job loss (downsizing or lay off) unexpected outcomes, etc.. Some Indian companies have adopted the same, and even more aggressive employee oriented policies and practices to make the workplace enjoyable. Google India, Tata Group, P&G, Infosys Technologies, Escorts, NIIT, Wipro Corporation, TCS, MUL, Unilever and its subsidiary, HUL, and many companies with Indian and foreign origin have vowed to keep employees happy at workplaces by reducing stress level. They practice flexi-time, involve them in decision-making, permit freedom to work, allow different leaves for work-life balance, celebrate events at workplace, provide facilities at workplace, and, in all, do everything possible to make employees feel like home, and keep their stress level low. Many leading companies have created in-house physical fitness facilities for the benefit of employees.

5. Health Measures

Health is real wealth. Poor health itself is a powerful stressor. Organisation must take few but effective measures to keep employees physically and mentally fit. Proper lunch timings, healthy/nutritious diet, availability of on-site medical facilities, cultural and social functions at workplace, counselling services, maintaining gymnasium and health club, and facility for entertainment, relaxing, and leisure have positive impacts on coping with stress. Organisation should organise health related discussions, seminars, and workshops to teach employees what should be done to maintain sound health.

6. Ensuring Employee Assistance Programmes (EAPs) Some experts and researchers on the area focus on role of employee assistance programmes (EAPs) to help employees cope with stress. These programmes include (1) confidential counselling on personal and work related problems, (2) family workshops and consultations related to marriage, single parenting and working parents, (3) stress management programmes and workshops, (4) Yoga and relaxation seminars, (6) maintaining conflict and grievance handling cells, (7) maintaining suggestions boxes at the appropriate places and follow up actions, and (6) other types of support to employees. Availability of EAPs helps ease some of the stresses that employees face in today’s’ work environment. EAPs support employees who face stress resulting from transfer, demotion, possible job loss (downsizing or lay offs), unexpected outcomes, etc. They help employees develop resilience (ability to face problems and adversities).

7. Enabling Employees to Combat Stressors All stressors do not equally affect all people in the organisation. Impact of specific stressor (for example, sales targets, transfer, etc.) on an individual depends on his physical and, particularly, mental health or condition. People see different situations differently. It seems impossible to avoid stressful situation in modern industrial life; we cannot create stress-free environment. What can be done is to prepare people to adjust or become habituated with stressful work environment. Employees with high degree of resiliency, hope, and optimism are less vulnerable to stress. So, organisation must do some-

624 thing to enable people to work effectively in stressful work climate. There are some valuable suggestions that organisation must implement to keep its human asset stress-free. (i) Appointing/selecting stress resistant employees—care should be taken during recruitment of employees (ii) Making employees stress resistant by suitable training and counselling (iii) Implementing POB—positive organisational behaviour (Refer Chapter 25)

Individual Level Stress Coping Strategies Individual stress coping strategies are also equally applicable to the managers who are trying, or are responsible, to reduce employees’ stress through organisational efforts. Manager has to take two actions to manage stress—first, he must manage his stress level, and the second, he must manage stress level of his subordinates. Individual himself (superior or subordinate) should apply some strategies to reduce, control, or prevent his stress level. He must believe in ‘self-help.’ He must train or adjust himself with the situation. Some philosophical and practical tactics can help reduce stress. Individual level stress coping strategies consist of managing self stress, applying self-help remedies, developing and accepting ‘do-it-yourself’ approaches. An individual has to do something himself to reduce his stress level. A number of spiritual personalities, philosophers, management trainers and experts, and wise men have suggested some simple but effective and practical ways to keep excessive stress away. Fred E. Luthans6 focuses on exercise, relaxation, behavioural self-control, cognitive therapy, and networking as individual stress coping strategies. The ways and methods to control personal stress have been discussed below:

1. Physical Exercise

Exercise is an effective measure to combat stress. It refreshes our body and mind, and keeps us healthy. A healthy man can easily face stressing situations. Walking, jogging, swimming, rope climbing, cycling, outing, playing indoor and outdoor games, etc., can help people better cope with stress. Suitable ways of exercising contribute to immunity, good relations, confidence (self-esteem), and give enough energy to work and struggle. Those who perform stressful jobs must initiate and continue to exercise regularly. Exercise technique and level must be in accordance with one’s physical condition or metabolism. Excessive exercise is dangerous, so it should be avoided.

2. Time Management Limited or fixed time and a number of jobs, of different priorities, to complete lead to stress. Time management is useful device to avoid or minimise stress. All tasks must be ranked as per their priorities and, accordingly, time should be allocated. Careful predetermined schedule can help a manager to make advance preparation for each task. Time management helps prevent stressful situations. Time management philosophy teaches a number of useful lessons like, be ready before time and avoid stress; if something is worth doing, do it now; manage to do every activity in time, even before time; do not postpone work for tomorrow, every tomorrow has a tomorrow! Note that ‘work postponed is work multiplied.’

3. Relaxation

Relaxation provides enough physical and mental power to deal with stressful situations. It energises body and mind. Relax for sometime to release tension. Meditation has been proved a powerful means to manage prolonged stressful situation more effectively. It

625 involves both muscle and mental relaxation. Reading good books, watching light and comedy television programmes, listening to music, visiting holy and natural places, playing with kids, and getting involved in activities of interest can help reduce stress level. One must practice yoga and meditation, develop sense of humour, and develop hobbies for sound health.

4. Behavioural Self-control Self-control is like self-help in fighting against stressful situation. Listen to others carefully, attend complaints with calmness, have patience, control anger and aggressiveness, and understand and accept own weaknesses and limitations. Cultivate and practice adaptability. Take things easy. Try to control the situation before it controls you. It is not work but our mind that is responsible for stress. Train your brain to perform any work without feeling stress. Individual Level Stress Coping Strategies Keep a pet: Pet animals, like dogs, rabbits, cats, parrots, goldfish, etc., have proved effective stress killers. Say your prayers: Prayers or meditation in private, or openly, or singing hymns and bhajans (holy songs) in a group release a person from worries, anger, insults, and so forth. These acts provide cathartic release. Sing aloud: Singing helps a person release emotion. It is acknowledgement of the wonders of creation, the joy of living, and vocalisation of internal feelings. Laughter, the elixir!: One must laugh freely as and when there is opportunity as a good laugh relaxes the mind, exercises facial muscles, reduces blood pressure, and improves blood circulation. Developing a sense of humour is a real blessing for person himself as well for family members and others. Sleep right: A good sleep is a pleasures. It is a gift from God to fight stress. It gives a complete rest to the body and mind. Be good at loving: Being a good lover means leading a good and healthy sexlife. It is a good exercise, too. Natural sex is a tonic that refreshes both body and mind. Spend time with children: Spending an hour with children can offer loads of relaxation and happiness. Innocent and joyous children have a lot to offer in releasing stress. Take a walk: Walking is the best exercise. Walking in the morning or evening, with companions, or alone, is a pleasure. It is capable of reducing tension. Make friends: Having a few good friends can help you anytime to share your pleasure and problems. Friends can also counsel you. Enjoy the idiot box: Funny and comedy serials can make you laugh and add positively to your mood. They can release you from worries and tensions of a long day. Cultivate interests: Taking interest in gardening, reading, painting, cooking, playing instruments, listening to music, enjoying indoor or outdoor games, participating in socially significant activities, and cultivating different innocent hobbies can kill stress. Dare to dream: Dreams keep you alive, active, engaged, and interested. They add colour to life, give hope, and inject fuel to struggle. Nothing is wrong if we share our dreams with right people. (Source: The Hindustan Times, January 31, 1998)

626 5. Cognitive Therapy Cognitive therapy is clinical treatment by psychologists. Clinical psychologists have developed various techniques for reducing stress. Techniques of cognitive behavioural modification and efficacy building can be used to regulate stress. Attempts are made to enhance one’s sense of efficacy over stressful situations. Self-efficacy techniques include successful performance experience, vicarious experience, social persuasion and controlling physiological and emotional states. However, clinical techniques are not always useful. It has practical value in case of exceptional situations. 6. Networking Networking implies building and maintaining close associations and interactions with empathetic coworkers and colleagues who listen willingly and patiently and help in confidence building. One must share one’s problems with the right people. Good friends, relatives, and well-wishers have an important role during a stressful situation. Their encouragement, inspiration, and moral support helps in coping stress. Research studies have also produced evidence that networking strategy is able to help people cope better with job related stress and assists them in being effective and successful in their work.

7. Right Philosophy of Life

Philosophy of life guides and inspires people to tackle problems leading to stress. Man is an emotional animal. His mindset and living styles have direct influence on his ability to tolerate and fight with stressing situations. One must develop and adopt appropriate and unique philosophy of life suitable to overall situation. In many cases, philosophy of life can help find a solution. Every religion has special philosophy of life. In Hindu religion, for example, the Gita, a holy book, is a source of a number of lessons that inspire people to live confortably during problems, adversities, and challenges. One must have faith on facts, realities, or the eternal laws. Some simple facts of human life (suggested by philosophers, psychologists, and stress management experts) have been stated in form of anecdotes as under: (i) ‘Life is a journey, ups and downs are natural events.’ (ii) ‘Satisfied man is always a happy man.’ (iii) ‘Work is worship. We must love the work, not the outcomes.’ (iv) ‘Hardships and problems are part of life. Problems are the real test of your capabilities.’ (v) ‘Problems and adversities are good teachers and also are source of opportunities.’ (vi) ‘The Fate does have its role in our life.’ (vii) ‘God always does the right things for me.’ (viii) ‘Don’t be mad after money, it will make you mad.’ (ix) ‘Do not worry about the future. The future is like a promissory note.’ (x) ‘Give happiness to others, you will have it automatically.’

8. Other Lifestyle Strategies Apart from above individual level stress coping strategies, there are many guidelines and lessons that individuals can practice while dealing with stressful

627 situations. Right lifestyle is preventive and corrective device to stress. Note that they are not completely new or different, but may be included in above six categories. Some strategies stress therapists suggest in most situations include love your work, pursue simple life, keep your body fit, manage time and money, manage family life, faith in God, positive thinking, be self-satisfied, develop a sense of humour, and so forth.

Process of Managing Stress People feel stress due to a number of reasons. Excessive stress affects adversely the employees’ health, and ultimately their performance. Organisation, therefore, must take steps to reduce employees’ stress. Systematic stress management consists of following six steps, which can be applied at organisation level as well as individual level. 1. Identifying and analysing stressors generating stress 2. Measuring impacts of stressors on employees and performance 3. Deciding on measures (Stress coping straggles) 4. Implementation of strategies 5. Measurement of impacts 6. Evaluation and follow up actions

CONFLICT AND CONFLICT MANAGEMENT Conflict is a generic term and carries several meanings. Therefore, it is difficult to define the term precisely. Conflict is more or less similar to clash, difference, disagreement, or lack of harmony. Note that conflict is not similar to quarrel. A quarrel may be irrational or baseless. Conflict is an intellectual phenomenon and is based on facts and realities. People have some solid reasons or bases to express conflict. Modern management thinkers and practitioners opine that conflict is natural, structural, and, to some extent, desirable. The structure of modern organisation is such that conflict always arises. There is always possibility of conflict when intellectual and creative people are employed. It is, thus, the result of creativity of people. Healthy personalities do not agree on all issues; they always have different (conflicting) views. Conflict is obvious phenomenon in today’s complex and large organisation.

Definitions

The term conflict can be defined as:

Stephen Robbins: "Conflict is a process in which efforts are purposefully made by a person, unit, or group to black other that results into frustration either in attaining goals or furthering his/her interests."7 It is difficult to define the term exactly. However, it can be said: Conflict is a mental state and it indicates disagreement on any issue. Normally, it is expressed in form of opposition, hostility, noncooperation, non-responsiveness, avoidance, or ignorance.

628 Characteristics of Conflict Listed below are main characteristics of conflict. They explain its exact nature: 1. Disagreement: Conflict denotes disagreement, difference, or to be inconsistent with any aspect. 2. Levels in Conflict: Conflict involves one or more persons. Accordingly, it may be individual level, group level or organisational level conflict. 3. Way of Expression: Conflict is expressed in form of disagreement, rebelling, apathy (indifference, lack of concern/interest, laziness), hostility, opposition and non-cooperation, and counter productive attitudes and actions. 4. Natural Phenomenon: Conflict is natural phenomenon and cannot be prevented (avoided). Creative and capable people always express difference or disagreement. 5. Number of Reasons: Conflict arises due to a large number of factors/causes, such as poor communication, inappropriate structure of organisation, complexities, ineffective leadership, personal factors related to parties to a conflict, etc. 6. Functional or Dysfunctional: Conflict may be functional or dysfunctional in nature. Its positive outcomes depend on how it is perceived and managed. 7. Conflict Manageability: Conflict may, or not, be effectively, managed depending on causes, nature and type of people involved, resource capacity, and abilities of manager. 8. Managerial Attitudes: Modern managers hold positive attitudes towards conflict. To them, conflict is essential phenomenon. It should be welcomed and managed; it should not be ignored or avoided. 9. Desirability of Optimum Conflict: Modern thinkers and practitioners opine that optimum level conflict is desirable for maximum performance. 10. Conflict Management Tasks: Managing conflict is an integral part of managerial responsibility. Conflict management is a broad term and consists of four actions, (1) to encourage conflict (when there is no/less conflict), (2) to maintain conflict (when conflict is at optimum level), (3) to reduce conflict (when conflict is beyond the limit to manage), and (4) to prevent and eliminate conflict (when conflict seems harmful or counterproductive). 11. Conflict Resolution Methods: There are several models (strategies or methods) to resolve conflict. Depending on nature of conflict, type of people involved, time and resources available, and experience and ability of manager, one or more methods can be used. 12. Objective of Conflict Management: Main objective of conflict management/resolution is to utilise creative ability of people and maintain healthy relations among them.

Different Views on Conflict Attitudes towards conflict have changed considerably in the last three to four decades. Traditional and modern thinkers and practitioners express significantly different views on conflict. Their views have been summarised in Table 22.1.

629 TABLE 22.1 No.

Points of Difference

Traditional Views

1.

Modern Views -

2.

Perception of Manager

3.

Major Causes

-

-

-

4.

-

Effects -

5.

Task of Manager

6.

Desirability -

7.

Maximum Performance

8.

Avoidability management.

9.

Condition for Sound Organisation and Effective Management

Optimum Level Conflict Modern management thinkers and practitioners believe that conflict is essential phenomenon and must be managed carefully. It can contribute positively to organisation’s performance if it is at optimum level. Thus, the task of manager is to monitor the level of conflict to avoid its adverse impact on performance.

Definitions

We can define optimum conflict as: Optimum level conflict is that level/stage of conflict at which people can achieve the maximum performance. It is an ideal level of conflict.

Similarly, it can be said: Optimum conflict is the specific level of conflict at which conflict has positive impact on organisation’s performance. It is desirable level of conflict. In Figure 22.3, level of conflict is displayed on the X-axis, and the performance (productivity) is on the Y-axis. When there is no conflict, performance is negative. It shows stagnation

630 or non-responsiveness. When conflict increases, performance starts improving. See the figure, when conflict is at OM level, performance is zero. Performance begins to improve along with increase in the level of conflict. At OL level of conflict, performance is OP, the maximum. OL is optimum level conflict at which there is maximum performance. It is desirable level of conflict. But, when conflict increases beyond OL level, performance starts declining from the peak, and, at ON level of conflict, it becomes zero, and then plunges into negative area. It shows that conflict beyond a limit becomes counter-productive and affects the performance negatively. Manager should maintain optimum level of conflict. Table 22.2 shows relation between level of conflict and performance.

FIGURE 22.3

Types (Levels or Classification) of Conflict Depending on different bases or criteria, practically, we can identify several types of conflicts. One can classify conflict on the basis of number of people involved, effects, avoidability, degree, manageability, formality, etc. Figure 22.4 portrays basic types of conflict. Let us briefly comment on each conflict type. On the basis of number of people, there are three types of conflict, individual level conflict, group level conflict, and organisational level conflict. Individual conflict may be intra-individual (i.e., within individual) conflict and inter-individual (i.e., between individuals) conflict. Similarly group conflict may be intra-group or inter-group conflict. Organisational conflict indicates conflict between individuals and groups. It may be intra-organisational conflict or inter-organisation conflict. On the basis of effects or outcomes, there are three types of conflicts functional conflict, dysfunctional conflict, and effect-free conflict. Functional conflict leads to positive outcomes, dysfunctional conflict leads to negative outcomes, while effect-free conflict has neither positive nor negative impact on organisation’s performance. On the basis of avoidability, there are three types of conflicts, fully avoidable conflict, fully unavoidable conflict, and partially avoidable/unavoidable conflict. Fully avoidable conflict can be

631 avoided or prevented while fully unavoidable conflict cannot be avoided. Partially avoidable conflict is hybrid form. TABLE 22.2 Characteristics of People

Effect

Level of Performance

and MAXIMUM

On the basis of degree or intensity, there are three types of conflicts, low level conflict (i.e., conflict is less than desirable level), high level conflict (i.e., conflict is more than desirable level), and optimum level conflict (i.e., desired level of conflict). On the basis of manageability, there are three types of conflicts, fully manageable, fully unmanageable, and partially manageable. Manager has full command over fully manageable conflict while unmanageable conflict indicates the opposite situation. Partially manageable conflict can be partially managed. On the basis of formality, there are formal conflicts and informal conflicts. Formal conflict is result of formal structure while informal conflict arises due to social and psychological needs (or aspects).

632

FIGURE 22.4

Functional and Dysfunctional Outcomes of Conflict Note that conflict is inherently neither positive nor negative. It has potential for both, improving productivity as well as affecting performance adversely. Functional and dysfunctional effects of conflict depend on how it is perceived and managed. Its positive or negative outcomes depend on type of conflict, its causes, type and number of people involved, attitudes of people in conflict, and other similar factors.

Functional or Positive Outcomes Conflict has following possible positive outcomes: 1. Review of Decisions: Conflict provides a chance to think again, to review the decision. It offers scope to introspect and have a second look at rules, procedures, methods, or equipments. It prevents the firm from committing serious mistakes, and, as a result, it stops wastage of time, money, and efforts.

633 2. Clarification: Conflict seeks clarification. It ends misunderstanding or misinterpretation. People can clarify their doubts and confusions and develop the clear direction to work. Clarity and precision go a long way to contribute to overall performance. 3. Creativity and Innovation: People bring to the organisation new ideas, methods, and procedures. When they disagree (develop conflict), it shows that they have something different to suggest. They come out with creative and innovative ideas, which are necessary for better performance. A firm can take benefit of creative and innovative abilities of its employees. 4. Immediate Attention to Critical Activities: When conflict develops, attention is given to critical activities. It indicates that conflicting situation calls for improvement. Immediate attention on critical parts/activities stops further deterioration (or damage). Organisation can initiate preventive measures to avoid any kind of abnormal loss. 5. Sources Opportunities: For some people, it provides endless opportunities and means. It offers a chance to prove the things superior. If their innovative ideas prove successful, they can enjoy countless benefits. 6. Solving Long-term Problems: When conflict develops, the people involved come together to find out facts. They jointly strive to end the differences. Conflict provides a platform to end inconsistent differences. They accept a reasonable stand, relax, and release burden when the matter gets clarified. Long-term problems are ended and healthy climate is created. 7. Improved Relations: When conflict comes on surface, people involved in conflict put forth their views, facts, suggestions, problems, and genuine difficulties. Open discussion leads to understanding of each other’s stand. Doubts, jealousy, prejudice, distrust, hostility, etc., are ended. They understand and accept their problems. Tension releases and relations among them improve. 8. Scope to Test Capabilities: Conflict helps people in organisation to test their capabilities. People can fight out their differences. Conflict provides an opportunity to prove their ideas and suggestions as superior. When superior idea is given priority, people and organisation, both, are benefitted.

Dysfunctional or Negative Outcomes Conflict is not always beneficial. Sometimes, it becomes source of problem and detracts the firm from achieving its goals. In certain situations, it turns dysfunctional. Some counter-productive effects of conflict have been listed below: 1. When it cannot be resolved, it becomes counter-productive. It results into wastage of time, money, and efforts. 2. It is seriously harmful when it is concerned with the basic objectives of the organisation. It affects adversely the firm’s growth and development efforts. 3. It is not desirable when it creates a climate of distrust and suspicion among employees. They try to harm each other and, finally, the firm loses direction. 4. When, as result of conflict, the firm loses its objectivity and treats disagreement as disloyalty or rebellion, an opportunity for creativity and innovation seem to vanish.

634 5. Conflict, if not resolved properly, spoils healthy relations among people. Entire work environment is disturbed. It invites unlimited troubles for organisation. 6. In some cases, people have senseless or baseless differences. They develop conflict for negligible issues and create unnecessary disturbances. Management finds it difficult to deal with the immature outlook of employees. 7. In some incidents, conflict results into fight between management and employees. Situation worsens when either of the parties develops a rigid approach. It leads to strike, lockout, mass leaves, etc., and firm’s image and reputation are seriously affected. 8. In case when management exerts an over optimistic approach towards conflict and, without further investigation, treats every type of conflict as advisable, it loses its objectivity and cannot survive in the long run.

Sources or Reasons for Conflict There are different sources leading to different types of conflict. Mental health of employees, approach of management, inadequate facilities, interdependence, and many other reasons frequently lead to conflict. Figure 22.5 outlines main reasons/sources of conflict. Let us discuss some common sources leading to conflict.

FIGURE 22.5

1. Poor Communication Improper communication (in form of excessive communication, less communication, no communication, or miscommunication) is the most common source of conflict. For most conflicts, more or less, communication is responsible. Conflict arises due to semantic difficulties (related to message) and misunderstanding, noise in communication channel, prejudice, laziness or improper response of people in communication, lack of facilities, too little or too much communication, and many other communication barriers. If we can just communicate properly, we can minimise most of our differences. 2. Shared Resources

In many cases, departments or people working in them develop conflict due to inadequate access to, or unequal distribution of, resources like money, space, time, facilities, equipments, etc. Normally, people or units in organisation do not have sufficient and/or equal resources. They have to share limited resources. They constantly face resource crisis. Inevitably, some people or units get insufficient resources than they want. In such a situation, conflict arises.

635 3. Incompatible Goals Goal incompatibility is one of the most common sources of any type of conflict. Conflict arises between departments or subunits when they develop dissimilar goals. Similarly, people develop differences when tasks, staff, and other facilities are not properly decided in relation to goals. People have varied interests and priorities. This is common situation between top management and departments, and between superior and subordinates in the same department. 4. Interdependence Activities Work interdependence exists when two or more persons or subunits depend on each other to complete their respective tasks. Outcomes of one person or department depends on performance of others. In many cases, performance of one department suffers due to negligence of other departments. There is possibility of high degree of conflict or cooperation depending on how the situation is managed.

5. Individual Lifestyle A style is a total pattern of living, and it is reflected in form of way of working and behaving. People differ in their lifestyles due to difference in education, age, attitudes, personality, family background, values and culture, and other aspects. These differences often lead to conflict.

6. Disruptive Mentality Unhealthy state of mind often leads to conflict. People with negative mentality do not like or tolerate smooth situations. They unnecessarily create conflict and instigate other people to get involved in it. Some employees cannot behave properly due to a number of personal reasons, like health problems, rebellious nature, disturbed family life, economic circumstances, dependence, and so on. They create conflict and disturb the climate of the organisation. 7. Organisational Ambiguities

Ambiguously defined rules, policies, procedures, works, responsibilities, roles and statuses, and unclear goals lead to multi-interpretations, which is a major source of conflict. Lack of clarity and precision results into confusions and mistakes that affect adversely one’s outcomes.

8. Structure of Organisation Here, the term ‘structure’ indicates size, degree of specialisation, leadership style, number of levels in management, reward-punishment system, degree of interdependence, communication system, and many other such aspects. Large size, more specialisation, more formalisation, close and strict leadership style, improper reward-punishment system, high degree of work interdependence, lack of proper communication, more complexities, etc., have more potential to promote conflict. 9. Other Sources

Apart from the above sources, there are countless causes fueling conflict situations. Some of them include: (i) (ii) (iii) (iv)

Rigid attitudes of management and/or employees Desire for novelty and change Instigation or provocation from outside Uncertainties of consequences of efforts

636 (v) Frustration or failure to achieve expected results (vi) Lack of willingness of people to admit their inabilities (vii) Emotional instabilities

Conflict Resolution (Methods/Strategies) Conflict resolution can also be called handling conflict. Methods used for handling conflicts are known as techniques, strategies or models of conflict resolution. Normally, conflict resolution denotes analysing, reducing or removing (eliminating) conflict. Conflict resolution is a part of conflict management. Diagnosis and analysis are necessary to understand conflict thoroughly. Diagnosis of conflict implies detecting and accepting conflict while analysis of conflict deals with its detailed study. Figure 22.6 shows main conflict resolution techniques. Such techniques are used for preventing, removing, or reducing conflicts.

FIGURE 22.6

1. Domination To dominate means to exercise control over parties involved in conflict. Manager, by the virtue of his authority and position, can dominate or suppress either one or both parties to reduce or eliminate differences. Parties are told/forced to reduce differences and maintain harmony. Conflict resolution by domination includes mainly five techniques, (1) physical separation of parties, (2) forcing them to reduce differences and maintain harmony, (3) avoiding or ignoring them, (4) resorting to majority rule, and (5) smoothing (or simplifying) the matter.

2. Third Party Negotiations

Instead of direct negotiation by parties to a conflict, a third party is involved to help them find a solution. Third party negotiation is preferred when parties

637 involved in conflict fail to resolve their differences through direct negotiation. According to Robbins, there are four methods to resolve conflict by third party negotiation: (i) Arbitration: Arbitration includes playing the role of an arbitrator (or arbiter). An arbitrator is a third party to a negotiation, who has authority to dictate an agreement.8 (ii) Mediator: A mediator is a neutral third party who facilitates a negotiated solution by using reasoning, persuasion, and suggestions.9 Mediator cannot dictate an agreement. He is just a facilitator and assists parties to find solution to the problem. (iii) Conciliator: Conciliator is a trusted third party who provides an informal communication link between the negotiator and opponents.10 He is an intermediary between the parties in a conflict. He can just facilitate to arrive at amicable solution to the problem. (iv) Consultant: Consultant is outside neutral professional expert to facilitate problem solving through expert comments. He cannot issue judgment, but can make the parties develop better understanding.

3. Confrontation The method is used when probable impact of conflict on organisation is not serious. Manager asks the parties to settle the issue in their own way. This method is followed when parties in conflict have adopted rigid positions and are not ready to compromise. They are permitted to fight out issues, and to test their strengths and capabilities. They resort to negotiation and bargaining and accept each other’s strengths. Normally, this method is not used. 4. Mutual Problem Solving (Integrated Problem solving) It is self-settlement method. It is also known as integrated problem solving technique. Parties in conflict themselves try to find a reasonable solution to the problem. It is, thus, settlement by mutual consensus. Parties in conflict are ready to compromise. According to Robbins, compromise is a situation in which each party to the conflict is willing to sacrifice (give up) something. This is widely used for resolving any type of conflict. The method can be used when parties in conflict are ready to discuss the issue with open mind and healthy attitudes. They try to find out the facts, put reasonable demands, and understand feelings of each other. Capable leadership can facilitate parties to speed up the solution process. 5. Effective Communication

Effective communication helps in preventing, minimising, as well removing conflicts. It is obvious that improper communication is common source of many types of conflicts. Organisation must design proper communication network to minimise/prevent unnecessary conflicts. Effective communication minimises ambiguities and clarifies the matter. It keeps people informed and active.

6. Structural Reforms/changes Most conflicts are structural in nature. Conflict can be resolved by creating an appropriate organisation structure, and maintaining and modifying it when necessary. Suitable structure can be a base for preventing and reducing unnecessary conflicts on one hand, and promoting and maintaining satisfactory level of useful conflicts on the other hand. Structural changes include several actions.

638 7. Creating and Maintaining Healthy Climate and Culture Healthy organisational climate and culture prevent deleterious (or harmful) conflicts and promotes cooperation. Such climate/culture encourages parties to resolve conflicts amicably, if any. Here, differences or disagreements are considered positively and are treated as novel or creative ideas rather than problems. People are encouraged to present their differences (i.e., develop conflict) for better performance. Conducive organisational culture and climate boost morale of employees and develop a sense of belongingness. People in organisation behave like family members, and, in such family climate, conflicts are welcome rather than discarded. Superior-subordinate relations tend to be elder-younger relations. To create and maintain constructive work climate/ culture is not easy. The head of the organisation must initiate actions on a regular basis. 8. Formulation of Common (Superordinate) Goals Many types of conflicts have their roots in goals. It is quite natural that every member in a group, every group in a department, and every department in the organisation has its goal priorities. When employees are ignored in the goal setting process, when their needs are not considered reasonably, when their problems are not considered sympathetically, and when there is perception of being cheated, their frustration is reflected in form of conflict. In short, goal-conflict exists when goals are not compatible (or well matched). To avoid or resolve conflicts related to goals, manager must formulate common goals objectively that can incorporate individual differences and priorities related to goals. In the same way, participative goal setting process can solve goal related conflicts. 9. Other Methods Apart from above discussed methods, there are other methods used to resolve conflicts. They have been listed below: (i) (ii) (iii) (iv) (v)

Dynamic leadership Compromising Effective Human Resource Management Participative decision-making Maintaining conflict redressal cell or committee to deal with conflict.

SUMMARY Stress and conflict, though closely related terms, are different. Both terms are realities of todays large, complex, and uncertain organisations. Stress and conflict have reciprocal effect. Both conflict and stress have important implications for understanding, modifying, and controlling human behaviour at work. Stress is a condition of mind when people feel pressure while adjusting or adapting with situation they confront, and it results into physical, psychological, and behavioural changes. Stress is an important factor for maintaining and improving standard performance. It keeps people active, alert and engaged in work. Excessive stress is not desirable. Main causes that create stress include (1) Extra-organisational stressors, (2) Organisational stressors, (3) Group stressors, and (4) Individual stressors.

639 High or excessive level of stress creates three types of problems, (1) physical problems due to stress (2) psychological (mental) problems due to stress (3) behavioural problems due to stress. Stress coping strategies can be classified into two broad categories, individual level stress coping strategies, in which a person himself tries to keep stress under control, and organisational level stress coping strategies, in which organisation must undertake effective measures to reduce stress level of its employees. Conflict is a generic term. It is more or less similar to clash, difference, disagreement, or lack of harmony. Attitudes towards conflict have changed considerably in the last three to four decades. Conflict is a mental state and indicates disagreement on any issue. Normally, it is expressed in form of opposition, hostility, non-cooperation, non-responsiveness, avoidance, or ignorance. Optimum conflict is the specific level of conflict at which conflict has positive impact on organisation’s performance. It is desirable level of conflict. Note that conflict is inherently neither positive nor negative. Functional and dysfunctional effects of conflict depend on how it is perceived and managed. Conflict resolution can also be referred as handling of conflict. Methods used for handling conflicts are known as techniques, strategies or models of conflict resolution. Conflict resolution is part of conflict management. Popular and widely used conflict resolution techniques or methods are (1) Domination (2) Third Party Negotiations (3) Confrontation (4) Mutual Problem Solving (Integrated Problemsolving) (5) Effective Communication (6) Structural Reforms/changes (7) Creating and Maintaining Healthy Climate and Culture (8) Formulation of Common (Superordinated) Goals.

KEY TERMS Stress Conflict Desirability of Stress Optimum Level Stress Sources of Stress Impacts of Stress Stress Coping Strategies

Traditional and Modern Views Optimum Level Conflict Types/classification of Conflicts Impacts of Conflict

Causes or Sources of Conflict Conflict Management and Resolution Diagnosis and Analysis Conflict Resolution Techniques

EXERCISES Objective Type Questions A. Answer the following: 1. 2. 3. 4. 5. 6.

How are stress and conflict related? What is stress? Is stress desirable? Why? What is optimum level stress? List four types of stressors. State any four individual level stress coping strategies.

7. 8. 9. 10.

Define conflict. What level of conflict is desirable? Mention four major sources of conflict. List four major conflict resolution strategies.

640 B. Choose the correct option (MCQs): 1. In view of modern management, what is desirable? (a) Absence of conflict (b) Completely stress free work (c) Optimum level of stress and conflict (d) None 2. Which of the following statements is true? (a) Stress and conflict are non-related terms (b) Stress is physical pressure that people feel in their life (c) Conflict is disagreement on any issue (d) Stress is not desirable at all 3. Yoga, exercise, psychological treatment, positive thinking, and simple lifestyle are (a) Individual level stress coping strategies (b) Organisational level stress coping strategies (c) Sources of conflict (d) Sources of stress 4. Anger, anxiety, depression, nervousness, irritability, and tension are (a) Physical problems due to stress (b) Psychological problems due to stress (c) Outcomes of conflict (d) Stress coping strategies

5. Optimum level conflict indicates (a) Absence of conflict (b) Low level of conflict (c) Avoidability of conflict (d) Desirable level of conflict 6. In relation to stress and/or conflict, how are clarification, creativity and innovation, and improved relations perceived? (a) They are sources of conflict (b) They are stress coping strategies (c) They are functional outcomes of conflict (d) They are, in any way, not related to conflict and stress 7. Which one is true? (a) Conflict resolution is part of conflict management (b) Conflict management is part of conflict resolution (c) Conflict management involves eliminating all types of conflict (d) Management is not responsible for handling conflict 8. The act of simplifying, analysing, or explaining the matter to people involved in the conflict is called (a) Third Party Negotiations (b) Domination (c) Smoothing (d) Confrontation

Descriptive Questions 1. What do you mean by the term ‘stress’? Explain its nature (characteristics). How are stress and conflict interrelated? 2. ‘Stress is desirable in organisation.’ Comment. Write a note on ‘optimum stress.’ 3. Discuss various sources or reasons of stress at work. 4. What are the impacts of stress on employees? Discuss stress coping strategies. 5. What is conflict? Explain characteristics of conflict.

6. What do you mean by optimum level conflict? Explain with the help of a diagram. Briefly state outcomes of optimum level conflict. 7. Explain: (a) Different views on conflict (b) Conflict as an essential phenomenon 8. Write notes: (a) Positive outcomes of conflict (b) Negative outcomes of conflict

641 9. ‘Conflict is result of many factors.’ Explain the statement and discuss common causes/ sources leading to conflict.

10. Explain the term ‘conflict resolution’ and discuss widely used conflict resolution techniques.

Assignments 1. Ask the students to describe the stress they feel in their life, prepare a list of key stressors leading to stressful life, and debate the stress coping strategies they can apply.

2. Students are assigned to explore globally practiced stress coping strategies from relevant media.

REFERENCES 1 Fred E Luthans, Organisational Behaviour, 10th ed., International Edition, McGraw-Hill, New York, 2005, p. 330 2 Keith Davis, Human Behaviour at Work, Tata McGraw-Hill, New Delhi, India, 1981 3 Fred E Luthans, op .cit, pp. 379 – 386 4 Meyer Friedman and Ray H Rosenman, Type A Behaviour and Your Heart, Knopf, New York, 1975 5 Ibid. pp. 393 –395 6 Ibid., pp. 396 –398 7 Keith Davis, op. cit. 8 Stephen Robbins, Organisational Behaviour, Prentice-Hall of India, New Delhi, India, 2000, p. 402 9 Ibid., p. 402 10 Ibid., p. 402

ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. Stress and conflict have reciprocal effect. 2. Stress is a condition of mind when people feel pressure while adjusting or adapting with a situation. 3. Yes, because certain level of stress keeps people active, alert, and engaged in work. 4. Optimum level stress is desirable level or ideal level of stress. 5. External stressors, organisational stressors, group stressors, and individual stressors 6. Physical exercise, time management, relaxation and behavioural self control 7. Conflict is a mental state and indicates disagreement on any issue. 8. Optimum conflict is desirable. 9. Poor communication, shared resources, incompatible goals, and interdependent activities. 10. Domination, third party negotiations, confrontation, and mutual problem solving B. 1. (c), 2. (c), 3. (a), 4. (b), 5. (d), 6. (c), 7. (a), 8. (c)

642

CASE Peace Pact of Pune-based IT Companies Talent is a real asset for IT companies. The companies are found striving to chase talent, whereever available. The $500 billion IT industry had been fighting a fierce war for talent to maintain double-digit growth in 2010. Fighting for talent affects adversely all those involved in the act. To end the talent war, the leading twenty eight IT companies situated at Pune’s Hinjewadi IT Park initiated a peace pact. Infosys employs around 42,000 employees at Pune, last year 8,000 employees exited. It shows a clear sign of the simmering war of talent. IT companies lose nearly $2 billion annually due to attrition, including loss of productivity and expenditure to find replacements. Some officials said that there was price pressure from customers and competitors. They believed that if attrition was not arrested, their profitability would decrease. Loss of staff is loss of knowledge; and knowledge is an asset for IT industry. Normally, finding a replacement and making him productive takes 2 – 6 months. Even acquiring and training replacement (i.e., new employees to fill vacancies) is costly. Twenty eight IT companies, including Infosys, TCS, Cognizant, and Wipro—instead of ruthlessly poaching talent from each other—agreed to work collectively to reduce attrition (slow destruction). These companies account for 100,000 of the 250,000 IT professionals employed at Pune. They contributed at least Rs. 19,000 crore of the total Rs. 48,000 crore worth of software export from Pune last year. The companies arranged the first meeting hosted at the Infosys campus in Hinjewadi in June 2010 and explored a no-poaching agreement. They arrived at a pact (deal or agreement) that they could hire employees of rivals only after candidates had fully served out notice period. Earlier, it was common practice for the hiring companies to pay salary in lieu of the notice period. This worked well for the hirer, but caused problems for the former employer who did not have enough time to find replacements. Companies agreed that new employees could not join without a relieving letter from the previous employers. Earlier, it was not the condition. All of them agreed that HR departments of companies should workout ‘codes of ethics.’ Mritunjay Singh, the Pune Head of Infosys and president of the Hinjewadi Industrial Association (HIA), confirmed that they met to work out a broad agenda. IT companies formed a core group and decided to meet once in every month. The Hinjewadi peace pact had also agreed on campus recruits. The 28 companies formed a work group which would craft a unified communication module on the state of the industry and its talent needs. This would be used by HR teams of all 28 companies in their interactions at campuses. Companies are trying to fix the problems they had created by rampant poaching during 2007 – 08. Now, they donot want to harm each other by making same mistakes again. Peace pact of IT firms is an attempt to reduce conflict amongst them, and also the stress level of employees. (Source: ‘Peace Pact Deal of Pune based IT Companies,’ The Economic Times, Ahmedabad, 17th June, 2010, p.1 and p. 9)

643 Questions for Discussion 1. ‘Senseless fighting leads to impoverished ends.’ Discuss the statement in light of today’s competitive business environment. What should companies do to avoid attrition resulting from senseless fighting? 2. Outline the talent war at Pune’s Hinjewadi IT Park. 3. What was decided in the meeting hosted at the Infosys campus in Hinjewadi in June 2010? Why? Explain the key provisions of ‘no-poaching’ agreement. 4. Discuss joint HR practices at Hinjewadi IT Park. 5. ‘Today’s CEOs have to do beyond the Law to protect their interests by mutual agreement.’ Comment. 6. How would you evaluate the ‘peace pact’ of IT companies in relation to conflict and stress?

