practices and principles of management

8/12/2019 practices and principles of management

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MPC-1001: ORGANIZATION STRUCTURE AND SYSTEM

Module-I

Evolution of Mn!e"ent T#ou!#t$

Int%odu&tion:

Management is a vital aspect of the economic life of man, which is an organized group

activity. A central directing and controlling agency is indispensable for a business concern.

The productive resources material, labor, capital etc. are entrusted to the organizing skill,

administrative ability and enterprising initiative of the management. Thus, management

provides leadership to a business enterprise. Without able managers and effective managerial

leadership the resources of production remain merely resources and never become

production. nder competitive economy and ever!changing environment the "uality and

performance of managers determine both the survival as well as success of any business

enterprise. Management occupies such an important place in the modern world that the

welfare of the people and the destiny of the country are very much influenced by it.

DE'INITION O' MANAGEMENT:

Management may be defined in many different ways. Many eminent authors on the sub#ect

have defined the term $management$, some of these definitions are reproduced below%

According to &awrence A Appley ! $Management is the development of people and

not the direction of things$.

According to 'oseph Massie ! $Management is defined as the process by which a

cooperative group directs action towards common goals$.

(n the words of )eorge * Terry ! $Management is a distinct process consisting of

planning, organising, actuating and controlling performed to determine and

accomplish the ob#ectives by the use of people and resources$.

According to 'ames & &undy ! $Management is principally the task of planning,

coordinating, motivating and controlling the efforts of others towards a specific

ob#ective$.

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(n the words of +enry ayol ! $To manage is to forecast and to plan, to organise, to

command, to co!ordinate and to control$.

According to -eter rucker ! $Management is a multi!purpose organ that manages

a business and manages managers and manages worker and work$.

(n the words of /oontz and 01onnell ! $Management is defined as the creation and

maintenance of an internal environment in an enterprise where individuals working

together in groups can perform efficiently and effectively towards the attainment of

group goals$.

rom the definitions "uoted above, it is clear the $management$ is a techni"ue of e2tracting

work from others in an integrated and co!ordinate manner for realizing the specific

ob#ectives through productive use of material resources. Mobilizing the physical, human and

financial resources and planning their utilization for business operations in such a manner as

to reach the defined goals can be referred to as $management$. (f the views of the various

authorities are combined, management could be defined as $a distinct ongoing process of

allocating inputs of an organization 3human and economic resources4 by typical managerial

functions 3planning, organizing, directing and controlling4 for the purpose of achieving

stated ob#ectives namely output of goods and services desired by its customers

3environment4. (n the process, work is preformed with and through personnel of the

organization in an ever!changing business environment$.

Management is a universal process in all organized social and economic activities. (t is not

merely restricted to factory, shop or office. (t is an operative force in all comple2

organizations trying to achieve some stated ob#ectives. Management is necessary for a

business firm, government enterprises, education and health services, military organizations,

trade associations and so on.

C(ARACTERISTICS O' MANAGEMENT

Mn!e"ent i"$ t %e)in! %i %e$ult$ in e&ono"i& te%"$: Manager5s primary task is

to secure the productive performance through planning, direction and control.

(t is e2pected of the management to bring into being the desired results. *ational utilisation

of available resources to ma2imise the profit is the economic function of a manager.

-rofessional manager can prove his administrative talent only by economizing the resourcesand enhancing profit. According to /imball ! $management is the art of applying the

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economic principles that underlie the control of men and materials in the enterprise under

consideration$.

6. Mn!e"ent l$o i")lie$ $*ill nd e+)e%ien&e in !ettin! t#in!$ done t#%ou!# )eo)le:Management involves doing the #ob through people. The economic function of earning

profitable return cannot be performed without enlisting co!operation and securing positive

response from $people$. )etting the suitable type of people toe2ecute the operations is the

significant aspect of management. (n the words of/oontz and 05onnell ! $Management is

the art of getting things done throughpeople in formally organised groups$.

7. Mn!e"ent i$ )%o&e$$: Management is a process, function or activity. This process

continues till the ob#ectives set by administration are actually achieved. $Management is a

social process involving co!ordination of human and material resources through the

functions of planning, organising, staffing, leading and controlling in order to accomplish

stated ob#ectives$.

8. Mn!e"ent i$ unive%$l &tivit,: Management is not applicable to business

undertakings only. (t is applicable to political, social, religious and educational institutions

also. Management is necessary when group effort is re"uired.

9. Mn!e"ent i$ S&ien&e $ ell $ n A%t: Management is an art because there are

definite principles of management. (t is also a science because by the application of these

principles predetermined ob#ectives can be achieved.

:. Mn!e"ent i$ P%ofe$$ion: Management is gradually becoming a profession because

there are established principles of management which are being applied in practice, and it

involves specialised training and is governed by ethical code arising out of its social

obligations.

;. Mn!e"ent i$ n effo%t to ieve )%e-dete%"ined o./e&tive$:

Management is concerned with directing and controlling of the various activities of the

organization to attain the pre!determined ob#ectives.


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Management is considered as a continuing activity made up of basic management functions

like planning, organizing, staffing, directing and controlling. These components form the

sub#ect!matter of management.

'un&tionl A%e$ of Mn!e"entManagement covers the following functional areas%!

Financial Management: inancial management includes forecasting, cost control,

management accounting, budgetary control, statistical control, financial planning etc.

Human Resource Management: -ersonnel C +uman *esource Management covers

the various aspects relating to the employees of the organization such as recruitment,

training, transfers, promotions, retirement, terminations, remuneration, labour

welfare and social security, industrial relations etc. Marketing Management: Marketing management deals with marketing of goods,

sales promotion, advertisement and publicity, channels of distribution, market

research etc.