CHAPTER

23

Managing Change Learning Objectives Upon completing this chapter, you will be able to: Define change and enlist its features Describe process of planned change Discuss resistance to change and identify causes leading to resistance Explain methods to overcome resistance to change Examine role of management in changing environment Explain the term ‘Organisational Development’ (OD) and enumerate its features Summarise OD methods and describe OD process

INTRODUCTION This chapter consists of two parts—managing change and organisational development (OD). Change management deals with a particular change while OD deals with imparting and monitoring various changes on a continuous basis. OD keeps the organisation ready to respond to emerging changes. Compared to change, OD is a wide and comprehensive term. The first part deals with various aspects of managing change followed by organisational development.1

MANAGING CHANGE Change is a common phenomenon. It is an essential aspect of human life. It is a very important issue as it affects entire organisation, its survival and growth. Generally, change affects time, duty, work, pay, authority-responsibility, tools, technology, structure, and processes within the Note: Additional reading material related to this chapter is available on the companion website of this book.

Managing Change

645

organisation. It helps in adjusting with needs/forces of external environment. No organisation can work in a vacuum. If any organisation wants to exploit opportunities emerging from the environment, it has to prepare for absorbing various useful changes. Since business environment is dynamic, the organisation has to be dynamic; an organisation can be dynamic by identifying, accepting, and implementing useful changes at the right time. The success of any business enterprise depends largely on its ability to impart needed changes on a continuous basis. Therefore, change management is an integral part of manager’s basic duties. He is responsible for identifying, accepting, and implementing useful changes.

Definitions of Change Change is a very common term and is used with every aspect of human life. When already established pattern of life is altered, it is a change. It is not possible to define the term in an exact way as it is a very lose term used in context with almost every aspect of the organisation. However, one can define change as under: 1. Change simply means alteration or putting one thing for another. Change involves addition, subtractions, improvement, or replacement of things or people. 2. Change is concerned with making the things different. 3. Any variation in the established way of life to which people are accustomed in the organisation is known as change. 4. Organisational change refers to creation of difference or imbalance in the existent pattern of living or dealing at work.

Nature of Change We know that change offers both life to the organisation and also threatens the existence of life. Those who fail to obey demand of time have to face adverse consequences. Some people, though willing, find it difficult to adopt certain types of changes because of lack of capabilities. Nature of change can be better discussed with reference to following features: 1. Change is an essential phenomenon, and, hence, it is inevitable (unavoidable). People have to change to take advantage of change. 2. Change demands alteration in the established way of life. It forces people to adjust and readjust with new things, foregoing the existing ones. 3. Change brings opportunities or troubles (threats), depending upon the capacity of people, and how it is managed. 4. It is a base for growth and development because it offers plenty of opportunities for development. 5. Organisation responds to its environment by inviting and implementing change. Therefore, it is a form of organisation’s response to its environment. Similarly, change is also implemented because of internal needs or forces. 6. Change may be economic or non-economic, direct or indirect, immediate or gradual, partial or total, and so on.

646

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7. Resistance to change is a common problem faced by most organisations. People resist the change due to a number of reasons. 8. Successful implementation of change requires planned intervention (systematic plan) based on study and analysis of a number of considerations. 9. Most managers work as a catalyst, whose task is to absorb change in the very interest of the organisation. Sometimes, external professional consultants also perform the same task. 10. Change is always in form of addition, replacement, improvement, or subtraction of something.

Types of Change Change means any kind of alteration for purpose of achieving goals. It affects routine life. Change can be of different types, such as: 1. Physical and psychological 2. Partial and total 3. Positive and negative 4. Desirable and undesirable 5. Gradual and immediate 6. Visible and invisible 7. Avoidable and unavoidable 8. Economic and non-economic 9. Conscious and spontaneous 10. Individual, group, and organisational 11. Voluntary and compulsory 12. Temporary and permanent

Definitions of Related Terms Certain terms are frequently used with change. They are: 1. Change Intervention: A planned action to make things different. It implies systematic managerial actions to bring about change. 2. Change Agent: Change agent is a person, group, or agency that acts as catalyst and assumes the responsibility for managing change; an individual leading and guiding the process of change in an organisational situation. He plays leadership role in managing the process of change. He may be member of organisation or outside consultant. 3. Client System: Individuals, group, or organisation that is the target of planned change. It is the target where, or in which, change is to be implemented. 4. Change Management: Change management is concerned with systematic managerial efforts to manage different issues related to change. It involves analysing business environment, identifying and selecting useful changes, implementing the same effectively, and

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undertaking necessary follow-up actions on a continuous basis. Change management is one of the important tasks of modern managers.

Planning and Implementing Change Change is essential as it is concerned with survival and growth. Sometimes, it seems indispensable. Manager must go for systematic planning and implementing useful changes. Systematically planning and implementing change is called change intervention. Planning is related to undertaking certain steps before the change is implemented. It involves (1) studying current environment in relation to objectives, (2) deciding on change agent and client system, (3) identifying, diagnosing and analysing changes, (4) preparing strategies for implementing and monitoring changes, and (5) ensuring top management commitment. Thus, it involves formulating action plan to bring about change. Implementing is concerned with putting change into action. It involves identification, internalisation and institutionalisation. Identification is putting new things before people to be changed, internalisation is stabilising the change, and institutionalisation is making the change a permanent part of organisation. While implementing change, review and feedback, resource allocation, reward system, and top level management commitment are essential aspects that need focusing. Change process discussed in following part contains components of planning and implementing the change.

Change Process Change process is also known as planned intervention. As noted earlier, to implement change is a challenging task. It needs overall considerations and requires not only arrangements/ provisions of resources and facilities, but also preparing employees to welcome change wholeheartedly. A manager has to take into account a number of issues related to individuals, groups, and organisation. Further, time factor is very critical aspect in implementing change. In fact, it is not possible to suggest a uniform change process. Change process—number of steps and type of steps—depends upon analysis of a large number of factors, like type of change, expected outcomes, purpose, degree of resistance to change, ability of organisation, experience level of managers, time pressure, and so on. However, Lewin1 suggests three phases of change process, unfreezing, changing, and refreezing. With a little improvement, following steps may be followed for implementing a planned change. See Figure 23.1:

Pre-change Preparations

Introducing Change –Unfreezing and Changing

Refreezing (or Reinforcing)

Evaluation and Actions

FIGURE 23.1 Steps in Change Process

1. Pre-change Preparations (Planning the Change) Before any change is implemented, a manager has to prepare a detailed plan in advance. He has to set up a platform for successful implementation of the proposed change. It is obvious that certain changes are very critical and

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demand heavy investment as well as major modifications in the existing structure. Therefore, he is required to review the proposal of change on one hand, and make intensive preparations for implementing that proposal on the other. Pre-change preparations involve followings aspects: (i) Identifying organisational needs for change with reference to objectives (ii) Deciding elements to be changed—which things and to what extent should be changed (iii) Reviewing the change proposals (evaluating change proposals) to decide on the degree to which one or more change proposals are essential (iv) Deciding on the time for implementing change (v) Estimating expected outcomes of change or its possible benefits (vi) Deciding on change agent—who will work as a change agent and what is the role/duty of organisation in this regard (vii) Costs consideration and provision of facilities needed (viii) Estimating the degree of resistance to change, and proposed machinery to overcome resistance to change

2. Introducing Change Once it is decided to implement change, the organisation acts to put change in practice. A manager has a complete blueprint to proceed. This step calls for two sub-steps—unfreezing and changing. Unfreezing Unfreezing means making people to forget, forgo, or unlearn the established or old behaviour to learn a new one. It suggests making a way for new things. Employees are required to forget old skills, patterns, and tools to learn new ones. Obviously, unless people are ready to give up existing behaviour, they cannot be prepared to acquire a new behaviour (new way of working, new skills, new pattern, or new location). Kurt Lewin2 suggested certain ways to make people unfreeze the established way of working. They are: (i) Physical removal of individuals being changed from accustomed routines, places, sources of information, and social relations (ii) Undermining and destructing (cutting off) of all social support (iii) Demeaning and humiliating (degrading) experience to help individuals see that old ways are unworthy, and to motivate to change (iv) Consistent linking of rewards with willingness to change and punishment with unwillingness to change (v) To make individuals feel that they have to forget (useless) things to accept a (useful) new one (vi) To make them aware of need for change; to convince them that change is inevitable and can fetch benefits to both, employees and organisation

Changing

The step is concerned with preparing people for implementation of change. Here, change agent (internal or external) plays an important role. When the individual is ready to learn something new, it becomes easy to introduce change. Changing involves two stages— identification and internalisation. Identification occurs when, for the first time, the individual is provided with a model behaviour with which he identifies himself. Thus, he is given a new

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behaviour to learn. Training and development activities are vital at this stage. Here, possible resistance to change must be tackled carefully. Gradually, he will try to emulate (imitate or follow) behaviour of that model, and, finally, accept the new behaviour as his own. This is known as identification process. Another is internalisation, which occurs when individual is placed in such a situation where new behaviour is demanded. So, he is forced to practice new behaviour, apply new skills and knowledge, or use new tools. He tries to adjust with new situation by using the new behaviour repeatedly. Finally, the particular behaviour becomes part and parcel of his life.

3. Refreezing (or Reinforcing) Refreezing implies monitoring the change so implemented. It is concerned with undertaking post-change actions. It is act of stabilisation of change. Once change is implemented successfully, a manager has to take certain steps to reinforce it. When an individual accepts new behaviour, he must be given enough opportunities to display/ practice it. A manager has to make provisions of facilities needed for the purpose. This is essential otherwise new behaviour is likely to extinguish. When he is given chance to practice a new behaviour (skills or knowledge), he justifies that he is right in accepting change. He is constantly encouraged and appreciated to apply new skills and knowledge in performing the actual work. Making the change permanent part of organisation is called institutionalisation. 4. Evaluation and Actions The last step is related to feedback and follow up actions. When change has been implemented and employees have accepted it, it is necessary to see whether it has positively contributed to organisation’s objectives. Net improvement or contribution is assessed to find the degree of success. If it is observed that change is contributing positively as per expectations, there is no need to take action. In case of different situation, the manager (change agent) has to find the reasons for poor performance or failure to implement change. Based on the reasons detected, appropriate actions must be taken. Resistance to Change When manager contemplates and initiates change in the organisation, one common phenomenon that is likely to emerge at any time/stage in the change process is resistance to change. The degree of resistance depends on the type of change, degree of alteration, type of people involved and to be affected, organisation’s support and policies, perceived level of benefits or losses, and type of society as a whole.

Managers’ Resistance to Change

Like employees, the managers who are responsible to invite and implement change also resist it initially. Resistance from managers is also a focal issue for top authority to consider. Managers (who are referred as change agent) may resist inviting and implementing change because of many reasons, (1) proposed change increases managers’ responsibilities, (2) change disturbs their work life balance as they have to adapt to new situations, (3) change deteriorates their relations with peers and followers, (4) change confronts them with uncertain outcomes and undesirable consequences, (5) change intensifies their tension and stress level, and (6) other similar reasons. Proper training, strong support of higher authority, attractive rewards, and security measures can help minimise the resistance level of managers. Top management must work to minimise resistance.

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At the initial stage of change process, people react dysfunctionally to change. They may deny that change is taking place or may resist it. Generally, they manifest their resistance in form of apathy (indifference), opposition, or hostility. People do not like to change because change brings alteration in already established way of life. It disturbs the existing equilibrium/balance. Change brings some sort of hardships and challenges. To many people, change seems painful. To overcome this disequilibrium, people are required to undergo the process of adaptation and adjustment, which is not free from pain. If management facilitates this adjustment, a little or no resistance is likely to occur. To the extent the human being is ignored in change process, the potential for resistance to change exists. Briefly, resistance to change is attributed to three types reasons—related to change itself, related to employees, and related to organisation.

Common Causes Figure 23.2 outlines common causes leading to resistance to change.

FIGURE 23.2 Common Factors Leading to Resistance to Change

1. Problem of Adjustment This is one of the important factors for resistance to change. Every individual tries to maintain a sort of equilibrium, both at formal and informal levels. When change is introduced, it requires people to make new adjustments to cope with new situations. And, they have to set a new equilibrium. People do not like to forgo existing equilibrium (entire pattern of living, dealing, and working). They want to seek status quo because it offers them comfort and satisfaction. A change may present a number of difficulties in adjusting with a new situation. Changing is painful. People resist change to avoid problem of adjustment. 2. Economic Reasons A change is likely to be resisted when it causes economic loss to some people. It affects adversely their economic benefits, pay, and other monetary benefits. The greater is the amount of loss perceived, the greater is the degree of resistance. People do not like to lose economic gains. They may perceive several types of economic losses, such as:

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Fear of being laid-off (unemployment) Technological unemployment Fear of reduced work hours and/or wage rate, and reduced monetary benefits Fear of demotion and reduced pay Fear of raising standards, increasing workload, or speeding up, and reduced incentives Fear of having to bear costs of learning new skills and knowledge (training) Cost of readjustment at different place, in different situations, etc

3. Obsolescence of Skills A change may result into obsolescence of skills and knowledge when a new method of working is adopted. Old techniques become useless. So, people percieve a threat and resist it. In the same way, any change in method of working may result in reduction in authority, and may affect adversely their position and status. They wish to work in the old way, do not like to acquire new skills, or are not capable to learn them. This phenomenon is commonly found in those people who do not possess real marketable skills, and whose knowledge is outdated, for example, introduction of automation in a factory and obsolescence of skills of a mechanic or a worker.

4. Emotional Factors As a result of change, many people are affected emotionally and sentimentally. It generally happens when people cannot analyse the impacts of change in an objective manner. They do not know the real nature or essentialness of change, and immediately perceive the change emotionally, or with prejudice. Main emotional factors include: (i) Fear of Unknown: Due to uncertainty of outcomes, they fear something unexpected. For some people, even the word ‘change’ is highly frightening. They are disturbed when they are asked to do new things or do existing things in a new way. Thus, they resist change. (ii) Ego Offensiveness/defensiveness: In many cases, change is resisted because it affects people’s ego. Ego defensive people always resist change. Ego is the state of a person’s way of behaving, thinking, and feeling. When people feel that, due to implementation of proposed change, their importance would be reduced, their role would be curtailed and they would have to work under awkward situations, they start resisting it. Any alteration in status, seniority, position, role, respect, authority, etc., affects ego. When people, for any reason, are not involved in decisions related to change, they perceive the ignorance as equal to insult. Ego hurt people strongly resist change. (iii) Love and Affection with Place, Machine or Tools: People do not like to give up old machines or tools they have been working with for a long time and have mastered. They develop a kind of attachment or intimacy with tools, machines, methods, or places. When proposed change demands alteration, they feel that they have been deprived of their preferred (beloved) tools, machines, or places. (iv) Group Norms: Individual resists change because the group to which he belongs resists it. The group emotionally pressurises the individual to register his protest against the proposed change. Normally, willingly or unwillingly, each individual follows group norms to stay in it, to continue the group membership. However, degree and extent of group

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pressure on individual to resist change depends upon various factors, such as (1) loyalty of individual towards the group, (2) how far he perceives the group as a separate class than change agent, (3) degree of individualism, (4) degree of support of organisation, (5) level of group pressure on the individual, (6) personality characteristics, and so forth.

5. Social Factor Change is also resisted because of some social factors. Social factors include both social climate of the organisation and personal social life. Change may disturb social environment of people in the organisation by breaking informal groups and relationships. People dislike new adjustments. They do not prefer to work with a new group, under a new boss or with new subordinates because they have to reset social environment. Change probably reduces social satisfaction. It also affects their culture, values, traditions, norms, and social relationships. In the same way, their personal or family life is also disturbed. They find it difficult to adjust with completely different environment (people, place, surroundings, culture and climate). Due to change, employee’s family members also face many difficulties. Sometimes, a person resists change due to emotional pressure of family members. 6. Other Common Reasons Apart from reasons stated above, there are certain common reasons responsible for resistance to change. They are: (i) Lack of clarity regarding nature of change (ii) Lack of dynamism (rigidity, lethargy, backwardness, etc.) of people (iii) Lack of complete and relevant information (iv) Lack of proper motivation (v) Lack of security (vi) Lack of positive and constructive climate in the organisation (vii) Lack of objectivity (change is made on personal ground) (viii) When people affected are not taken into confidence, or are deliberately ignored

Overcoming Resistance to Change Change is an essential phenomenon. Change contributes positively to survival and development. It is, in many cases, inevitable to implement. However, most changes are resisted. Unless the degree of resistance is reduced or removed, it is difficult to implement it successfully. Cooperation and support of employees seem essential. Resistance must not be equated with hostility. It must be treated in a positive and constructive manner. In some cases, change is not resisted for the sake of resisting, there may be valid reasons. Change agent needs to take into account the reasons leading to resistance. To overcome resistance requires a great deal of ability and experience on the part of the manager. To overcome means to reduce, prevent, or defeat resistance to change. He needs to understand why it is being resisted and how it can be overcome. Sometimes, outside experts are also consulted for the purpose. Appropriate internal and/or external attempts must be directed to reduce or remove resistance. A change agent has a vital role to play in this regard. In fact, every causes discussed in the former part suggests what a manager should do to overcome

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resistance to change. Depending upon type of change to be introduced, degree of resistance, type and number of people involved, reasons for resistance, and time and cost factors, appropriate strategy should be evolved to subside degree of resistance to change.

Methods or Strategies Several methods are used to overcome or reduce resistance to change. Figure 23.3 shows methods or strategies to overcome resistance to change. Depending upon the situation, one or more methods can be used. 1. Consideration of Group Force

Effective implementation of change requires taking an entire group into consideration, along with individuals supposed to be affected. Usually more individuals are involved in change. A group is an instrument for bringing strong pressure on its members to accept change. Once a changed behaviour is grounded in the group to which one belongs, group force encourages change in individual behaviour. Simply, involvement of a group, instead of individuals who are supposed to be affected, is a problem-solving technique. However, power of a group to induce change in its members depends upon the strength of its attachment to group members. In the same manner, change should be implemented in a way that does not disturb social system of the group more than necessary. Thus, entire group should be involved in discussion and decisions related to change.

2. Effective Leadership Effective leadership is inevitable for successful implementation of change. Capable and experienced leadership reinforces a climate of psychological support for change. A leader should present change in form of impersonal requirement of the situation, rather than on personal grounds. He can explain the need to bring about change. He must, if needed, warn about the consequences if change is not accepted. He can clarify every doubt raised by individuals in an objective manner, explain every facet related to change, and ensure sufficient protection to individuals’ interests. Using appropriate style of influencing behaviour of followers, he can build a climate of confidence and trust, vital for implementing change. 1. Consideration of Group Force 2. Effective Leadership 3. Participation 4. Shared Rewards 5. Employees’ Security 6. Effective Communication 7. Training and Development 8. Working with Union 9. Working with Total System 10. Others

FIGURE 23.3 Methods/Approaches to Overcome or Reduce Resistance to Change

3. Participation

Participation refers to involvement and consideration of those who are supposed to be affected by change. Participation is a fundamental way to build support for change. It encourages the employees to discuss, communicate, and make suggestions. It makes people interested

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in the matters related to change. Participation can prove a powerful method to build support as it makes people think that they are given importance in a crucial decision. It promotes a sense of belongingness and loyalty, which are instrumental for implementing change.

4. Shared Rewards

Change is resisted either because the people involved cannot perceive rewards available to them, or because they are not promised the benefits resulting from it. Employees must be assured that there are enough rewards for them in the changed situation. Naturally, if they feel that there is no gain for them, they would hardly support. Here, both financial and non-financial rewards are essential. It is desirable to give benefits as directly as possible to keep them active. In short, they should be given guarantee for sharing of benefits.

5. Employees’ Security Along with shared rewards, the employees must be safeguarded against any loss resulting from change. They must be protected against uncertainty of outcomes. They resist change because they feel insecure. Their pay and other monetary benefits must be secured along with their jobs and job seniority. They should not have to bear any cost of acquiring new skills and knowledge. Similarly, they must be informed that sufficient steps would be taken to protect them against risky and hazardous work processes. All these would make them feel that they would not lose anything as a result of change.

6. Effective Communication Effective communication is vital to improve behaviour for change. Even though change affect one or few members of the group, all need to know about it in order to feel secure and to maintain group cooperation. Effective communication involves (1) suitable message/subject matter, (2) suitable methods and language, (3) right time and in right way, (4) clarity and precision, etc. Effective communication leads to understanding and acceptance of change. Employees must be provided with necessary information to make them perceive the entire situation in the right way. Communication helps in introducing change in two ways. First, by effective communication, a manager can take employees in confidence in advance. It helps in creating a suitable environment before change is introduced. Second if, in spite of the sincere efforts made in advance, change is resisted, effective communication helps in convincing people to change their stand and be prepared to accept it wholeheartedly. Twoway effective communication can solve many problems. 7. Training and Development Proper training reduces degree of resistance. Employees must be suitably trained to make them aware, to prepare them mentally, to enrich their skills and knowledge to adjust with new work and work place, and to help them feel that change is useful. Career planning and organisational development programmes must be introduced to prepare employees mentally and physically before change is invited and implemented. 8. Working with Union Many times, employees’ union can help in introducing change in the organisation. Especially, when union has raised its voice against proposed change, working with it is the only way to overcome resistance. The union activities are to protect interest of its members. It frequently casts resistance without detailed consideration. Discussion with open mind may help in convincing the union leaders regarding the need for change, and help them understand how it is useful for employees. If the union leader is convinced and taken into

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confidence, the task of introducing change becomes easier for management as the union can encourage its members to extend cooperation. If necessary, it can force its members to cooperate in implementing change. Many unions have positive attitudes and favour technological and other changes beneficial for employees in the long run. However, union’s support and assurance do not always work; they do not lead to reduced resistance.

9. Working with Total System

Management should consider entire organisation system (all the departments, divisions, people, resources, and so on) for imparting change. Involvement of total system facilitates its implementation. When total system is taken into account, all departments and employees working in them will be automatically connected to the change process. In fact, any change always has either immediate or future effect on all departments in the organisation. Likewise, a department planning to invite change needs assistance from other departments. When all departments are informed in advance, and are taken into confidence, there would hardly be any resistance. In short, entire system should be associated for bringing about change. Working with total system, on one hand, prevents resistance to change, and, on the other hand, helps in reducing/removing it. Thus, entire change intervention works smoothly when entire organisation is connected to the matter related to change.

10. Others

Besides these methods, there are some organisational approaches or methods used to overcome or reduce resistance to change. They are listed below:

(a) Planning the change carefully (b) Slow or gradual introduction (c) Continuous review and feedback (d) Provision of necessary inputs and facilities (e) Positive and humanitarian approach Thus, many methods are available to prevent or reduce resistance to change. However, use of any method depends largely on various aspects, like type of change, degree of resistance, and number of people affected, and likewise. Mainly, the manager should select a suitable method based on what causes have led to resistance. When attempts to overcome resistance are made in light of reasons leading to resistance, the matter can be handled more effectively. Employee-centric Changes at Google India’s Office Nothing makes one happier than a sense of freedom. Global search giant, Google, has changed the definitions of formal organisation structure. It has introduced many changes to create a unique employee-friendly work culture that makes its employees happy at wok. It offers different types of freedoms, such as (1) freedom to air new ideas and opposing viewpoints with the management, (2) freedom to do things differently, and (3) freedom to have a healthy work life balance. These changes have contributed in a number of ways to excel business performance. Google strongly believes that freedom to employees is important and positively reflected in many ways. In line, many companies have invited innovative management practices. Such innovative practices are considered as organisational development (OD) programmes. Google India’s corporate culture is known for excessive employee friendly climate.

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Emerging Horizons of Management in Changing Environment Emerging horizons indicates emerging role of management in context with change. It also implies management perspectives, approaches, functions, or scope in relation to change. Clearly, management plays crucial role in dealing with various change related issues. It works as a catalyst system for inviting and introducing change. Managers have to work as change agents, and should set the effective catalyst system to bring useful change in practice. By constantly responding to changing environment, management tries to update the organisation through identifying, inviting, and implementing useful changes.

Role of Managers Role of management in changing environment can be discussed in light of following points: 1. Study of business environment 2. Searching for relevant changes to be implemented 3. Implementing change 4. Monitoring change and balancing organisation 5. Keeping organisation ready for implementing change at any time 6. Formulating relevant rules, policies, and procedures Management should remain aware, alert, and active for the interest of the enterprise. Any matter related to change should be considered with care and caution. A well-equipped organisation can minimise adverse impacts of external environment on business performance. In short, business management needs to be transformed into change management. Management is a system or agency to manage change related issues effectively.

ORGANISATIONAL DEVELOPMENT (OD) Organisational development, abbreviated as OD, is closely related to change; OD efforts are undertaken to respond to changes. Managing change and OD are closely related. It is used to encompass a collection of planned change intervention. In nutshell, change management is concerned with managing a particular change while OD is concerned with managing changes on a continuous basis. Actually, OD can be actualized through implementing a number of internal changes in the organisation. It is aimed at preparing the organisation to adapt with external changes. OD, in fact, is concerned with preparing organisation for change instead of simply implementing it. It makes the organisation and people in it resilient to work effectively amidst turbulent changes, uncertainties, and challenges. OD has been practiced since 1950s in one or other forms in different parts of the world. OD movement is believed to have been initiated in the 1950s when Douglas McGregor applied the concept at United Carbide and Esso in United States of America. The Survey Research Center at the University of Michigan has been improving it since 1960s. Now, it is a part of management literature and management practices across the world.

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Definitions of Organisational Development Organisational development (OD) is not an accurate term. People use OD in relation to a wide range of techniques, processes, and strategies used for organisational change, modifications, and improvements. Its scope is as yet not defined clearly. OD is a systematic and comprehensive approach to launch and diffuse necessary changes in the organisation. It is basically a longterm plan or programme to change attitudes and performance of people throughout the organisation. Note that it is not a one-time training programme, but is an on going and cyclical process. It is a complex educational strategy that is aimed at achieving better fit between employees and organisation. It is aimed at improving flexibility of organisation to adapt with ever-changing business environment. Different writers and OD experts have defined OD in their own way. Let us examine some definitions: Dale S. Beach: "OD is a complex educational strategy designed to increase organisational effectiveness and wealth through planned intervention by a consultant using theory and techniques of applied behaviour services."3 Stephen Robbins and Seema Sanghi: "OD is a collection of planned change interventions, built on humanistic-democratic values, that seeks to improve organisational effectiveness and employee well being."4 So, it can be defined as: OD consists of long-term, systematic programmes to change attitudes, beliefs and capabilities of people, and to modify structure of organisation to equip them comfortably to incorporate the necessary changes resulting from external forces like technology, market factor, and some others.

Key Features To understand the nature and scope of OD, let us examine a few features: 1. OD is responsive to change. OD programmes are aimed at preparing organisation to absorb changes comfortably. 2. OD is a broad programme aimed at changing the entire organisation—structure, attitudes and beliefs of people, organisation philosophy, and way of working. It focuses on the whole organisation. OD aims at changing the climate and culture in organisation for overall improvement. 3. OD consists of long-term efforts to improve performance and satisfaction of people in the organisation. It is aimed at improving organisation’s overall effectiveness. 4. OD is a new version of traditional training and development programmes. OD programmes are based on basic theories, research works, and successful practices. Most OD interventions are research based. 5. OD is dynamic. When objectives and/or situation change, OD tools and techniques need to be changed. 6. OD contains a range of approaches, tools, and methods to change people as well organisation structure. It also includes self-development efforts. Behavioural scientists, agents or catalysts can extend their help in OD programmes.

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7. OD involves both psychological (like attitudes, beliefs, skills, capabilities, etc.) and physical (like structure, position, place, etc.) changes. 8. OD is normative-educational processes. It is a problem-solving approach. It is not merely a concept, but it shows alternative solution. 9. OD, in many cases, demands drastic changes. Role of external experts (known as change agents) seems inevitable to bring major departure in old structure, practices, philosophies, and people’s mentality. However, some organisations have their own internal change agents. 10. OD is treated as a profession. Many external experts conduct OD programmes for their clients on professional basis. 11. OD involves two types of processes, learning process as well as teaching process. Teaching process is initiated by organisation intervention programme, and people learn by teaching process as well as by experiences. 12. OD provides feedback so as to evaluate how far improvement has been made or effectiveness has been achieved.

OD Process OD is concerned with a long-term plan for improving organisation’s overall effectiveness. Generally, it contains three broad phases (main stages or steps) diagnosis, intervention, and evaluation. In view of modern management theory and practice, following three phases, stages or main steps can be suggested in the OD process.

1. Diagnosis Stage Diagnosis stage involves following sub-steps: (a) Primary Assignment of OD Task: Initially, a manager or external expert is assigned a task to initiate OD programme in the organisation. He prepares a platform for OD programme. (b) Study of Organisation: It is data collection stage. The expert studies people and structure to know strengths and weaknesses of organisation in relation to objectives. (c) Problem Identification: Here, change agent (or expert) tries to detect and identify inadequacies within organisation which can be corrected through OD programme. He tries to find out what is wrong in organisation. (d) Problem Analysis: He tries to collect complete detail about the problem to scale up the need of OD.

2. Intervention Stage

Intervention (also called planned change) is systematic programme to introduce change. It, normally, contains four sub-stages: (a) Planning the Change: A plan is prepared to change attitudes, habits, and behaviour of individual as well climate and culture of organisation. Now, the change agent attempts to know what, where, and how much to change to improve organisation’s effectiveness and employee satisfaction. Here, structure and people are the focus of planned intervention. Intervention budget is also prepared.

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(b) Selection of Intervention Design: This sub-stage is concerned with selecting the design of OD programme. Important issues to be focused are: Who will manage intervention? What type of design or OD techniques the change agent will use? When and where does the intervention initiate? How much modification is to be done? What actions will be taken to tackle contingencies or confrontations, if any? In short, all key issues related to the design of OD programme are properly considered. (c) Implementation of Intervention in System: The OD programme is now introduced in the system. Implementation starts with training. Intervention takes place in several forms, such as workshop, feedback data to participants, group discussion, written exercise, on-the-job activities, redesign of control system, etc. Reinforcement efforts are essential at this stage. (d) Action Planning and Problem solving: Intervention agents organise joint meetings of managers and subordinates for team building and inter-group development. All OD activities should be carefully and patiently monitored to internalise and institutionalise needed changes.

3. Evaluation Stage Evaluation stage consists of measuring degree of success of OD intervention. Once OD programme is successfully implemented, the change agent must evaluate the effectiveness of the programme. This stage is concerned with post-intervention actions. It mainly involves evaluation, feedback, and corrective actions. It shows how far OD intervention is successful and what is needed to be done to modify the programme. The step consists of: (a) Measuring and comparing results with objectives (b) Detecting defects and causes (c) Communicating causes with relevant people (d) Providing feedback to all people actively involved (e) Modifying OD programme Many Indian companies, including ITC, M&M, L&T, Google India, LIC, SBI, HUL, and some others, follow more or less same OD processes. Many of them maintain well-equipped OD (or training) departments for perusing continuous development activities.

OD Tools (Techniques Or Interventions) Team building, consensus, openness, feedback, trust, confrontation, inter-group conflict, and strategy are important ideas that are frequently mentioned in OD sessions.5 Different experts and writers suggested some OD techniques or interventions for bringing about change. Change agent strongly emphasises collaboration. Stephen Robbins and Seema Sanghi6 suggested following six OD interventions or techniques:

1. Sensitivity Training Sensitivity training is most commonly used OD intervention. The training attempts to make employees sensitive to others. It contributes to improve participants’ empathetic skills. This method is also called laboratory training, encounter group or T-groups. In this method, members are brought together in a free and open environment

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in which they discuss themselves and their interactive processes. Participants express their views, beliefs, and attitudes openly. Behavioural scientists loosely direct and support them. Participants learn to be sensitive to others by observing and participating and can enrich their understanding about others. The basic objective of this method is to provide the participants with increased awareness of their own behaviour and how others perceive them. The method broadens their understanding. The training results into improved understanding of group processes, better communication and listening skills, high group cohesiveness, openness, development of specific behavioural skills, increased tolerance of individual differences, and improved conflict resolution. Successful T-group training can prevent and/or solve many problems in the organisation. Sensitivity training contains face-to-face interaction. Training is unstructured. The group is given full freedom to interact. It enables understanding of feelings, emotions, gestures, and attitudes. Sensitivity training may include role playing, inter-group competition exercises, selfinsight questionnaires, theory session with lectures, background readings, panel discussion, and also audiovisual aids.

2. Survey Feedback Survey feedback consists of the use of questionnaire to identify discrepancies among members’ perception, discussion follows, and remedies are suggested.7 While designing questionnaire, the participants are asked to suggest questions. The questionnaire consists of questions related to member’s perceptions and attitudes on broad range of topics, such as communication practices, pay, working conditions, decision-making pattern, coordination among departments, and satisfaction with peers, superior and organisation. Thus, instead of expressing their views openly in oral form, the participants are given questionnaire to filled. Every one can participate in survey feedback. This tool is used for three purposes, one, to assess attitudes the organisational members hold, two, to identify discrepancies among members perceptions, and three, to solve these differences. The data collected through questionnaire are then tabulated and analysed. The results are distributed to employees. These data can serve as base to know what participants think about several aspects of the organisation. They are used to identify problems and clarify issues that create difficulties for people in the organisation. Members are encouraged to discuss the key issues through group discussion. They jointly try to find out valuable implications of questionnaire findings. Implications are implemented for improving organisation’s overall performance.

3. Process Consultation (PC) A process consultation consists of an external consultant who can assist a client (i.e., manager) to identify and understand various processes that need improvement. Process consultant meets the members of work teams and observes their interactions and skills in identifying problems and problem solving procedures. Consultants in PC give the client insight into what is going around him, within him, and between him and others people.8 Process consultant does not solve the problem, but provides guidance and coaching to help the client solve it. Consultant works jointly with the client for diagnosis to identify which processes need improvement. He helps client to develop skills to identify and analyse processes within the organisation. If problem requires technical knowledge, the consultant helps the client locate other experts, too.

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4. Team Building Team building is aimed at improving employees’ ability to work together as a team. Today’s organisation requires teams, not groups, to accomplish the tasks. Team building is applicable where group activities are interdependent. It is more relevant to intra-group level than inter-group level. The method emphasises on high interaction among members to increase trust and openness. Its objective is to improve coordinative efforts of members to improve team’s performance. The team building efforts are made by internal and/or external efforts. Type of activities to be included in team building depends on the purpose and problems of teams. Team building typically includes goal setting, development of interpersonal relations among team members, role analysis to clarify each member’s role and responsibilities, and team process analysis.9 (For more details, refer Chapter 22 on ‘Group Dynamics.’)

5. Inter-group Development

This OD technique deals with (i.e., preventing, minimising, or resolving) the dysfunctional conflict between groups. Inappropriate perception and attitudes are key source of inter-group conflicts. The technique is an attempt to change attitudes and perception the groups hold for each other. In this method, each group meets independently to develop a list of perceptions about itself, about other groups, and about how other groups perceive it. Then, the groups discuss similarities and differences of their perceptions and attitudes. They jointly try to reduce differences and give emphasis on similarities. They try to minimise each other’s misunderstandings that lead to conflict. They go for further diagnosis of their perceptions and attitudes to clarify the facts, resolve conflicts, and improve relations.

6. Appreciative Inquiry (AI) Appreciative inquiry seeks to identify the unique qualities and special strengths of an organisation, which can then be built on to improve performance.10 While other OD techniques are concerned with finding problems and generating defensiveness, this technique focuses on organisation’s successes or strengths rather than problems, shortcomings, or weaknesses. Thus, AI stresses more on what the organisation is already doing with excellence. Obviously, it is more preferable. AI technique consists of four steps: (a) Discovery – To find out what people think are the strengths of the organisation. (b) Dreaming – To speculate on possible bright future chances for the organisation. (c) Design – To focus on dream articulation. Participants’ are asked to find out common vision based on organisations’ qualities and strengths. (d) Destiny – To define organisation destiny. Participants are asked to discuss how organisation would realise its dream. They decide on action plans and implementation of strategies.

7. Other Techniques

Besides these six OD interventions, experts on the field suggest more

techniques, such as: 1. 2. 3. 4.

Role Playing (may be treated as part of Sensitivity Training) Grid Training or Managerial Grid Management By Objectives (MBO) Job Enrichment

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5. Participative Management 6. Quality Circles (QCs)

Importance of OD OD programme aims at changing the attitudes, values, and beliefs of employees so that they themselves can identify and implement necessary changes. OD gives more emphasis on ‘people’ side of the organisation. It also tries to change organisation structure, practices, policies, etc. It aims at improvement of total organisation system to utilise full potential of employees. It leads to sustain change in behaviour for better organisation performance. Successful OD programme offers a number of benefits, as stated below: 1. It focuses on improving human qualities. It changes members’ attitudes, beliefs, and habits so that they can understand each other. 2. It offers the organisation and each of the organisational members, the opportunity to develop to full potential. 3. It provides opportunity to people to work as human beings rather than mere inputs in operations. It maximises the chances for members to get overall satisfaction. 4. It increases level of trust and mutual emotional support among members. 5. It enhances openness in communication. It increases members’ enthusiasm and personal satisfaction. 6. It optimises the effectiveness of various systems that can achieve organisational objectives. 7. It promotes high collaboration and low competition between interdependent units. 8. It creates a climate in which changes can be effectively implemented. It keeps the system ready to impart useful changes. 9. OD improves immunity of organisation to operate amidst obstacles and challenges. It improves firm’s adjustability by making all systems dynamic. 10. It helps in confronting resistance and resolving conflicts. It assists in finding solution to problems with greater efficiency. 11. It assists managers to set realistic objectives, rules, policies, and procedures. 12. It attempts to capitalise firm’s strengths.

SUMMARY Change management deals with a particular change while OD deals with imparting and monitoring various changes on a continuous basis. OD keeps the organisation ready to respond to emerging opportunities as well as threats. Change is a common phenomenon. It is an essential aspect of human life. It is very important issue as it affects entire organisation, its survival and growth. Change is concerned with making things different. Change intervention, change agent, client system and change management are important terms related to change.

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Change process consists of four steps: (1) Pre-change preparations (2) Introducing change (3) Refreezing, and (4) Evaluation and actions. Resistance to change is a common phenomenon. Change disturbs people’s established way of life. They resist change due to many reasons, like problem of adjustment, economic reasons, obsolescence of skills, emotional factors, social factors, and other common reasons. To overcome resistance requires a great deal of ability and experience on the part of manager. He uses different methods to overcome resistance to change. Management plays crucial role in dealing with various change related issues. Managers have to work as change agents and should set the effective catalyst system to bring change in practice. Manager’s role in changing environment consists of various tasks, such as study of business environment, searching for relevant changes to be implemented, implementing change, monitoring change and balancing organisation, keeping organisation ready for implementing change at any time, and formulating relevant rules, policies and procedures. OD consists of long-term and systematic programmes to change attitudes, beliefs and capabilities of people, and to modify structure of organisation to equip them comfortably to incorporate the necessary changes resulting from external forces like technology, market factor, and some others. OD process consists of three main phases or stages—Diagnosis Stage, Intervention Stage, and Evaluation Stage. Each stage consists of relevant sub-steps. Chief OD techniques are: Sensitivity Training, Survey Feedback, Process Consultation (PC), Team Building, Inter-group Development, Appreciative Inquiry (AI), and other techniques. OD programme aims at changing the attitudes, values, and beliefs of employees so that they themselves can identify and implement necessary changes. OD aims at the improvement of total organisation system to utilise full potential of managers. OD programme offers a number of benefits.

KEY TERMS Change Change Management Types of Change Change Intervention Change Agent Client System

Change Process Unfreezing and Refreezing Resistance to Change Overcoming Resistance to Change

Organisational Development (OD) OD Process OD Techniques

EXERCISES Objective Type Questions A. Answer the following: 1. Define change. 2. List main steps of change process. 3. Mention five chief reasons leading to resistance to change.

4. What does overcoming resistance to change mean? 5. Write four widely practiced methods to overcome resistance to change.

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6. Which types of changes does OD aim at? 7. What are the main stages involved in OD process? 8. State any four technique of OD.

9. Who is a process consultant? 10. What does the Appreciative Inquiry (AI) focus on?

B. Choose the correct option (MCQs): 1. How are change and OD related? (a) OD is part of change (b) OD is concerned with keeping the organisation ready to implement changes on a continuous basis (c) Change management and OD are completely unrelated terms (d) OD and change are completely identical terms 2. Which of the statements is not true? (a) Change is essential phenomenon (b) Change is inevitable in organisation (c) Change is never resisted by people at work (d) Overcoming resistance to change is prime duty of managers 3. In relation to resistance to change, which one is true? (a) People resist change for the sake of resisting (b) People never resist any type of change (c) People resist change due to a number of reasons (d) People resist change only for money 4. Individuals, groups or organisation that is the target of planned changed is called (a) Change intervention (b) Change agent (c) Change management (d) Client system 5. ‘Unfreezing means making people forget old things while refreezing means to remember old things.’ The statement is (a) Fully correct (b) Fully incorrect (c) First part of statement is correct

(d) Latter part of statement is incorrect 6. OD movement is believed to be initiated by (a) Peter F Drucker (b) Douglas McGregor (c) Henry Feyol (d) F W Taylor 7. OD is aimed at changing organisation climate and structure, but not attitudes, beliefs, and capabilities of people in the organisation. (a) The statement is partially correct (b) Whole statement is correct (c) Whole statement is incorrect (d) Statement is not at all not related to OD 8. What does the diagnosis stage in OD process imply? (a) It implies implementing change through planned intervention (b) It implies evaluation, feedback and corrections (c) It does not imply anything in relation to OD process (d) It implies problem identification and analysis 9. Which one of the OD techniques involves the use of questionnaire to identify discrepancies among members perception, after which discussion follows and remedies are suggested? (a) Survey Feedback (b) Sensitivity Training (c) Process Consultation (PC) (d) Team Building 10. Which one of the OD techniques emphasises on organisation’s successes or strengths rather than problems or weaknesses?

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(c) Sensitivity Training (d) Appreciative Inquiry (AI)

Descriptive Questions 1. ‘Change is essential phenomenon.’ Discuss the statement in relation to dynamic nature of business environment. 2. Define the term ‘change’ and suggest types of changes. Also discuses its types and nature. 3. Explain systematic change process. 4. ‘Change is not always resisted.’ Comment. Discuss common causes leading to resistance to change.

5. Discuss methods to overcome resistance to change. 6. ‘Managing change is prime duty of today’s managers.’ Explain the statement in relation to emerging horizons of management in changing environment. 7. What is OD? How does it differ from change? Enlist its features. 8. Explain OD process. 9. Write a note on OD techniques.

Assignments 1. The students are assigned to search for and prepare stories, from all possible sources, about innovative changes the leading Indian companies have adopted in the fields of marketing, human resources and organisational behaviour. 2. The students are assigned to describe the pressure they have felt in their life to adopt

change, and how they have managed the situation. 3. Students are required to discuss various aspects (like concept, process, methods, benefits, etc.,) of OD in relation to their academic institute.

REFERENCES 1 Kurt Lewin, ‘Frontiers in Group Dynamics: Concept, Method, and Reality in Social Equilibria and Social Change,’ Human Relations, Vol. 1, June 1947 2 Ibid. 3 Dale S Beach, Personnel: The Management of People at Work, Macmillan, New York, 1980, p. 426 4 Stephen Robbins and Seema Sanghi, Organisational Behaviour, Dorling Kidndersley (India), 2006, p. 532 5 C B Memoria, Personnel Management, HPH, New Dehli, 2007, p. 356 6 Stephen Robbins and Seema Sanghi, op. cit., p. 532 7 Ibid., p. 533 8 E H Schein, Process Consultant: It’s Role in Organisational Development, Addison Wesley, 1988, p. 9 9 Stephen Robbins, op. cit., p. 534 10 Ibid., p. 535

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ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. Change is concerned with making the things different 2. Steps are (1)Pre-change Preparations, (2) Introducing Change, (3) Refreezing, and (4) Evaluation and Actions 3. Reasons are: (1) Problem of Adjustment, (2) Economic Reasons, (3) Obsolescence of Skills, (4) Emotional Factors, and (5) Social Factors 4. To overcome means to reduce, prevent, or defeat resistance to change 5. Methods are: (1) Consideration of Group Force, (2) Effective Leadership, (3) Participation, and (4) Shared Rewards 6. OD is aimed at (1) changing attitudes, beliefs and capabilities of people, and (2) changing climate and structure of organisation 7. OD process consists of three main stages: (1) Diagnosis stage, (2) Intervention stage, and (3) Evaluation stage 8. OD techniques are: (1) Sensitivity Training (2) Survey Feedback (3) Process Consultation (PC), and (4) Team Building 9. Process consultant is external expert who helps the client organisation to find out and solve organisation’s problems. 10. The Appreciative Inquiry (AI) focuses more on organisation’s strengths and competitive advantages than weaknesses. B. 1. (b), 2. (c), 3. (c), 4. (d), 5. (c), 6. (b), 7. (a), 8. (d), 9. (a), 10. (d)

CASE Making Office a Happier Place Freedom at workplace is the most preferred drive. People want freedom to work, to express their views, to oppose authority’s standpoint, to form a group, to have flexible work schedule, and to do something different. Still, some have started their own business units to taste the pleasure of freedom, and be their own boss. People want a workplace where there is a group of happier colleagues around, and the office becomes a place he likes to go to every morning. Mass media publish news and stories to make managers aware of how some companies are adopting changes for building happier workplaces for their workers. Companies’ HR policies and practices have undergone drastic changes in last couple of years. In view of modern concepts— positive organisational behaviour (POB), modern job design and job satisfaction, freedom as a source of motivation and morale, high performance work practices (HPWPs), quality of work life (QWL), and work-life balance—many companies have adopted innovative practices to offer freedom at work. Google India has actualized employee orientation. The company emphasises on empowerment and freedom to employees. The company invited and implemented many changes to make the workplace a source of pleasure and satisfaction. Established in 1998, a Bangalore-based global search giant, Google, employees 1259 people with a voluntary turnover of 30%. Google’s casual and easy work culture gives home-like freedom to employees. A visit to the Google office reveals a colourful ambience—furniture and game boards—creating a fun atmosphere. Many self-motivated managers continuously attempt to transform the office into home-like environment. Google provides an environment without

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hierarchy and restrictions and gives abundant freedom to the employees. As per survey of The Economic Times and Great Place to Work Institute, the company is in the list of Ten Best Companies to Work For, (2010). Company practices creative approaches to work, play, and life. Jayashree Ramamurti, the head of People Operations, Engineering & Product, Google India, said, ‘Our atmosphere may be as new ideas immerge casual in cafe line, at team meeting, or at the gym, they are traded, tested, and put into practice with dizzying speed—and they may be the launch pad for a new project destined for worldwide use.’ Google offers different types of freedom, like freedom to flex your work hours to accommodate family life while still meeting organisational goals, freedom to air new ideas and opposing viewpoints with the management, freedom to do things differently, and freedom to have a healthy work-life balance. Time and Freedom to Innovate: It has sought the best aspects of a startup culture. It has placed idea above hierarchy, and has tried to make it easy for Googlers to make things happen. The employees are encouraged to spend a fifth of their time on anything that they are really passionate about. It’s one way in which innovation beyond regular work is encouraged, and the passion present in highly spirited and talented employees is fuelled. This type of climate provides the individual with the independence to experiment, improve, and innovate, while, at the same time, also benefiting the organisation. Many significant new products have grown out of this programme, like Google Earth Outreach, GMail, Google News, Google Finance, Orkut and Ad-Sense for content. Freedom to Give Feedback: Google believes that ideas and innovation can come from anywhere. Physical spaces like shared offices, long café tables, and break-out areas are specially designed to encourage collaboration and conversation so that new ideas generated in casual conversation can be incorporated easily for the company. Likewise, everyone feels empowered to contribute to the development of a new products and ideas. Company encourages all Googlers, regardless of position or tenure, to give candid feedback and suggest new features that are eventually incorporated into the final product. Freedom to Know and Express: ‘Thanks-Google-Its Friday’ (TGIF), the information weekly programme, is used to (1) make important company announcements, (2) conduct a questionanswer session, and (3) enjoy great food. It assumes that employees have the right to know what’s happening at the company, they should feel comfortable in asking questions even to the most senior members of the management team, and executives should talk to employees as openly as possible and make their suggestions. The company freely supports employees who want to pursue an advanced degree while continuing to make an impact on their full-time role. Freedom for Career Advancement: The part-time degree programme provides the option of financial assistance and necessary time away from work to successfully complete a degree programme. Googlers who leave to pursue a full-time degree may apply for support through this programme. On being rehired successfully back into the company, they are welcome to apply for tuition reimbursement assistance. The company conducts annual survey to assess employees' happiness quotient and takes feedback in form of career development, performance management, compensation and benefits, workplace culture, and so forth. Company attempts to create the right culture in which great and creative things are more likely to happen. Google strongly believes that freedom to employees is important and positively reflected in many ways. (Sources: Based on: ‘Making Office a Happier Place,’ The Economic Times, Ahmedabad, August 10, 2010, p. 1 and p. 18; www.idea.economictimes.com)

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Questions for Discussion 1. 2. 3. 4. 5. 6. 7. 8.

Give brief idea of the recent employee orientation practices in corporate world. What is the role of freedom as a source of motivation and satisfaction? Give brief idea about Google’s efforts to make the office a place people like to go? What types of freedom the company offers to its employees? What are the efforts the company makes to promote innovative ideas? Explain the purpose behind TGIF? What does the company believe about the programme? Explain ‘Idea before Hierarchy’ strategy of company. Do you think that the practices Google has adopted can be applied successfully to other companies of other sectors? Why?

CHAPTER

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Communication, and Power and Politics in Organisation Learning Objectives Upon completing this chapter, you will be able to: Define communication and state its features Explain the importance of communication Describe the main components of communication network Discuss communication barriers and suggest guidelines for effective communication Define the meaning of power and explain sources or bases of power Relate situation and power and examine political implication of power Define organisational politics and enlist important strategies

INTRODUCTION Communication is part of management as well as organisational behaviour. It is used to make people work, and also to influence behaviour of people in the organisation. Communication is also part of power and politics. Most politics, to acquire power and allied benefits, are played through communication. Communication is single most crucial factor that affects almost every aspect of management as well as behavioural science. The present chapter discusses relevant aspects of communication followed by power and politics. The chapter-end case reveals how communication, power, and organisational politics affect internal climate of the organisation.

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COMMUNICATION Communication is one of the most powerful determinants of human behaviour at work. It is one of the tools of directing efforts of people in the organisation. However, it has remained a big challenge for the modern manager. It has potential for both, as a source of problem, as well as solution to the problem. Effective communication can alone restrict many problems from arising and/or can solve any type of problems in organisational setting. Research studies across the world conclude that managers devote one third of their time to routine communication. Similarly, communication has remained a vital issue in personal and social life. Undoubtedly, communication plays an important role in improving managerial performance and making personal life meaningful. Organisational conflict, quarrel among people, ethical prejudice, generation gap, war between nations, politics in groups, industrial disputes, and many other problems can be attributed to ineffective communication. Communication across the culture is a vital issue in global business environment. Communication Practices at M&M, Unilever, HP, and Google India Anand Mahindra, CEO of M&M Group, uses social networking to enrich communication. Anand Mahindra has 137,000 followers on Twitter and gets direct feedback from customers and passes it on to management team. At the same time, he also shares his philosophy and vision on the Mahindra Group with others through social networking. Unilever CEO, Paul Polman, uses emails and videoconferences to maintain live contact with top executives working in different countries. Delhi-based Hewlett-Packard India (HP), a leading IT firm, uses open encircles in office to encourage informality and ease of communication among employees. The company celebrates family days, annual picnics, kid days, dial-a-chocolate, wedding gifts, subzi-on-wheels, car serving facilities, etc., to promote informal communication. Google offers enough scope for expression of views and feelings. At different places, white boards have been placed where employees can write anything. They can express their resistance, reactions, and problems. In addition, they can write their creative ideas on the board. It is the best way to facilitate brain-storming. Conducive communication policies and practices promote informal communication link with employees, strengthen intimacy between company and employees, and consequently minimise organisational politics (i.e., political behaviour of employees).

Definitions

The word ‘communication’ has been derived from Latin term ‘communis,’ which means ‘common.’ In this context, communication refers to exchange or sharing of idea common for people. Communication involves the exchange/transmission of ideas, feelings, and understanding between two or more people. Let’s examine some definitions. 1. Newman, Summer and Warren: "Communication means exchange of facts, ideas, views, and feelings between two or more individuals"1 2. Dale S Beach: "Communication is transfer of information and understanding from person to person."2 3. J W Newstrom and Keith Davis: "Communication is the transfer of information from one person to another person. It is a way of reaching others by transmitting ideas, facts, thoughts, feelings, and values."3

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Thus, communication is defined as: Communication involves exchange of ideas, feelings, attitudes, and wishes between two or more people. Communication does not only involve sending or receiving message in the oral or written ways, but also includes all the things that convey some meaning, such as posture or gesture (like movement of lips, limbs, movement of eyes, and facial expression, etc.)

Characteristics of Communication Almost all definitions of communication are, more or less, identical. Common characteristics of communication have been listed below: 1. It is an exchange of ideas, suggestions, or understanding between two or more persons. It is a process of sending and receiving messages. 2. Speaking, writing, reading, acting, listening, observing, and reacting through gestures are fundamental aspects related to communication. 3. It is a human activity. Only human beings can comprehend the message. 4. It is one of the techniques of directing. Direction involves motivation, communication, leadership, and supervision. 5. It is vital for managing people at work. Manager can get the things done through people by effective communication. 6. Only sending and receiving of message is not sufficient, message must be understood in a way the sender expects. Therefore, it is not mere transmission of message. Correct interpretation and proper understanding are important facets of communication. 7. It is universally used. It is difficult to imagine any interpersonal activity which does not involve communication. 8. It may be, in relation to management, an administrative process. It facilitates administration. 9. It may be written, oral, or gestural, may be in upward, downward, or horizontal direction, may be formal or informal, may be regular or incidental; and may be positive or negative. It includes everything that can convey the meaning. 10. It has potential to cause or solve problems depending upon how it is used or managed. 11. It is a continuous process. In management, a manager is required to direct and control employees’ efforts and monitor their performance on a continuous basis. These tasks need communication.

Communication Process Communication is a process of exchanging ideas, suggestions, or understanding. The process is always dynamic and involves constantly changing variables. Further, it involves certain meaningful steps to be followed in order. The communication process depends on a wide range of variables. Sometimes, lengthy and systematic process is followed; sometimes, short and simple process is followed. The process depends on type of message, number of people involved, communication setup and facilities, and so on. However, following process is used

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in a normal situation. In management, communication process is taken as a continuous process as shown in Figure 24.1.

FIGURE 24. 1 Communication Process

1. Sender Communication starts with sender. The step relates to ‘who’ aspect of communication. A sender is the person who wants to send the message to others. He has a source of message in his mind. So, in the first step, one has to decide who wants to communicate. Sender can be any person irrespective of position, post, authority, or status.

2. Idea or Message In the second step, idea or message is decided. It implies ‘what’ aspect of communication. An idea is the subject-matter of communication. Here, what a sender wants to convey is specified. Idea or message involves suggestions, appeals, opinions, complaints, orders, instructions, or attitudes and feelings. Idea must be clearly and precisely defined.

3. Encoding

A message is abstract and intangible. It cannot be transmitted directly. It must be converted into certain symbols, like words, pictures, gestures, behaviour, or actions. The act of converting original message into symbols (symbolic form) is known as encoding. Encoding is concerned with ‘how’ aspect of communication.

4. Channel

This step is concerned with transmitting the message to the targeted destination. The channel is a tool, method, mode, route, or medium by which the desired message is transmitted (i.e., sent or received) from one end to another. There are various channels through which message (in symbolic form) can be sent. The most popular channels include mail (including e-mail), online chatting and networking, direct voice (face-to-face talk), person (messenger), video-conferencing, intercom, phone, fax, radio, and television. Channel selection depends on type of message, cost, time, reliability, channel availability, and other relevant issues/factors. It also relates with ‘how’ aspect of communication.

5. Receiver This step is concerned with ‘whom’ aspect of communication. A symbolic (or encoded) message is sent to receiver. Receiver is the person for whom the message is meant. He is also known as communicatee, respondent, addressee, or audience. A receiver receives the message either directly or indirectly. Receiver may be individual (superior, subordinate, peer, or any person), group, or organisation. 6. Decoding

Decoding can be defined as the act of understanding the message in the exact manner, as intended by the sender. It is quite opposite to encoding. The symbolic message is converted into original or meaningful message. The message must convey a sort of understanding.

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7. Feedback Feedback is the response of the receiver to the sender. It is also called reaction of receiver. Feedback ensures that the receiver has received the message and has understood it in the same way the sender intended. Feedback may be in form of reply, action, or storage of message. This step guarantees that communication has been completed successfully. Importance of Communication Communication is fundamental need/function of today’s management practices. If manager becomes an effective communicator, most problems can be prevented or solved. It is not an exaggeration to state that there are no problems of different kinds, they are all communication problems. No problem is too difficult to solve via effective communication. Communicability (communication ability) is one of the prime requisites of today’s leader and manager. Importance of good communication can be described as under:

1. Effective Decision-making We know, for management, information is as important as blood in human being. It is also a fact that managerial decisions are taken on the basis of information. Quality of decisions largely depends on availability and quality of information. Communication function of management is directly related to provision of necessary information on a regular basis. Manager can regulate almost all activities by effective communication.

2. Improved Performance Effective communication improves managerial performance; managerial performance depends on communication. It facilitates managerial actions. Manager can guide, instruct, and order people to get the work done. He can also know about employees’ problems, difficulties, and feelings. Every action of manager is possible only by communication. It is the basic need for managerial performance. 3. Tool for Leadership Communication is a tool for leadership. A leader needs to be an effective communicator. He can inspire, encourage, and motivate subordinates by suitable communication. Communication is the basic requirement for promoting team spirit and group cohesiveness. In brief, leader can influence behaviour of his followers with suitable communication. 4. Tool for Coordination Communication is also an effective tool for coordination. It keeps the entire organisation alive and connected. It ensures that every employee of each department knows what is to be done and how. Efforts of all people of all departments can be coordinated in pursuit of desired goals. Coordination—soul of management—can be achieved by right type of communication. 5. Economy

Communication leads to overall economy in the organisation. Time, efforts, and money can be effectively managed by appropriate communication. Every action can be taken as per need, and in time, with minimum possible wastage. Operational efficiency improves and costs tend to reduce.

6. Aid for Job Satisfaction Communication is an aid for job satisfaction. Job satisfaction and morale are dependent on communication. Proper communication can guide or instruct

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employees in performing the job better. Their confusions and problems can be solved immediately. They are satisfied with their work and, consequently, high morale prevails.

7. Healthy Public Relations Communication helps in public relations. Public relations involve establishing and maintaining profitable relations with the parties involved, directly or indirectly, with the operations of the organisation. These parties are suppliers, banks, government departments, middlemen, social organisations, academic institutes, and other similar groups. Healthy relations with these parties are not only essential, but also inevitable for smooth functioning of business operations. Effective communication maintains close contacts with these parties. Many companies appoint a public relations officer (PRO) for effective communication with the parties concerned. 8. Understanding and Accepting Work Communication is an aid for understanding and accepting work. Employees can be guided, instructed, or ordered to enable them to work as per requirement. As they understand how to work, they readily accept it. They can be told clearly what is expected of them. Similarly, their problems, confusions, or suggestions can be given due attention.

9. Smooth Running of the Enterprise and Maximum Productivity

Communication is fundamental need to ensure smooth and undisruptive functioning of the business enterprise. Clarity, continuous contact and consideration lead to effective running of business activities. Communication is a tool for solving any conflict/problem, and preventing the same from arsing as well. Effective communication can improve productivity.

10. Better Image and Goodwill in the Market Communication can also contribute to creating and improving image and goodwill in the market. It is communication that highlights firm’s operations, activities, contribution, and achievements. Similarly, systematic relations with all parties concerned can create good image of the firm. Not only this, but company’s spoiled image can also be improved by removing misunderstandings, clarifying facts, and convincing people. Effective communication can safeguard company’s image. 11. Others Certain issues, imply importance of communication: (i) It prevents strike, lockout, mass leaves, and other such unexpected events. (ii) Healthy and conducive organisation climate and culture can be created and maintained. (iii) Communication helps in other functions of management, mainly in planning and controlling functions.

Communication Network Communication network implies the total arrangement for communication. It is a total system related to communication and it involves sum total of various elements or facets of communication, like channel, modes, direction, formal provisions, and facilities. The network is used for sending and receiving messages effectively on a continuous basis. It may be a permanent or temporary setup or structure, meant for communication purpose. Figure 24.2

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shows main elements or facets of communication. Communication network plays a vital role in determining smoothness, speed, and correctness of communication. Each organisation must select the most suitable network to facilitate proper communication. The network is dependent upon various factors, like type of message, time available, cost, reliability, and so forth. Mathematically, the network can be expressed as: Communication Network = Channels + Modes + Directions + Formal Provisions + Facilities

Elements of Communication Network

Channels, directions, methods or modes, facilities and resources, and formal provisions are basic facets or elements of communication network.

1. Channels Communication channel is also known as communication medium or pathway. Communication message is transmitted through the channel. Channel is very important aspect in communication network. Effectiveness of communication is largely dependent on type of channel. Phone, fax, video-conferencing, mail and e-mail, intercom, postal and courier services, messenger, Internet, radio, newspapers, television, etc., are common channels used for communication. There are two types of channels, formal channel and informal channel.

FIGURE 24.2 Elements of Communication Network (a) Formal Channel: Formal channel is deliberately, purposefully, and officially prescribed path for regulating the flow of information between various levels, positions, or destinations. The formal channel is aimed at smooth, accurate, and timely communication throughout the organisation. The official or formal communication network may be a single channel network or a multiple channels network. Single Channel Network: A single channel communication network prescribes only one path of communication for any particular position, and all communication in that position will follow this path only. Multiple Channels Network: As against single channel network, the multiple channels network provides a number of channels linking one position with various other positions. It is difficult to manage.

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(b) Informal Channel or Grapevine: It is not an official channel. It is created spontaneously by people in the organisation for social and psychological needs. The grapevine concept is applicable to all types of informal communications. Informal channel is used for social and non-programmed activities within the formal boundaries of the organisation. Informal network works parallel to the formal network. Many management writers and experts opine that informal channel provide positive services to the organisation. However, it also creates a number of problems as it is not controllable. Informal network is part and parcel of organisation process, and its existence cannot be ignored. The positive use of such network depends upon abilities and skills of managers.

2. Methods or Modes of Communication A message can be transmitted on/through channel by using various forms, which can be said as communication methods. Depending upon type of message, we can classify methods as under: (a) Written Communication: In that, communication is in written form. It involves written words, graphs, diagrams, pictures, etc. Written communication is, normally, in form of letter, report, fax, e-mail, circular, notes or manuals. It is one of the effective modes of communication. Written message offers a lot of benefits, such as it can be stored, can be sent to distant place, form does not change in transition, creation of evidence, etc. However, there are certain problems with written communication, such as it is time consuming, difficulty in understanding, costly, and so on. It may be in upward, downward, or horizontal direction. (b) Oral (Verbal) Communication: Oral communication involves verbal/spoken communication. Here, sender and receiver exchange views, ideas, and understanding through oral words or voice, either face-to-face or by using mechanical and electrical devices (like telephone, Internet, intercom, alarm, call-bell, etc). Song, music, and prayer can also be used to convey message or feeling. It is the most powerful method that facilitates two-way communication. It is comparatively more effective as one can easily clarify confusions and misunderstandings. It is a speedy method to exchange feelings and attitudes. Lectures, discussions, interviews, committee meetings, and simple talks are different ways involved in oral communication. Oral communication has its merits and demerits. It may be in upward, downward, or horizontal direction. (c) Non-verbal (Gestural or Postural) Communication: Here, non-verbal cues (signs or signals) are used to convey the message. Appearance and body orientation, facial expression and eye movement, nodding of heads, movement of hands and fingers, posture, and other movements of body are different non-verbal cues that can show interest or lack of interest in communicative act (of sender as well as receiver). Non-verbal communication has been discussed later on in this chapter.

3. Direction of Communication Determining the direction is an important decision in communication network. Direction in communication implies in what direction the message will be transmitted. Note that in any of the directions, one can use suitable channel and mode of communication. Basically, there are three directions of formal or informal communication. (a) Downward Communication: Communication flows from superior to subordinates, from top level management to lower level management. Thus, it refers to the flow of communication from the higher position holders to lower position holders. Mostly,

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direction, guidelines, instructions, notices, orders, circulars, etc., are involved in downward communication. Different modes are used for downward communication. (b) Upward Communication: Upward communication is quite opposite to downward communication. Here, the flow of communication is from the lower position holders (subordinates) to the higher position holders (superiors) in the organisation. The purpose is to keep the superior informed about the progress or problems of work. Normally, it is in form of reports, suggestions, inquiries, appeals, complaints, criticisms, opinions, grievances, etc. It enables the top level management to know how well the employees understand the work and work procedures. Innovative Methods for Business Communication Executives of corporate world use different modes and tools of communication (1) to direct employees, (2) to inform other stakeholders, (3) to listen to employees and customers (i.e., receive their feedback about problems, suggestions, and sentiments), (4) to announce policies and offers, (5) to build relations with key stakeholders, (6) to improve image, and so forth. Most companies have their unique communication policies that govern flow of information within and outside the organisation. However, majority companies widely use face-to-face discussions and meetings, advertising media, websites, social networking, e-mail, SMS, video conferencing, telecommuting, fax, online chat, suggestion box, and some other methods and tools to know from, and inform others. Samsung and other companies producing electrical appliances, SBI, ICICI Bank, HDFC Bank, Bajaj Allinaz, Axis Bank, Jet Airways, and cell phone service providers (including Vodafone, Airtel, Idea, Tata Teleservices and others) use direct calling, SMS and/or email, toll-free phone numbers for customers, etc., to inform their valued customers and to receive their feedback. Most national and multinational FMCG companies provide customer care toll-free contact numbers and SMS, and e-mail to know what consumers think about their offers. In 2001, Steel Authority of India Limited (SAIL) and Tata Iron and Steel Company (TISCO) have created mjunction— an online network or platform—for establishing communication link with other parties. This online network offers buyers and sellers of steel an efficient, transparent, convenient, and creditable platform to do business over the Internet. Today, mjunction (www.junction. in) offers innovative eSelling, eSourcing, eFinance, and eKnowledge services across the industries it serves, including steel, coal, automobiles, consumer products, etc. It serves to demonstrate how mjunction can transform the way one does business across any industry and supply chain, and any country. Tata Motors decided to launch its premium car, Aria, by online channel to increase customers’ familiarity before they step into buying decision. Tata Motors spent Rs 1.5 crore for online campaign of Aria, which was to be launched in November, 2010. The buildadreamcar.com website was launched in September, 2010 for online campaign. Aditya Birla Group has released an audiovisual CD containing speeches of its founder Aditya Birla, while Mukesh Ambani, chairman of Reliance Industries, has been writing a book on reliance chronics to put his thoughts and business philosophies. The book will dwell upon RIL Group’s growth chart from polyester to petrochemical to retail major. The book is expected to be published in 2011 by Penguin. Companies use multiple communication modes and methods to maintain live contact with customers, employees, and other stakeholders.

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(c) Horizontal Communication: Horizontal communication (also known as lateral or sideward communication) involves transmission of information between the position holders at the same level of hierarchy in the organisation. Senders and receivers have same status or position. Thus, here, the flow of communication is between two persons of same hierarchical level, status, or positions. For example, communication between marketing manager and financial manager can be horizontal communication. It is the communication between peers or colleagues. It involves discussion, suggestions, or compliments. It may take place in form of memoranda, letters, telephone talk, face-to-face contacts, interdepartmental meetings, etc.

4. Formal Provisions—Rules, Policies, and Procedures

While designing communication network, rules, policies, and guidelines are essentially set up. Formal provisions are necessary for regulating and controlling communication. They create a sense of responsibility and consciousness. Poor communication can be attributed to inadequate or inappropriate rules, policies, and procedures. To make communication network purposeful and effective, suitable rules, policies and procedures must be set and periodically revised as per requirement. Authority should inform all people involved in communication regarding formal provisions and, if required, their written approval should be taken to ensure that they are aware of such provisions.

5. Resources and Facilities Communication network needs necessary resources and facilities. The organisation should make provision for their adequate and continuous supply. Resources and facilities involve money, stationary, electricity, computer, Internet, fax, telephone, intercom, and human resource. In addition, healthy climate can be a base for effective communication.

Non-Verbal or Gestural Communication Non-verbal communication is also known as sign language (or body language) of communication. Here, non-verbal cues (signs or signals) are used to convey the message. Sender uses gestures, such as movement of head, hands, fingers, eyes, facial expressions, posture, etc., to convey specific type of message; receiver also uses one or more of these signs to respond to the message. Appearance and body orientation, facial expression and eye movement, nodding of heads, movement of hands and fingers, posture, and other movements of body are different non-verbal cues that can show interest or lack of it in communicative act (of sender as well as receiver). Some gestures/ non-verbal cues have definite indications. For example, if teacher wants students to be quiet, he may just raise his hand(s) with open palm. He may permit students to come in or go out, stand up or sit down just by using (movement) head and/or hands. Similarly, if manager wants anybody to wait, or keep silence/patience, he just uses his hand with open fingers. It is a powerful way for effective expression of sentiments, such as anger, mood, satisfaction or dissatisfaction, liking or disliking, acceptance or ignorance, agreement or disagreement, encouragement or discouragement, etc. Gestures also reflect level of confidence and strictness. Gestures with spoken words make communication effective. In most oral communications, we find combination of spoken words and gestural movements. It may be in upward, downward,

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or horizontal direction. Gestural communication is used in some movies and dramas to teach the audience some lessons. Gestures are useful channels for those who cannot speak or hear, for conveying the message. They can convey definite message by using specified gestures. Traffic signals are non-verbal cues having definite or standard implications. In relation to role of gestural or postural communication, Peter F Drucker stated: "The important thing in communication is to hear what is not said." People’s gestures speak a lot about their feelings, attitudes, and reactions. Gesture of receiver (audience) also affects effectiveness of communication. A speaker can easily judge the interest level of audience in terms of some non-verbal cues, such as attentiveness, discipline, silence, responding through hand/ head movement, etc. In addition to this, paralanguage is also another type of non-verbal communication. Ability of the voice influence, or how something is said, is paralanguage. Timing of speaking, voice intensity, varying pitch, use of pauses, etc., increase one’s ability to influence the audience. Enthusiasm, confidence, anxiety, urgency, serenity (quietness) and other states of mind and intent can be effectively conveyed by paralanguage.

Communication Barriers Communication barriers affect adversely the quality of communication. Manager must be aware of these barriers and should try to minimise them. The right message cannot be conveyed in the right way, at the right time, to the right person, and in the right form due to certain practical problems, which are called communication barriers. Communication barriers can be defined as: Communication barriers are obstacles in communication process. In other words, factors influencing adversely the communication network may be referred as communication barriers. There are various barriers that limit the effectiveness of communication, like semantic barriers, personal barriers, emotional barriers, and so forth. Communication barriers make the communication ineffective either in form of delay, distortion, filtering, or loss of information. Successful communication needs identifying and removing these barriers. Careful preparation and effective implementation of the communication network can prevent many barriers from occurring and/or they are removed successfully.

FIGURE 24.3

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There are a number of such barriers affecting adversely (or hindering) the flow of communication in the organisation. L M Prasad4 classifies communication barriers into four groups, semantic barriers, emotional barriers, organisational barriers, and personal barriers. Here, barriers have been discussed with necessary modifications. Figure 24.3 shows main communication barriers.

1. Semantic Barriers or Barriers Related to Message This category of barriers basically relates with communication message. They are obstructions caused in the process of receiving or understanding the message. Such barriers occur during the process of encoding and decoding ideas or words of the message. This is natural phenomenon as each word has several meanings and implications to different people in different situations. This is the case in each and every language. As a result, words or terms used in the message fail to convey the real or intended meaning. Following are the possible semantic barriers: (a) Badly Expressed Message: A badly expressed message is one in which the message lack clarity and precision. Inappropriate words, phrases, terminologies, bad organisation of ideas, awkward sentence structure, violation of grammatical rules, inadequate vocabulary, platitudes (inadequate or inappropriate expression), failure to clarify implications, and excessive repetition of the same thing are some common faults related to expression of message. These barriers are common in all methods of communication. (b) Symbols and Words with Multi-interpretations: In every language, many words carry different meanings. Similarly, intensity of each word depends on who interprets, in what reference, with whom, and under which situation. In the same way, non-verbal symbols also convey different meanings to different persons. (c) Faulty Translation: The information is received from different types of people within and outside the organisation. Sometimes, the information received needs to be translated in an appropriate language to suit the receivers. Thus, message is put in a suitable framework so that receivers can understand it. Such task needs high degree of linguistic capability. Failure to translate the message in the suitable form accurately can cause a serious problem. (d) Unqualified (or Clarified) Assumptions: A message is prepared underlying certain unqualified (i.e., implied or non-clarified) assumptions. When receiver fails to interpret the message within limit of (or with reference to) these assumptions, the right meaning cannot be derived. (e) Specialist’s Language: It is normal problem in communication process. Each specialist has his own language based on his field of work and specialisation. For example, technical people have their own special technical language that a non-technical person cannot understand. Receiver tries to derive meaning as per his knowledge and background, ignoring specialist words or terms, which results into poor communication. (f) Improper Use of Punctuation Marks: Full point, comma, semicolon, small or large dash, single and double quotation marks, exclamation and question marks, and some others punctuation marks have definite uses and implications. If such punctuation marks are not used properly, the implication or meaning gets changed, or fails to convey the intended meaning.