E2OUTION O' MANAGEMENT T(OUG(TS

The origin of management can be traced back to the days when man started living in groups.

+istory reveals that strong men organized the masses into groups according to their

intelligence, physical and mental capabilities.


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8. Modern Theory or ?ystems Approach

E2OUTION O' MANGEMENT T(OUG(TS

P%e-$&ientifi& Mn!e"ent Pe%iod

The advent of industrial revolution in the middle of the @=th century had its impact on

management. (ndustrial revolution brought about a complete change in the methods of

production, tools and e"uipments, organization of labor and methods of raising capital.


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problems. +e advocated the use of accurate observations, measurement and precise

knowledge for taking business decisions. +e urged the management of an enterprise, on the

basis of accurate data obtained through rigid investigation, the desirability of finding out the

number of times each operation is repeated each hour, the dividing of work into mental andphysical efforts, the determining of the precise cost for every process and the paying of a

bonus to the workers in proportion to his own efficiency and the success of enterprise.

3D4%ames &att %unior (UK 17!' " 1##$ an) Mathe* Robinson Boulton (177+ " 1#$:

'ames Watt 'unior and Mathew *obinson Doulton contributed to the development of

management thought by following certain management techni"ues in their engineering

factory at ?oho in Dirmingham. They are%!

-roduction -lanning

?tandardization of Bomponents

Maintenance

-lanned machine layout

-rovision of welfare for personnel

?cheme for e2ecutive development

Marketing *esearch and forecasting


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3d4 (nference

+e advocated a thorough planning of the #ob by the management and emphasized the

necessity of perfect understanding and co!operation between the management and the

workers both for the enlargement of profits and the use of scientific investigation andknowledge in industrial work. +e summed up his approach in these words%

?cience, not rule of thumb

+armony, not discord

Bo!operation, not individualism

Ma2imum output, in place of restricted output

The development of each man to his greatest efficiency and prosperity.

2lements of 0cientific Management: The techni"ues which Taylor regarded as its essential

elements or features may be classified as under%

@. ?cientific Task and *ate!setting, work improvement, etc.

6. -lanning the Task.

7. Gocational ?election and Training

8. ?tandardization 3of working conditions, material e"uipment etc.4

9. ?pecialization

:. Mental *evolution.@. 0cientific /ask an) Rate"0etting (*ork stu).$: Work study may be defined as the

systematic, ob#ective and critical e2amination of all the factors governing the operational

efficiency of any specified activity in order to effect improvement. Work study includes.

3a4Metho)s 0tu).: The management should try to ensure that the plant is laid out in the best

manner and is e"uipped with the best tools and machinery. The possibilities of eliminating or

combining certain operations may be studied.

3b4Motion 0tu).: (t is a study of the movement, of an operator 3or even of a machine4 in

performing an operation with the purpose of eliminating useless motions.

3c4 /ime 0tu). (*ork measurement$: The basic purpose of time study is to determine the

proper time for performing the operation. ?uch study may be conducted after the motion

study.

Doth time study and motion study help in determining the best method of doing a #ob and the

standard time allowed for it.

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3d4 Fatigue 0tu).: (f, a standard task is set without providing for measures to eliminate

fatigue, it may either be beyond the workers or the workers may over strain themselves to

attain it. (t is necessary, therefore, to regulate the working hours and provide for rest pauses

at scientifically determined intervals.3e4 Rate"setting: Taylor recommended the differential piece wage system, under which

workers performing the standard task within prescribed time are paid a much higher rate per

unit than inefficient workers who are not able to come up to the standard set.

6.Planning the /ask: +aving set the task which an average worker must strive to perform

to get wages at the higher piece!rate, necessary steps have to be taken to plan the production

thoroughly so that there is no bottleneck and the work goes on systematically.

7.0election an) /raining: ?cientific Management re"uires a radical change in the methods

and procedures of selecting workers. (t is therefore necessary to entrust the task of selection

to a central personnel department. The procedure of selection will also have to be

systematized. -roper attention has also to be devoted to the training of the workers in the

correct methods of work.

8.0tan)ar)i3ation: ?tandardization may be introduced in respect of the following.

3a4 /ools an) e4ui5ment: Dy standardization is meant the process of bringing about

uniformity. The management must select and store standard tools and implements which will

be nearly the best or the best of their kind.

3b405ee): There is usually an optimum speed for every machine. (f it is e2ceeded, it is likely

to result in damage to machinery.

3c4 Con)itions of &ork: To attain standard performance, the maintenance of standard

conditions of ventilation, heating, cooling, humidity, floor space, safety etc., is very

essential.

3d4Materials: The efficiency of a worker depends on the "uality of materials and the method

of handling materials.

9. 05eciali3ation: ?cientific management will not be complete without the introduction of

specialization. nder this plan, the two functions of 5planning5 and 5doing5 are separated in

the organization of the plant. The Hfunctional foremen5 are specialists

who #oin their heads to give thought to the planning of the performance of operations in the

workshop. Taylor suggested eight functional foremen under his scheme of functional

foremanship.

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3a4 /he Route Clerk: To lay down the se"uence of operations and instruct the workers

concerned about it.

3b4 /he 6nstruction Car) Clerk: To prepare detailed instructions regarding different aspects

of work.3c4 /he /ime an) Cost Clerk: To send all information relating to their pay to the workers

and to secure proper returns of work from them.

3d4 /he 0ho5 isci5linarian% To deal with cases of breach of discipline and absenteeism.

3e4 /he 8ang Boss: To assemble and set up tools and machines and to teach the workers to

make all their personal motions in the "uickest and best way.