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2. Emotional Barriers Emotional barriers are also known as psychological barriers in communication. These are the most common problems in inter-personal communication. The meaning of message is largely dependent upon psychological state or mental condition of parties involved in communication. That is, emotions of people involved play a vital role in communication. The message cannot be expressed and/or perceived in a right manner due to inappropriate mental state of sender and/or receiver. Following are possible emotional barriers: (a) Premature Evaluation: Premature evaluation is the tendency to evaluate the message or derive implications prematurely, i.e., drawing conclusion in advance without going through (or studying) the message carefully. That is, certain interpretations or conclusions are drawn from the message on personal ground, or with prejudice, without proper study of the message. Such evaluation either stops the transfer of information or transmits distorted information. (b) Inattention: It occurs when receiver receives the message with preoccupied mind. He fails to attend the message carefully. Due to over-engagement in activities, the receiver fails to attend bulletins, notices, minutes and reports, and, consequently, hinders communication process. (c) Loss by Transmission: When message passes through various points or destinations, certain information is lost during transmission. At the last destination, only inadequate information is received. Degree of loss depends upon communication methods, and types and length of communication channels. In case of oral communication, 30% information is lost in transmission. (d) Poor Retention: Another problem is poor retention of information. Employees can nearly retain (remember) 50% to 60% of information, remaining portion they normally forget. (e) Distrust on Communicator: When the receiver has distrust on communicator, he does not react to the message effectively. Because of lack of trust on sender, he thinks that message from him is always illogical or meaningless. He does not consider such message seriously. Distrust on receiver also adversely affects communication flow. (f) Failure to Communicate: It is quite obvious that manager often fails to transmit the needed message in time due to laziness or busyness. He may believe that the message is not important and there in no need to communicate with others. It is also possible that manager may believe that all know the matter, and need not to be informed.

3. Organisational Barriers In many cases, failure of communication can be attributed to organisation structure. Organisation is a conscious and deliberate structure facilitating achievement of desired objectives. It prescribes rules, policies, and procedures to guide and regulate various activities. Entire structure has direct impact on communication, too. Major organisational barriers may include: (a) Organisational Policies: Organisation’s general and communication policies can act as an overall guideline to the flow of information within and outside the organisation. If policies related to communication are not properly laid down and/or are not supportive, communication flow will not be smooth and adequate.

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(b) Organisational Rules and Regulations: Organisational rules and regulations have direct effect on communication in terms of message, channel, response, and regularity. When these rules and regulations are not suitable, communication suffers. (c) Status Relationships: Position and status in organisation may also create problems in communication. The greater is the difference between hierarchical positions in terms of status, the greater is the possibility of communication breakdown. Normally, lower status and higher status people maintain distance which has adverse impact on flow of communication. (d) Complexity in Organisation Structure: Due to various levels, departments and multiple relations, organisation becomes complex. This complexity also affects the timing and accuracy aspects of communication. Blockage, loss, and delay of information are common problems of complexity. (e) Lack of Required Facilities: We know that smooth flow of information within and outside the organisation needs certain facilities. Naturally, lack of adequate facilities disturbs communication network. (f) Lack of Proper Climate: Organisational climate has direct impact on effectiveness of communication. Proper climate inspires and encourages people to communicate actively. In absence of suitable organisational climate, people are found less active and interested in dealing with others.

4. Personal Barriers or Barriers related to Superior and Subordinates Over and above the barriers discussed, there are some barriers directly related to receivers and senders in communication process. Perhaps, personal barriers are more powerful and less controllable. In most cases, communication suffers because of problems with people involved in it. It is obvious that communication needs willingness, activeness, trust, ability, and positive attitudes of people involved. To the extent receivers and senders lack these qualities, communication remains ineffective. Personal barriers involve barriers related to superiors and barriers related to subordinates.

Barriers Related to Superiors

A superior plays a vital role in communication. His hierarchical relations with subordinates may act as barriers. Following are the cases of such barriers: (a) Attitudes of Superior: Unfavourable attitudes of superior towards subordinates adversely affect flow of communication. (b) Fear of Challenge to Authority: Superior tries to withhold the information that may challenge to his position and authority. (c) Over Insistence on Proper Channel: When superior insists on following only proper channel or line of communication, he may ignore or block communication made via unspecified channel. Over insistence on particular channel restricts the flow of information. (d) Lack of Confidence on Subordinates: When superior believes that his subordinates are incompetent, he does not behave suitably. He ignores or undermines information received from, or to be sent to, the subordinates.

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(e) Ignoring of Communication: In many cases, to maintain his importance, superior deliberately and consciously ignores to communicate with his subordinates. (f) Lack of Time: It is a common issue with superior. When he is busy or overburdened with routine activities, he may not find time to attend and react to the message. (g) Lack of Awareness: At times, he is not aware that particular message or information has serious impact on overall performance. As result, communication flow is restricted.

Barriers Related to Subordinates For effective communication, subordinates’ active participation seems indispensable. There are a number of factors that affect their active participation. Some barriers related to superior are also applicable to subordinates, like attitude, fear, time, inability, lack of awareness, etc. However, some factors are more important: (a) Unwillingness to Communicate: Sometimes, subordinates are found unwilling to communicate upward. They feel that upward communication may affect adversely their interest. (b) Lack of Proper Incentives: Lack of suitable incentives makes subordinates less interested in upward communication. Poor reward-punishment system of organisation may be responsible for poor communication. (c) Improper State of Mind: Subordinate may be mentally disturbed and hence unable to communicate effectively. (d) Laziness: Subordinates’ laziness also blocks communication flow. Due to laziness, they delay or avoid responding to peers and superiors. (e) Prejudice, Fear, and Negative Attitudes: All these aspects have strong negative impact on quality of communication with superior and peers.

Methods of Overcoming Barrier Smooth and undisruptive flow of communicating is an essential condition for the desired level of performance. Unless barriers are removed, effective communication is not possible. Methods to overcome barriers depend on causes leading to them. On the basis of these barriers, following methods can be suggested: 1. Carefully preparation of organisational structure can solve many problems related to communication. Flexible structure, appropriate rules, suitable policies, etc., are necessary to make communication effective. 2. Careful and purposeful preparation of message avoids semantic barriers. 3. Selection of suitable channels and methods for communication facilitates adequate flow of information in time. 4. Provision of training and incentives make employees conscious and interested, and enable them to act effectively. Training and motivation can minimise most of personal barriers. 5. Provision of adequate facilities can regulate and enable accurate flow of information throughout the organisation. 6. Clarity and precision in all aspects of communication can minimise unnecessary confusions, and can make communication effective.

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7. Suitable climate of trust and confidence improves relations among members. Healthy relations support entire operations of communication network.

Guidelines for Effective Communication Communication is fundamental need of management. Quality and effectiveness of communication are necessary for managing people and tasks in the organisation. Various measures can be suggested to make communication effective. These measures may be termed as conditions, principles, qualities, requisites, or characteristics of effective communication. These qualities or conditions are based on facts or fundamental truths, which are necessary to make communication effective. American Management Association has suggested Ten Commandments of good communication. These commandments include (1) clarifying idea before communicating, (2) purpose of communication, (3) understanding physical and human environment of communication, (4) consulting others in planning communication, (5) contents and overtones of communication, (6) value of communication to the receiver, (7) follow-up action, (8) importance of communication, (9) actions congruent with communication, and (10) good listening.5 But we will consider following measures/principles for effective communication. They are also known as requisites or guidelines for effective communication.

1. Clarity and Precision There must be clarity and precision in every aspect of communication. Communication message, modes, channels, purpose, etc., must be clear. Clarity and precision provide for better understanding to people involved in communication. Clarity and precision avoids confusion, misunderstanding, and complexity. 2. Purpose of Communication The purpose of communication must be clearly decided to make it effective. The sender must know the purpose of communication. The purpose should also be conveyed along with the message. Clear definition of communication purpose enables receivers to determine further action or response.

3. Adequacy

Communication must be adequate in terms of covearge and quantity of information. Coverage indicates that communication must reach every part of the organisation. Quantity implies that communication message must be sufficient. In short, communication process must ensure the adequate flow of information to all those who need it.

4. Two-way Communication An effective communication must be two-way communication. It brings two minds together. It involves continuous dialogues between the sender and the receiver of the message. This also ensures that message has reached the receiver, and has been understood in the way expected. This leads to necessary improvements in communication. 5. Feedback

Feedback is basic condition of effective communication. It is an integral part of communication process. Feedback ensures that the receiver has received the message and has understood, as intended by the sender. Without feedback, communication cannot be said as completed.

6. Careful Preparation of Message

Communication effectiveness largely depends on quality of message. The message must be clear and sufficient to convey meaning to the receiver. Use

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of suitable language, appropriate words and terms, and perfect sentence structure can make it effective. Similarly, it must be free from grammatical errors. The right message can prevent many communication barriers.

7. Credibility or Believability Communication must be credible and believable to be obeyed. The message must contain element of truth. Receiver and sender must hold mutual trust and confidence. This promotes positive mentality and active participation of employees towards communication. 8. Good Listening

A communicator must be a good listener. Proper attention on speaker enables him to derive explicit meaning. It also encourages speaker/sender to give more needful information with interest. Here, good listening is more closely related to attentiveness. One must attend the message consciously with interest.

9. Continuity

There must be continuity in communication. Managerial communication must be continuous to facilitate managerial actions in time. Continuous exchange of information between sender and receiver keep their relations and contacts alive and active.

10. Integrity Integrity refers to honesty, trust, honour, truth, and reliability. Integrity promotes cooperation among them. It keeps people in communication active, alert, sensitive, and supportive. High integrity among people can prevent many communication problems. 11. Appropriate Structure of Organisation Suitable structure of organisation is a precondition for effective communication. It can prevent and/or solve many problems. An appropriate structure is one which facilities smooth flow of information in entire organisation. Structure involves levels, rules, policies, procedures, facilities, and appropriate climate.

12. Conducive Organisational Climate The organisation must create and maintain conducive climate in which people actively participate in matters related to communication. There must be climate of trust and confidence among them. Encouraging such climate makes people participate in communication enthusiastically. 13. Objectivity Communication network must be objectively prepared. Objectivity means preparing a need-based communication network. The communication in the organisation must be free from personal bias, values, emotions, prejudices, and personal needs. Thus, it should be objective, rather than subjective. 14. Timing

The time element is critical in communication. Note that receiving and responding to message in time is important. Unnecessary delay should be avoided. Each member involved in communication must be cautioned to send message in time. In the same way, receiver must send feedback in time. The entire network should be such in which message can be conveyed within time limit. Provision of suitable incentives can make the difference.

15. Evaluation and Follow-up In order to make communication effective, continuous or periodical evaluation is indispensable. To find out whether communication is as per objective stated, one must measure its effectiveness. And, when it is detected that communication is

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not appropriate in one or more aspects, necessary actions must be taken to prevent further deterioration. Evaluation keeps entire network up-to-date.

16. Provision of Facilities Provision of adequate facilities makes communication effective. Facilities like space, phone, computer with Internet, fax, printer, staff, stationary, and cooperation from others make the flow of information smooth and increase enthusiasm of employees to participate actively. Adequate availability of facilities provides a base to convey the right message via the right medium, to the right person, and in the right time. Types of Communication Communication takes place in several forms or types. Manager uses different means, methods, directions, and destinations to communicate the necessary message with individuals and groups. Commonly, we can classify communication into five categories, as shown in Figure 24.4.

FIGURE 24.4 Types of Communication

1. On the Basis of Presentation

On the basis of the way the message has been presented, we have following types of communication: (a) Written Communication (b) Oral Communication (c) Gestural Communication (For details, refer ‘Communication Network’ in the same chapter).

2. On the Basis of Direction Direction based classification consists of three types of communication, as stated below:

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(a) Horizontal Communication (b) Upward Communication (c) Downward Communication (For details, refer to ‘Communication Network’ in the same chapter).

3. On the Basis of Formalisation

There are two types of communication based on formal-

ization: (a) Formal Communication: When communication process takes place as per organisational needs, i.e., as per formal rules, policies, and procedures prescribed, it is formal communication. Here, objective, methods, channel, message, receiver-sender, time, etc., of communication are decided in advance and communication process strictly takes place accordingly. Formal communication is necessary to meet formal requirement of organisation, i.e., achievement of organisational objectives. (b) Informal Communication (Grapevine): This type of communication takes place for satisfying social and psychological needs of members. It is a free-form of communication. Message, process, channel, time, destinations, and other aspects are not determined formally. This communication may or may not be complementary to organisational requirements.

4. On the Basis of Scope

With reference to scope, there can be four types of communica-

tion: (a) Individual Communication: It involves two or more individuals exchanging views, ideas, and understanding. It may be face-to-face, or otherwise. (b) Departmental Communication: Departmental communication involves one or more departments. Message may be conveyed under the title of department (for example, ‘marketing department wants all employees to cooperate’) or it may be meant for entire department (for example, ‘your department must produce evidence for the claim’). (c) Organisational Communication: Communication between two or more government departments, companies, or nations can be said as organisational communication. For example, when managing directors of two companies exchange their views on a specific issue. (d) External and Internal Communication: Internal communication refers to the flow of information within the organisation. It covers people, departments, and branches of the same business enterprise. External communication, on the other hand, indicates communication between the organisation and outside parties, like suppliers, government offices, banks, and other similar organisations.

5. On the Basis of Person Contact Personal contact based communication includes: (a) Direct Communication: It is face-to-face communication. Receiver and sender talk directly, without much physical distance. (b) Indirect Communication: Sender and receiver communicate indirectly. They may be far away from each other. They use telephone, intercom system, mail, or e-mail, fax, etc., to communicate the message.

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This is a loose classification. Note that exact definition of direct and indirect communication is difficult. Only physical proximity or nearness cannot be the important criterion. For example, managers of two companies situated hundreds of kilometres away can talk in faceto-face mode via Internet, video conferencing, web camera or cellular phones. Most news channels use these tools to establish direct contact between two or more persons at two places. In the same way, by attaching camera with basic telephone, same communication is possible. 3G (the Third Generation) mobile phone can also facilitate direct or face-to-face communication between two persons at a distance from one another. Now, people situated in different countries, continents, or even planets (for example, between Earth and Moon) can communicate as if they were sitting in the same office due to latest telecommunication inventions, such as satellite network.

Grapevine Communication The grapevine concept is relevant to informal (channel of) communication. Some experts refer to grapevine communication as rumour mill. Informal channel does not use only official actions and requirements, it also uses social forces at workplace. Informal communication exists in formal organisation, obviously to meet social and psychological needs of people. It arises from social interaction of people in the organisation. Rao and Hari Krishna define: "An informal communication network among people in an organisation is a communication network that is not officially sanctioned by the organisation."6 It is their natural desire to communicate. Keith Davis notes that grapevine is a natural and inevitable part of organisational life. Normally, it arises when formal communication fails to meet expectations of people. So, manager should also use informal way to collect and disseminate information. Note that grapevine is more powerful and manager has no control over it.

Characteristics

Important characteristics of grapevine communication have been listed

below: 1. It takes place through unofficial channel of communication. It is also known as informal communication. 2. It is unplanned communication and it arises spontaneously. 3. It arises when formal communication fails to meet information needs of members. It, thus, fills the gap that exists in formal communication network. 4. It is the main source of information about true feelings and attitudes of employees. 5. It arises to meet social and psychological needs of employees. 6. It ignores (or is free from) the formal structure of organisation (position, status, authority, etc.). 7. It is more flexible and instable as compared to formal communication. 8. As it is based on rumour and hearsay, it is fast and unstructured. 9. It flows in any direction. 10. It cannot be regulated or controlled by formal provisions, such as policies, rules, procedures, and so forth.

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Merits Merits of grapevine include: 1. It is the fastest way to transmit or spread the message. 2. It is useful for developing group cohesiveness. 3. It can be used to reduce tension, stress, and dissatisfaction. It serves as safety valve to express feelings, or to release stress. 4. Confidential information—which cannot be made available through official channel— can be communicated effectively through grapevine. 5. It supports formal channel of communication. It reduces limitations of formal communication and is used to complement it. 6. In case of failure of formal network, it is the only option to keep the people informed. 7. It is more flexible. Depending upon type, nature, and importance of message, it can be adjusted easily. 8. It is more effective as it is free from formal structure (position, status, and authority). It is more suitable for expressing actual feelings and attitudes. Manager, through grapevine communication, can easily know about employees’ feelings and attitudes. 9. Use of informal communication with the formal can improve organisational effectiveness.

Demerits Demerits of grapevine include: 1. It may convey vague, inaccurate, and incomplete information (or message) which may lead to wrong decisions and/or actions. 2. It is based on rumour and hearsay. It is less reliable and requires proper filtering before it is believed. 3. It makes people talk more and work less. They waste time on baseless topics. It may have an adverse impact on organisation’s effectiveness. 4. From management point of view, it is only beneficial to employees. It may create problems for managers. 5. In case of immature employees, it affects adversely the relations among employees, and between employees and management. 6. It can make formal/official communication ineffective. Formal work cannot be completed effectively in time, and employees and organisation both have to suffer. 7. It cannot be controlled. It leads to indiscipline and disorder. It may lead to a number of problems if it is not considered carefully. 8. When it is used for malicious purposes, or selfish ends, it becomes counterproductive and disturbs the healthy climate of the organisation.

Management Information System Management information system (MIS) is closely concerned with communication. It facilitates and improves overall communication. It is a permanent and well-equipped system (arrangement) for managing information. It involves all aspects related to information,

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including collection, analysis and interpretation, dissemination, updating, and storing of necessary information. (For more details, refer to Chapter 14).

POWER AND POLITICS This part discusses key issues related to power, power and politics, and organisational politics.

Power Manager/leader uses power and authority to influence behaviour of employees. Their prudent use makes a significant difference in employees’ behaviour and, finally, on their productivity. Note that, though both power and authority are used to influence behaviour of employees, they are not same. Power is personal ability or capacity to influence others. It is not related to position and a person with power can influence or impress any (higher or lower) position holders. Unlike authority, power is neither delegated nor withdrawn. Power is acquired through rigorous study, training, observation, and experience. And, it is expressed or measured in terms of expertise, knowledge, and way of working with others. Manager needs power, along with authority, to influence the subordinates effectively. Note that authority can be denied, not power. Power is always accepted and respected. Power seems more influential than authority, but cannot change or replace authority. For key differences, refer Chapter 7, Table 7.1.

Definitions Term ‘power’ has been derived from Latin word potere which means ‘to be able.’ Power is more concerned with leadership than managership. It is a means to influence attitude and behaviour of followers. Leaders must acquire power and should use it with care to create, modify, and sustain positive behaviour. To successfully influence the behaviour of others, the leader must understand the impact of power on his leadership style. Power can be defined as: 1. Jeffrey Pfeffer (organisational behaviourist): "Power is potential ability to influence behaviour, to change the course of events, to overcome resistance, and to get people do things that they would not otherwise do."7 2. Max Weber (the sociologist): "The probability that one actor within a social relationship will be in a position to carry out his own will despite resistance."8 3. David Krackhardt: "Power is the ability to get things done despite the will and resistance of others or the ability to ‘win’ political fights and outmaneuver the opposition."9 Power can be acquired in various ways. So, it can be defined as: Power is personal capacity acquired through intensive study, training, observation, and experiences which is used to influence others. Power is not position related, and is always respected and accepted. Power is capacity of persons to make others work. Thus, it can be said: Power is sheer capacity of a person, not to do, but to make others to do the expected work. It is closely related to leadership task. In this relation, it can be defined as: Power is leader’s ability that has potential to influence others’ behaviour. It is a resource of leader that enables him to

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influence others. Influencing is act of affecting or altering others’ attitudes, values, feelings, and, in general, behaviour. Power of a person must be recognised by others. So, finally, we can define the term as: Power is the perception others hold about someone that gives him the ability to influence. How much and what type of power one holds is not important, but how others perceive that one has the power to influence them is important.

Types (Bases or Sources) of Power

Note that the impact or influence of leader’s power on followers depends on others’ perception about the power holder. What others think about leader’s power is more important than how much power he possesses. For example, if employees perceive that the leader is capable to guide or solve problems, leader’s power can have desired influence on their behaviour. Only one’s ability/capacity evokes no behaviour. Behaviour is based on people’s perception and interpretation of one’s power. Leader does not have charisma; his followers give him charisma. His actions, in order to be influential, must get employees’ approval, acceptance, or willingness. Followers must see value in leaders’ power. Based on what people in organisation perceive about leader’s power (i.e., ability to influence), there can be different types of power.

1. Coercive Power Coercive power is based on leader’s ability or position to coerce others through fear element. It is the perceived ability to provide sanctions, punishment, or consequences for not performing. It may be in forms of harassment of any kind, cut in pay, transfer, suspension, demotion, or even termination of job. Coercive power involves all methods of embarrassment for people. Generally, coercive power is exercised by the manager against unproductive or disturbing elements, and to restore discipline in the organisation. This power must be used with care. There is possibility of damaging leader-member relations, frustration of people, or irreparable damage to organisation structure. In today’s business management scenario, this power has little to do. It may be personal or positional.

2. Connection Power Connection power is based on leader’s connection with influential people. It is perceived association (or connection) of the leader with influential persons (may be high position holder with authority to reward or punish) in the organisation. Employees obey and respect (willingly or unwillingly) the leader because he has high voltage connection (link or relations) with powerful people (may be key position holders in organisation, prestigious people of other industries, politicians, union leaders, some dangerous people, or any other person) who can strengthen leader’s influence. People believe that owing to strong connection, the leader is able to do anything.

3. Reward Power Reward power is based on leader’s position or ability to reward. Reward power is opposite to coercive power. It is the power to influence subordinates’ behaviour through positive approach. This power enables its holder to control pay (wage, salaries, commission, etc.), promotion, fringe benefits, and amenities. It is the perceived ability to provide things that people would like to have. Reward power may be in form of raising pay, awarding bonus, promotion, or transfer to more desirable places. It also involves non-monetary rewards like appreciation, prestige, affection, esteem, and so forth.

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4. Legitimate Power

Legitimate power is based on leader’s formal right, role, or position to make decisions and/or to order others. All high position holders have legitimate power. Legitimate power is the perception that leader has the right to make decisions and/or to order others because of title, role, status, or position. It is like an authority to decide. Legitimate power is position related and is acquired through delegation—superior delegates this power to specific position holders in organisation. It, along with duties and responsibilities, is specified for each job. It is like an authority and has little role to play in influencing the behaviour of others, particularly, in private sector. It may, or may not be, respected and accepted.

5. Referent (Charismatic) Power Referent power is based on leader’s charisma – impressive skills or qualities. Charisma refers to a leader’s ability to influence other by his personal magnetism (interpersonal skills, good nature, pleasing personality and/or impressive traits), enthusiasm, and strongly held convictions. It is the perception of people that leader is capable to provide encouragement, build confidence, and solve their problems. Leaders’ personal traits, such as integrity, expertise, honesty, and knowledge, are more important. Followers like to admire and accept values and beliefs of respected leader. For example, Mahatma Gandhi and Abraham Lincoln attempted to create an image of confidence, competence, and success. Business leaders, including late Dhirubhai Ambani, Ratan Tata, Narayan Murthy, and many others, have charismatic power that people cannot deny. Referent power is also personal capacity of a leader to influence others’ behaviour. It makes others work willingly. A leader or superior with referent power can easily prepare or motivate subordinates to do the job better. Research studies concluded that this power could make good sense in case of crisis in organisation. 6. Information Power Information power is based on leader’s ability to access, possess or share useful information. More clearly, it refers to influencing followers’ behaviour using information base. It is the perception of followers that leader has the power to access, possess, share, and use useful information. The key position holders in the organisation are assumed to be the best informed. They are accepted and respected as they possess important information. The fact is that decisions based on reliable and complete information are never questioned. People assume that a leader knows more and has contacts to secure information. People respect or obey the power holder as he has crucial information that can potentially benefit them.

7. Expert Power Expert power is based on leader’s expert knowledge in relevant field. It is the perception of people that the leader has relevant expert knowledge (expertise, talent, skills, experience, and other relevant achievements) to direct their actions. People believe that the leader is expert in the area and is able to help them in successful completion of their assignments. Expert power continues influencing others as long as it is not replaced by the other. Expert power is always accepted and respected. Situation and Power (Contingency Approach to Power)

Situations are powerful determinants of potential influence of leader’s power. Situation must demand power. Based on them power bases have varying degrees of influence on followers and, finally, on their performance. Type and level of leader power must match with situations. Different situations (made of situational variables, like type of goal, type of work, level of performance, type of

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employee, working climate and conditions, etc., have different suitability with these powers. To ensure the desired influence on followers, leader must analyse the situation before he uses his power. Only situations can decide the worthiness/value of power. For example, if every one gets the same reward irrespective of the level of performance, a leader loses his reward power; if people do not desire appreciation or praise, referral power has no value; if people have enough information and/or do not need information, leader’s information power erodes; and connection power looses its grip when people assume that connection does not make any disciplinary interventions—any favour or sanction to them. Experts suggest that organisation must develop and use the Power Perception Profile. It can be developed by asking reasons on several forced-choice pairs: ‘Why do they do the things that a leader suggests them to do?’ Such profile can be measured using suitable tool/research instrument. The Perception Power Profile gives a leader feedback on their power bases, and helps him to obtain information (scores) about the relative strength of each power base. The organisation can work out suitable programme to build power base with leadership style that can increase the probability of success of the leader. The profile can be an important base for team-building, too.

Influenceability of the Target of Power

H. Joseph Reitz10 and others identified following characteristics of the target (people, followers to be influenced) that affect degree of influenceability of the agent (leader): 1. Dependency: More dependent people are influenced more. 2. Uncertainly: More uncertain people are more likely to be influenced to change behaviour. 3. Personality: Personality characteristics of the target determine the level of influence on them. Self-confidence, endurance, individuality, etc., of members determines degree of influence of leader on followers. 4. Ego States: People operate from different ego states, like child ego, parent ego, and elder ego. When leader and follower operate from cross ego states (cross transaction), power influence tends to be minimum. Normally, subordinates who operate from parent ego or elder ego cannot be easily influenced by power holder (or leader). 5. Intelligence or Brilliance: Highly intelligent/brilliant people, having high esteem, are more resistant to change. 6. Gender: Women are more likely to conform to the influence attempt of power holder. 7. Age: Social psychologists conclude that children up to the age of eight to nine years are more susceptible to influence, their susceptibility decreases until their adolescence. 8. Culture: Cultural values have tremendous impact on the influenceability of followers. For example, Western culture (that emphasises on individuality, freedom, dissent, diversity, etc.) tends to be less influential than others (for example, Indian culture that emphasises on cohesiveness, concern, agreement, uniformity, etc.).

Factors in Influenceability

Power of a power holder does not equally affect all. Degree of influenceability depends on the factors discussed in the former part.

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Some contingency factors that determine degree of influenceability include: 1. Substitutability (availability of other influencer) 2. Centrality (degree of interdependence between power holder and others) 3. Discretion (degree of flexibility or freedom) 4. Visibility (making other know his source of power) 5. Scarcity (non-availability of help or assistance).

Political Implications of Power Politics is the diplomacy (or diplomatic behaviour) the people use to acquire power (or authority). Power enables to satisfy all needs. Power is the base or source to (1) gain high position and status, (2) acquire more authority to decide, command and control, and (3) enable power holder to get and give other types of rewards. Political behaviour is defined as: Activities (games, tactics, actions, and behaviour) that are not required as part of one’s formal role in the organisation, but that influences, or attempt to influence, the distribution of advantages and disadvantages (i.e. favourable or unfavourable situation and consequences) within organisation. People play politics for gaining more compared to others. It is like a silent war for power and position. Power has political implications. People play political games (tactics or strategies) in organisation to acquire power. Power and politics are realities of modern organisational life. Power and politics carry significant implications on teamwork, motivation, behavioural modification, performance, employee empowerment, satisfaction, employee participation and involvement, etc. Organisation is made of individuals and groups tend to develop some political signs. Large organisation, like the government (a dominant political party) contains many political entities. In this regard, Pfeffer asserts: "Organisations, particularly large ones, are like governments in that they are fundamentally political entities. To understand them, one needs to understand organisational politics, just as to understand governments, one needs to understand governmental politics."11 In an organisation, power is the target and source of internal politics. Leader/manager uses power and/or politics to influence/manage groups. He needs political skills over and above the power (and authority). Interestingly, political skills are used to acquire more power. The political processes/activities in organisation have been recognised as organisational politics. Recently, behavioural scientists recognised that politics plays a significant role in acquiring power. Political skills strengthen one’s power position. It is of immense importance to identify and examine some political strategies used to acquire power for better understanding of organisational behaviour. Political climate within organisations has many behavioural implications. Manager must be aware of such climate.

Postulates Reflecting Political Realities

Walter Nord12 suggests four postulates (facts or assumptions) of power in organisation that focus on political realities: 1. Organisations are composed of coalitions (alliances, associations, or partnerships) that compete with one another for resources, energy, and influence. 2. Various coalitions will seek to protect their interest and positions of influence.

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3. The unequal distribution of power itself has dehumanising effect. 4. The exercise of power within organisation is a very crucial aspect of the exercise of power within the large social system. Alike different political parties—whose aim is to acquire more power, control, and resources— groups or alliances have their stand, strategies, and priorities. Members of each formal group are affiliated with different political groups within the organisation. Their political affiliations are often based on castes, religions, state/national political parties, professional associations, departments, products, etc. Each alliance in the organisation tends to be like a political party and uses all political tactics to gain more power, including lobbying, corrupting, favouring, supporting, opposing, making strategic alliances, groupism, sharing powers, and playing disguised strategic political games.

Organisational Politics Politics in today’s organisation is a fact of life. Behaviour in organisation is more political in nature. Factually, organisation is a political arena where participants play politics (political games) to acquire power, dominate or defeat others, and try holding dominating positions over time. Each of them has some political philosophies, strategies, and patterns of reacting. They exert their political behaviour in different forms, like apathy, indifference, non-cooperation, hostility, etc. Organisational politics is a natural phenomenon and cannot be prevented. Characteristics of modern organisation are themselves responsible for political behaviour of its members.

Definitions

Organisational politics or political organisational behaviour can be defined as:

Barbara Gray and Sony: "Organisational politics consists of internal acts of influence undertaken by individuals or groups to enhance or protect their self-interest when conflicting courses of action are possible."13 Farewell and Peterson: "Politics in organisation refers to those activities that are not required as part of one’s formal role in the organisation, but that influence, or attempt to influence, the distribution of advantage and disadvantage within the organisation."14 Political behaviour is a general way of getting and using (any type of) power for personal gain. The term ‘organisational politics’ can be defined as: Organisational politics consists of political games or tactics the people play in organisation to adjust with situations, to influence others, or to change the situations in their favour. Political behaviour, in most cases, seems different than normal. Final outcomes depend on how it is perceived and managed. It is aimed at acquiring power to obtain power-related benefits. So, it can be defined as: Organisational politics consists of those activities or tactics the people use deliberately to acquire or enhance the power to achieve preferred outcomes in organisation setting.

Features of Organisational Politics Key features of organisational politics have been listed below: 1. Organisational politics is the reality of today’s organisation and cannot be totally prevented. 2. Power is the key drive that leads to political behaviour.

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3. Organisational politics is aimed at taking discriminative advantages or avoiding disadvantages. 4. It is not officially blessed. It is officially not desirable. 5. Political behaviour is self-serving in nature. It benefits only the player at the cost of others. 6. It is intentional. It involves deliberate or calculated acts or strategies. 7. It is irrational. It involves irrational or illegitimate acts. 8. It contains different tactics to avail discriminative benefits. 9. If it is perceived objectively and managed carefully, it contributes positively. 10. Degree of political behaviour depends on people, management practices, and organisation structure and climate.

Factors in Organisational Politics Many factors are responsible for political behaviour of people in the organisation. These factors can be classified into two groups – individual factors and organisational factors. Individual factors, having potential for political behaviour, include overactive and extrovert nature, mischievousness, affiliation with people with political skills, desire for power, political skills, perceived job alternatives, and many such factors. However, organisational factors—resource allocation, type of decisions, degree of clarity, organisation structure, and so forth—are more powerful to promote political environment within the organisation. Robert H Miles has identified several areas that are practically relevant to determine the degree to which organisation is political rather than rational.15 Robert considers mainly five factors that are responsible for political behaviour in organisation, (1) resources, (2) decisions, (3) goals, (4) technical and external environment, and (5) change. In general, following factors are worth noting: 1. Allocation of Resources: Resources may be the base for politics in the organisation. More politics is played when critical resources are scarce. Politics is promoted when there are new unclaimed resources. 2. Type of Decisions: Ambiguous decisions, lack of agreement, uncertainty, and long-range strategic decisions lead to more politics than routine ones. Democratic decision-making attracts political behaviour. In the same way, political behaviour takes place in case of excessively centralised decisions, too. 3. Degree of Goal Clarity: More ambiguous and complex goals attract politics. Clearly defined goals do not promote politics. 4. Degree of Trust: Low trust or distrust on subordinates leads to strict control, which makes subordinates resort to political behaviour. 5. Role Ambiguities: Lack of role clarity (i.e., ambiguous role) confuses employees and makes them act politically. 6. Organisational Structure: Organisational structure is major source of organisational politics. Structure is made of roles, statuses, rules, politics, levels, type of structure, communication, and many other aspects, which, if not considered with care, promote political behaviour.

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7. Technical and External Environment: More technical and complex internal and external environments lead to more politics. 8. Change: Change is a major source of politics in the organisation. Planned changes based on internal needs or unplanned changes forced by external forces encourage political climate. 9. Communication: Communication—both formal and informal—has prime role in making organisation politically originated. All communication barriers (discussed in the former part of this chapter) have direct impact on promoting political behaviour. Delay in feedback creates chances for political behaviour. 10. Other Factors: In fact, the list of factors responsible for political behaviour seems too large. Let’s list down other factors: (a) Politician personality of superior and subordinates (for example Type ‘A’ personality) (b) Democratic decision-making (c) Limited opportunities for advancement for facilities or resources (d) Higher ambition (e) Subjective or biased performance evaluation (f) Inability to achieve better results by own efforts (g) Active interaction and affiliation with external politics (h) High or unrealistic performance pressure. Organisational politics is an obvious phenomenon as these conditions are prevalent in today’ organisations. In relation to organisational politics, words of Alvin Toffler, the writer of Future Shock, The Third Wave, and Power Shift are worth noting. He states: ‘Companies are always engaged in internal political struggles, power struggle, infighting, and so on. That’s normal life.’ Most organisations are prone to politics as they have limited resources, make ambiguous and uncertain decisions, have complex goals, operate within internal and external complexities, adopt complex technology, deal with people with political skills, and select and implement uncertain drastic changes.

Political Strategies or Types of Organisational Politics Political strategies are wellcalculated political acts or tactics that people, as individuals or as group members, play for power acquisition. In today’s organisations, people practice several types of political strategies for different purposes. Andrew J DuBrin, in his publications Human Relations, 1978, and Winning Office Politics, 1990, describes twelve important strategies (political tactics, games or diplomatic acts) that provide better insight into power and politics in today’s organisations. 1. 2. 3. 4. 5. 6. 7.

Maintaining alliances with powerful people Embrace or demolish Divide and rule Manipulate classified information Make a quick showing Collect and use IOUs Avoid decisive engagement

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Attacking and blaming others Progress one step at a time (camel’s head in the tent) Wait for a crisis (things must get worse before they get better) Take counsel with caution Be Aware of resources dependence Other commonly used political strategies: (a) Controlling information channels (b) Selective use/distribution of information (c) Scapegoating (tactfully avoiding blame or acquiring credit) (d) Networking (maintaining live contact and relations with capable people) (e) Rule manipulation (altering rules in their favour) (f) Creating obligations or obliging others (g) Logical persuasion.

Functional (or Positive) Outcomes of Organisational Politics The important question is: Is organisational politics desirable? Recent development in organisational politics assumes that politics is cornerstone of organisational democracy. It is aimed at, not for resources, or personal gain, or to harm others; but for the rights and justice. It has potential to make organisation people oriented. To some executives, organisational politics is desirable. Politics in organisation has potential for both functional as well as dysfunctional outcomes. Its constructive outcomes depend on how it is perceived and regulated (or managed) by authority. Effective handling of political behaviour of organisational members helps in improving performance. It potentially contributes to (1) promoting teamwork, (2) effectively motiving the subordinates, (3) improving and, or changing behaviour, (4) active involvement and participation, (5) improving performance, (6) being source of satisfaction, (7) sharpening logical abilities, (8) meaningful altering polices, rules, and procedures, (9) promoting creativity, and (10) making organisational members (employees and managers) active, alert, just, and rational.

Guidelines to Minimise/Regulate Political Behaviour

Excessive political climate adversely affects relations and, ultimately, productivity. Politics in organisation must be treated with care. It affects negatively if it is ignored or underestimated. Experts have suggested a number of guidelines to minimise political behaviour: 1. 2. 3. 4. 5. 6. 7. 8.

Keeping communication open Non-political and ethical behaviour of role models Keeping watch on dirty games players who play games for self-interest Protecting individual privacy interest Preventing such events and situations that have potential to promote internal politics Using value or fair judgment Ensuring sufficient supply of resources and fair allocation Formulating clear rules, open policies, and easy procedures

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9. Emphasising meaningful employees’ involvement and empowerment 10. Designing job properly and availing necessary inputs and facilities. In today’s environment, political activities extend beyond specified boundaries of the organisation. Organisation is political arena where most people play political games for different purposes. Political approaches of top authority and employees seem desirable from many angles. Power and politics, both, have valuable implications for practicing managers to understand, improve, and change employees’ behaviour. Manager must understand that power is closely related to politics, is a source of as well as outcome of political games people play. People with strong desire for power always play politics. Note that organisational politics cannot be completely restricted. Wise manager should not avoid people playing politics. He should continue interacting with them to learn how people play politics and what makes them behave politically. He must devise effective means to avoid dysfunctional outcomes of organisational politics.

SUMMARY Communication involves exchange/transmission of ideas, feelings, and understanding between two or more people. Communication process consists of seven steps—sender, idea, encoding, channel, receiver, decoding, and feedback. Importance of communication can be described with reference to its positive contribution to overall performance and healthy climate. Communication network implies total system related to communication. It involves sum total of various elements or facets of communication, like channel, modes, direction, formal provisions, and facilities. Communication barriers are obstacles in communication process. There are various barriers that limit the effectiveness of communication, like semantic barriers, emotional barriers, organisational barriers, and personal barriers. Manager must follow useful guidelines or principles to overcome barriers. Power is personal ability or capacity to influence others. It is acquired through rigorous study, training, observation, and experience. And, it is expressed or measured in terms of expertise, knowledge, and way of working with others. Based on what people in organisation perceive about leader’s power (i.e., ability to influence), there can be different types of power, such as (1) Coercive Power, (2) Connection Power, (3) Reward Power, (4) Legitimate Power, (5) Referent (Charismatic) Power, (6) Information Power, and (7) Expert Power. Situations are powerful determinants of potential influence of leader’s power. Only situations can decide the worthiness/value of power. Power has political implications. Power and politics are realities of modern organisational life. Factually, organisation is political arena where participants play politics (political games) to acquire power, dominate or defeat others, and try holding dominating positions over time. Many factors are responsible for people’s political behaviour in organisation.

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KEY TERMS Communication Communication Process Communication Network and Elements Communication Barriers

Gestural Communication Grapevine Communication Power Sources of Power

Political Implication of Power Organisational Politics Political Strategies

EXERCISES Objective Type Questions A. Answer the following: 1. How are communication and organisational politics interrelated? 2. State the steps in the communication process. 3. Mention elements of communication network. 4. Indicate some gestures that can be used to communicate message. 5. Write four emotional barriers in communication.

6. What is power? 7. Write five types of power. 8. Write four factors of target people that determine influenceability of leader’s power. 9. State four factors determining organisational politics. 10. On which aspects does the desirability of organisational politics depend?

B. Choose the correct option (MCQs): 1. Which is the basic technique of directing that uses other techniques? (a) Communication (b) Supervision (c) Motivation (d) Leadership 2. By which name is gestural communication known ? (a) Non-verbal communication (b) Written communication (c) Grapevine communication (d) Informal communication 3. Premature evaluation falls in which of the following categories of communication barriers. (a) Semantic barriers (b) Personal barriers (c) Emotional barriers (d) Organisational barriers 4. Which is not a semantic barrier?

(a) Specialist’s language (b) Inattention (c) Faulty translation (d) Improper use of punctuation marks 5. Which type of communication is known as ‘grapevine communication’? (a) Vertical communication (b) Formal communication (c) Informal communication (d) Personal communication 6. Which one is not true? (a) Power is always respected and accepted (b) Power is personal ability to influence others (c) Power can be denied, but not the authority (d) Power seems more influential than authority, but cannot replace authority

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7. Which type of power is not relevant to business organisation? (a) Coercive power (b) Community power (c) Reward power (d) Legitimate power 8. Find out the incorrect statement. (a) Situations are powerful determinants of potential influence of leader’s power (b) Only situations can decide the worthiness/value of power (c) Situation does not affect power’s influenceability on others (d) Situation must demand power 9. Which one is not true? (a) Power has political implications

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(b) Power and politics are realities of modern organisational life (c) Leader uses power and/or politics to influence groups (d) Business organisations are free from political behaviour 10. In relation to organisational politics, find out the irrelevant statement. (a) Organisation is political arena where most people play political games (b) Powerful people are successful politicians (c) Wise manager should not avoid people playing politics (d) Manager can eliminate political behaviour by using authority

Descriptive Questions 1. Define communication and explain its characteristics. 2. Explain: (a) Communication process (b) Importance of communication 3. Explain communication network. Briefly discuss its elements. 4. Discuss communication barriers. 5. Discuss guidelines or principles of effective communication. 6. What is power? Summarise its power bases. How does situation affect one’s power?

7. Write notes: (a) Organisational Politics (b) Political Implications of Power 8. ‘Organisational politics is an obvious phenomenon.’ Comment the statement. Also discuss factors responsible for politics in organisation. 9. Discuss (a) Positive outcomes of organisational politics (b) Strategies or guidelines to minimise political behaviour

Assignments 1. Group of students/trainees are assigned to conduct project work in a company on communication practices. They need to collect details about how people—managers, supervisors, and workers—communicate with others, which methods they use, what

problems they face, and what actions the organisation takes in this regard. 2. Ask the students to describe what type of politics their classmates, teachers, and head of institute play, and for what purpose.

REFERENCES 1 William H Newman, Charles E Summer, and E Kirby Warren, The Process of Management, Prentice-Hall of India, New Delhi, 1983 2 Dale S Beach, The Management of People at Work, McMillan, New York, 1980, p. 558

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3 John W Newstrom and Keith Davis, Organisational Behaviour: Human Behaviour at Work, McGraw-Hill, New York, 1997, p. 48 4 L M Prasad, Principles and Practice of Management, Sultan Chand & Sons, New Delhi, 2005, pp. 680–684 5 American Management Association, Ten Commandments of Good Communication, New York: AMA, 1961 6 V S P Rao and V H Krishna, Management, Excel Books, New Delhi, 2010, p. 690 7 Jeffrey Pfeffer, Managing with Power, Harvard Business School Press, Boston, 1992, p. 30 8 Max Weber, The Theory of Social and Economic Organisation, A M Henderson and Talcott, Free Press, New York, 1947, p.152 9 David Krackhardt, ‘Assessing the Political Landscape: Structure, Cognition, and Power in Organisation,’ Administrative Science, Quarterly, 1990 Vol. 35, p. 343 10 H Joseph Reitz, Behaviour in Organisation, 3rd ed., McGraw-Hill, New York, 1987, p. 435 11 Jeffery Pfeffer, ‘Understanding Power in Organisation,’ California Management Review, Winter 1992, p. 29 12 Walter Nord, ‘Dream of Humanization and the Realities of Power,’ Academy of Management Review, July 1978, pp. 675–677 13 Barbara Gray and Sony Ariss, ‘Politcs and Strategic Change Across Organisational Life Cycles,’ Academy of Management Review, October 1985, p. 707 14 Quoted in Rao and Hari Krishna, Management, Excel Book, New Delhi, 2010, p. 384 15 Robert H Miles, Macro Organisational Behaviour, Goodyear, Santa, Monica, Calif., 1980, pp. 182–184 16. Alwin joffler, ‘Powership In worksplace,’ Personnel, June, 1990 p. 21 (Quoted in Fred E. Luthans, Organisationnal Behaviour, McGraw-Hill, New York, 2005, p. 426

ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. Most of politics to acquire power and allied positions are played through communication 2. Steps are (1) sender, (2) idea, (3) decoding, (4) channel, (5) receiver, (6) encoding, and (7) feedback. 3. Elements of communication network are Channels, Modes, Directions, Formal Provisions, Facilities 4. The gestures, such as movement of head, hands, fingers, eyes, facial expressions, posture, etc., are used to convey specific type of message. 5. Premature evaluation, inattention, loss by transmission, and poor retention 6. Power is personal ability or capacity to influence others 7. Coercive Power, Connection Power, Reward Power, Legitimate Power, and Expert Power. 8. Dependency, uncertainty, personaity, and ego states 9. Allocation of resources, type of decisions, degree of goal clarity and degree of trust 10. Desirability of organisational politics depends on how it is perceived and managed B. 1. (d), 2. (a), 3. (c), 4. (b), 5. (c), 6. (c), 7. (b), 8. (c), 9. (d), 10. (d)

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CASE Be Aware of Organisational Politics Organisational politics is an obvious phenomenon in today’s business organisations. People play politics for several purposes. Sometimes, a few dissatisfied people can take the organisation into ban. In most cases, organisational politics has dysfunctional outcomes, but it cannot be prevented. However, its dysfunctional effects can be minimised by suitable managerial efforts. Mr. Ram Mohan, the founder and chairman of Sky Consultancy, a medium sized IT company, was wise enough to understand how, why, and when people play political games in the organisation, and how to manage them. Under his capable leadership, people hardly dared play politics. In the year 2008, to expand overseas business and meet the present clients, Mr. Ram Mohan went on foreign tour for three months. Premkumar, B. E., MBA, 35, took temporary charge as chairman. Senior executives and other employees of the company were astonished by this move. Premkumar had joined the company just five years ago as IT engineer. He overtook five senior officers and became marketing manager within a short span of time. Most employees agreed that he could reach the position not due to his ability or contribution, but because of his relationship with the chairman. Employees believed that his appointment was the result of nepotism. Though Premkumar was kind, frank, expert, and dedicated to work, most employees held strong prejudice against him. He was always found eager to assist his colleagues and subordinates. He had contributed significantly to develop and launch two new products last year. During a social function held last year, one senior officer commented in a group: ‘Premkumar can become anything. Ultimately, he is a relative of our chairman. His relations with chairman are enough, he requires nothing.’ The comment turned out to be true when he was assigned the charge of chairman. Immediately after resuming the charge, Premkumar initiated some changes in work schedule and work assignments to cope up with work pressure and meet clients’ expectations. However, the employees looked upon the changes as personal. In the absence of the chairman, employees found more freedom. During office hours, they started meeting each other and talking irrelevant topics. Some officers started remaining absent without justifiable reasons. One assistant manager organised a party at his residence. Even, in the meeting held on previous Saturday, chairman Premkumar felt insulted when some employees remained absent without prior permission, some came late, and those who attended behaved in an apathetic manner. The chairman put a proposal for expanding business, but officers did not participate. On birth day of his son, Premkumar held a party and invited all officers at his residence. Even during the party, most officers exhibited political behaviour. Premkumar could not understand what was going wrong. While attending a business meet with important clients, held in a hotel conference hall, the chairman noticed that senior officers were behaving as if they were outsiders or visitors. Due to officers’ unexpected behaviour, the company lost two big clients. Next day, chairman called some senior officers in his chamber and asked the reasons for their unreal behaviour. He scolded in soft words: ‘It is not fair, your behaviour has changed drastically; your yesterday’s behaviour was unexpectedly strange, we are losing our business, it has started suffering; we all are responsible for the situation. We must carry out the responsibility our honorable chairman has assigned us. I want your cooperation. If this type of climate continues, I must think of another option.’ Officers left the chamber without any discussion. Next day, his personal secretary informed the chairman that some officers had met the previous day after

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office hours. One senior was saying: ‘Chairman is crossing his limit. He is incharge chairman and behaves as our permanent boss. We must unite for our interest. If it continues, we have to think about another option.’ Situation was worsening. Premkumar could not understand what was wrong, what was his fault and why people behaved differently than expected. He had telephonic talk with Mr. Ram Mohan. He described the changing organisational climate and expressed his inability to handle the issue. The experienced chairman realised the climaxing organisational politics. He shortened his tour and flew back to India within a week.

Questions for Discussion 1. What is organisational politics? Why do people play politics in the organisation? 2. What was the root that promoted political behaviour in the organisation? 3. Do you think that company’s HR policies were responsible for organisational politics? What could have been done to prevent politics? 4. Describe different political games or tactics employees played in the organisation. How is communication related to organisational politics? 5. Can you assume what action Ram Mohan might have taken to normalise the situation? 6. In relation to the case, suggest at least five relevant strategies to minimise organisational politics. 7. Can organisational politics be prevented? Why?

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Positive Organisational Behaviour Learning Objectives Upon completing this chapter, you will be able to: Clarify the concept of positive organisational behaviour and positive psychology Summarise key components of POB, including optimism, hope, SWB, resiliency, emotional intelligence, and self-efficacy Explain the relationship between POB and performance management Explain the term ‘self-efficacy,’ enlist its features and sources and assess its role at workplace Discuss the dimensions of emotional intelligence and assess its relevance in different leadership styles Explain resiliency and suggest ways to improve employee’s resiliency

INTRODUCTION Behaviour is all about what people think. Their thinking pattern is responsible for generating specific behaviour. Positive organisational behaviour (abbreviated as POB) is the outcome of positive response of all participants in the organisation. POB leads to positive outcomes. But, it cannot be imparted automatically. Organisation needs to undertake a number of efforts to generate, impart, modify, and sustain positive behaviour. POB is the solution to all organisational problems. It is concerned with developing positive and useful human capabilities, such as optimism, hope, happiness or subjective well-being (SWB), resiliency, emotional intelligence, self-efficacy, etc.1 Note: Additional reading material related to this chapter is available on the companion website of this book.

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Definitions Positive organisational behaviour (POB) approach has been drawn from positive psychology. It has been defined as: Fred E Luthans: "Positive organisational behaviour (POB) is the study and application of positively oriented human resource strengths and psychological capabilities that can be measured, developed, and effectively managed for performance improvement in today’s work place."1 In relation to its contribution, POB can be defined as: POB is drawn from positive psychology and is concerned with strengthening psychological capabilities, like optimism, hope, happiness, resiliency, self-efficacy, and so forth, for performance improvement. We can define the term as: Positive organisational behaviour (POB) is the field of study that focuses on discovering, nurturing, and developing positive psychological human capabilities, that can make personal and organisational life worth living.

Positive Psychological Capabilities and POB Note that POB is based on some criteria drawn from positive psychology. Positive psychology focuses on positive features of people that make life worth living. It is aimed at using scientific methodology to discover and promote factors (capabilities) that allow individuals, groups, organisations, and countries to flourish in all possible ways. It promises optimal human functioning rather than pathological human functioning.

Level of Positive Psychology Seligman and Csikszentmihalyi2 describe three levels of positive psychology: 1. Valued Subjective Experiences: This level includes well-being, contentment (pleasure), or satisfaction (in the past), hope and optimism (for the future), and flow of happiness (in the present). 2. Positive Individual Traits: This level of positive psychology contains some individual traits (basic qualities). Positive psychology depends on positive traits, such as love, courage, interpersonal skills, aesthetic sensibility, perseverance, forgiveness, originality, future mindedness, spirituality, high talent, and wisdom. 3. Civic Virtues and the Institutions: This level of positive psychology moves individuals towards better citizenship. Positive psychology contains some important civic virtues that makes the individual a better citizen, including responsibility, nurturance, altruism, civility, moderation, tolerance, and work ethics. These positive psychological elements at three levels constitute positive psychology that has valuable implications for therapy, education, family life, and society at large. In the same way, these positive aspects are also equally important for organisational life and behaviour. An operationalised positive psychology can be referred as positive organisational behaviour (POB). Due to significant contributions, modern managers prefer to invest in positive psychological capabilities. These capabilities help in (1) repairing what is wrong, (2) identifying and nurturing what is good, (3) discovering how to make work less boring, and (4) making the works and workplaces meaningful.

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Criteria of POB Accordingly to Fred E. Luthans,3 positive organisational behaviour is based on five operational criteria: 1. Theory and research 2. Valid measures 3. Unique concept 4. Open to development 5. Managed for performance improvement

COMPONENTS/DIMENSIONS OF POB Positive organisational behaviour (operational positive psychology) is concerned with developing and strengthening positive psychological capabilities. As shown in Figure 25.1, the POB construct is made of six psychological capabilities/criteria. These capabilities are interrelated and interdependent, i.e., any one capability affects other capabilities, or is affected by other capabilities. In one capability, one or more capabilities can be the input.

FIGURE 25.1 Key Components of Positive Organisational Behaviour (POB)

Optimism In positive organisational behaviour, optimism has received most attention. Other words similar to, or that represent, optimism are hopefulness, cheerfulness, confidence, brightness, buoyancy, good spirits, resilience, enthusiasm, etc. It is used to describe human nature and/or individual differences. This is a general term, and it indicates a number of things at a time. It shows positive or healthy mentality of people. Luthans notes: "The positive impact of optimism on physical and psychological health, and the attendant characteristics of perseverance, achievement, and motivation leading to academic, athletic, political, and occupational success are well documented."4

Definitions Optimism is an important component of positive psychology and positive organisational behaviour. It is always about positive things. An optimistic person views, evaluates and accepts things positively. He exhibits constructive behaviour for any event or situation.

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Webster’s New Dictionary: "Optimism is a belief that everything is ordered for the best; a disposition (nature or outlook) to take a hopeful view of things." Psychologists: "Optimism is cognitive characteristics in terms of generalised positive expectancy and/or a positive causal attribution." It can be defined as: Optimism is complex psychological positive construct of emotional intelligence. It makes one think, accept and react in positive ways, and is predisposed in terms of good characteristics, like hopefulness, cheerfulness, confidence, brightness, buoyancy, good spirits, resilience, enthusiasm, and so forth.

Dimensions or Characteristics

Important dimensions/characteristics of optimism in-

volve: 1. Unique Psychological Construct: Optimism is a unique psychological construct to understand human functioning and organisational behaviour in general. 2. The Past, the Present, and the Future Optimism: Optimism involves expecting positive outcomes about the past, the present, and the future events. Optimistic person takes every event and outcome positively. 3. Optimism as Human Nature: Optimism implies good psychological health. It shows positive bias that people hold about themselves. It is indicative of some positive characteristics, such as hopefulness, cheerfulness, confidence, brightness, buoyancy, good spirits, resilience, enthusiasm, etc. 4. Optimism as an Individual Difference: A person can have varying degrees of optimism. It shows specific individual style to treat differently the causes and outcomes of failure, misfortune, or bad events as well as good events, like happiness, perseverance, achievement, health. Optimism is explanatory style to interpret the events. Optimistic people interpret causes and events quite differently than the pessimistic. 5. Little v/s Big Optimism: Optimism differs in terms of its magnitude (intensity) and level. Little optimism involves limited specific expectations about positive outcomes (for example, I will pass the examination with good marks). Whereas big optimism implies more generic and large expectations of positive outcomes (for example, I will be a successful industrialist, or I will be a respectable person in the society). 6. Optimism v/s Pessimism: Optimism and pessimism are mutually exclusive, are complete opposite of one another. The good and bad outcomes depend on attribution. For example, an optimistic man will take failure as a base to work more rigorously while pessimistic man takes failure as a bad end and finds excuses. He stops working in desperation. 7. Learning and Sustaining Optimism: Optimism can be learned and/or changed. Optimism is a pattern of evaluating outcomes. Even pessimistic people can learn the skills to be optimistic. Hence, it is important in positive organisational behaviour. In the same way, it can be sustained (or maintained) over time. 8. Realistic and Ideologist Optimism: Realistic optimism is based on factual expectations; ideologist optimism is just a personal philosophy, and is based on ideology only. For organisational behaviour, realistic optimism is more meaningful to be analysed, taught, or extended.

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9. Desirability of Optimism in the Workplace: Optimism in workforce is exhibited in form of desirable characteristics, like perseverance, achievement, persistence, cooperation, etc. It can be very positive force at the workplace. It motivates people to work harder, leads to satisfaction and high morale, inculcates high level of aspirations, develops perseverance to face obstacles and difficulties, tends to feel good, and invigorates both physically and mentally. In certain fields, like sales, advertising, public relations, customer services, arts and performance, education, health and social services, etc., optimism is especially valuable. 10. Optimism and Personal Life: Optimism makes life interesting and worth living. An optimistic man enjoys every situation and sustains efforts for better outcomes. He remains happy and tries to make others happy. He contributes positively in all possible ways to be a good human being. An optimistic seems frank, enthusiastic, free (or relaxed), flexible, joyous, cooperative, open minded, helpful, cheerful, and broad minded. Optimist (with realistic optimism) man is an asset to the company, society, and the nation. Optimism is a virtue and has a number of practical implications for organisational behaviour and management. Researchers are attempting to apply the concept in human resource management. It has more value than education and experience. Optimism is also an important aspect of training programmes. However, there is need for more rigorous and systematic study for meaningful application of optimism at workplace.

Hope Hope is a more central concept of positive psychology movement. It is normally used in terms of optimistic advice offered by friends, relatives, and counselors in adverse situation or trouble. They say, ‘Let us hope for the best.’ It has been recognised as an important aspect of POB. Hope is closely related to self-efficacy. Self-efficacy is always about good things or positive aspects. It is always concerned with the future.

Definitions Hope has been defined as below: 1. Webster’s New Dictionary: "Hope is a (strong) feeling that what is wanted will happen." 2. Oxford Reference Dictionary: "Hope is the ability to produce the desired or intended things." 3. C. Rick Snyder, L. Irving and J. R. Anderson: "Hope is positive motivational state that is based on an interactively derived sense of successful (1) agency (goal-directed energy), and (2) pathways (planning to meet goals)."5 Definition of hoe by Snyder, Irving, and Anderson consists of two dimensions, willpower (strong determination) and way power (power to identify the pathway). It is not simply person’s determination that goal can certainly be achieved, but also the belief that successful plan can be formulated, pathways can be identified, and self-motivation can be exhibited in order to attain the goals. We can define the term as: Hope implies two things—the will and the way. Will implies strong willpower, determination, motivation, or spirit to achieve the most desired goal while the way implies the best possible ways and efforts to achieve that goal. Further, it can be defined as: Hope is one’s strength of belief of best things happening, in the present and the fulture, by injecting fuel of energy in a person that makes him put continuously the best possible efforts in the best possible ways for the best possible outcomes.

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Research on the area indicates that hope has positive impact on academic achievement, athletic accomplishment, emotional health, and the ability to fight with illness and other hardships. People with hope in stressful professions perform better and survive with most satisfaction. They are less emotionally exhausted, and are most likely to continue their efforts. Obviously, human resources with high level of hope are more profitable, having high retention rates, and greater level of satisfaction and commitment. In the same way, high hoped entrepreneurs are observed to be greater satisfied with their business ownership and they consider themselves better compensated than lower-hoped entrepreneurs.

Optimism and Hope

Optimism and hope though closely related terms, are different. However, it is difficult to differentiate one from the other in an exact manner. Optimism is positive mentality of looking at causes and outcomes. It also includes ‘hopefulness,’ but does not indicate willpower and way power to do the best for the best. It may or may not lead to strong determination and strong efforts. However, positivism (optimism) is extremely important in hope; it is an integral part of hope. One can hope for the best only if one is optimistic. Optimism may be a part of hope. Optimism indicates taking things (events, persons, causes, outcomes, etc) positively while hope implies expecting strongly and doing rigorously for the best outcomes.

Happiness or Subjective Well-being (SWB) In addition to optimism and hope, happiness has received recent attention in positive psychology movement (and positive organisational behaviour). Happiness is preferably referred as subjective well-being (SWB). It is subjective feeling of pleasure, fortune, and convenience. It may be related to the past, the future, and the present events, situations, and outcomes. However, happiness shows the present feeling of well-being. It involves optimism as only optimistic can be happy. The same condition, outcomes, or gains do not make all people equally happy. It is subjective and its degree or level depends on personal expectations and personality characteristics. For example, ordinary or average student is happy with second class marks while even first class marks cannot make the capable and clever student happy. Unlike other constructs of POB, SWB has been extensively researched across cultures as it is a significant predictor (or indicator) of work climate, culture, and job satisfaction.

Definitions It has been defined as: Ed Diener: "People’s effective (moods and emotions) and cognitive evaluation of their lives."6 Happiness is current subjective feeling of pleasure, fortune, and convenience, concerned with the past, the future, and the present events, situations and outcomes, and only optimistic can be happy. It is not important what is happening and what has happened, whether the thing is best or worst, but how the thing is emotionally interpreted and what is happening to him, is the key aspect in subjective happiness. However, in POB, it is not as important as hope. SWB has become popular and important part of positive organisational behaviour as it reflects social trend of valuing the good life and what makes people happy. When, why, and what aspects seem less crucial in SWB than the who aspect. Profile of happy people describes that demographic characteristics have significant effect on their happiness. In most cases, those who are young, healthy, well educated, well paid, dynamic, optimistic, and married are found to be happy.

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Components/Factors in Happiness

Happiness is made of many things or components. Main components have been briefly stated below:

1. Life Philosophy: How is the life judged? It denotes one’s broad judgment of life. 2. Current State: Happiness is concerned with the current feeling of pleasure or convenience. It may be in relation to any events, situations, or occasions of the past, the present, or the future. 3. Satisfying with Important Domains (Areas or Fields): One can derive satisfaction from several domains, like job satisfaction, workplace, rewards system, and overall social atmosphere inside and outside the organisation. 4. More Positive Effects or Experiences: Happiness depends on many pleasant emotions and moods. 5. Low Level of Negative Impact: It is indicative of low level of impact of unpleasant emotions and moods. 6. Sound Physiological State: Happiness depends on health condition. A person with a number of health problems hardly feels pleasure and comfort. 7. Role of Goals: Making progress towards goals is closely related to SWB. Supporting resources and situations to one’s important goal generate happiness. 8. Temperament and Personality Characteristics: One’s temperament (or nature) and personality traits determine degree of happiness in the same situation. 9. Optimism and Happiness: Undoubtedly, optimism is integral part of happiness. Only optimistic can be happy. 10. Demographic Profile: Normally, those who are young, well-educated, well paid, married, and so forth are found happy. From POB point of view, happiness or SWB is a significant area to concentrate on. By suitable job design, goal setting process, working conditions, positive counseling, improved welfare activities, and other such efforts, one can keep the employees happy. Only happy employees can make others—people, organisations, society, and the nation—happy. It contributes to positive organisational behaviour. Management should analyze who, what, why, when and where aspects related to employees happiness.

Resiliency Similar terms related to resiliency are hardiness, spirit, toughness, flexibility, or buoyancy. Unlike the other components of positive organisational behaviour, resiliency is reactive, not proactive in nature. Resiliency, or ‘bouncing back’ capacity, involves flexibility, adjustment, adaptability, and continuous responsiveness to change and uncertainty that can otherwise represent a source of psychological strain and challenge to one’s well-being over the long run.7 Thus, resiliency is one’s capacity to respond strongly to difficulties and problems.

Definitions The term is inclusive of other dimensions of POB. It can be defined as: 1. A. S. Mastern and M J Read: "Resiliency is a class of phenomena characterised by patterns of positive adaptation in context of significant adversity or risk."8 2. Fred. E Luthans: "Resiliency is viewed as the capacity to rebound or bounce back from adversity, conflict, failure or even positive events, progress and increased responsibility."9

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3. B Egeland, E Carlson, and L A Sroufe: "Resiliency is not just an outcome that people strive to achieve, nor it is only a valuable input that enhances their chances of success. It is a lifelong journey, an elaborate process in which competence is developed over time as a person interacts with today’s environment characterised by continuous change and uncertainty."10 Taking views from above definitions, we can define the term as: Resiliency refers to person’s exceptional capacity of reacting strongly to difficulties (adversities, conflicts, or problems). The capacity to react involves adjustment, flexibility, adaptability, and restless responsiveness towards changes and uncertainties that can otherwise become psychological strain, and that can challenge one’s well-being over the long term. Fred Luthans notes that resiliency—in addition to the outcomes that people strive to achieve and valuable input that enhances one’s chance to success—is a lifelong journey, an elaborate process in which competence is developed over time, as the person interacts with today’s continuously changing and uncertain environment.

Characteristics We can derive some common characteristics of resiliency as under: 1. Resiliency is exceptional as, not all, only a few possesses it. 2. It involves systematic and strong reaction to uncertain and changing environment. 3. It is not temporary. It is a life-long journey of developing competence. It involves continuous attempt to develop competence to cope with environmental uncertainties. 4. It is valuable input in people’s efforts to interact with dynamic environment and achieve desirable outcomes. 5. It is treated as essential attribute of today’s employees, managers, organisations, and countries, 6. It is measurable. It can be measured by developing a suitable instrument. 7. It can be developed and strengthened. 8. Other adaptation processes/dimensions of POB, like optimism, hope, happiness, self-efficacy, etc., seem necessary to improve resiliency. 9. It is multi-beneficial dimension that offers a number of benefits to employees, managers, organisations, and the nation. 10. Resilient organisational culture and climate can survive and grow in ever-changing environment. 11. Resilient organisation relies heavily on strategic planning, team work, decentralisation, employee involvement, open communication, building trust, commitment, effective learning, and adaptation processes.

Improving Resiliency According to P A Cowan, C P Cowan, and M S Schulz,11 resiliency can be improved or developed by following four ways: 1. Improving assets (capabilities, skills, or competencies) that a person possesses through education, training, and nurturing social relationships, and improving quality of resources available to the person. 2. Managing risk factors through appropriate physical and psychological health care.

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3. Enhancing other adaptational processes through developing other positive psychological capabilities, like self-efficacy, hope, and optimism. 4. Teaching people how to use effective stress coping management, problem solving, and goal setting strategies and practical techniques. In today’s environmental context, employees, managers, and organisations are facing the risks and uncertainties associated with global resource problems, technological change, downsizing, extensive customer orientation, severe competition across the cultures, changing chemistry of global relations among nations, stress, and burnout work-life balance, and so forth. In today’s alarming situations, resiliency is becoming an indispensable factor that can transform threats and challenges into opportunities for organisations’ growth, development, and sustainable adaptability. It offers a number of benefits to the organisation. Organisation can improve its competitive strengths amidst turbulence and unstable environment. It can contribute to economic excellence and social welfare, and can improve quality of life. More emphasis is given on strategic planning, team building and teamwork, decentralisation, employee involvement, open communication, and inspiration and encouragement to build a resilient organisation. Such organisations can confortably align organisational, departmental and individual goals, and can build climate of trust, confidence, cooperation, and effective organisational learning and adaptational systems. This newest dimension of positive organisational behaviour can have notable impact on development and sustainable performance in the present difficult and challenging time. Unfortunately, in India, at corporate level, necessary efforts are not adequately made to develop resilient groups and organisations. More research work is needed on the area.

Emotional Intelligence Emotional intelligence (or simply EI) is one of the important components of positive organisational behaviour. It is made of two separate terms/components—‘emotion’ and ‘intelligence.’ It is a very powerful positively oriented construct for understanding and improving organisational behaviour. In contrast with other POB capacities (like optimism, hope, happiness, etc.), there is relatively more need for theory, measures, and basic research. In today’s organisational context, EI has an important role in understanding and managing one’s own and others’ emotions.

Emotion Man is an emotional machine; he is regulated and controlled by his emotions. His emotional construct affects himself as well as those with whom he interacts. It is a psychological variable, and, like other psychological constructs, exact definition of the term has not been totally agreed upon. Emotion can have different implications. Emotion is intense feelings that are directed at someone or something. Emotional stability is a personality dimension.12 Emotion is reaction of a person, it is not a trait. Emotions come from the heart and are different from rational thinking, which comes from the head. It is object-specific in nature. Psychologists states that emotion is person’s strong (positive or negative) feeling about something. It is expressed in positive forms, like love or affection, happiness or joy, surprise, etc., or in negative forms, like fear, sadness, anger, disgust or hatred, and shame. There is a little difference between emotion and mood. Mood is not directed at any object. Emotion affects one’s mood, and consequently, the behaviour. People hold different capacity to control, or regulate their emotions. Ability to control emotion is considered as important personality feature.

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Types of Emotions Emotions can be broadly classified into two groups, positive emotions and negative emotions. Each group of emotions has its different exhausts (releasing or expressing forms); different emotions are expressed in different forms. Table 25.1 shows positive and negative emotions. TABLE 25.1

Types of Emotions

Main Type Positive Emotions

Negative Emotions

Sub Types

Description of Emotion, or Form of Emotional Expression

1. Love or Affection

It includes acceptance, adoration (respect), longing (yearning), devotion, and infatuation (fascinations/attraction), etc.

2. Happiness or Joy

It includes cheerfulness, contentment, bliss, delight, amusement, enjoyment, enthrallment, thrill, euphoria, zest, etc.

3. Surprise

It includes amazement, wonder, astonishment, shock, etc.

1. Fear

It includes anxiety, alarm, apprehension, concern, qualm (uneasiness), dread, fright, terror, etc.

2. Sadness

It includes grief, disappointment, sorrow, gloom, despair, suffering, dejection, etc.

3. Anger

It includes grief outrage, exasperation, wrath, indignation, hostility, irritability, etc.

4. Disgust

It includes contempt, disdain, abhorrence, revulsion, distaste, etc.

5. Shame

It includes guilt, remorse, regret, embarrassment, humiliation, etc.

(Sources: H M Weiss and R Cropanzano, ‘Affective Events Theory’ Research in Organisational Behaviour, Vol. 18, pp. 20–22 and Daniel Gleman, Emotional Intelligence, Bantam Books, New York, 1995, pp. 289, 290.) All these emotions are apparent at workplace. Interestingly, most managerial decisions are based on emotional processes rather than rational thought processes. Our emotions of love, passion, and happiness, and not what is rationally the best, affect our decisions on career, promotion, transfer, etc.,. Negative emotions have adverse impact on the person himself, his performance, and his relations with others. As against it, the capacity to experience positive emotions is a matter of interest in POB and human flourishing.

Intelligence Intelligence is one of the key variables in psychology. The popular word used for intelligence in relation to personal life, education, HRM, and management is ‘intelligence quotient’ or IQ. IQ scores are used to measure mental ability of a person. It is discussed in relation to age, sex, culture, education, training, etc. Various tools are used to measure and interpret IQ. Howard Gardner’s Multiple Intelligences13 consists of ten intelligences: 1. Logical or mathematical intelligence, for example, ability to calculate, measure, analyse, etc. 2. Verbal or linguistic intelligence, for example, ability to express thoughts through words, word power, etc.

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3. Interpersonal intelligence, for example, ability to understand others through interaction, sense of humor, etc. 4. Intrapersonal intelligence, for example, ability to think quietly, living alone, independence, perseverance, etc. 5. Visual or spatial intelligence, for example, ability to observe and interpret pictures or places, etc. 6. Musical intelligence, for example, ability to pinch sensitivity, melody, rhythm in performer as well in listeners. 7. Bodily or kinesthetic intelligence, for example, physical movement, involving whole body, dancing, jumping, gestures, etc. 8. Naturalist intelligence, for example, surviving or adjusting with the nature, etc. 9. Existential intelligence, for example, knowing why one is here on earth, personal mission, etc. 10. Emotional intelligence, for example, emotional maturity, recognising one’s anger, reacting to emotions of self and others. Howard Gardner found that these multiple intelligences (MIs) are not birth related, but can be nurtured or grown. However, in the fields of HRM and OB, instead of Multiple Intelligences, cognitive intelligence has been recognised. Cognitive intelligence is the cognitive mental ability. Ability refers to the aptitude and learned capabilities needed for successful achievement of a task. Both physical—manual dexterity, body strength, stamina, hand-eye coordination, and so forth— and mental (intellectual or cognitive) abilities are important for a job. Except for a few physical activities, most jobs in today’s workplace require more cognitive abilities. Every unique job requires specific mental abilities. But, most jobs require general mental abilities (GMA). Table 25.2 summarises M D Dunnetee’s six general mental abilities. Mental abilities are also referred as mental personality traits or qualities. There are several such mental abilities and can be classified in different ways. In different jobs, different abilities are given more attention. However, some mental abilities are relevant to every type of job. Written test, interview, group discussion, brainstorming, case study analysis, pictorial analysis, role playing, presentation, etc., are some techniques used for measuring mental abilities during various HRM activities. These qualities affect directly one’s work performance on one hand and his response and reactions (behaviour) on the other hand.

Emotional Intelligence (EI) After a brief comment on what is emotion and what is intelligence, now let us focus on emotional intelligence. Many years back, emotional intelligence was known as social intelligence. Gardner’s attempt in form of multiple intelligences is considered as recent attempt in emergence of emotional intelligence. However, in the beginning of the 1990’s, two psychologists. Peter Salovey and John Mayer, for the first time, came out with comprehensive theory of emotional multiple intelligences. Definitions The term emotional intelligence (EI) has been defined as under: 1. Peter Salovey and John Mayer, the social psychologists, in terms of social intelligence, define the term as: "The subset of social intelligence that involves an ability to monitor

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one’s own and others’ feelings and emotions, to discriminate among them, and to use this information to guide one’s thinking and actions."14 2. Daniel Goleman, the psychologist and journalist, in his famous book, Emotional Intelligence, New York, 1995, defines EI as: "The capacity for recognising our own feeling in relation to others, for motivating ourselves, and for managing emotions well in ourselves and in our relationships."15 3. Stephen Robbins and Seema Sanghi, well-known writers in the field of OB, define the term as: "The ability to detect and manage emotional cues and information”16 TABLE 25.2

General Abilities Related to Job Performance

Mental Ability

Characteristics of Ability

Example of Job Task

1. Verbal Comprehension

Ability to comprehend what is read or heard, understand what words mean and their relationship to one another.

Superior can comprehend real implication of words of male employees that affect the sentiments of female employees.

2. Numerical

Ability to make fast and accurate Sales managers can calculate sales arithmetic computations. revenue, costs, commission, taxes, and other relevant aspects.

3. Spatial Visualisation

Ability to perceive spatial patterns, A manager of realty company deimagine how an object would look if scribing a change of construction deposition in space is changed. sign to clients.

4. Perceptual Speed

Ability to quickly identify visual simi- A quality control engineer can immelarities and differences, to carry out diately identify product defects during tasks needing visual perception. production process.

5. Memory

Ability to rote memory, retain and re- A manager uses his knowledge call past incidents or experiences. based on past experiences to guide a newly formed project team.

6. Inductive Reasoning

Ability to identify logical sequence A scientist in laboratory develops an innovative product design from several independent studies.

(Source: M D Dunnetee, ‘Handbook of Industrial and Organisational Psychology,’ Rand McNally, Skokie III, 1976, pp. 478–483) Brain’s neural activities can help in understanding the process of EI. Personality and behavioural theories play a crucial role in EI. In the same way, learning has also an important role to play in EI. In fact, there exists considerable controversy and practical problems with the concept. Therefore, it is difficult to operationalise the concept at work place. However, it has a number of practical implications to understand and improve behaviour of people.

EI Dimensions

Daniel Goleman,17 in his book, identified five most relevant EI dimensions that seem more significant for understanding and applying positive organisational behaviour at workplace. Main EI dimensions and their key characteristics have been briefly stated as under:

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1. Self awareness: It involves self understanding or knowledge of true feelings at the moment. For example, one recognises that he is angry and needs to cool down and gather relevant information before scolding others and taking important decisions. 2. Self management: It involves handling one’s emotions to facilitate rather than hinder the task at hand, or shake off negative emotions and get back on constructive track for problems’ solutions. For example, one tries to hide/manage/control one’s upset with customer’s unfair complaint and tries to get more facts of what has happened. 3. Self-motivation: It involves continuing efforts towards desired goals, or overcoming negative emotional impulses, and delaying gratification to attain the desired outcomes. For example, in spite of many frustrations from lack of resources and top management support, one is persistently engaged in successful completion of project in time. 4. Empathy: It involves understanding and being sensitive to the feelings of others, or being able to sense what others feel and want. For example, head of team arranges for refreshment for team members when they are exhausted. 5. Social Skills: They involve the ability to read social situations, smoothness in interacting with others and forming network, or ability to guide others’ emotions and the way they act. For example, when a manager recognises by non-verbal cues that his employees are not ready to accept and support new policies, he, after the meeting, visits each member personally and explains how they would be benefited by new policies.