3f4 /he 05ee) Boss: To ensure that machines are run at their best speeds and proper tools are

used by the workers.

3g4 /he Re5air Boss: To ensure that each worker keeps his machine in good order and

maintains cleanliness around him and his machines.

3h4 /he 6ns5ector: To show to the worker how to do the work.

:. Mental Re9olution: At present, industry is divided into two groups management and

labour. The ma#or problem between these two groups is the division of surplus. The

management wants the ma2imum possible share of the surplus as profitI the workers want,

as large share in the form of wages. Taylor has in mind the enormous gain that arises from

higher productivity. ?uch gains can be shared both by the management and workers in the

form of increased profits and increased wages.

Benefits of 0cientific Management: Taylor5s ideas, research and recommendations brought

into focus technological, human and organizational issues in industrial management.

Denefits of Taylor5s scientific management included wider scope for specialization, accurate

planning, timely delivery, standardized methods, better "uality, lesser costs, minimum

wastage of materials, time and energy and cordial relations between management and

workers.

The benefits of scientific management are%!

A. *eplacement of traditional rule of thumb method by scientific techni"ues.

D. -roper selection and training of workers.

B. (ncentive wages to the workers for higher production.

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6. ocus on the need for better methods of industrial work through systematic study and

research.

7.


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Henr. ;a*rence 8antt (U0= 1#'1 " 1#1!$:+e emphasized the need for developing a

mutuality of interest between management and labour. )antt made four important

contributions to the concepts of management%

@. )antt chart to compare actual to planned performance. )antt chart was a dailychart which graphically presented the process of work by showing machine

operations, man hour performance, deliveries, effected and the work in

arrears. This chart was intended to facilitate day!to!day production planning.

6. Task!and!bonus plan for remunerating workers indicating a more

humanitarian approach. This plan was aimed at providing e2tra wages for

e2tra work besides guarantee of minimum wages. nder this system of wage

payment, if a worker completes the work laid out for him, he is paid a definite

bonus in addition to his daily minimum wages. 0n the other hand, if a worker

does not complete his work, he is paid only his daily minimum wages. There

was a provision for giving bonus to supervisors, if workers under him were

able to earn such bonus by e2tra work.

7. -sychology of employee relations indicating management responsibility to

teach and train workers. (n his paper $Training Workmen in +abits of

(ndustry and Booperation$, )antt pleaded for a policy of preaching and

teaching workmen to do their work in the process evolved through pre!

thinking of management.

8. )antt laid great emphasis on leadership. +e considered management as

leadership function. +e laid stress on the importance of acceptable leadership

as the primary element in the success of any business.

Harrington 2merson (U0= 1#-? " 1!?1$: According to him, $efficiency means that

the right thing is done in the right manner, by the right man, at the right place, in the

right time$.


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upper levels of managers. The process of management as an ongoing managerial cycle

involving planning, organizing, directing, co!ordination, and controlling, is actually based on

the analysis of general management by ayol. +ence, it is said that ayol established the

pattern of management thought and practice.


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>. 0calar Chain: The unity of command brings about a chain or hierarchy of command

linking all members of the organization from the top to the bottom. ?calar denotes steps.

@. ,r)er: ayol suggested that there is a place for everything. 0rder or system alone can

create a sound organization and efficient management.@@.24uit.: An organization consists of a group of people involved in #oint effort. +ence,

e"uity 3i.e., #ustice4 must be there. Without e"uity, we cannot have sustained and ade"uate

#oint collaboration.

@6. 0tabilit. of /enure: A person needs time to ad#ust himself with the new work and

demonstrate efficiency in due course. +ence, employees and managers must have #ob

security. ?ecurity of income and employment is a pre!re"uisite of sound organization and

management.

@7.2s5rit of Co"o5eration:Esprit de corps is the foundation of a sound organization.

nion is strength. Dut unity demands co!operation. -ride, loyalty and sense of belonging are

responsible for good performance.

@8.6nitiati9e: Breative thinking and capacity to take initiative can give us sound managerial

planning and e2ecution of predetermined plans.

Bureaucratic Mo)el: Ma2 Weber, a )erman ?ociologist developed the bureaucratic model.

+is model of bureaucracy include

3i4 +ierarchy of authority.

3ii4 ivision of labor based upon functional specialization.

3iii4 A system of rules.

3iv4 (mpersonality of interpersonal relationships.

3v4 A system of work procedures.

3vi4 -lacement of employees based upon technical competence.

3vii4 &egal authority and power.

Dureaucracy provides a rigid model of an organization. (t does not account for important

human elements. The features of Dureaucracy are%!

@. *igidity, impersonality and higher cost of controls.

6. An2iety due to pressure of conformity to rules and procedure.

7. ependence on superior.

8. Tendency to forget ultimate goals of the organization.

Dureaucratic Model is preferred where change is not anticipated or where rate of change can

be predicated. (t is followed in government departments and in large business organizations.

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Neo&l$$i&l T#eo%,

Eeo!classical Theory is built on the base of classical theory. (t modified, improved and

e2tended the classical theory. Blassical theory concentrated on #ob content and management

of physical resources whereas, neoclassical theory gave greater emphasis to individual andgroup relationship in the workplace. The neo! classical theory pointed out the role of

psychology and sociology in the understanding of individual and group behaviour in an

organization.

Geo%!e Elton M,o 3Au$t%li4 1550 - 16768:


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8. Dank Wiring Test *oom


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norms for each individual worker, which was made lower than those set by the management.

Decause of this, workers would produce only that much, thereby defeating the incentive

system. Those workers who tried to produce more than the group norms were isolated,

harassed or punished by the group. The findings of the study are%!i.


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greater good of the organization, which she defined as the community in which

managers and subordinates could work in harmony. The Mangers and workers

should view themselves as partners and as a part of common group. ?he was

convicted that the traditional and artificial distinction between the managers whogive the orders and the workers who take the orders obscured their natural

relationships. Manager should rely more on their e2pertise and knowledge to lead

subordinates than on the formal authority of their position. Thus, her humanistic

ideas influenced the way we look at motivation, leadership, power and authority. The

ollett Dehavioural

Model of control being sponsored by an oriented towards the group, while self!

control e2ercised by both individuals and the group ultimately result in both sharing

the power. (n the ollett +olistic Model of Bontrol, ollett captured the interactive,

integrative nature of self control groups being influenced by the forces within the

work environment.

A.%#" M$lo% +e was a humanistic psychologist, proposed a hierarchy of five

needs% physiological, safety, social, esteem and self actualization. +e proposed that

man was a wanting animal whose behaviour was calculated to serve his most

pressing needs. A need can be described as a physiological or psychological

deficiency that a person is motivated to satisfy. Maslow further proposed that man1s

need could be placed in a hierarchy of needs. The study shows that a man has various

needs and their order can be determined.

The moment the first need of man is satisfied he starts thinking of the second need, and then

follows his worry about the third need and the se"uence continues till all the needs are

satisfied. Maslow1s theory is operation oriented through two principles.

The deficit principle holds that a relatively well!satisfied need is not a strong

motivator of behaviour.

The progression principle holds that, once a need is fairly!well satisfied,

behaviour is dominated by the ne2t level in the need hierarchy.

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@4 P#,$iolo!i&l Need$:This category includes those needs which a man needs to satisfy

first of all in order to remain alive. (t includes food to eat, house to live in, clothes to wear

and sleep for rest.

64 Sfet, Need$:After having satisfied the physical needs a man thinks of his safety. ?afety

needs mean physical, economic and psychological safety.Physical safety means saving himfrom accidents, diseases and other unforeseen situations. Economicsafety means security of

employment and making provision for old age.Psychological safety means maintaining his

prestige.

74 So&il Need$: Man is a social being and wants to live in society with honour. (t is,

therefore, necessary that he should have friends and relatives with whom he can share his

#oys and sorrows.

84 E$tee" nd Sttu$ Need$:They are called ego needs of man. (t means everybody wants

to get a high status which may increase his power and authority.

94 Self A&tulition Need$:&ast of all man tries to satisfy his self actualization need. (t

means that a man should become what he is capable of. or e2ample! a musician wants to be

proficient in the art of music, an artist wants to gain proficiency in creating works of art and

similarly, a poet wants to be an e2pert in the art of writing poems.

Dou!l$ M&G%e!o% 3160;-16;78: +e is best known for his formulation of two sets of

assumptions! Theory J and Theory F. Mc)regor argued that managers should shift their

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Management now welcomes worker participation in planning #ob contents and #ob

operations. Eeoclassical theory focuses its attention on workers. -lant layout, machinery,

tool etc., must offer employee convenience and facilities. Therefore, neoclassical approach is

trying to satisfy personal security and social needs of workers.+uman relationists made very significant contribution to management thought by bringing

into limelight human and social factors in organizations. Dut their concepts were carried

beyond an appropriate limit. There are many other factors which influence productivity

directly. Modern management thought wants e"ual emphasis on man and machine and we

can evolve appropriate man! machine system to secure both goals productivity and

satisfaction.

+uman relationists made very significant contribution to management thought by bringing

into limelight human and social factors in organizations. Dut their concepts were carried

beyond an appropriate limit. There are many other factors which influence productivity

directly. Modern management thought wants e"ual emphasis on man and machine and we

can evolve appropriate man! machine system to secure both goals productivity and

satisfaction.

&imitations of +uman *elations Approach%!

@. The human relationists drew conclusions from +awthorne studies. These conclusions are

based on clinical insight rather than on scientific evidence.

6. The study tends to overemphasize the psychological aspects at the cost of the structural

and technical aspects.

7. (t is assumed that all organizational problems are amenable to solutions through human

relations. This assumption does not hold well in practice.

8. The human relationists saw only the human variables as critical and ignored other

variables.

9. The human relationists overemphasize the group and group decision!making. Dut in

practice, groups may create problems and collective decision!making may not be possible.

Mode%n T#eo%, 3S,$te" A))%o

The systems approach to management indicates the fourth ma#or theory of management

thought called modern theory. Modern theory considers an organization as an adaptive

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the organization, but also the relationship between the organization and its environment.

+owever, the contingency approach suffers from two limitations%!

@. (t does not recognize the influence of management concepts and techni"ues on

environment.

6. &iterature on contingency management is yet not ade"uate.

Mn!e%il %ole$ = $*ill$:

Mn!e%il S*ill$

Management is a challenging #ob. (t re"uires certain skills to accomplish such a challenge.

Thus, essential skills which every manager needs for doing a better management are called

asManagerial Skills.

According to -rofessor Dniel >t, there are three managerial skills, viz.,

@. Con&e)tul?kills,

6. (u"n Reltion$?kills, and

7. Teni&l?kills.

According to -rof. aniel /atz, all managers re"uire above three managerial skills.

+owever, the degree 3amount4 of these skills re"uired varies 3changes4 from levels of

management and from an organization to organization.

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MANGERIA S>IS

The above picture or diagram shows the managerial skills which are re"uired by managers

working at different levels of management. The top!level managers re"uire more conceptual

skills and less technical skills. The lower!level managers re"uire more technical skills and

fewer conceptual skills. +uman relations skills are re"uired e"ually by all three levels of

management.