Emotional Intelligence in the Workplace

Primarily, Daniel’s emotional intelligence was aimed at educational community. His work on emotional intelligence attracted academicians as well as the business world. Daniel Goleman, the pioneer of emotional intelligence, in his book, Working with Emotional Intelligence, emphasised on operationalsing key dimensions of emotional intelligence for performing job better and for effective leadership. He considers initiativeness, trustworthiness, self-confidence, and achievement drive as important for selfmastering the job. He, later on, identifies key relationship skills, such as empathy, political awareness, leveraging diversity, team capabilities, and leadership for developing effective organisation. Daniel made valuable suggestions about how to develop EI capabilities in organisations that are emotionally intelligent. He suggested: 1. At the individual level, elements of emotional intelligence can be identified, assessed, and upgraded. 2. At the group level, interpersonal dynamics can be fine tuned to make the group smarter. 3. At the organisational level, value hierarchy can be revised to make emotional intelligence a base for hiring, training and development, performance, evaluation, and promotion.

Leadership Style and EI EI seems more critical in leadership effectiveness. In every leadership style, some EI capabilities are meaningfully associated. In his article, Daniel explained how EI relates with leadership styles18 1. Coercive Style: Relevant EI capabilities are self-control, initiative, drive to achieve, etc. 2. Authoritative Style: Relevant EI capabilities are self-confidence, empathy, change agent, etc.

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3. Affliative Style: Relevant EI capabilities are empathy, relationship building, communication, etc. 4. Democratic Style: Relevant EI capabilities are collaboration, team leadership, communication, etc. 5. Pacesetting Style (Setting high standards and acting as model for action): Relevant EI capabilities are conscientiousness (preciseness, carefulness), drive to achieve, initiativeness, etc. 6. Coaching Style: Relevant EI capabilities are self-awareness, developing others, empathy, etc.

Conclusions of Research Studies on EI Some research studies have drawn following useful conclusions: 1. EI facilitates individual employee adaptation and change. 2. EI is better predictor of life success (economic well-being, satisfaction with life, friendship, family life, occupational attainment). 3. EI gets one promoted; it leads to self-development. 4. Dimensions of EI, such as social skills, help to build network of relationships and friends, and that can help handle crisis/problems. 5. Leadership effectiveness depends, not on technical ability, but on emotional intelligence. Today’s organisations have realised the role EI plays in positive organisational behaviour and improving performance. Organisations have started implementing various EI approaches. Many companies have been conducting EI counseling and training approach to help their employees deal with change, emotionally changed work situations, and professional goals. Various tools have been developed to measure EI score. Undoubtedly, EI has been accepted by today’s organisations for effective solution of emotional issues and complaints. However, compared to other positive organisational behavioral constructs, there is more need for systematic theory development, developing valid measures, and strengthening empirical research base for meaningful and full-fledged application of EI at workplace.

Self-Efficacy Among all constructs of POB, self-efficacy is, perhaps, the most theoretically developed and researched. It is more relevant to the study of organisational behaviour as theory of selfefficacy has been derived from social cognitive theory, the base for conceptual framework of OB. Particularly, it is important as it is a key element in EI and, especially, in optimism. It is theoretically rich and has been proved effective in a number of application areas as well as at the workplace. It has been proved that belief of efficacy (self-efficacy) contributes significantly to the level of motivation, performance, and satisfaction. According to Albert Bundura,19 self efficacy is the most pervading and important psychological mechanism of self-influence. He states: "Unless people believe that they can produce the desired effects and forestall undesired ones by their actions, they have little incentives to act. Whatever other factors may operate as motivators, they are rooted in the core belief that one has the power to produce desired results." Self-efficacy implies people’s beliefs about their capabilities to produce effects. Selfefficacy and self confidence are either same or closely related.

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Perceived (or believed) self-efficacy is defined as people’s beliefs about their capabilities to produce designated levels of performance. Self-efficacy beliefs determine how people feel, think, motivate themselves, and behave. Such beliefs produce diverse effects through four major processes—cognitive, motivational, affective, and selection processes.

Definitions Let us examine some definitions: 1. Stajkovic and Fred Luthans: "Self-efficacy refers to an individual’s conviction (or confidence) about his or her abilities to mobilise the motivation, cognitive resources, and courses of actions needed to successfully execute a specific task within a given context."20 2. Albert Bandura: "Self-efficacy is the beliefs in one’s capabilities to organise and executive the course of action required to produce given attainment."21 3. Stephen Robbins and Seema Sanghi: "The individual’s belief that he or she is capable of performing a task."22 Based on views of experts, we can give following definitions: 1. Perceived self-efficacy is defined as people’s beliefs about their capabilities to produce designated levels of performance that exercise influence over events that affect their lives. 2. Self-efficacy is capability for self-reflection (people reflect back on their actions/experience with specific event/tasks) in form of strong belief that they can successfully accomplish the task in the future. 3. Self-efficacy is psychological mechanism of self-influence—influencing oneself—that contains strong/core belief that one has the power or capability to produce the desired result by one’s actions. 4. In relation to specific task, employee’s self-efficacy determines whether he should initiate necessary behaviour, how much efforts should be expended and sustained, and how much persistence and resilience will be there when there are obstacles, or even failure.

Characteristics Nature of self-efficacy can be described with reference to following characteristics: 1. Personal Belief of Capabilities: Self-efficacy refers to strong belief of people that they are capable and they can successfully accomplish the task in the future. It is an act of believing in one’s capability of doing the things effectively. It is, thus, power or capacity to produce a desired effect. 2. Specific Task or Context: Self-efficacy is specific task related. People have varying degrees of self-efficacy to different tasks and situations. 3. Level of Self-efficacy: It may be low or high. People who strongly believe that they can perform well on a specific task imply high self-efficacy. 4. Self-efficacy and other Cognitive or POB Constructs: Self-efficacy involves optimism, hope, resiliency, emotional intelligence. High level of these constructs leads to high selfefficacy. 5. Self-efficacy and Performance: There is close and direct relationship between level of self-efficacy and level of work related performance. High self-efficacy leads to better performance.

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6. Self-efficacy and Stress: People with high self-efficacy have the tendency to remain calm in stressful situations. They can face stressful situations with confidence and are able to resist stressful reactions. 7. Self-efficacy and Personality Traits: Unlike predisposed personality traits, this state can be trained and developed. Personality traits are stable over time and across situations. Self-efficacy level can be improved or strengthened. 8. Contents of Self-efficacy: Self-efficacy involves selection of specific task/goal, motivation to act, cognitive resources (weighing internal capabilities), and deciding course of action (way of working). 9. Specific versus General Self-efficacy: General self-efficacy reflects people’s belief in successfully accomplishing tasks across a wide variety of achievements. It is stable, like personality traits, over time and across situations. One has high or low self-efficacy depending upon tasks and or situations. Specific self-efficacy is highly variable depending on the specific task and is cognitively processed by the individual before any effort is expended. It depends on the situation, the task, and the person. Specific self-efficacy is more relevant to POB as it can be raised through training and development; enhanced efficacy can lead to improved performance. 10. Self-efficacy versus Self-esteem: Luthans differentiates between two terms in three ways: Specific self-efficacy differs from self-esteem. Self-esteem is global construct of one’s evaluation and belief of overall worthiness, while self-efficacy is one’s belief about a task-specific and context-specific capability. Secondly, self-esteem is stable and traitlike, whereas self-efficacy is changing over time as new information and tasks are gained and developed, and is statelike. Third, self-esteem is aimed at any aspect of one’s current state, whereas self-efficacy is current assessment of one’s future success in tasks. 11. Self-efficacy versus Expectancy Concept: Fred Luthans explained difference between self-efficacy and expectancy concept. Self-efficacy is wider term and it involves perception of ability, skill, knowledge, and experience with the specific task plus psychomotor reactions like emotions, stress, and physical fatigue. While expectancy (in motivation) shows behaviour-outcome probability. Self-efficacy is judgment of one’s ability to successfully execute a certain behaviour pattern. (For example: ‘I believe that I can successfully execute the task.”) While the outcome expectancy is a judgment of the probable consequences that such behaviour will produce the desired result. (For example: ‘I believe that what I will do, or will not do, will lead to desired outcome.’) Expectancy explains behaviour-outcome expectancy relations. Self-efficacy explains surety and confidence, not uncertainty and possibility. 12. Self-efficacy versus Attribution: According to Bandura, attributions are casual beliefs about action-outcome contingencies, whereas self-efficacy is one’s personal belief about his/her abilities and cognitive resources that can be marshaled together to successfully execute specific tasks. Attribution may be internal or external. Internal attribution is concerned with one’s belief about behaviour and consequences and assumes personal responsibility for the consequences. External attribution is concerned with the circumstances or luck, and one does not take personal responsibility.

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Impact of Self-efficacy Self-efficacy, directly and indirectly, affects human functioning. Efficacy process starts before one selects choices and initiates efforts. One tends to weigh, evaluate, and integrate information about his perceived capabilities. Initial process is of little importance, but how one perceives or believes that he can use these capabilities and resources to accomplish the given task is more important. In short, what type and level of goal is selected, how much efforts are expended to reach the selected goal, how firmly one reacts to problems encountered while progressing towards goal—all these are greatly affected by self-efficacy. In short, efficacy affects four aspects, (1) one’s decision to perform the specific task or goal, (2) one’s amount of efforts needed to accomplish the task, (3) one’s perception of his/her capabilities and resources—weighing, evaluating, and integrating information about perceived capabilities, and (4) one’s level of persistence—his strong belief that one can use these capabilities and resources to accomplish the given task inspite of problems and adversities. Fred Luthans describes direct impact of self-efficacy as under: 1. Choice Behaviour: It involves decision to select specific task or career. One always selects the task, assignment or career field accordingly to his level of efficacy. 2. Motivational Efforts: People with high self-efficacy are strongly motivated towards actions, they put harder efforts. 3. Perseverance (firmness, strong determination): People with high self-efficacy are persistent in doing the work. Difficulties and adversities cannot stop them. They become resilient to face problems and tolerate failure. 4. Facilitative Thought Pattern: Self-efficacy level affects one’s thinking patterns. People with high self-efficacy think that they are capable to cope with or solve the problem. They exhibit hope and optimism about their capabilities. 5. Vulnerability to Stress: People with high self-efficacy can face stressful situation with confidence and assure that they are able to resist stressful reactions. Research studies in laboratory and naturalist conditions conclude that there is positive relation between self-efficacy and performance. Level of self-efficacy affects performance level. There are a number of practical implications for understanding and developing self-efficacy in managers and employees for performance improvement.

Sources of Self-efficacy

People’s beliefs in their efficacy are developed by four main sources of influence. They include mastery experiences, manage task’s demands successfully, social persuasion that one has the capabilities to succeed in given activities, and inferences from physical and emotional states indicative of personal strengths and vulnerabilities. People must, therefore, have a robust sense of efficacy to sustain the perseverant effort needed to succeed. Succeeding periods of life present new types of competency demands further development of personal efficacy for successful functioning. The nature and scope of perceived self-efficacy undergo changes throughout the course of the lifespan. Self-efficacy is the belief about one’s capacity to do work successfully, and to attain desired outcomes. All sources that form human belief can be included in self-efficacy sources. Particularly, forming belief needs information. Albert Bandura, who has been recognised as pioneering

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contributor in developing and testing self-efficacy construct, suggested four principal sources of self-efficacy. 1. Mastery Experience or Performance Attainments: Mastery experience is a powerful source for forming self-efficacy. One’s past performance attainment is the direct input in forming self-efficacy beliefs. It indicates forming efficacy from successful experience. However, situational and cognitive processes affect self-efficacy judgment and beliefs. Self-efficacy based on mastery experience may not be same when difficulties arise, and change takes place more quickly. 2. (Others) Vicarious Experiences (or Modeling): Individual can form self-efficacy by observing and modeling others relevant to his situation. If one observes that others have succeeded by perseverance, he believes he can also do the same, he has capacity to attain goals like others. Other’s failure, in contrast, instill doubts about own ability to master similar activities. Model (person whose experience is considered for forming beliefs) must be similar in terms of age, sex, physical characteristics, education, status, etc. However, in case of new assignments and enveloping practical strategy to enhance self-efficacy through training and experience, vicarious sources have little relevance. 3. Social Persuasion: People’s belief in their efficacy can be nurtured and strengthened by persuasion (in form of kind, inspiring, and encouraging words, for example, ‘You can definitely do it’) of other respected and competent people. Their belief of efficacy can also be reinforced by positive comments, non-verbal gestures, and feedback on progress they made on particular tasks. Negative comments or discouraging words about their efficacy deflate (or reduce) their confidence and affect adversely their belief about their capabilities. However, negative comment has more effect than positive on their efficacy. Positive social persuasion seems more meaningful when people have doubts and confusions about their capability to attain the goal. 4. Physical and Psychological Arousal (Provocation or Aggressiveness): Positive feeling about their physical and psychological capabilities is important for forming efficacy. If people feel tired physically (i.e., not physically well), depressed, or they are under a lot of pressure, they are detracted from efficacy. Excellent physical and psychological conditions can build efficacy. Such conditions can arouse person’s efficacy on physically and mentally demanding tasks. Factors: Note that these four sources only provide raw data. One needs to select, cognitively process, and self-reflect to integrate and use such information to form beliefs. These sources do not equally affect all. According to Bandura, forming belief from raw information depends on many factors, like: 1. Type and number of sources used (as each source has varying impacts) 2. Interpretive biases 3. Task difficulties 4. Level of efforts one can make 5. Amount of help one can receive 6. Conditions under which one has to work 7. One’s emotional and physical state

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8. Rate of improvement over time 9. Selective biases in how one monitors and recalls one’s attainment

Role/Importance/Implication of Self-efficacy Self-efficacy is a state, not a trait. It can definitely be enhanced or strengthened through training and development. High self-efficacy can be a long-term solution. Belief in their ability to perform makes people less vulnerable to onthe-job conditions. It can help them survive and face obstacles and setbacks. A strong sense of efficacy enhances human accomplishment and personal well-being in many ways. People with high assurance in their capabilities (i.e., high level of self-efficacy) approach difficult tasks as challenges to be mastered rather than as threats to be avoided. They set challenging goals and maintain strong commitment to them. They heighten and sustain their efforts in face of failure. They quickly recover their sense of efficacy after failures or setbacks. They attribute failure to insufficient effort or deficient knowledge and skills which are acquirable. They approach threatening situations with assurance that they can exercise control over them. Such an efficacious (effective and efficient) outlook fosters intrinsic interest and deep engrossment in activities. It produces personal accomplishments, reduces stress, and lowers vulnerability to depression. Areas of Application: Besides training perspective, scope of self-efficacy has broadened quickly in other important areas of today’s workplace. Let’s briefly glimpse the application and implications of self-efficacy in several areas: 1. Recruitment and Selection: It is used for selection of human resource. Self-efficacy assessment is valuable input or base in selection decision. 2. Training and Development: The four sources of forming self-efficacy (discussed earlier) can systematically be incorporated in training and development programme of organisation to develop efficacy in employees. 3. Self management: It can be applied for developing self-directed, self-motivated and selfcontrolled team. 4. Medical Treatment: It is used for promotion of health and recovery from physical setbacks. 5. Diet Control Techniques: It is used to help people control eating. 6. Stress Management: It is used for managing/reducing stress. 7. Job Design: It is used to design jobs that provide more responsibilities, challenges, and empowered employees. 8. Promoting Creativity: It is applied to promote creative skills. 9. Addiction Treatment/avoidance: It is allied to develop resistance to addictive substances. 10. Education: It is used for educational achievements. 11. Athletes and Sports: It is used to improve athletic performance. 12. Organisational Behaviour: It is used to improve organisational behaviour and work performance. 13. Leadership Development: It is applied to develop leadership qualities and confidence. In a nutshell, self-efficacy construct can be applied to develop people’s efficacy level in all fields of human activities. Self-efficacy is the most important cognitive construct. Interestingly,

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it incorporates other constructs of POB, including optimism, hope, happiness, etc. There is enough research base to conclude that there is strong positive relationship between self-efficacy and work related performance. Different tools, instruments, and techniques are used to impart and/or measure people’s efficacy level in almost all areas of human activities. POB Practices (or Skills) at Reliance Petroleum Limited Late Dhirubhai Ambani and his heirs—Mukesh Ambani and Anil Ambani—are known for their POB skills. Success story of Reliance Petrochemical Refinery Project at Jamnagar (Gujarat), the world’s largest refinery project, exhibited miraculous contribution of team efforts and POB skills. Creating the US $6 billion (around Rs 24,000 crore) world’s largest green field refinery in a barren land of 7,500 acre at Jamnagar within 36 months was the result of strong determination and team-building efforts of Dhirubhai and his heirs. The whole story of the refinery project, directly or indirectly, exhibits almost all components of POB (including optimism, hope, happiness, self-efficacy, emotional intelligence, and resiliency) at different stages of its development. The mega project was the result of Dhirubhai’s mission: ‘Whatever we do has to be world class.’ In 1996, meetings were held at London, Chicago, Mumbai, and Jamnagar and construction was started in November 1996. 75,000 workers and 2,500 engineers started work with the maximum capacity for constructing the refinery. 1.7 million cubic concrete, 10,000 MT structural steel, 14,000 km of cabling, and 5000 km of pipelines were used to construct 170 km roads, 55 substations, 33 blast proof buildings, 43 chimneys and flares. It is four-in-one mega project that shows perfect integration of refinery, petrochemicals, port, and power. It is fully computerized automatic project to respond to real time business. The story shows high level of optimism, hope, and self-efficacy. When the project was about to be completed in June 1998, massive storm, like the time bomb of the nature, exploded on the refinery and destroyed everything. The refinery project was converted into scrap within an hour. News of massive loss of people and property was reported by BBC News. Within no time, Reliance Group decided to convert the scrap into construction. Employees, contractors, and engineers from all over India gathered at the site and started working round the clock. 60,000 workers came back to work within 15 days. Against all odds, in November 1998, the first gas turbine was commissioned. In December 1998, the plant to convert one billion gallon sea water into fresh water was started. In December 1999, the world’s largest green field refinery was commissioned, in record time of 36 months. It created a great wealth for the nation. Really, the refinery is a great gift to nation in the new millennium. Reliance Group’s response to the natural terror shows its high level of resiliency and self-efficacy. Before the refinery started, there was only barren land—miles and miles of desert. There were no trees. Within 36 months, everything, including township, gardens, schools, gyms, community halls, libraries, recreation, super markets, transport facilities, hospital, etc.,were ready to make people feel like at home and enjoy complete life. Constructing the refinery in record time is the result of hard work, well-calculated planning, inspiring dream, strong determination, total dedication, noble team spirit and team building efforts, high level of preciseness and speed in decision-making, and excellent implementation skills. Nothing was left to chance, everything meticulously managed. Group’s exceptionally

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high level of hope, optimism, resiliency, self-efficacy, and emotional intelligence were the key inputs in the success story of Reliance Refinary Project. The refinery project is the example of ‘absolutely impossible turned possible’ due to high profile managerial skills and team building efforts. Dhirubhai Ambani, the chairman of Reliance Group, said, ‘It is not merely a refinery and petrochemical complex. It is not just another largest plant. It is an inspiring temple of resurgent India.” He believed: ‘Whatever we do has to be world class.’ Dhirubhai’s words are indicative of the higher level of emotional intelligence, hope, and optimism. POB construct, including optimism, hope, happiness, resiliency, emotional intelligence, and self-efficacy, indicates useful human capabilities. These human capabilities are core to organisation’s success and social progress. Employees with POB capabilities can contribute to organisation’s success in all possible ways in every type of situation. To create the climate for developing POB requires systematic efforts. Everyone—family, organisation, and society—can contribute to development of positive capabilities. Experts opine that attempts must be made at early stage to develop POB capabilities. Parents, at home, and teachers, in school have significant role in imparting such human capabilities. However, parents’ role seems more critical.

SUMMARY Positive organisational behaviour is the outcome of positive response of all participants in the organisation. It cannot be imparted automatically. It is the solution to all organisational problems. Positive organisational behaviour (PBO) is the study and application of positively oriented human resource strengths and psychological capabilities that can be measured, developed, and effectively managed for performance improvement in today’s workplace (Fred E. Luthas). Positive organisational behaviour is based on some criteria drawn from positive psychology. Positive psychology focuses on positive features of people that make life worth living. The POB construct is made of six psychological capabilities/criteria. They are also called POB components. The components include optimism, hope, happiness or subjective well-being (SWB), resiliency, emotional intelligence, and self-efficacy (or self confidence). These capabilities are interrelated and interdependent Optimism is an important component of positive psychology and positive organisational behaviour. Optimistic person views, evaluates and accepts things positively. He exhibits constructive behaviour for any event or situation. Hope is the ability to produce the desired or intended things. It is always concerned with the future. It is subjective feeling of pleasure or fortune and convenience. It may be related to the past, the future, or the present events, situations, and outcomes. Resiliency refers to person’s exceptional capacity of reacting strongly to difficulties. Similar terms related to resiliency are hardiness, spirit, toughness, flexibility, and buoyancy. Emotional intelligence (EI) is the ability to detect and manage emotional cues and information. EI dimensions include self-awareness, self-management, self-motivation, empathy and social skills. EI seems more critical in leadership effectiveness.

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Among all constructs of POB, self-efficacy is, perhaps, most theoretically developed and researched. It incorporates other constructs of POB, including optimism, hope, happiness, etc. Self-efficacy beliefs determine how people feel, think, motivate themselves, and behave. Various sources can contribute to self-efficacy.

KEY TERMS Positive Psychology Positive Organisational Behaviour (POB) Optimism Hope

Happiness or Subjective Well-being (SWB) Resiliency Emotion and Intelligence Emotional Intelligence (EI)

Self-efficacy POB and Behavioural Performance Management

EXERCISES Objective Type Questions A. Answer the following: 1. Mention some uses of positive psychological capabilities. 2. State four components of POB. 3. What is optimism?

4. Write four qualities of optimistic person. 5. What is the significance of optimistic person?

B. Choose the correct option (MCQs): 1. Which is not included in positive psychology? (a) Valued subjective experiences (b) Positive individual traits (c) Physical characteristics (d) Civic virtues and the institutions 2. Which component of POB is inclusive all POB components? (a) Optimism (b) Hope (c) Resiliency (d) Self-efficacy 3. Which involves the belief that everything is ordered for the best? (a) Hope (b) Emotional Intelligence (c) Resiliency (d) Optimism 4. Which one of the following implies expecting strongly and doing rigorously for the best outcomes. (a) Hope

(b) Resiliency (c) Self-efficacy (d) Emotional Intelligence 5. Which one is the subjective feeling of pleasure, fortune, and convenience? (a) Hope (b) Happiness (c) Optimism (d) Resiliency 6. Which one is refers to person’s exceptional capacity of reacting strongly to difficulties? (a) Self-efficacy (b) Hope (c) Resiliency (d) Optimism 7. Many years ago, which was known as social intelligence? (a) Emotional intelligence (b) Hope (c) Optimism (d) Happiness

Positive Organisational Behaviour

8. Which is not included in emotional intelligence dimensions? (a) Self awareness (b) Self discipline (c) Self motivation (d) Empathy 9. Which of the following is the belief in one’s capabilities to organise and execute the course of action required for producing given attainment? (a) Self-efficacy

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(b) Optimism (c) Hope (d) Resiliency 10. Which one is ‘bouncing back’ capacity that involves flexibility, adjustment, adaptability, and continuous responsiveness? (a) Self-efficacy (b) Optimism (c) Resiliency (d) Emotional intelligence

Descriptive Questions 1. What do you mean by positive organisational behaviour (POB)? Briefly explain its components. 2. What is optimism? Explain its characteristics. How does it differ from hope? 3. Write notes: (a) Resiliency (a) Emotional intelligence

4. What is happiness? Discuss its feature. How can organisation extend employee happiness? 5. Define self-efficacy and discuss its characteristics. 6. Explain: (a) Role of self-efficacy (b) Sources of self-efficacy

Assignments 1. Students are assigned to test the practical utility of POB in corporate units using questionnaire and discussion. 2. Students should be assigned a group project to collect details from relevant sources

about efforts that different companies across the world make to impart one or more POB capabilities. Then, ask them to prepare a list of such efforts.

REFERENCES 1 Fred E. Luthans, Organisational Behaviour, McGraw-Hill, New York, 2005, pp. 270-271 2 M E P. Seligman and M Csikszentmihalyi, ‘Positive Psychology: An Introduction,’ American Psychologist, Vol. 55, 2000, pp. 5–14 3 Ibid., p. 271 4 Fred E Luthans, op. cit., p. 272 5 C Rick Snyder, L Irving and J R Anderson, ‘Hope and Health: Measuring the Will and the Ways,’ Handbook of Social and Clinical Psychology, Pergamon, New York, 1991, p. 287 6 Ed Diener, ‘Subjective Well-Being: The Science of Happiness and a Proposal for a National Index,’ American Psychologist, January, 2000, p. 34 7 A S Masten, ‘Ordinary Magic: Resilience Progress in Development,’ American Psychologist, Vol. 56, 2001, p. 235 8 A S Mastern and M J Read, ‘Resilience in Development,’ A Handbook of Positive Psychology, Oxford University Press, Oxford, U.K., 2002, p. 75

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9 Fred E. Luthans, op. cit, p. 280 10 B Egeland, E Carlson, and L A Sroufe, ‘Resiliency as a Process,’ Development and Psychology, Vol. 5, 1993, pp. 517–528 11 P A Cowan, C P Cowan, and M S Schulz, ‘Thinking about Risk and Resiliency in Families,’ in E. M. Hetherington and E. A. Blechman (Eds.), Stress Copying, and Resiliency in Children and Families, L. Erlbaum Associates, Mahwah, N.J., 1996, pp. 1–38 12 Stephen Robbins and Seema Sanghi, Organisational Behaviour, Dorling Kindersley, New Delhi, India, 2006, p. 611 13 Howard Gardner, ‘Frame of Mind,’ The Theory of Multiple Intelligence, Basics Books, New York, and his articles 14 Peter Salovey and John Mayer, Emotional Intelligence, Imagination, Cognition and Personality,’ Vol. 9, No. 3, 1990, p. 189 15 Daniel Goleman, Working with Emotional Intelligence, Bantam Books, New York, 1998, p.137 16 Stephen Robbins and Seema Sanghi, op. cit., p. 611 17 Daniel Goleman, Emotional Intelligence, Bantam Books, New Your, 1995, pp 43-44, and ‘Working with Emotional Intelligence, Bantam Books, New York, 1998, p. 318 18 Daniel Goleman, ‘Leadership That Gets Results,’ Harvard Business Review, March April, 2002, pp. 82–83 19 Albert Bandura, Self-Efficacy: The Exercise of Control, W H Freeman, New York, 1997; his Articles—‘Social Cognitive Theory: An Agentic Perspective,’ Asian Journal of Social Psychology, Vol. 2, 1999, p. 21, and ‘Self-Efficacy Mechanism in Human Agency,’ American Psychologist, Vol. 37, 1982, p. 122, and other literatures 20 Alexander D Stajkovic and Fred E Luthans, ‘Social Cognitive Theory and Self-Efficacy: Going Beyond Tradtional Motivational and Behavioural Approaches,’ Organisational Dynamics, Spring 1998, p. 66 21 Albert Bandura, op. cit., p. 22 22 Stephen Robbins and Seema Sanghi, op. cit. p. 620

ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. 2. 3. 4. 5. B.

Repairing what is wrong and identifying and nurturing what is good Optimism, hope, happiness, and self-efficacy Optimism is a belief that everything is ordered for the best He seems to be frank, energetic, flexible, joyous, and helpful Optimist man is an asset for the company, society, and the nation 1. (c), 2. (d), 3. (d), 4. (a), 5. (b), 6. (c), 7. (a), 8. (b), 9. (a), 10. (c)

CASE Role of POB—Emotional Intelligence Ranu Kaur, along with 30 managers, was listening attentively a lecture delivered by Rajeev Varma, Teffler India’s HR Director from the South-east Asian Office. The lecture was about the importance of self-appraisal and the need to ensure that it was executed well down the line. Mr. Rajeev said, ‘To build self-appraisal depends on how self aware we are. Self awareness is the

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key to realise our strengths and weaknesses. It involves the ability to know one’s shortcomings, and elicit feedback, and correct the same. Average performers usually overstate their abilities, whereas superior ones underestimate them.’ He emphasised on self-disciplined in addressing the shortcomings. He said, ‘If there is conscientiousness (carefulness or precision), excellence is a corollary. The next thing is ‘achievement orientation.’ It refers to the desire and the will to persevere and improve performance, and not be satisfied with mediocrity. Typically, star performers hold the drive to achieve, take the initiative to correct their shortcomings, and find solutions. People who have this initiative naturally act before being compelled by the environment to do so. They are proactive, not reactive.’ He advised the executives to inculcate these attributes in their children. To him, these were critical skills which went a long way in life and, in fact, enabled the development of effective managers for the future. The dream of Great India, a successful Corporate India, depends on the bigger measures if we inculcate these skills in the young. He added, ‘All these things I have explained so far are subset of what we commonly refer to as emotional intelligence (EI). To understand that, try and understand how your brain works. A simple example is the feeling of anxiety or fear you have before a presentation. It happens when feeling brain overpowers thinking. If you are anxious or agitated, you cannot take in information and deal with it well. It happens to students all the time. In an exam, they are not able to take in information at all. So we encourage students to start studying well before an exam, when the thinking brain is in control of information.’ He added starting to build these competences earlier in life gives them a lifetime edge. Research has shown that Asian students perform remarkably in American schools. Daniel Goleman, the pioneer of EI, says that it is because they work harder than the Western students from their early years. Asian parents do everything to prepare students to work hard. They insist students read at night or early in morning if they cannot prepare during the day. This strong work culture translates in high motivation and ability to persist. They are habituated to struggle restlessly to arrive at excellent performance.’ He continuesd, ‘I would say EI is about your potential for learning, but EC, or emotional competence, is about you realising that shortfall and being able to work at reaching your potential. That is the hallmark of a successful person. This ability to know your feelings and emotions, and managing them, motivating yourself to better your potential. At the same time, recognising the emotions in other people and managing them as well in your environment is what the EI experts call social intelligence. Social intelligence brings sensitivity for all.’ Lecture ended and all disbursed. Ranu Kaur was confused with the speech. She wanted to help her son Vishesh who had just entered United World College for eleventh and twelfth years of schools. According to teachers, he was extraordinary by bright, but brightness did not manifest in to his report card. Despite a private tutor, there was something missing as all efforts did not reflect in his class report. His teachers said, ‘Mrs Kaur, your son is so brilliant, so articulate, so knowledgeable, such an easygoing child, but….’ The school had a democratic style where students were given opportunities to correct their errors; scolding, insulting, and talking down were simply not allowed. Teachers were busy with completing semester course. Vishesh did not submit the assignment in time. Assignments, homework projects, etc., were decisive in exam report. Mrs. Ranu Kaur observed that he lacked the right attitudes and a sense of responsibility which were prime to prepare for tomorrow. Poor work ethics, lack of effort, lack of attention to detail, and inconsistent performance were the

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chief cause. Rajeev Varma’s words rang clearly in her mind. ‘Create the competencies early in life. Emotional intelligence depends on that.’ She met the principal. The principal also insisted on good scores. But, Ranu was not worried for then, what was needed was his attitudes, his acquiring drive, awareness, and a sense of responsibility. Once these were in place, the score and marks would be no problem. She requested the principal to do something in this regard. But the principal expressed her inability to do so. Finally, she did SWOT analysis and found following areas to concentrate upon: Imparting EI and EC Planning and persistence to do excellent work A sense of responsibility for his future An ability to plan his work and execute it Be consistent and pay attention to detail Begin to correlate efforts with delivery All these things must be emphasized in the early age. Teachers and school authority can do it. But parents must cultivate the positive attitudes. (Source: ‘Start Early For A Lifetime Edge,’ Business World, September 23, 2002.)

Questions for Discussion 1. What is self-awarness? Explain. 2. What is achievement orientation? How do people with high achievement orientation react? 3. Explain emotional intelligence (EI). What is its role? How does EI differ from emotional competence (IC)? 4. What type of student was Vishes? Why was his performance so poor? Do you think that school was responsible for his performance? 5. ‘Our education system needs to be drastically changed.’ Discuss with reference to the case. What type of changes need to be implement? 6. ‘Not the school, but it is the parents can do enough to develop positive attributes in children.’ Comment. 7. Why did Ranu decide to go for SWOT analysis of her son? What does the SWOT analysis reveal?

CHAPTER

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Managing Performance by Job Design Learning Objectives Upon completing this chapter, you will be able to: Explain the role of job design in job satisfaction Define job satisfaction and explain factors affecting job satisfaction Examine role of attitude in job satisfaction Summarise organisational efforts for enhancing job satisfaction Give definitions of job design and discuss key approaches to job design Explain QWL, and factors affecting positive outcomes and managerial actions for sound QWL Describe employee empowerment, employee participation, and quality circle Discuss issues related to Quality Circle (QC)

INTRODUCTION QWL—Quality of Work Life, HPWPs—High Performance Work Practices, Employee Empowerment, and many other such positive approaches have been widely practiced as part of employee oriented management. However, level of employee orientation (or employee-friendly work environment) is function of a large number of factors. The present chapter mainly discusses the key issues related to job design, such as: 1 1. Job Satisfaction 2. Job Design 3. Quality of Work Life (QWL) 4. High Performance Work Practices (HPWPs) Note: Additional reading material related to this chapter is available on the companion website of this book.

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5. Employee Empowerment 6. Quality Circle

JOB SATISFACTION Job satisfaction is a vital issue in organisational behaviour and human resource management, and, in general, management practices. It is concerned with many areas of behavioural science, like motivation, attitudes, perception, personality, morale, job design, and so forth. Job satisfaction generates positive behaviour. Self-management (self motivation, self-direction, self-discipline, and self-control) is the positive outcome of job satisfaction. Employees’ job satisfaction is also reflected in form of strong motivation and high morale. Job design, job change, job enlargement and job enrichment, etc., aspects have varying degrees of influence on job satisfaction. The term ‘job satisfaction’ has remained a hot topic in the agenda of today’s managers, experts, behaviourists, and management philosophers. Job satisfaction has multiple implications—social, managerial, human, as well legal. Actually, job satisfaction is an individual phenomenon and, therefore, it is discussed and determined on the individual basis. Factually, job satisfaction implies person’s job related positive attitudes. Degree of satisfaction is measured by one’s attitudes about the job. For example, if an employee feels that he is working much harder than others in his department but is receiving fewer rewards, he will probably have a negative attitude towards his work, his superior, his coworkers, and the organisation as a whole. On the other hand, if he feels that he is being treated well and is being paid adequately, he will have a positive attitude towards the job, and he will be job satisfied. Specific employee attitudes relating to job satisfaction and organisational commitment (dedication or obligation) are major interest of organisational behaviour and HRM. Note that job satisfaction is concerned with employee’s attitudes towards the job, and organisational commitment focuses on his attitudes towards the overall organisation. Job satisfaction is one of the dimensions of employee morale.

Definitions As noted earlier, job satisfaction is the result of a number of variables. It is difficult to define exactly, considering (or covering) the number of elements contributing to job satisfaction. Let us examine some definitions of job satisfaction. E A Locke (in his article on ‘Causes of Job Satisfaction’ defines: ‘‘Job satisfaction is a pleasurable or positive emotional state resulting from the appraisal of one’s job or job experience.’’1 Stephen Robbins and Seema Sandhi: ‘‘Job satisfaction is a collection of feelings that an individual holds towards his or her job.’’2 Job satisfaction implies a person’s attitudes towards the job he performs. Many elements can constitute one’s job satisfaction. In this reference, the term can be defined as: Job satisfaction is employee’s positive attitudes towards job situation and is mainly determined by contents of job, pay, promotion, supervisor, coworkers, and working conditions. High job satisfaction is reflected in form of better performance, cooperation, reduced turnover and absenteeism, and high commitment towards overall organisation.

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At last, the term can be defined as: Job satisfaction is outcome of employee’s general attitudes or perception of how well his job offers those things that he views as important. It depends on combination of psychological, physical, and environment factors that make the person happy at work.

Dimensions of Job Satisfaction Job satisfaction mainly involves three dimensions: 1. Emotional response to job situation 2. Degree to which job outcomes meet or exceed one’s expectations 3. Several related attitudes towards work itself, pay, opportunities for advancement, supervisor, coworkers, etc.

Factors Affecting Job Satisfaction Many factors affect job satisfaction, they are also called determinant, elements, or influences. Fred Luthans3 considers following (first) six factors that affect one’s level or degree of job satisfaction: 1. The Work Itself: The work an employee performs is a major source of motivation and satisfaction. Job/work contents are basic input in job satisfaction. Job characteristics, including nature, timing, variety, job requirement, responsibility and challenges, autonomy, degree of complexity, etc., have varying impact on person’s job satisfaction. Impact of these aspects is mediated by personality characteristics. 2. Pay: Money has remained a dominant motive to work. Money (wage, salary, or income) helps people attain their basic needs. It is also a source of satisfying secondary needs like affiliation, power, esteem, etc. If employee feels that he earns more than what he contributes, he tends to be satisfied. 3. Promotion: Promotion has varying degrees of impact on job satisfaction as it is based on different considerations, like seniority, performance, extra contribution, extra achievements, promotion with/without transfers, and promotion with unrelated tasks. Promotion leads to positive impacts on pay, status, relations, and authority and responsibility. When promotion opportunities match with one’s expectations. It can be a source of job satisfaction. 4. Supervision: Type and nature of supervision can be an important source of job satisfaction. Supervisor’s style, attitudes and approach, assistance, cooperation, etc., can affect degree of job satisfaction. Explosive, frank, and supportive supervisor can add to job satisfaction. Participative climate created by supervisor is another important issue in this context. Participative climate affects positively job satisfaction. 5. Work Group: Normally, one has to perform his work with group or team. Individual performance, many times, depends on group performance. Therefore, group or team can have moderate impact on job satisfaction. Friendly, cooperative, and frank work group creates healthy climate, makes the job a pleasurable place. Team members’ support, comfort, advice, assistance, etc., have positive impact on job satisfaction.