1? Con&e)tul S*ill$

Bonceptual skill is the ability to visualize 3see4 the organization as a whole. (t includes

Analytical, Breative and (nitiative skills. (t helps the manager to identify the causes of the

problems and not the symptoms. (t helps him to solve the problems for the benefit of the

entire organization. (t helps the manager to fi2 goals for the whole organization and to plan

for every situation. According to -rof. aniel /atz, conceptual skills are mostly re"uired by

the top!level management because they spend more time in planning, organising and

problem solving.

@? (u"n Reltion$ S*ill$

+uman relations skills are also called (nterpersonal skills. (t is an ability to work with

people. (t helps the managers to understand, communicate and work with others. (t also helps

the managers to lead, motivate and develop team spirit. +uman relations skills are re"uired

by all managers at all levels of management. This is so, since all managers have to interact

and work with people.


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Bommunication skills are re"uired e"ually at all three levels of management. A manager

must be able to communicate the plans and policies to the workers. ?imilarly, he must listen

and solve the problems of the workers. +e must encourage a free!flow of communication in

the organization.

? Ad"ini$t%tive S*ill$

Administrative skills are re"uired at the top!level management. The top!level managers

should know how to make plans and policies. They should also know how to get the work

done. They should be able to co!ordinate different activities of the organization. They should

also be able to control the full organization.

;? ede%$#i) S*ill$

&eadership skill is the ability to influence human behaviour. A manager re"uires leadership

skills to motivate the workers. These skills help the Manager to get the work done through

the workers.

B? P%o.le" Solvin! S*ill$

-roblem solving skills are also called as De$i!nskills. A manager should know how to

identify a problem. +e should also possess an ability to find a best solution for solving any

specific problem. This re"uires intelligence, e2perience and up!to!date knowledge of the

latest developments

5? De&i$ion M*in! S*ill$

ecision!making skills are re"uired at all levels of management. +owever, it is re"uired

more at the top!level of management. A manager must be able to take "uick and correct

decisions. +e must also be able to implement his decision wisely. The success or failure of a

manager depends upon the correctness of his decisions

MANAGERIA ROES:

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MINTZ9ERGS MANGERIA ROES

A. .Inte%)e%$onl Role$

i. 'i!u%e#ed: (n this role, every manager has to perform some duties of a ceremonial

nature, such as greeting the touring dignitaries, attending the wedding of an

employee, taking an important customer to lunch and so on.

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ii. ede%: As a leader, every manager must motivate and encourage his employees. +e

must also try to reconcile their individual needs with the goals of the organization.

iii. ii$on: (n this role of liaison, every manager must cultivate contacts outside his

vertical chain of command to collect information useful for his organization.

9? Info%"tionl Role$

i. Monito%: As monitor, the manager has to perpetually scan his environment for

information, interrogate his liaison contacts and his subordinates, and receive

unsolicited information, much of it as result of the network of personal contacts he

has developed.

ii. Di$$e"into%: (n the role of a disseminator, the manager passes some of his

privileged information directly to his subordinates who would otherwise have no

access to it.

iii. S)o*e$"n: (n this role, the manager informs and satisfies various groups and

people who influence his organization. Thus, he advises shareholders about financial

performance, assures consumer groups that the organization is fulfilling its social

responsibilities and satisfies government that the origination is abiding by the law.

C? De&i$ionl Role$

i. Ent%e)%eneu%: (n this role, the manager constantly looks out for new ideas and seeks

to improve his unit by adapting it to changing conditions in the environment.

ii. Di$tu%.n&e (ndle%: (n this role, the manager has to work like a fire fighter. +e

must seek solutions of various unanticipated problems a strike may loom large a

ma#or customer may go bankruptI a supplier may renege on his contract, and so on.

iii. Re$ou%&e Allo&to%: (n this role, the manager must divide work and delegate

authority among his subordinates. +e must decide who will get what.

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(t cannot be denied that management has a systematic body of knowledge but it is not as

e2act as that of other physical sciences like biology, physics, and chemistry etc. The main

reason for the ine2actness of science of management is that it deals with human beings and it

is very difficult to predict their behavior accurately. ?ince it is a social process, therefore itfalls in the area of social sciences. (t is a fle2ible science K that is why its theories and

principles may produce different results at different times and therefore it is a behavior

science.


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Mn!e"ent $ .ot# S&ien&e nd A%t

Management is both an art and a science. The above mentioned points clearly reveal that

management combines features of both science as well as art. (t is considered as a science

because it has an organized body of knowledge which contains certain universal truth. (t is

called an art because managing re"uires certain skills which are personal possessions of

managers. ?cience provides the knowledge K art deals with the application of knowledge

and skills.

A manager to be successful in his profession must ac"uire the knowledge of science K the

art of applying it. Therefore management is a #udicious blend of science as well as an art

because it proves the principles and the way these principles are applied is a matter of art.

?cience teaches to 1know1 and art teaches to 1do1.


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f. Managers are responsible to many groups such as shareholders, employees and

society. A regulatory code may curtail their freedom.

g. Managers are known by their performance and not mere degrees.

h. The ultimate goal of business is to ma2imize profit and not social welfare. That is

why +aymes has rightly remarked, the slogan for management is becoming N+e

who serves best, also profits most1.

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MODUE-II

'ORMS O' ORGANIZATION

INTRODUCTION:

9u$ine$$ o%!nition:

Dusiness organization can be defined as the process oforganizing various sub!processes in to

a systematic way for achieving the common goal. (t comprises of two words business and

organization.

The word businesscan be defined as the process of e2changing goods or services in terms of

profit motive while on other hand word organi3ation is the process of arranging the

resources in a systematic way for the completion of specific motive.