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6. Working Conditions: Overall working conditions have definite impact on job satisfaction. Proper working conditions can enable employee to carry out work easily. Cleanliness, attractive surroundings, temperature, ventilation, facilities or amenities, etc., can extend job satisfaction. In all, organisation climate and culture affect one’s attitudes of job satisfaction. 7. Other Factors: Apart from these six factors, there are many factors that affect the level of job satisfaction, such as: (a) Level of Job: Higher level/cadre job is associated with high pay, high status, and more autonomy, and, hence, it gives more satisfaction. (b) Personality Characteristics: To what extent particular job offers satisfaction is determined by interplay of personality characteristics of people. All jobs do not offer equal job satisfaction to all. (c) Personal Factors: Age, sex, education, training, etc., are responsible for level of satisfaction and dissatisfaction. Tata Steel—A Pioneer in Employee Job Satisfaction Efforts Tata Iron and Steel Company (TISCO), a steel major in India, has been recognised as the pioneer in employee welfare, education, and social services in India. It acted as a beacon (inspiration) for labour lawmakers. Many labour welfare measures and schemes the company adopted many decades back were incorporated in country’s laws, such as eight hour working days, leave with pay, maternity benefits and leave, workers’ provident fund, and paying gratuity on retirement. The company is known for its social responsibility, employee welfare programme, and commitment to national service. Besides employee welfare, the company is actively involved in social projects, including environmental conservation activities, education, vocational training, healthcare for underprivileged, revival of traditional arts and crafts, and sports development. Employees and common people hold high esteem for the company. The company maintains its strong position amidst severe competition worldwide due to the care it takes for employees and overall social responsiveness. (Source: Business World, January, 7–21, 2000)

Theories of Job Satisfaction Experts on the field view the term ‘job satisfaction’ differently. Their generalisations can be referred as job satisfaction approaches or theories. Job satisfaction theories focus on nature, dimensions, and measurement of job satisfaction. Four main theories of job satisfaction are:

1. Fulfillment Theory

The theory assumes that job satisfaction is based on the rewards that fulfill one’s needs. Perceived adequate rewards result into actual satisfaction of needs, which can be equated with job satisfaction. Thus, job satisfaction depends on how far rewards offered are capable to fulfill person’s needs.

2. Discrepancy Theory The theory assumes that discrepancy/difference between what one actually receives and what he expects to receive determines level of satisfaction. The gen-

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eralisation is: The lesser is the discrepancy between actual rewards and expected rewards, the higher will be the level of satisfaction, and vice versa.

3. Equity Theory The theory assumes that person’s job satisfaction depends on perceived equality between person’s job inputs (i.e., his efforts or contribution to organisation) and job outputs (i.e., rewards associated with his contribution). His perceived input-output ratio is main determinant of job satisfaction. Over or under rewards relative to one’s inputs lead to dissatisfaction; only equality between the two leads to satisfaction. When one perceives that outputs (or rewards) are perfectly matched with his inputs (contribution), he is satisfied with job. 4. Two-Factor Theory The theory assumes that job satisfaction is based on two sets of factors, satisfiers and dissatisfies. The presence of dissatisfiers (such as pay, supervision, interpersonal relations, etc.) prevents dissatisfaction, but does not cause satisfaction. Only the presence of satisfiers (such as achievement, responsibility, recognition, etc.) can cause satisfaction. (For more details, refer ‘Herzberg’s Two Factor Theory of Motivation,’ Chapter 20). However, research studies on the theory failed to produce convincing conclusions.

Positive Outcomes of Job Satisfaction Job satisfaction generates positive behaviour, and positive behaviour is instrumental in achieving individual, group, and organisational goals. Job satisfaction boosts employee’s morale and strengthens his commitment. Satisfied employee puts more efforts, performs work with interest, extends cooperation, observers voluntarily the formal provisions, and continues with organisation for longer period. Job satisfaction can prevent, minimise and/or solve many problems.

Outcomes Positive impacts of job satisfaction can be witnessed in following outcomes: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Higher performance Better physical and mental health Low turnover of employees Reduced absenteeism Healthy industrial relations Strong commitment towards organisation Easy implementation of change, one is prepared to welcome change without resistance Prepared to work during contingency Learns new job related tasks more quickly Gain pleasure while doing work, takes more interest and tries continuously to seek the best way of doing things.

Organisational Efforts to Enhance Job Satisfaction Job satisfaction is employee’s feeling of happiness about work and it depends on a number of factors. High job satisfaction can positively contribute to performance, relations, and overall

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behaviour. For higher job satisfaction, organisation must undertake sincere and concrete steps. However, most factors are job-related factors and organisation plays a major role in controlling these factors. Organisation’s sincere efforts definitely make employees satisfied with their respective jobs. Most of morale building techniques (discussed in Chapter 19) can also be applied for job satisfaction. Organisation’s efforts to enhance job satisfaction include: Home-like Work Environment at Google Office Google teaches all CEOs how to utilise maximum skills and abilities of employees. Google believes that tension-free employees can make better creative contribution to company’s objectives. Employees must be assigned work accordingly to their skills and interest. Google India also follows the philosophy of its parent organisation situated at Mountain Blue, California. 1. When employees tire of work and feel drowsiness, they are permitted to take rest or sleep for half an hour in sound proof and dark nap pod. They take rest and return to work with fresh mind. 2. Employees are provided push-bicycle to move from one department to another within the giant office complex. It saves time and gives entertainment. Employees can even enjoy a refreshing round in the campus as and when they wish. 3. At Google headquarters, there is a special hair saloon where employees can go for shaving and hair cutting as and when they have free time. For women, there is facility for beauty parlour. 4. Google also maintains massage centre for employees. Employees can go for massage as and when they wish. Employees can talk to their beloved through telephone booth. At New York office, employees can play piano and get refreshed. 5. At California office, employees are given free lunch. They maintain fifteen cafe centres in open area employees can enjoy lunch of their preference. 6. Google offers game room facilities where employees can relax by playing games at the room. The latest gymnasium helps employees reduce obesity. Gym experts teach various exercises to reduce fat. Employee can even enjoy swimming in swimming pool within the premises. In addition, there is a special auto-repairing centre to get vehicles repaired. 7. Google offers enough scope for expression of views and feelings. At different places, white boards have been placed where employees can express their resistance, reactions, and problems. In addition, they can write their creative ideas on the board. It is the best way to facilitate brain-storming. 8. Interestingly, Google uses solar based electricity. Of the total consumption, thirty per cent electricity is produced through solar energy. Management experts believe that these facilities have definite positive impact on employees’ creativity. Indian companies have already adopted some of these schemes to make employees happy at workplace. (Source: Based on Dhaval Mehta’s article, Gujarat Samachar, October 22, 2010)

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1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

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Clear and humanitarian HRM policies Suitable site and location Making job a fun Fair pay and other monetary benefits Adequate facilities at work Attractive welfare schemes and activities Proper assignment of job or matching jobs Designing the job carefully, job enlargement and enrichment Creating and maintaining positive and conducive organisational climate and culture Employees’ active involvement in decision-making.

Attitude and Job Satisfaction Attitudes play crucial role in determining job satisfaction. Job satisfaction implies employees’ attitude towards their job. High job satisfaction is result of one’s positive attitudes toward job related aspects. It represents several job-related attitudes, such as attitudes towards work itself, supervisor, reward system, organisation, and overall work climate and culture. If employees hold positive attitudes towards all job-related dimensions, they are satisfied with the job. All factors affecting attitudes determine level of satisfaction. (For meaning, nature, and factors of attitude, Refer ‘Attitudes’ in Chapter 17) Employees have different attitudes toward the same job. While performing the same work, due to difference in attitudes, some employees are fully satisfied, some are partially satisfied, and some are dissatisfied. Level of satisfaction depends on type and intensity of one’s attitudes. All job-related aspects like type and nature work, working hours, pay, extra benefits, challenges, responsibility, opportunity for growth, status, place, and so forth have varying degree of significance for employees due to variation of attitudes they hold. For example, challenging job is not a source of satisfaction to all. Relations, facilities, supervision, etc., do not have equal value to all employees. Their attitudes determine the value of each of the jobrelated aspects. It is interesting and important to note that organisation’s efforts to enhance job satisfaction fetch the result only if the employees hold positive attitudes. Person’s attitude must coincide with organisation’s efforts to enhance job satisfaction.

JOB DESIGN Job design is fundamental issue in the study of organisational behaviour. To design jobs for subordinates is one of the prime tasks of manager. The task needs the analysis of a lot of considerations. Job design is a major issue in job performance and satisfaction. Job requirements must match with employees’ capabilities as well as expectations. It is crucial aspect in employee motivation (including morale), performance, satisfaction, and organisational commitment. Job design has also social significance and affects the QWL (Quality of Work Life), and High Performance Work Practices (HPWPs). In addition, job design affects directly the employees’ stress level. This part discusses basics job design related issues.

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Job Job is a collection of tasks (activities), duties, and responsibilities, which, as a whole, are assigned to individual employee. It is a package of work. Job contents for different position holders significantly differ from one other. For example, job of clerk is quite different from that of a manager. Each job carries definite title and status. Job affects and determines individual behaviuor. Employee’s performance, satisfaction, morale and motivation, stability, and commitment depend on the job he performs. It contains a set of activities related to (1) data (data related activities like synthesizing, analysing, compiling, computing, interpreting, copying, comparing, updating, and storing data), (2) people (people-related activities like managing, monitoring, negotiating, contacting, instructing, serving, supervising, persuading, evaluating, attending, counseling, ordering, or dealing with people), (3) things or activities (setting up, driving, carrying, handling, using, repairing, operating, installing, and doing all activities related with things), and/or (4) decision-making (making, implementing, and modifying decisions). It is an important aspect of HRM. It is all about the job or work one performs.

Job Design Job design (also referred as job structure) contains all key issues related to job. Job analysis, job description, job specification, job rotation, job enlargement and job enrichment are important issues in job design. Job analysis (including job specification and job description) is the basic step in job design. (For more details, refer Chapter 9 on Staffing). Designing the job scientifically can be a base for improving productivity. Job design has experienced drastic changes in the last 100 years. Development of new management approaches and new organisation designs have revolutionised job design tasks. In today’s context—due to changed social and psychological climate—is a challenging task. Job structure or design is significant issue in organisation and hence in organizational behaviour. Systematic and scientific job design motivates job-holders and leaves them satisfied. Main options and methods of job design consist of job rotation, job enlargement, and job enrichment.

Definitions

Job design has been defined as under:

1. Fred E Luthans: ‘‘Job design is the method that management uses to develop the content of a job, including all relevant tasks, as well as the processes by which the jobs are constructed and revised.’’4 2. Job design shows systematic arrangement of job contents, including job title, location, duties, working conditions, responsibility, skills, knowledge, rewards, relations, timing, and so forth. 3. Job design is an architecture, a structure, an outline or a plan of work/duty the employee performs, or is expected to perform. 4. Job design is the process or act of deciding on the contents of a job in form of duties and responsibility, skills required, degree of autonomy, methods and procedures to perform the job, relations between job holder and superior, subordinates and colleagues, facilities needed, time period to complete it, and other job-related aspects.

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Job design is an important area of organisational behaviour. It has a number of behavioural implications. Behaviourists stress on job design for generating positive behaviour or improving and changing behaviour into the desired one. From organisation point of view, only job enrichment was treated as significant aspect. Now, many social and psychological dimensions and approaches have been added to job design, including job reengineering, QWL, social information processing, etc.

Approaches to Job Design Job design approaches suggest specific job designing ways or methods. The approaches and practices have undergone drastic changes/reforms during last few decades. Advance information technology, innovative production methods and processes, changed marketing environment, globalisation, innovative organisational designs, emphasis on quality of life, emphasis on job as motivator, drastic shift from excessive specialisation to mastering related works, preferring team assignment, performance and evaluation, and many other such issues have demanded paradigm shift from traditional job design task. Job Design Approaches or Issues: In relation to job design, one must concentrate on the issues (options or approaches) stated below: 1. Job Reengineering Approach 2. Job Rotation Approach 3. Job Enlargement Approach 4. Job Enrichment Approach 5. Job Characteristics Approach 6. Quality of Work Life (QWL) Approach 7. Socio-technical Job Design 8. HPWPs—High Performance Work Practices

1. Job Reengineering Approach Job reengineering approach is also known as industrial engineering approach. Here, job is designed as per scientific requirement. Particularly, F W Taylor, Frank Gilbreth, Henry Gantt, and others, have systematically examined job in relation to time, motion, and fatigue analysis. This approach is part of scientific management. Reengineering aspects, like plant layout, process layout, plant location, standardisation, worker methods, human-machine interaction, degree of automation, work-measurement, computer control and artificial intelligence, safety measures, maintenance, etc., are key issues to design the job. Job specification is determined scientifically. However, job reengineering approach suffers from a number of problems due to monotony and ignorance of human element. Later on, new aspects, such as job oration, job enlargement, and some others, have been added to design the job more meaningfully. 2. Job Rotation Approach Simply, job rotation refers to altering or replacing the job assignment. It is movement of employee from one job to another. It is an alternative to job redesign. It is not concerned with changing the job, but it implies shifting the job holder to another related or unrelated job—jobs are not changed, but employees are changed. Job rotation is temporary change of work and workplace, and it lasts for a short period. An employee

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is moved to another job for some hours, a day, or a few days, and then he is put back to his original job. It is one of management development techniques. It is an attempt to turn specialist into generalist. By job rotation, at the right interval, job holder can learn about new job requirements and develops necessary skills. This type of measures relieve the employee from boredom and monotony of routine job, improve his skills and competence, develop adjustability and flexibility, and finally, avail competitive advantages to company. It offers opportunity for improveing self-image and personal growth. Job rotation can broaden employee’s vision. It can make him think about whole organisation system (all jobs, functions, and departments) instead of only single job assignment. One can know activities, operations, and overall work climate of other departments. Job rotation helps the executive develop all-round personality. It should be used carefully. Frequent job rotation may be dysfunctional. Job rotation has several advantages, but is not free from limitations.

3. Job Enlargement Approach In simple words, job enlargement is an attempt to make the job large in terms of more tasks. Job enlargement involves enlarging specific job, broadening it, and adding more and different/varied tasks and activities. It involves enlarging the job horizontally to improve work satisfaction, work interest, quality of production, and overall efficiency. It involves increasing/adding the number of tasks in the job each employee performs. Note that job enlargement does not necessarily improve employee’s job performance, job satisfaction, and commitment. It may become an overload to employee. A number of factors determine positive and/or negative outcomes of job enlargement. 4. Job Enrichment Approach Job enrichment is a key issue in designing the job. Actually, it is an extension of job rotation and job enlargement techniques of job design. Job enrichment involves making the job rich. It consists of improving or changing job to make it interesting and challenging. It loads the job vertically. It consists of increasing job depth. It is an attempt to improve employee motivation to do better job. It offers employees better opportunity for growth and development, recognition, and responsibility. Job enrichment is vital topic concerned with HRM, organisational behaviour, and management. It is closely linked with motivation and morale. Frederic Hertzberg (in his Two-factor Motivation Theory) states that job enrichment provides an opportunity for the employees’ psychological growth. While enriching the job, Hertzberg has emphasised on providing opportunities for achievement, recognition, responsibility, advancement, and growth. Undoubtedly, job is a powerful source of motivation and satisfaction. Most motivation theories have recognised the key role that job enrichment plays for motivating and satisfying employees. Job enrichment is an input to QWL, discussed later in the chapter. Those employees who are ambitious, enthusiastic, capable, dynamic, and have strong achievement drive are attracted by job enrichment. In normal cases, all do not want it. Job enrichment is difficult to implement truly. Individual employees and unions may resist it if employees do not want it. If job enrichment does not match with employees’ expectation, it creates problems. Job enrichment succeeds only if employees value the new and rich job contents. Informal relations and friendship can offer more to their satisfaction than increased responsibility and autonomy. Management must practice job enrichment selectively, and must adequately consider complex human and situational variables.

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Definitions More clearly, the term ‘job enrichment’ can be defined as: Fred E Luthans: "Job enrichment is concerned with designing jobs that include a greater variety of work contents, require a high level of knowledge and skills, give workers more autonomy and responsibility in terms of planning, directing, and controlling their own performance, and provide the opportunity for personal growth and a meaningful work experience."5 Job enrichment is part of job design and can be defined as: Job enrichment is a technique of job design that involves adding duties and responsibilities that will provide for skill variety, task identity, task significance, autonomy, and feedback on job performance. Job enrichment contains making the job rich or attractive. In this connection, we can define the term as: The act of changing and improving job contents or adding more varied tasks to enrich the job for strengthening employee motivation, and improving job satisfaction and commitment.

Job Enrichment Techniques Techniques of job enrichment involve: 1. 2. 3. 4. 5. 6. 7. 8.

Increasing responsibility of individuals for their own work Providing wider scope, more sequence and pace to work Providing more autonomy and authority and making them accountable Allowing employees to set their own standards Providing information and facilitating appraisal of their performance Permitting them to participate in planning and innovation Introducing more difficulties and challenges in the job (not previously handled) Assigning special projects to individuals and groups to enhance their expertise

Job Enrichment Process Typical job enrichment process consists of following seven steps: 1. 2. 3. 4. 5. 6. 7. 8.

Clarification of objectives Selections of job Deciding on a list of changes to be added (by using brainstorming for changes) Linking motivational factors (such as achievement, autonomy, responsibility, self-control, etc.) Introducing new job contents Providing adequate training, guidance and encouragement Evaluation and feedback Monitoring the programme

5. The Job Characteristic Approach Job enrichment does not always work successfully. All job characteristics or aspects, added to enrich the job, are not equally important for all employees. Job characteristics must be preferable or desirable to employees. While applying job enrichment, according to the recent research work, management should concentrate on relationship between job characteristics (job scope) and employee motivation. Only those characteristics (aspects, activities, tasks or responsibilities) that match with employee’s expectations are systematically loaded into the job to make it rich or intrinsically attractive.

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J. Richard Hackman and Greg Oldham6 developed job characteristics model for job design. Figure 26.1 shows variables in the model. The model states that certain job characteristics are moderated by employees’ critical psychological states. The (positive) effects or outcomes of certain job characteristics depend on employees’ critical psychological states. The model considers five job characteristics, three critical psychological states, and four work outcomes. The model explicitly states that job characteristics do not directly affect final personal and work related outcomes; the degree of effect of job characteristics on final outcomes depends on employees’ critical psychological states and their growth need strengths. The five core job characteristics that have been considered in the model are: 1. Skills variety 2. Identity of the task 3. Significance of the task 4. Autonomy 5. Feedback Note that the above characteristics do not lead to the same impact for all individuals. The degree of impact of job characteristic (job enrichment) on final personal and work related outcomes depends on employee’s three critical psychological states and his growth need strength. The critical psychological states include: 1. Experienced meaningfulness of the work 2. Experienced responsibility for work outcomes 3. Knowledge of result from work activities

FIGURE 26.1 The Hackman-Oldham Job Characteristics Model of Work Motivation (Source: J. Richard Hackman and Greg Oldham, op.cit., pp. 250–279)

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Three critical mental states determine the value of job characteristics for an individual, where as growth need strength determines the degree of desire for growth. The more the psychological states are present, the more employees feel good about themselves when they perform well. Note that three psychological states must be supported by employee growth need strength. When three psychological states are present in individual and when he has strong growth need, the core job characteristics lead to positive impact on following four personal and work-related outcomes: 1. High internal work motivation 2. High quality work performance 3. High satisfaction with the work 4. Low turnover and absenteeism The model implies that extent to which job characteristics are preferred by an employee depends on employee’s personality characteristics. Therefore, all job characteristics that can enrich the job are not always equally preferable for all types of employees. Management should find out the type of employees who are working in the organisation and what job aspects are meaningful for them. Only adding new characteristics is not enough, the characteristics must be preferable for employees. Only those characteristics that are desirable for employees must be added to make the job attractive and enjoyable, and provide the base for growth and development.

6. Quality of Work Life (QWL) Approach Another important approach to job design is the quality of work life (QWL). QWL implies the degree to which organisation’s employees are able to satisfy key personal needs through their experiences in the organisation. Many job related factors, nature of job, workplace, decision-making pattern, employee empowerment, working days and hours, facilities, overall response of superior and top management, and so forth, affect degree of QWL. This approach does not advocate only specific type of job design. Instead, it is more concerned with overall job/work climate and culture. (Note: The approach has been described in detail later on in this chapter).

7. Social-technical Job Design Organisation is a socio-technical system. Job, too, incorporates social issues with technical aspects; management has to consider technical aspects of job along with social needs. Technical job design must coincide with employees’ social system within the organisation. Group formation (social aspects) is the key element of this design. Social technical approach to job design is based on the experience/experiment at the Swedish Saab and Volvo automobile plants. Pehr Gyllenhammar, the CEO of Volvo, introduced some socio-technical changes in the company to deal with severe employee absenteeism and turnover resulting from a conflict between values of employees and technical work processes. Employees were expecting more meaningful jobs. Many companies of the United States also practiced the socio-technical work design. Creating Socio-technical Job Design Socio-technical work design emphasises on natural work modules based a number of transformations: 1. Creating family climate (organisation as a family unit) instead of excessive formalisation 2. Emphasis on autonomous (self-governing, self-managed or self-directed) work teams

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3. 4. 5. 6.

Equal pay to all members of the group to avoid competition and promote cooperation Employee empowerment and participative decision-making Appointing a group coach rather than a supervisor Abolishing status symbols and extra privileges to promote intimacy between members and higher authority 7. Positive attitudes of management towards employees

8. High-Performance Work Practices (HPWPs)

Actually, the high-performance work practices (HPWPs) is an extension or improvement over socio-technical approach to job design and QWL. It is comprehensive job design approach that inculcates (includes) all other approaches discussed so far. It is also closely associated with organisational design and overall managerial processes. (Note: The concept has been discussed in ‘Other Issues in Job Design’ later on in this chapter.) Employee-friendly Office Design at MUL Maruti Udyog Limted (MUL), a leading passenger car manufacturer, emphasises on informal employee friendly office design and informality to keep employees feel homelike environment. The company does not permit individual offices for executives. It has cubicles, common areas for employees to work. They have common rooms for meeting and eating. Office arrangement shows that the company has organisational values of openness, equality, interaction, creativity, intimacy, and flexibility. Employee friendly design keeps the employees happy; it boosts their morale and motivates them to do better. Positive approach to work design has empowered the company to maintain its market leadership for many years.

OTHER ISSUES IN JOB DESIGN This part describes in detail some important aspects related to job design. It describes: 1. Quality of Work Life (QWL) 2. High Performance Work Practices (HPWPs) 3. Employee Empowerment 4. Quality Circle

Quality of Work Life (QWL) Quality of Work Life (QWL) is an employee-oriented concept, and is closely related to motivation, employee morale, and job satisfaction. It is concerned with the entire climate of work and has attracted attention of various communities, including industrialists, managers, academicians, management writers, and management experts. QWL describes the impact of work on people and organisational effectiveness. It gives more emphasis on employee participation in problem solving, and employee empowerment. Research evidence states that high QWL has positive impact on employee productivity, job

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satisfaction, and turnover. QWL is aimed at improving work climate so that interplay of people, technology, and organisation can generate more favourable work experience for employees and desired final outcomes. However, there are a number of issues or controversies related to exact meaning of QWL and its determinants.

Definitions

Let us define the term:

Nadler and Lawler: "Quality of work life (QWL) is concerned about the impact of work on people as well as on organisation effectiveness, and the idea of participation in organisational problem solving and decision-making.’’7 Keith Davis: ‘‘Quality of Work Life (QWL) refers to favourableness or unfavourableness of job environment for people. To improve the QWL is social obligation of organisation."8 Now, let us define the term: QWL is employee oriented concept that covers a wide range of managerial efforts to improve entire climate of work. It is closely related to positive working conditions that encourage employees to improve their skills, and, finally, their performance. Thus, more clearly, we can say: QWL consists of organisation’s efforts to improve employees’ motivation, morale, and job satisfaction through creating and maintaining sound work climate, and matching the job and organisational efforts with expectations of employees. Normally, it is based on participatory, problem solving, facility based, humanised job setting, and employee empowerment.

Features of QWL Rao and Krishna state: “The QWL is cooperative rather than authoritarian; evolutionary and open rather than static and rigid; informal rather than rule bound; impersonal rather than mechanistic; mutual respect and trust rather than hatred against each other.”9 Some important features have been listed below: 1. QWL is employee-oriented concept. It is concerned with providing humanised work environment. 2. It is one of the important decisions of HRM. It is also a significant concept in organisational behaviour. 3. It is closely related to employees’ motivation and morale. 4. It involves improving job conditions. It recommends a people-desired work environment. 5. Job enrichment, empowerment, participative decision-making, suitable rewards, etc., are some tools towards sound QWL 6. It shows organisations efforts to make the work climate favourable to employees. 7. It mainly depends on individual characteristics, nature of work, and organisation’s efforts. 8. It primarily focuses on high productivity through job satisfaction. 9. It prioritizes on socio-technical job design. 10. It leads to mutual benefits, beneficial to organisation as well as employees.

Elements (Constituents or Factors) in QWL Work life in QWL indicates overall work climate that affects employees’ life. The term work climate (similar to ‘work environment,’ ‘work conditions’ or ‘work-surrounding’) is a comprehensive term, and is determined by the interplay of a number of variables. It consists of undertaking all possible actions to make the work

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and workplace attractive and enjoyable to employees. QWL or sound work climate consists of one or more of following elements: 1. 2. 3. 4. 5. 6. 7.

Active involvement of employees in decision-making Better working conditions and provision of facilities Suitable motivation—reward system (financial and non-financial incentives) Mutual trust, discipline, regularity, and order Effective grievance handling machinery or system Job security and protection from hazardous work Attractive, interesting, and challenging job (Job enrichment, job enlargement, job rotation, etc) 8. Employee empowerment, improving their power to influence 9. Flexibility or freedom in terms of week days, working hours a day, timings, midday breaks, leaves, working method, and workgroup 10. Suitable communication 11. Informal organisation and intimacy based structure 12. Healthy value based organisation culture 13. Objective (proper or just) and regular feedback of performance, or sound performance appraisal system 14. Organisation’s efforts for improving skills, knowledge, and competence of employees (Note: Please see the companion website of this book for the QWL Model)

Positive Effects or Outcomes of QWL

Note that suitable motivation, proper structure of organisation, healthy work climate, job satisfaction, participation, etc., are key inputs/elements that constitute the QWL. Therefore, positive outcomes of the QWL show the joint impact of all these elements: 1. Active Involvement in Work: Employees are engrossed fully in work. They put sincere and maximum possible efforts. 2. High Competence: Improved skills, maximum efforts, and interest in work lead to high competence. 3. Improved Morale: Sound quality of work life has positive impact on employees’ morale. Improved morale can solve a lot of employee related problems. 4. Job Satisfaction: Employees are satisfied with their jobs. They enjoy work, try for better performance and continue with organisation for longer period. 5. Effective Utilization of Resources: QWL leads to effective utilisation valuable resources. Mishandling, misuse, and wastage can be minimised to a considerable extent. 6. High Job Performance and Improved Productivity: Employees try for maximum possible outcomes. High productivity is the base for realising all types of objectives effectively. 7. Better Industrial Relations and Mutual Trust: It is very clear that high QWL promotes healthy industrial relations. There exists climate of mutual trust between management

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8. 9.

10.

11.

12.

13.

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and relevant stakeholders. Unexpected events like strike, lockout, mass leaves, etc., have minimum chances to take place. Staff Stability: Healthy work climate, job satisfaction, and suitable reward policies ensure staff stability. Employees become permanent employees. Credit in Society: Sound QWL is instrumental in fulfilling business obligations. Company can serve customers better and maintain good liaison with other interest groups. Due to dedicated and devoted employees, the organisation can function smoothly. Society, as a whole, holds high esteem for the organisation. Use of Creativity and Innovation: QWL promote creativity and innovation. Innovative ideas are welcome and rewarded. Employees are permitted to practice new methods, ways, tools, and style. Creative organisation can enjoy a number of benefits. Unconditional Support: QWL creates such a healthy work climate that the employees extend the organisation unconditional support as and when needed. They even prefer to compromise with their personal gains. Sense of Belongingness: A sense of belongingness indicates employees’ constructive attitude and feeling of devotion towards the organisation. QWL brings mental revolution. Employees consider the organisation as their own. They understand that it is their moral duty to put sincere efforts. They do all possible efforts for betterment of organisation. Self-discipline and Self-control: QWL offers all possible benefits to employees. Attempts are made to create healthy climate. Employees observe self-discipline and self-control.

Managerial Role/Actions for Improving QWL Organisations have realised the need for improving QWL. It is a universal issue. Management experts and practitioners consider QWL an important input to improve productivity. Managers of today and tomorrow have crucial role to achieve better QWL. Naturally, employees want their needs to be satisfied while working for the organisation. They want suitable financial and non-financial rewards, facility for advancement, job security, interesting job, involvement in decision-making, proper feedback of their performance, and many other such benefits. So, manager needs to take into account a large number of factors to increase the QWL. Sound QWL depends on organisation’s overall efforts to make entire work climate favourable or conducive to employees. Each and every aspect related to job must be made favourable to employees. Some common managerial actions for the sound QWL include: 1. 2. 3. 4. 5. 6. 7. 8. 9.

Suitable pay package Non-financial rewards Celebrating events Flexible/suitable work schedule Freedom to work Job design Proper communication Autonomy to choose group Opportunities for advancement

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10. Regular feedback 11. Participative decision-making 12. Employee empowerment

Recent Trends Related to QWL

Recent trends or contemporary views of practicing managers in India and abroad show drastic shift from traditional efforts towards the QWL. Let us glimpse some factual statements (based on recent surveys): 1. In order to develop rich intimacy, organisation should arrange for entertaining events at workplaces regularly (like musical party, cultural programme, etc.). 2. Organisation should design the work in a way that results into reduced stress and anxiety. 3. Organisation should encourage the use of latest technology (cell phones, Internet, etc.) for balancing family life and work. 4. Organisation should permit flexible work style, such as working at home, virtual office, flexible weekdays, flexible hours, etc. 5. Organisation should try to change attitudes of people. Openness, speed, accuracy, teamwork, etc., should be promoted. 6. Organisation should try to promote creativity and innovation, searching for something new. 7. Organisation should go for interest based allocation of work. 8. Organisation should make people responsible for work and resulting outcomes, rather than control. 9. Organisation should emphasise self-control and self-discipline and reduced bossism. 10. Organisation should promote informalisation (to follow informal procedures). Emphasis on formal procedures stands to reduce.

High-Performance Work Practices (HPWPs) Actually, the high-performance work practices (HPWPs) is an extension or improvement over socio-technical approach to job design and QWL. High-performance work practices, in broader sense, is not a simple approach to job design, or even to organisation design. It is comprehensive job design approach that inculcates (includes) all other approaches discussed in the former part of this chapter. It is a broad concept, and the latest management philosophy that emphasise on all possible ways, means, reforms, techniques, and approaches that contribute to achieve high performance. It is inclusive of all job designs, organisational designs, and management theories because all these guidelines primarily focus on improving performance. High performance is the evidence that organisations are practicing the ‘fit’ approach. The best elements from all alternative job designs, organisational structures, and management philosophies must be incorporated to create the most effective internal climate that can respond to external environment, and organisation can achieve its financial and non-financial goals. The approach has been experimented in many business firms of several countries.

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Additionally, the HPWP advocates that leader must learn creative ideas, practices, and approaches from successful corporate houses of the world. The best practices across the world must be incorporated with internal and external situations.

Definitions The HPWPs is a broad approach and includes a large number of ideas and techniques. Therefore, it is difficult to define the term exactly. Bradley, Kevin, and Dianne define the term as: "An organisation system that continuously aligns its strategy, goals, objectives, and internal operations with the demand of its external environment to maximise organisational performance."10 In terms of its key efforts, the term can be defined as: HPWP advocates organisation’s efforts to achieve proper match among people, technology, information, and work. In addition, these four (that determine internal environment) must fit with demand of external environment (particularly, customer needs and expectations). In more clear and comprehensive manner, we can define the term as: The HPWPs suggests that people, work, and performance must be considered together, and it stresses on creating suitable organisational culture with special focus on organisational design, encouragement of innovation, cooperation, teamwork, strategy, goals, objectives and internal operations, and imparting new organisational value system. In addition, open communication system, trust, and leadership must be given due attention.

Elements of HPWPs Key aspects of HPWPs relevant to organisational behavior are: 1. Searching and applying the ‘fit’ approach between people and technology, (socio-technical design) 2. Fit must exist with organisational processes, information flows, and managerial operations 3. More emphasis on self-managed work teams, employee empowerment, conducive climate, participative decision-making and positive management attitudes 4. New elements of renowned corporate houses must be incorporated to update internal environment 5. Broadening management attitudes and mentality, beliefe in ‘act locally but think globally’ theory 6. Matching internal environment with the demand of external environment, customer needs and expectations are the primary issues to be emphasised 7. Effective human resource management including selection, evaluation, and training 8. Every organisation must continue studying best performance practices across the world and should incorporate newness in its design 9. Applying logistic approach to integrate backward and forward processes of organisation 10. Reconfiguring traditional organisation with latest information technology, and adopting e-commerce, digital network, etc., thus making the organisation boundaryless The HPWPs must be adopted with care and caution. Any drastic changes, without permitting people to identify and adjust with reforms, can possibly have dysfunctional outcomes.

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Manager must take prudent decisions regarding how far the present design can tolerate and absorb new elements of best performing business houses. Over sophistication may create havoc. The ‘best’ for a few organisations are not necessarily ‘best’ for the rest of the organisations. PepsiCo India’s Game Plan to Care for Employees India Inc prepared special plans for employees during the CWG, 2010. Only ten days were left for the Commonwealth Games (CWG) to start, and India Inc was bracing for their collateral effect on the capital—restrictions on traffic movements, usage of lanes and routes alterations and general chaos on the road—and making its own arrangements so that employees’ difficulties could be minimised and work would not affected. Firms across Delhi, Gurgaon, and Noida made special arrangements to minimise employees’ hardships and ensure smooth operations during the event. Food and beverages major PepsiCo India had issued a list of do’s and don’ts for its employees, specifically during the CWG, 2010. The company provided such options as work from home, flexi-hours, recommended commuting by the Metro, and suggested an alternative route plan for its employees. It also asked the employees not to arrange too many meetings during the games. ‘We have mandated the managers in every department to facilitate the work timings for the employees. So, if they want to work from home, or opt for the flexible hours, they are free to take it up with the managers,” said PepsiCo India ED-HR, Pavan Bhatia. Pepsi Co also asked its employees to carry their company identity card when travelling, follow the traffic rules strictly, not use CWG lanes and observe self-discipline on the road. The company opened the office helpline, where the employees could contact when the need arose. The company requested the employees to subscribe to the Delhi Traffic Police Alerts via SMS for hassle free commuting. Special care for employees has long-lasting impacts on employees’ job satisfaction, and it can improve their productivity. PepsiCo’s game plan can be equated with QWL efforts and HPWPs. (Source: The Economic Times, September 24, 2010, p.18)

Employee Empowerment Empowerment is actually concerned with human resource management and organisational behaviour. Over and above effective administration of employee related activities, HRM also emphasises on employee empowerment. Empowerment is closely related to employee participation. Empowerment and participation affect positively job performance. They are also instrumental in building high employee morale. Both, empowerment and participation magnify employees’ role in organisation and contribute to development of human resource. At the outset, it must be stated that empowerment is practiced as a tool for motivating employees. Empowerment mainly involves delegating authority to enhance employees’ power and position. It is an attempt to make employees independent and powerful. Empowered employees can acquire confidence, can recognise their own significance, and can make significant contribution to organisation’s goals. Note that empowerment is closely related to (or is a part of) motivation, morale, QWL, creativity, and TQM.

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The term can be defined as:

Webster’s Dictionary: "Empowerment means to give the means, ability, or authority." John Newstrom and Keith Davis: "Empowerment is any process that provides greater autonomy through the sharing of relevant information and the provision of control over factors affecting job performance."11 In simple words, it can be defined as: Empowerment is an act or attempt to augment employees’ power—authority, autonomy, role, means, and influence—in the organisation. Clearly, the term can be defined as: Empowerment involves increasing emloyees’ influencing power and autonomy. Empowered employees can independently set their own goals, take decisions related to work, and solve problems. Yet, more clearly, we can define employee empowerment as: Employee empowerment consists of giving the employees the authority to make decisions and providing necessary means (resources like money, information, etc.) to implement these decisions. Employee Empowerment at Wal-Mart Wal-Mart, a multinational retail major, adopted special policy to empower employees. Employees are empowered—not just allowed but encouraged—to make decisions, take risks, and even make mistakes in the cause of customer service. Dealing with people is governed by basic Wal-Mart principle, “Respect for the Individual.” Wal-Mart offers performance base-based incentive plans. Employee empowerment generates selfdiscipline and a sense of responsibility.

Ways and Means of Empowerment Most common and widely practiced means of employee empowerment include:

1. Allocating Equity Shares Most companies spare certain per cent of total shares for their employees. Being shareholders, they can improve their importance as well as influence. They are given the ownership status.

2. Assisting Employees to Achieve Job Mastery

Such efforts include providing suitable training to make them capable to perform the work excellently. Organisation provides necessary facilities, training, coaching, and inputs for improving their work performance.

3. Offering Greater Autonomy Organisation grants the employees autonomy to perform their jobs independently. They are permitted to use their creativity in doing the things better. They are allowed to set their targets and achieve the same in their own ways.

4. Delegating Authority and Responsibility Employees are given authority to work and are made them accountable for their performance. 5. Providing Successful Role Model to Imitate Organisation provides successful role model to show them how they should perform their job successfully. Employees imitate overall behaviour of successful model. 6. Building Confidence

Management uses praise, appreciation, encouragement, recognition, respect, etc., to nurture and strengthen their self-confidence.

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7. Extending Emotional Support To make the employees work without anxiety and stress, they must be provided emotional support in terms of understating their feelings, solving their problems, counseling for better performance, providing necessary inputs and facilities, and the fullest moral support to do work without tension. 8. Other Efforts Organisation can empower its employees in many other ways. Organisation can emphasise on: (a) Participation – encouraging employees to participate in decision-making (b) Innovation – encouraging employees to try out new ideas and make decisions (c) Information and Resources – providing resources and information needed to nurture their talent (d) Reward – rewarding employees’ performance by offering different incentives (e) Accountability - holding employees accountable for results Ten Principles for Employee Empowerment Susan M Heathfield, assumes that right type of employee empowering efforts ensures success and progress. She suggests following ten principles for employee empowerment: 1. Demonstrate That You Value People 2. Share Leadership Vision 3. Share Goals and Direction 4. Trust People 5. Provide Information for Decision Making 6. Delegate Authority and Impact Opportunities, Not Just More Work 7. Provide Frequent Feedback 8. Solve Problems: Don't Pinpoint Problem People 9. Listen to Learn and Ask Questions to Provide Guidance 10. Help Employees Feel Rewarded and Recognised for Empowered Behaviour (Source: http://humanresources.about.com)

Steps in Empowerment Process

Empowerment calls for a number of systematic efforts. It is a complex and dynamic process. All of a sudden, full empowerment is not possible; it is imparted gradually, step-by-step. Taking clues from C Hogan’s work on empowerment, (with modifications) following steps may be suggested:

1. Determining Empowerment Goals

Organisation must be clear about its expectations of empowering its employees. There can be different goals, like improving performance, reducing supervision, employee satisfaction and morale, better human relations, or any other.

2. Reinforcing Empowering Events Organisation must reinforce empowering events to make the employees understand how the empowerment can contribute/work to personal and organisational development. Decision-making, dealing with critical issues, applying new methods, etc., offer the employees a chance to realise how empowerment works and contributes.

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3. Preparing Employees for Empowerment Organisation has to identify main reasons that hinder empowerment. Reasons may be related to delegation, communication, policies, procedures, and rules, or any other aspect of organisation. Employees must be made to feel that they are capable of practising empowerment. 4. Choosing Issue to Work Organisation applies empowerment to a particular issue, problem, or project. Employees are granted power to practice in a particular area. One-by-one, all issues and areas are covered. 5. Identifying Potential Power Bases It is concerned with determining one or more power sources for empowering employees. There are different sources of power, such as legitimate power, reward power, coercive power, expert power, and referral power. One or more sources can be selected. 6. Development and Implementation of Action Plan Empowerment actions are undertaken at individual as well as group level. Now, employees are empowered—their power is increased. Action plan consists of various actions like training and development of employees, removing constraints leading to empowerment, increasing power base, enacting power to make things happen through others, challenging the power base of others, etc.

Importance or Benefits of Empowerment Empowerment affects positively overall functioning of the organisation. Many companies in India and abroad, including Hindustan Unilever, Xerox, IBM, Motorola, Toyota, Maruti Udyog, Tata Motors, etc., have been practicing empowerment. Let us list the points indicating role, importance or benefits of empowering employees: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Empowerment improves employees’ motivation and builds high morale. It nurtures employees’ self-esteem and self-confidence. It results into maximum use of creative skills, and inbuilt talents of employees. It reduces task of supervising and controlling. It promotes self-control and self-discipline. It improves productivity. Employees strive for better performance. It makes employees loyal to the organisation. Employees develop a sense of belonging It benefits both individual and organisational development. It leads to healthy human relations. It can positively contribute to firm’s reputation. It is instrumental in achieving high operational efficiency.

Quality Circle Quality circle (QC) is not a completely new concept. It has been in practice in one or another form in different areas of human activities. Actually, it has emerged from quality control and is treated as one of the methods of quality control. However, in India, with reference to business organisation, it has recent origin. In India, the institute, Quality Circle Forum of India,

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at Hyderabad, established in March, 1985, promotes this philosophy. Many Indian companies enjoy active membership of the institute. The institute performs many activities to support firms in implementing QC programme successfully. It is now a vital concept and is catching attention of experts and practitioners. The concept is closely related to TQM, QWL, employee empowerment, and participative management. Quality control system of organisation involves a number of efforts and activities to ensure quality in total operations. The system consists of developing, designing, manufacturing, inspecting, and marketing products to satisfy firm’s valued customers. In some countries, quality control department monitors all activities related to quality. Japanese management system follows integrated quality control that calls for joint efforts of all employees of all departments in the organisation. QC is closely related to Japanese quality control system. QC is a small group or circle of willing employees that meet regularly to deal with (i.e., discuss and solve) problems affecting its area. Generally, six to twelve volunteers of same work areas constitute a circle. They receive training in problem solving and statistical quality control (SQC) to deal with relevant issues effectively. The quality circle makes useful suggestions to management to solve quality and productivity problems. The members actively participate in improving quality of their respective area for mutual development. QC works as integral part of organisation.

Objectives and Importance of QC Objectives and importance of QC are given below: 1. To prevent quality related problems. It aimed at preventive measures for possible Problems related to productivity and quality. 2. To realise and satisfy people’s needs at the workplace. 3. To promote team work and participation in solving mutual problems—problems of organisation and employees. 4. To make people contribute voluntarily towards organisation’s effectiveness through group processes. 5. To bring out potential capacities of employees for overall prosperity. 6. To promote self-discipline, self-motivation, and mutual problem solving 7. To create suitable work environment that leads to a sense of belongingness, better communication, participation, and, ultimately, job satisfaction.

Steps in QC Development Process QC is a philosophy and approach to solve quality related problems. It needs attitudinal change. It is step-by-step process. Initially, it is applied to one area and then is extended to other areas, one-by-one. L M Prasad12 suggests five steps. With a little change, following steps are recommended:

1. Teaching QC Philosophy and Methodology First, people at workplace must be explained fundamentals of QC philosophy. The concept must be made popular by highlighting its possible contribution and how it benefits employees. People take interest and extend cooperation only when they believe that the concept is worthwhile to follow. Organisation change (development) programme can be helpful in teaching the concept. 2. Constituting QC Once people are mentally prepared for QC methodology, now teams of volunteers are constituted at different workplaces. QC consists of members from same work

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area, performing similar work. After constituting QCs at various workplaces, or for various areas, a steering committee is formulated. The steering committee is an apex body that oversees the functioning of QCs. It involves facilitator and coordinator. Facilitator is responsible for guiding and directing the activities of QCs and prepares other executives for active involvement. Coordinator is responsible for coordinating activities of different QCs on behalf of management. He carries out such activities that would make operations of QCs smooth, effective, and selfsustained.

3. Initial Problem Solving

After the QCs are constituted, the members are suitably trained and are officially sanctioned. Now, QC detects the problems related to quality and effectiveness and tries to solve them. Problem solving involves data collection, data analysis, and solving a problem. QC members participate actively to solve the problem. Suitable methods are used for problem solving. Each member puts forth suggestions and final decisions are taken through consensus.

4. Presentation and Approval of Suggestions

In this stage, the QC members are ready to put their suggestions (solutions) before the management. They present their suggestions to management in different forms, like oral presentation, project report, or in any other suitable form. It promotes communication between the QC members and management. They try to convince the management and seek active involvement. The presentation offers opportunity to recognise the QC members’ efforts for improving organisation’s productivity. Management approves the suggestions and prepares for implementation.

5. Implementation

At this stage, suggestions made by the QC are implemented. Depending upon suggestions, management takes necessary actions to implement them. Actions include change assignment, provision of facilities, change in behaviour, or any other. When QC process seems satisfactory in one area or department, the same is extended to other areas, one-by-one. Finally, all areas of organisation have their QCs.

Practical Problems in QC and Remedies QC is an important management philosophy and approach to improve overall productivity. It is a prudent problem solving system. It has a number of positive outcomes. However, its implementation is not easy. It fails in many organisations due to some genuine problems. Possible practical problems and their respective remedies have been briefly discussed, as under: 1. Lack of Right Attitudes

Managers working at middle level feel that QC dilutes their authority and importance. They assume that QCs find fault with executives and they do not have much to contribute. In the same way, workers do not perceive QCs positively. They feel that the QCs are meant for organisational efficiency and they would not be benefited. QCs may dilute (weaken) their power and opportunities for bargaining. This type of attitudes of managers and workers can be modified by appropriate counseling. They must be explained clearly the theme of the QC and how it can positively contribute to their interests. Lack of knowledge, misunderstanding, and prejudice are responsible for negative attitudes. Management must find out the facts and must take necessary actions.

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2. Inability of QC Members

Another problem with QCs is that members are not capable to do the job effectively. Low profile workers may lack education, knowledge, and leadership abilities. Their inabilities affect adversely the operations of QCs. This problem can be solved by setting primary criteria for QC membership and suitable training to workers (QC members).

3. Delayed Implementation In many cases, management exhibits delay in implementing suggestions made by QCs. Delay in implementation discourages QCs’ members and hinders operations of QCs. Management must take active steps to implement the agreed suggestions. QCs must be informed when implementation of suggestions, for genuine reasons, are postponed or delayed. In case some suggestions demand more preparation, reasons for delay must be communicated immediately.

4. Non-cooperation

It is more likely that non-QCs members pose problems to operations and functioning of QCs. They create baseless problems in form of opposing, apathy, and even, hostility. Non-members must be exposed to the activities of QCs. They may be permitted to witness presentation of QCs activities. They must be convinced that the QCs are for all, and can equally benefit them.

5. Lack of Management Cooperation There are some operational problems associated with functioning of QCs. Such problems include (1) restricting meetings during office time, (2) irregularity of meetings, (3) frequent absence of coordinator and/or facilitator, (4) lack of minimum facilities, etc. Active support of top level management can solve these problems. Regular meetings of steering committee, coordinators, and facilitators must be held for meaningful working of QCs. Proper advanced scheduling can solve many problems. In India, many reputed companies, including Maruti Udyog, BHEL, Mahindra & Mahindra, SKF, Modi Xerox, and others, have successfully implemented quality circle programmes.

Job Design and Job Satisfaction Job design (job itself) is the most significant element of job satisfaction. Job must be enjoyable, it must be fun. For some people, only job itself (not job related benefits) is the great source of satisfaction. Job contains intrinsic (in-built) rewards that lead to employees’ satisfaction. However, all intrinsic characteristics do not have equal value for all employees. Organisation’s efforts to enhance job satisfaction consist of making the job design attractive and enjoyable. Frederic Herzberg, in his Two-factor Theory of Motivation, gives more emphasis on intrinsic aspect of job to motivate employees for better performance and more satisfaction. PorterLawler Model of Motivation also stresses on intrinsic rewards for better performance, motivation, and satisfaction. To them, job performance leads to satisfaction, and job satisfaction leads to motivation. (For more details, refer to ‘Motivation Theories,’ Chapter 20).

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Job design shows systematic arrangement of job contents, including job title, location, duties, working conditions, rewards, relations, timing, and so forth. Due to tremendous improvement in information technology and transportation means, recently job design has undergone drastic reforms. Development and application of modern organisation designs, like the network organisation and the virtual organisation, have brought about dramatic changes in job design. In the same way, employees desire for well-being and organisation’s efforts for their welfare have significantly influenced job design. In a addition, job stress is another independent issue in job design. In a nutshell, the job—being a major determinant of job satisfaction—must be systematically and carefully designed. Employees’ interest, skills, qualifications, capabilities, and other personality characteristics should be given due attention while designing different jobs for different employees. There should be proper match between employees’ capabilities and job requirements. Properly designed job can enhance employees’ job satisfaction.

SUMMARY Job satisfaction is a vital issue in organisational behaviour and human resource management, and, in general, management practices. It is concerned with many areas of behavioural science, like motivation, attitudes, perception, personality, morale, job design, and so forth. Job satisfaction is an outcome of employee’s perception or attitudes of how well his job offers those things that are viewed as important. Work itself, pay, promotion, supervision, work group, working conditions, and other factors affect job satisfaction. Higher performance, better physical and mental health, low turnover of employees, reduced absenteeism, healthy industrial relations, strong commitment towards organisation, easy implementation of change, et al, are positive outcomes of job satisfaction. Job satisfaction represents several job related attitudes, such as attitudes towards work itself, supervisor, reward system, organisation, and overall work climate and culture. If employees hold positive attitudes towards all job related dimensions, they are satisfied with the job. A job is a collection of tasks (activities), duties, and responsibilities, which, as a whole, are assigned to individual employee. It is a package of work. Job design is the architecture, structure, outline, or plan of work the employee performs, or is expected to perform. Job analysis, job description, job specification, job rotation, job enlargement and job enrichment are important issues in job design. Job Reengineering Approach, Job Rotation Approach, Job Enlargement Approach, Job Enrichment Approach, Job Characteristics Approach, QWL Approach, and Socio-technical Job Design, HPWPs, are main approaches to job designing. QC is a small group or circle of willing employees that meet regularly to deal with problems affecting its area. The concept is closely related to TQM, QWL, empowerment, and participative management. QC is formulated for several purposes, and manager has to tackle many problems related to successful implementation of QCs.

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KEY TERMS Job Job Design and Job Satisfaction Organisation’s Efforts to Enhance Job Satisfaction Attitudes and Job Satisfaction

Approaches to Job Design Job Reengineering Approach Job Rotation Approach Job Enrichment Approach Job Characteristics Approach

QWL—Quality of Work Life—Approach Socio-technical Job Design HPWPs—High Performance Work Practices Employee Participation Quality Circle (QC)

EXERCISES Objective Questions A. Answer the following: 1. State five areas of OB/HRM related with job satisfaction. 2. State five factors affecting job satisfaction. 3. State two outcomes of high job satisfaction. 4. How are attitudes and job satisfaction related? 5. What is job?

6. Mention four approaches of job design. 7. Write full forms of QWL and HPWPs. 8. Who developed job characteristics model for job design? 9. Mention three sets of factors affecting QWL. 10. Name five Indian companies that have implemented quality circle (QC) programme.

B. Choose the correct option (MCQs): 1. Which of the following is not related to job satisfaction? (a) Work itself (b) Pay (c) Promotion (d) Politics 2. Job satisfaction and job commitment are…. (a) Same (b) Different (c) Are interdependent (d) No idea 3 Which is related to working condition? (a) Ventilation (b) Friendship (c) Family life (d) None

4. ‘All jobs do not equally offer job satisfaction to all.’ The statement is… (a) False (b) True (c) Partially true (d) No idea 5. Person’s attitudes and job satisfaction are (a) Independent (b) Same (c) Closely related (d) Canot say 6. ‘Job enlargement includes making the job interesting and challenging.’ The statement is (a) Absolutely true (b) Absolutely false (c) Partially true (d) No idea

Managing Performance by Job Design

7. Job enrichment consists of…. (a) Loading to job horizontally (b) Loading to job vertically (c) Loading horizontally and vertically (d) None 8. Which is not related to job design? (a) QWL (b) HPWPs (c) Job Degradation (d) Job Enrichment 9. Which of the following approaches consists of altering or replacing the job assignment?

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(a) Job Enlargement (b) Job Rotation (c) Job Enrichment (d) Job Reengineering 10. Which is closely related to employee empowerment? (a) Trade Unionism (b) Profit Sharing (c) Bonus (d) Participative Management

Descriptive Questions 1. Define the term ‘job satisfaction’ and discuss factors affecting job satisfaction. 2. ‘Organisation needs to take certain steps to enhance employee job satisfaction.’ Comment on the statement and suggest organisation’s effort in this regard. Also, briefly state outcomes of job satisfaction. 3. What is job design? Discuss job rotation approach and job enlargement approach to job design. 4. Discuss: (a) Job Enrichment Approach to Job Design (b) Job Characteristics approach to Job Design

5. What is QWL (Quality of Eork Life)? Enlist its features. Discuss factors affecting QWL. 6. Explain: (a) Positive Outcomes for QWL (b) Managerial Role in Improving QWL 7. Define employee empowerment. Discuss its process and importance. 8. Explain QC. Discuss quality circle process. 9. What is HPWPs? Discuss its elements. Why should the organisation be careful while applying HPWPs? 10. Write notes: (a) Job Design and Job Satisfaction (b) Socio-technical Job Design

Assignments 1. Students are assigned study QWL and HPWPs in relation to two companies and make a comparative study. 2. A group of students can be assigned a project in which each student should collect

details from any company to find out what contributes to job satisfaction in different companies. Finally, a list of common factors/elements can be prepared and compared with the theory.

REFERENCES 1 E A Locke, ‘The Nature and Causes of Job Satisfaction,’ Handbook of Industrial and Organisational Psychology, Rand McNally, Chicago, 1976, p. 1300 2 Stephen Robbins and Seema Sanghi, Organisational Behaviour, Dorling Kindersley, New Delhi, India, 2006, p. 29

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3 Fred E Luthans, Organisational Behaviour, McGraw-Hill, International Edition, New York, 2005, pp. 212–214 4 Ibid., p. 480 5 Ibid., p. 483 6 J. Richard Hackman and Greg Oldham, ‘Motivation through the Design of Work: Test of a Theory,’ Organisational Theory and Behaviour, Vol. 16, 1976, pp. 250–279. 7 David A Nadler and Edward E Lawler, ‘Quality of Work life: Perspective and Directions,’ Organisational Dynamics, Winter, 1983, p. 26 8 Keith Davis, Organisational Behaviour, Tata McGraw-Hill, New Delhi, 2000, p. 306 9 V. S. P. Rao and Hari Krishna, Management, Excel Books, New Delhi, 2010, p. 623 10 Bradley L Kirkman, Kevin B Lowe, and Dianne P Young, High Performance Work Organizations, Center for Creative Leadership, Greensboro, N. C. 1999, p. 8. 11 John W Newstrom and Keith Davis, Organisational Behaviour: Human Behaviour at Work, Tata McGraw-Hill, New Delhi, 1998, 227 12 L M Prasad, Principles and Practice of Management, Sultan Chand & Sons, New Delhi, India, 2005, p. 594

ANSWERS TO OBJECTIVE TYPE QUESTIONS A. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. B.

Motivation, attitudes, perception, personality, and job design Work itself, pay, supervision, work group and working conditions Higher performance and reduced absenteeism Job satisfaction implies employees’ attitude toward their job Job is a package of work, including activities, duties, and responsibilities Job Rotation Approach, Job Enlargement Approach, Job Enrichment Approach, QWL Approach, and HPWPs Approach QWL – Quality of Work Life; HPWPs – High Performance Work Practices J. Richard Hackman and Greg Oldham Employee related factors, job related factors, and organisation related factors Maruti Udyog, BHEL, Mahindra & Mahindra, SKF, Modi Xerox 1. (c), 2. (b), 3. (a), 4. (b), 5. (c), 6. (b) 7. (b), 8. (c), 9. (b), 10. (d)

CASE Can We Apply the Latest Positive Management Practices? Miracle Technology Limited, established in 2001, a Pune-based medium-sized IT company, decided to improve its work culture and employees’ happiness. The company employed 1,450 employees in all. Company’s balance sheet performance was at par with IT giants. In the last board meeting, the topics related to Quality of Work Life (QWL), Work Life Balance (WLB), and employees’ happiness were widely discussed. Company insisted on applying the concept of HPWPs—High Performance Work Practices. Mr. Raj Mohan, 45, the chairman of the board, was found much enthusiastic to cultivate employee friendly work climate. Born, grown, and educated in a metro city in India, Mr. Mohan was known for his easy adaptation of new

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practices and frank nature. Graduation and post-graduation in management and discipline and wide work experience had made him adaptive to different situations. Unanimously, it had been decided to form a committee to find out what was needed to be done to improve quality of work life (QWL) and apply high performance work practices HPWPs. Under the chairmanship of Mr. Raj Mohan, the committee consisted of three other members, including Mr. K K Marik (the HR head), Miss Sujatra Rani (the PRO), and Mr. Rajesh Kamdar (office superintendent). The committee met in the first week of August, 2010, to decide on the future agenda. In the meeting of the committee, Mr. Raj Mohan stressed on need for creative and conducive work climate. He cited examples of many companies, including Google, Infosys Technologies, Wipro Corporation, HUL, Tatas, L&T, etc., and their efforts to make the office a happy place to work. He said, ‘Nothing makes one happier than a sense of freedom. It is nice at workplace when you have happier colleagues around, and the office becomes a place you want to go to every morning and enjoy working there. We want to promote such a climate in which people like to make maximum voluntary contribution. Self-motivation, self-control and self-disciple are the basic aspects to be cultivated.’ He emphasized on freedom to work, flexible work schedule, freedom to innovate, freedom to form a group, temporary leave for few months for career advancement, financial assistance, family workshops and consultations, and a stress relaxation programme to help people work comfortably with their fullest capacity. HR head, K K Marik, agreed with Raj Mohan, but emphasised on actual needs of employees. He opined, ‘It is a good idea. But the employees can be made happy if company offers what the employees want. All positive aspects mentioned by honorable chairman have different degree of suitability and, hence, applicability. It is worthwhile to know exactly what our employees want, what their problems are, and what is the level of their satisfaction with the company. Any innovative scheme should not be applied immediately. Our HR policies already incorporate many of these positive aspects. What we are required is to do is little.’ Office superintendent was not happy. He said, ‘I don’t have any objection if HR policies are to be modified or replaced. But, I think that high level management philosophy works satisfactorily only if employees are that much mature. Frequently, I have had to take strict actions against many employees and have had to issue memos for irregularity and misconduct. Before we try to implement new employee oriented policies, what we need to do is to prepare our employees to fit with them. Wipro, Infosys, HUL, M&M, L&T, and other established and giant-sized companies have spent many years to realise the dream of happier employees at work. Their founders, mentors, and/or chairmen have made endless efforts for many years together to cultivate such a dream-like work culture. We must have reasonable expectations with reasonable implementation. Our employees are not that much mature. We can do only reasonable in this regard.’ He concluded his speech. Miss Sujatra, was confused. She could not decide what to speak in the controversial situation. Chairman requested her to frankly put her viewpoint. She said, 'Sirs, management theory and practices have transformed beyond expectations. I was fortunate to work in corporate office of one of the companies mentioned by the chairman and other members. To create such a homelike work environment is a long exercise. It is a step-by-step process. We must implement new ideas one by one. We must do what we can afford, and what our employees deserve. To my views, we must first cultivate informal atmosphere in which people are motivated to speak openly what they believe. We must prepare our employees to be fit for positive management.’

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The chairman directed HR head to work out a plan to improve work culture and climate in due consultation with other two members. Meeting ended.

Questions for Discussion 1. 2. 3. 4. 5. 6.

How would you evaluate company’s decision to impart QWL to make employees happy? Explain Raj Mohan’s views. Comment on KK Marik’s opinion. Office superintendent did not favour company’s efforts to make employees happy. Why? Do you agree with Ms. Sujatra’s views? Why? According to you, what ought to be done in relation to topics discussed in the case?

Model Question Paper

1

MANAGEMENT AND ORGANISATIONAL BEHAVIOUR Time: 2½ Hrs (or 3 Hrs)*

Marks: 70 (or 100)*

Notes: There are two separate sections: Management and Organisational Behaviour. The first two questions in each section carry 14 (or 20) marks each, and the third question carries 7 (or 10) marks. Answer each question as per marks allocated.

SECTION I: MANAGEMENT Q. 1. (A) Discuss the significance of management in business? (B) Comment on the professionalisation of management in India. OR (A) “Management is not a pure, but emerging profession.” Discuss. (B) Discuss the social responsibilities of modern business organisations. Q. 2. (A) Describe the decision-making process. (B) Write a short note on matrix organisation. OR (A) Explain the controlling process. (B) Elaborate on the classification of rewards. Q. 3. Attempt ANY ONE: (A) What is staffing? Outline its main functions. (B) What is leadership style? Briefly comment on the classification of leadership styles. The question paper can be used for undergraduate as well as postgraduate level courses. When the question paper contains MCQs for 10, 15, or 20 marks, the marks for descriptive questions are adjusted accordingly. * The question paper can be used for 70 marks or 100 marks. However, in case of 100 marks paper, students are expected to give more detailed answer with practical examples. The same paper can be used for 50 marks too, where students have to give brief answers. Students should attempt questions according to the marks allocated. The time allowed will also depend on the total marks assigned to the paper.

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SECTION II: ORGANISATIONAL BEHAVIOUR Q. 1. What is organisational behaviour (OB)? Explain scope of OB with the help of a suitable OB Model. OR (A) Discuss the main learning principles. (B) Comment on team-building efforts. Q. 2. Discuss the Porter Lawler Model of Motivation. OR (A) Discuss the causes leading to work stress. (B) What is resistance to change and how can it be overcome? Q. 3. Attempt ANY ONE: (A) Explain charismatic leadership theory with reference to modern practices. (B) Discuss the relevant issues in international OB.

Index A American and Japanese Style of Management, 334 Anthropology, 366 Attitudes, 450-456 Attitudinal Change, 455 Barriers to Attitudinal Change, 454 Characteristics, 451 Definitions, 451 Factors, 453 Functions of Attitudes, 452 Authority, 184-185 Authority and Power, 185-186

B Big Five Personality Traits, 463 Business Environment, 31-34 Business Ethics, 327 Business Ethics and Management, 327-330

C Change, 645-656 Definitions, 645 Nature, 645-646 Overcoming Resistance, 652-655 Process, 647-649 Resistance to Change, 649-652 Types, 646 Communication, 670-690 Barriers, 679-683 Characteristics, 671 Communication Network, 674-678 Definitions, 670-671 Effective Communication, 684 Grapevine Communication, 688 Importance, 671-73 Non-verbal Communication, 678-679 Overcoming Barriers, 683-684 Types of Communication, 686-688

Conflict, 627-638 Characteristics, 628 Conflict Resolution, 636-638 Definitions, 627 Different Views on Conflict, 628-629 Optimum Level Conflict, 629-630 Outcomes, 632-634 Sources, 634-636 Types/Classification, 631-632 Controlling, 282-299 Characteristics, 283-284 Definitions, 283 Importance, 288-289 Key Problems, 290 Principles, 290-291 Process, 284-287 Strategic v/s Operation Control, 287 Techniques 291-299 Types of Control, 287-288 Coordination, 264-271 Coordination v/s Cooperation, 270-271 Definitions, 265 Features, 265-266 Guiding Principles, 270 Importance, 268-270 Methods or Ways, 266-268 Types, 266 Corporate Planning, 113 CPM-PERT, 296-297 Creativity and Innovation, 338-340

D Decentralisation, 192-195 Definition, 192 Delegation v/s Decentralisation, 193-194 Decision-making, 127-148 Approaches,145-146 Definitions, 127

766

Index

Group Decision-making, 132-133 Key Problems,143-145 Process, 128-130 Rationality in Decision-making, 146-148 Techniques/Methods, 133-143 Types of Decisions, 130-132 Delegation of Authority, 188 Benefits, 190-191 Characteristics, 189 Definitions, 189 Departmentation, 195-203 Benefits and Types, 95-97 Directing, 259-264 Definition, 260-261 Features, 261 Importance, 261-262 Methods and Tools, 262-264 Drives, 513 Dynamics of Individual Behaviour, 434-474

E Ego Stages, 498 Emerging Issues in Management, 326-345 Emotional Intelligence, 713-718 Employee Empowerment, 750-753 Employee Participation, 344 Employee Turnover, 248-250 Environmental Diagnosis and Analysis, 34-36 Evolution of OB, 383

F Financial Management, 318-321 Forecasting, 123-127 Characteristics, 124 Definitions, 124 Forecasting v/s Planning, 125 Importance and Limitations, 125-126 Process, 124 Techniques/Methods, 126 Formal Group, 486 Functional Management, 305-322

G Group Dynamics, 482-490 Definitions, 481

Factors, 481 Groups in Organisation, 482 Group, 482-489 Characteristics, 483 Definitions, 482 Formal v/s Informal Group, 486 Group Formation Stages, 485 Group Structure, 489 Needs (Reasons and Factors), 484

H Happiness, 710-711 Hawthorne Experiments, 385-391 Background, 385 Implications, 389 Limitations, 390-391 Phases, 386-389 High Performance Work Practices (HPWPs), 744, 748-750 Historical Background of OB, 383 Evolution Stages of OB, 383-384 Hope, 709-710 Horizontal Organisation, 408 Human Nature, 360-361 Human Resource Management (see Staffing)

I Informal Group, 486 International OB (IOB), 391-400 Definitions, 391 Elements or Features of IOB, 392 Key Issues in IOB, 393-396 Model of International Adjustment, 396-398 People and Factors in IOB, 392-393 Women’s Role in International OB, 398 International Standard Organisation (ISO), 342-343

J Japanese v/s American Management, 335 Job Design, 737-744 Definition, 738 Job Design Approaches, 739-744 Job Design and Job Satisfaction, 756-757

Index

Job Satisfaction, 732-737 Attitudes and Job Satisfaction, 737 Definitions, 732 Factors, 733-734 Organisational Efforts, 735-737 Positive Outcomes, 735 Theories, 734-735 Job, 738 Johari Window, 501

L Labour Participation, 344-345 Leadership Theories, 582-608 Behavioural Theories, 584-586 Charismatic Leadership Theory, 602 Fiedler’s Contingency Theory, 592-594 Hersey and Blanchard’s Life-cycle, 588-592 Likert’s Four Systems, 586-588 Managerial Grid by Blake and Mouton, 600601 Path-Goal Theory, 594-597 The Followership Leadership Theory, 605-608 Trait Theory of Leadership, 583-584 Transformation Leadership Theory, 603-605 Views of Tannenbaum and Schmidt, 598-599 Leadership, 566-582 Characteristics, 567-568 Definitions, 567 Importance, 568-570 Leader v/s Manager, 570-571 Qualities of Leader, 578 Role, 577-578 Skills, 580-581 Styles, 572-557 Learning, 442-450 Definitions, 443 Characteristics, 443 Learning Principles, 444 Learning Theories, 445 Learning Process (Components), 448

M Man Models, 361-362 Management By Exception (MBE), 349

767

Management By Participation (MBP), 350 Management By Situation (MBS), 351 Management, 1-45 Characteristics, 3-4 Definitions, 2 Functional Areas (Scope), 28-31 Levels in Management, 13-16 Management and Administration, 10-13 Management as a Profession, 7 Management as a Science, 6 Management as an Art, 5 Objectives of, 22-25 Process or Functions,17-20 Professionalisation, 36-40 Significance, 20-22 Universality of Management, 9-10 Managerial Role (Mintzberg), 25-27 Manpower Planning, 239-242 Marketing Management, 312-318 MBO, 115 McKinsey’s Seven-S Model, 86-88 Michael Porter “Five Forces” Approach, 88-90 Management Information System (MIS), 341-342 Modern Organisational Design, 408-415 Morale, 518-524 Characteristics, 520-521 Definitions, 518 Factors, 523-524 Forms of Morale, 519 Importance (Role) of Morale, 521 Morale Building, 521-522 Motivation, 263, 510-518 Characteristics, 511-512 Definitions, 511 Drive, 513 Financial Incentives, 516 Importance of Motivation, 515 Motivation Process, 513-515 Motive, 511, 513 Needs, 512 Non-financial Incentives, 517, 518 Rewards and Incentives, 515-518 Motivation Theories, 530-560 Abraham Maslow’s Need Hierarchy, 530-532

768

Index

Adam’s Equity Theory, 540-543 Alderfer’s ERG Theory, 539-540 Carrot and Stick Approach, 557-568 Cognitive Evaluation Theory, 555-556 Goal Setting Theory, 556-557 Herzberg’s Two-factor Theory, 532-534 Human Relations Approach to Motivation, 560 McClelland’s Learned Need Theory, 543-546 McGregor’s Theory X and Theory Y, 534-537 Ouchi’s Theory Z, 537-539 Porter-Lawler Model of Motivation, 549-555 Reinforcement (Motivation) Theory, 558-560 Scientific Approach to Motivation, 560 Vroom’s Expectancy Theory, 546-549 Motives, 513 Myers-Biggs Type Indicator (MBTI), 464

N Needs, 512 Network Organisation, 410 New Developments in Management, 345-352 Management By Exception (MBE), 349-351 Management By Objectives (MBO), 345-349 Management BY Situation (MBS), 351-352

O OB Models, 369 Operations Research (OR), 134 Optimism, 707-709 Organisation Chart and Manuals, 164-166 Organisation Climate, 415-416 Definitions, 415 Factors, 415-416 Impacts, 416 Organisation Culture, 416-424 Approaches, 421-423 Changing of, 423 Characteristics, 417-418 Creating and Maintaining of, 419-421 Culture v/s Climate, 419 Definitions, 417 Measuring of, 424 Organisation Effectiveness, 424-430 Definitions, 425

Effectiveness Model, 427 Efficiency and Effectiveness, 426 Factors or Criteria in Effectiveness, 427 Nature, 425 Organisation Structure, 208-233 Committee Organisation, 219-224 Contingency Factors, 228-229 Entrepreneurial Organisation, 210 Functional Organisation, 216-219 Key Constituents of, 208-209 Line and Staff Organisation, 212-216 Line Organisation, 210-212 Matrix Organisation, 226-228 Modern Organisation Designs, 228 Project Organisation, 224-226 Types of, 210 Vertical v/s Horizontal Organisation, 209 Organisational Behaviour (OB), 359-375 Characteristics, 359-360 Contributing Disciplines, 366 Definitions, 359 Emerging Challenges in OB, 399 Ethical Behaviour, 375-377 Importance, 364-365 Limitations, 374 Management and OB, 372-374 Organisational Development (OD), 656-663 Definitions, 657 Features, 657-658 Importance of OD, 662 OD Process, 658-659 OD Techniques, 659662 Organisational Politics, 695-699 Organisational Structure and Design, 407 Organising, 154-181 Characteristics, 156 Definitions of Organising, 155 Process,156-159 Qualities or Principles, 161-163 Significance, 159-161

P Parkinson’s Law, 201, 203 Perception, 435-442 Barriers Perceptual Accuracy, 439

Index

Characteristics, 435 Definitions, 435 Factors, 440 Perceptual Selectivity, 414 Process – Steps, 437 Sensation and Perception – Difference, 436 Performance Appraisal, 250-252 Personality, 459-474 Characteristics, 460 Definitions, 460 Factors/Determinants, 461 Personality and OB, 472 Personality Development, 467 Personality Theories, 471 Stages of Personality Development, 467-471 Type A and Type B Personality, 473 Personnel Management, 321-322 Peter Principle, 199-201 Planning, 95-108 Definitions and Characteristics (Nature), 96-97 Importance (or Need), 107-108 Limitations, 115-117 Planning and Plan, 97 Planning Premises, 101-103 Planning Process, 97-101 Types (Components) of Plan, 103-107 Political Science, 368 Porter Five Forces, 88-90 Positive Organisation Behaviour (POB), 705-725 Definitions, 706 Positive Psychology and POB, 706 POB Components, 707 Power and Politics, 690 Power, 690 Definitions, 690 Political Implications, 694 Sources of Power, 691-692 Production Management, 306-312 Psychology, 367

Q Quality Circle (QC), 753-756 Quality of Work Life (QWL), 743, 744-748

769

R Recruitment, 242-243 Resiliency, 711-713 Responsibility, 187-188

S Schools of Management Thoughts, 48-71 Administrative School, 52-56 Classification of Schools, 48-49 Contingency School, 62-64 Decision Theory School, 67-69 Empirical School, 65-66 Human Resource Approach, 71 Management Process Schools, 66-67 Modern Schools, 59-65 Neoclassical School, 56-59 Quantitative or Mathematical School, 69-70 Scientific Management School, 49-52 Social System School, 61-62 Social Technical Schools, 62 System School, 59-61 Selection, 243-245 Self-efficacy, 718-725 Skills of Professional Manager, 27-28 S-O-B-C Model, 370 Social Psychology, 368 Social Responsibility of Business, 25, 330-334 Sociology, 367 Span of (Management) Control, 197-199 Staffing (HRM), 234-253 Characteristics, 236 Definitions, 235 Functions or Scope, 238-252 Human Resource, 234-235 Importance, 236-238 New Developments, 253 Principles, 253 Strategic Management, 76-85 Benefits, 90-91 Definitions, 78-79 Features, 79-80 Mission Statements, 85-86 Process, 80-85 Strategic and General Management, 77-78

770

Index

Strategic Planning, 109-103 Definitions, 109-110 Operational v/s Strategic Planning, 114-115 Process, 110-113 Strategy Formulation, 110-113 Strategy, 105, 109 Stress, 614-627 Definitions, 615 Desirability of Stress, 616-617 Effects of Stress, 620-621 Nature, 615-616 Optimum Level Stress, 617 Sources of Stress, 617-620 Stress Coping Strategies, 621-627 Stroking, 500 Supervision, 271-277 Definitions and Characteristics, 272-273 Factor affecting Supervision, 276-277 Principles of Supervision, 274-275 Qualities of Good Supervisor, 275-276 Supervision Tasks, 272-274

T Team Building, 494 Approaches, 494-497 Meaning, 494

Team, 490-497 Characteristics, 491 Cross-functional Team, 492 Definitions, 490 Making Team Effective, 494 Popular Forms (Types), 492 Self-managed Team, 493 Virtual Team, 492 Total Quality Management (TQM), 334-337 Training and Development, 246-247 Transactional Analysis (TA), 494-501 Key Area, 498

V Values, 456-459 Definitions, 456 Significance of Value, 459 Types of Values, 456 Value across the Culture, 457 Value and Attitude, 459 Value System, 456 Virtual Office, 414 Virtual Organisation, 412

W Wage and Salary Administration, 248