After co!ordinating both the words we find that business organization can be defined as

grouping of various processes or resources in a planned way for achieving the ob#ective.

'o%"$ of o%!nition% Dusiness organizations may be owned and managed by a single

individual or group of individuals who may form a partnership firm or a #oint stock

company. ?uch arrangement of ownership and management is termed as a form of business

organization. A business organization usually takes the following forms in (ndia%

3@4 ?ole proprietorship

364 -artnership

374 'oint +indu amily

384 Booperative ?ociety

394 'oint ?tock Bompany

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@. Sole P%o)%ieto%$#i): sole proprietorship% it can be defined as that private enterprise

that is owned, managed and controlled by an individual. (t is also termed as single

ownership. +e is only responsible for arranging finance, managing business affairs,

takes profit K bear risk or losses.

'EATURES O' SINGE PROPRIETORS(IP:

(. Sin!le one%$#i):it is owned by a single person or individual.

((. One "n &ont%ol: this organization is managed and controlled by the single

person. +e can only employ the competent persons for efficient management.

(((. No $e)%te le!l entit, of t#e fi%":this type of organization has no separate

legal e2istence from its owner. There is no distinction between assets and

liabilities of owners K the firm. They both act as one.

(G. Undivided %i$*: as there is no division of profit K loss both belongs to the

owner. ?o he gains all risks.

G. Unli"ited li.ilit,:this liability of single ownership e2tends beyond the capital

invested in the firm.

G(. 'ull f%eedo" f%o" !ove%n"ent &ont%ol: this organization is free from the legal

formalities and regulations.

Me%it$:

(. This organization can be easily formed as it is free from legal formalities for starting

it.

((. ?ingle ownership is owned by one individual so the owner can only claim for profits

and is not re"uired to share them with others. ue to this reason he gets motivated to

give his best effort to the firm.

(((. ?ole proprietor can easily bring changes in size and nature of activity according to

the re"uirement.

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to be fulfilled. (n some cases like restaurant, chemist shop etc. however, permission from the

competent authority is re"uired to be obtained before starting the business. ?imilarly, setting

up a factory may involve taking permission from the local authority. Dut, formation of

business unit as such does not involve any comple2ities.

6. P%tne%$#i)%

-artnership can be defined as relation between two or more persons who have agreed to

share the profits of business carried by all or any of them acting for all. According to

-artnership Act, minimum number of persons to form partnership is two and ma2imum

number of persons in banking sector is @ and in case of non!banking the membership is of

6 members.

'etu%e$:

(t has following features%

(. To o% "o%e )e%$on$:it involves two or more persons to form partnership and they

must be competent to contract.

((. A!%ee"ent: the agreement to form partnership is re"uired in any form3oral or

written4. -artnership is voluntary and contractual in nature.

(((. 9u$ine$$: the term business includes every trade, occupation and profession. (t also

includes agreement to carry on business at a future time.

(G. S#%in! of .enefit$: the profit earned by any partner has to be divided among

partners. The sharing of profits implies sharing to losses.

G. Mutul !en&,: it means each partner is agent and principal. As agent he has the

power to bind other partners by his acts and as principal he is bound by acts of other

partners.

G(. Unli"ited li.ilit,: They have unlimited liability as they are collectively and

individually liable to creditors of firm.

G((. oint one%$#i) = &ont%ol: the entire firm is owned K controlled by partners #ointlysince each partner has a right take part in management.

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G(. Unli"ited li.ilit,:this is due to shares in profit K prosperity of firm but also the

private asset are sub#ect to implied charge.

TYPES O' PARTNERS: depending upon the e2tent of participation and the sharing of

profits, liability etc., and partners can be classified into various categories. These are

summarised here under.

a4 9$ed on t#e e+tent of )%ti&i)tion in the day!to!day management of the firm

partners can be classified as NActive -artners1 and N?leeping -artners1. The partners

who actively participate in the day!to!day operations of the business are known as

active partners or working partners. Those partners who do not participate in the day

to!day activities of the business are known as sleeping or dormant partners. ?uchpartners simply contribute capital and share the profits and losses.

b4 9$ed on $#%in! of )%ofit$4 the partners may be classified as NEominal -artners1

and N-artners in -rofits1. Eominal partners allow the firm to use their name as

partner. They neither invest any capital nor participate in the day!to!day operations.

They are not entitled to share the profits of the firm. +owever, they are liable to third

parties for all the acts of the firm. A person who shares the profits of the business

without being liable for the losses is known as partner in profits. This is applicable

only to the minors who are admitted to the benefits of the firm and their liability is

limited to their capital contribution.

c4 9$ed on i.ilit,4 the partners can be classified as N&imited -artners1 and N)eneral

-artners1. The liability of limited partners is limited to the e2tent of their capital

contribution. This type of partners is found in &imited -artnership firms in some


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give an impression that heCshe is a partner of the firm, is called Npartner by

estoppels1. ?uch partners are not entitled to share the profits of the firm, but are fully

liable if somebody suffers because of hisCher false representation. ?imilarly, if a

partner or partnership firm declares that a particular person is a partner of their firm,and such a person does not disclaim it, then heCshe is known as N-artner by +olding

out1. ?uch partners are not entitled to profits but are fully liable as regards the firm1s

debts.

SUITA9IITY O' PARTNERS(IP 'ORM O' 9USINESS ORGANIZATION

We have already learnt that persons having different ability, skill or e2pertise can #oin hands

to form a partnership firm to carry on the business. Dusiness activities like construction,

providing legal services, medical services etc. can be successfully run under this form of

business organization. (t is also considered suitable where capital re"uirement is of a

medium size. Thus, business like a wholesale trade, professional services, mercantile houses

and small manufacturing units can be successfully run by partnership firms.

'ORMATION O' PARTNERS(IP 'ORM O' 9USINESS ORGANIZATION

The following steps are to be taken in order to form a partnership firm%

3a4 Minimum two members are re"uired to form a partnership. The ma2imum limit is ten in

banking and 6 in other businesses.3b4 ?elect the like!minded persons keeping in view the nature and ob#ectives of the business.

3c4 There must be an agreement among the partners to carry on the business and share the

profits and losses. This agreement must preferably be in writing and duly signed by the all

the partners. The agreement, i.e., the partnership deed must contain the following%

i. Eame of the firm

ii. Eature of the business

iii. Eames and addresses of partnersiv. &ocation of business

v. uration of partnership, if decided

vi. Amount of capital to be contributed by each partner

vii. -rofit and loss sharing ratio

viii. uties, powers and obligations of partners.

i2. ?alaries and withdrawals of the partners

2. -reparation of accounts and their auditing.

2i. -rocedure for dissolution of the firm etc.

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2ii. -rocedure for settlement of disputes

3d4 The partners should get their firm registered with the *egistrar of irms of the concerned

state. Although registration is not compulsory, but to avoid the conse"uences of non!

registration, it is advisable to get it registered when it is setup or at any time during itse2istence. The procedure for registration of a firm is as follows.

@. The firm will have to apply to the *egistrar of irms of the concerned state in

the prescribed form.

6. The duly filled in form must be signed by all the partners.

7. The filled in form along with prescribed registration fee must be deposited in

the office of the *egistrar of irms.

8. The *egistrar will scrutinize the application, and if he is satisfied that all

formalities relating to registration have been duly complied with, he will put

the name of the firm in his register and issue the Bertificate of *egistration.

OINT (INDU 'AMIY 'ORM O' 9USINESS ORGANIZATION

The 'oint +indu amily 3'+4 business is a form of business organization run by +indu

ndivided amily 3+4, where the family members of three successive generations own

the business #ointly. The head of the family known as /arta manages the business. The other

members are called co!parceners and all of them have e"ual ownership right over the

properties of the business. The membership of the '+ is ac"uired by virtue of birth in the

same family. There is no restriction for minors to become the members of the business. As

per ayabhaga system of +indu &aw, both male and female members are the #oint owners.

Dut Mitakashara system of +indu &aw says only male members of the family can become

the coparceners. While the ayabhaga system is applicable to the state of West Dengal,

Mitakshara system of +indu &aw is applicable to the rest of the country.

C(ARACTERISTICS O' (' 'ORM O' 9USINESS ORGANIZATION

rom the above discussion, it must have been clear to you that the 'oint +indu family

business has certain special characteristics which are as follows%

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c4 S#%in! of >noled!e nd E+)e%ien&e: A '+ business provides opportunity for

the young members of the family to get the benefits of knowledge and e2perience of

the elder members. (t also helps in inculcating virtues like discipline, self!sacrifice,

tolerance etc.d4 i"ited i.ilit, of Me".e%$: The liability of the coparceners e2cept the /arta is

limited to the e2tent of his share in the business. This enables the members to run the

business freely #ust by following the instructions or direction of the /arta.

3f4 Unli"ited i.ilit, of t#e >%t: Decause of the unlimited liability of the /arta, his

personal properties are at stake in case the business fails to pay the creditors. This

clause of '+ business makes the /arta to manage business most carefully and

efficiently.

3g4 Continued E+i$ten&e: The death or insolvency of any member does not affect the

continuity of the business. ?o it can continue for a long period of time.

3h4 T+ 9enefit$: + is regarded as an independent assesses for ta2 purposes. The

share of coparceners is not to be included in their individual income for ta2 purposes.

After knowing the merits let us see the limitations of 'oint +indu amily form of business

organization.

IMITATION O' (' 'ORM O' 9USINESS ORGANIZATION

a4 i"ited Re$ou%&e$: '+ business has generally limited financial and managerial

resource. Therefore, it is not considered suitable for large business.

b4 &* of Motivtion: The coparceners get e"ual share in the profits of the business

irrespective of their participation. ?o generally they are not motivated to put in their

best.

c4 S&o)e fo% Mi$u$e of Poe%: ?ince the /arta has absolute freedom to manage the

businessI there is scope for him to misuse it for his personal gains. Moreover, he may

have his own limitations.

d4 In$t.ilit,: The continuity of '+ business is always under threat. A small rift

within the family may lead to seeking partition.

SUITA9IITY O' (' 'ORM O' 9USINESS ORGANIZATION

The 'oint +indu amily form of business organization is suitable where the family inherits

running business and the members of the family want to continue that business #ointly as a

family business.


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does not specify the ma2imum number of members for any cooperative society. +owever,

after the formation of the society, the member may specify the ma2imum member of

members.

3d8 Re!i$t%tion of t#e So&iet,: (n (ndia, cooperative societies are registered under the

Booperative ?ocieties Act @>@6 or under the ?tate Booperative ?ocieties Act. The Multi!

state Booperative ?ocieties are registered under the Multi!state Booperative ?ocieties Act

66. 0nce registered, the society becomes a separate legal entity and attains certain

characteristics. These are as follows.

i. The society en#oys perpetual succession

ii. (t has its own common seal

iii. (t can enter into agreements with others

iv. (t can sue others in a court of law

v. (t can own properties in its name

3e8 Stte Cont%ol: ?ince registration of cooperative societies is compulsory, every

cooperative society comes under the control and supervision of the government. The co!

operative departments have control over these societies and keep a watch on the functioning

of these societies.


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3h4 Se%vi&e Motive: The primary ob#ective of all cooperative societies is to provide services

to its members.

3i4 Retu%n on C)itl Inve$t"ent: The members get return on their capital investment in

the form of dividend.

3#4 Di$t%i.ution of Su%)lu$: After giving a limited dividend to the members of the society,

the surplus profit is distributed in the form of bonus, keeping aside a certain percentage as

reserve and for general welfare of the society.

TYPES O' COOPERATI2E SOCIETIES

According to the needs of the people, we find different types of cooperative societies in

(ndia. ?ome of the important types are given below.

3a4 Con$u"e%$ Coo)e%tive So&ietie$: These societies are formed to protect the interest of

consumers by making available consumer goods of high "uality at reasonable price.

3b4 P%odu&e%$ Coo)e%tive So&ietie$: These societies are formed to protect the interest of

small producers and artisans by making available items of their need for production, like raw

materials, tools and e"uipments etc.

3c4 M%*etin! Coo)e%tive So&ietie$: To solve the problem of marketing the products,

small producers #oin hand to form marketing cooperative societies.

3d4 (ou$in! Coo)e%tive So&ietie$: To provide residential houses to the members, housing

cooperative societies are formed generally in urban areas.

3e4 '%"in! Coo)e%tive So&ietie$% These societies are formed by the small farmers to get

the benefit of large!scale farming.

3f4 C%edit Coo)e%tive So&ietie$: These societies are started by persons who are in need of

credit. They accept deposits from the members and grant them loans at reasonable rate of

interest.

MERITS O' CO-OPERATI2E SOCIETY

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The cooperative society is the only form of business organization which gives utmost

importance to its members rather than ma2imizing its own profits. After studying its

characteristics and different types, we may now study the merits of this form of business

organization.

3a4 E$, to 'o%": Any ten adult members can voluntarily form an association get it

registered with the *egistrar of Booperative ?ocieties. The registration is very simple and it

does not re"uire much legal formalities.

3b4 i"ited i.ilit,: The liability of the members of the cooperative societies is limited up

to their capital contribution. They are not personally liable for the debt of the society.

3c4 O)en Me".e%$#i): Any competent like!minded person can #oin the cooperative society

any time he likes. There is no restriction on the grounds of caste, creed, gender, color etc.

The time of entry and e2it is also generally kept open.

3d4 Stte A$$i$tn&e: The need for country1s growth has necessitated the growth of the

economic status of the weaker sections. Therefore, cooperative societies always get

assistance in the forms of loans, grants, subsidies etc. from the state as well as Bentral

)overnment.

3e4 St.le ife: The cooperative society en#oys the benefit of perpetual succession. The

death, resignation, insolvency of any member does not affect the e2istence of the society

because of its separate legal entity.

3f4 T+ Con&e$$ion: To encourage people to form co!operative societies the government

generally provides ta2 concessions and e2emptions, which keep on changing from time to

time.

3g4 De"o&%ti& Mn!e"ent: The cooperative societies are managed by the Managing

Bommittee, which is elected by the members. The members decide their own rules and

regulations within the limits set by the law.

IMITATIONS O' COOPERATI2E SOCIETY

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Although the basic aim of forming a cooperative society is to develop a system of mutual

help and cooperation among its members, yet the feeling of cooperation does not remain for

long. Booperative societies usually suffer from the following limitations.

38 i"ited C)itl: Most of the cooperative societies suffer from lack of capital. ?ince the

members of the society come from a limited area or class and usually have limited means, it

is not possible to collect huge capital from them. Again, government1s assistance is often

inade"uate for them.

3.8 &* of Mn!e%il E+)e%ti$e:The Managing Bommittee of a cooperative society is

not always able to manage the society in an effective and efficient way due to lack of

managerial e2pertise. Again due to lack of funds they are also not able to derive the benefits

of professional management.

3&8 e$$ Motivtion:?ince the rate of return on capital investment is less, the members do

not always feel involved in the affairs of the society.

3d8 &* of Inte%e$t:0nce the first wave of enthusiasm to start and run the business is

e2hausted, intrigue and factionalism arise among members. This makes the cooperative

lifeless and inactive.

3e8 Co%%u)tion:(n spite of government1s regulation and periodical audit of the accounts of

the cooperative society, the corrupt practices in the management cannot be completely

ignored.

SUITA9IITY O' COOPERATI2E SOCIETY

Bo!operative society form of business organizations is a voluntary association of person who

are not financially strong and cannot stand on their own legs to start and run the business

individually. ?o to solve the common problem or to meet the common re"uirements this

form of business organization is most suitable. Thus, people can #oin hands to get the

consumer products, to build residential houses, for marketing the products, to provide loans

and advances etc. This form of business organization is generally suitable for small and

medium size business operation.

'ORMATION O' COOPERATI2E SOCIETY

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According to +aney, L'oint ?tock Bompany is a voluntary association of individuals

for profit, having a capital divided into transferable shares. The ownership of which

is the condition of membership.

rom the above definitions, it can be concluded that a company is registered association

which is an artificial legal person, having an independent legal, entity with a perpetual

succession, a common seal for its signatures, a common capital comprised of transferable

shares and carrying limited liability.

C(ARACTERISTICS O' A COMPANY

The main characteristics of a company are %

The distinctive features of the company form of organization are as follows%

1?Se)%te le!l e+i$ten&e:

A company has a distinct legal entity independent of its members. (t can own property, make

contracts and file suits in its own name. ?hareholders are not the #oint owners of the

company5s property. A shareholder cannot be held liable for the acts of the company.

?imilarly, members of the company are not its agents. There can be contracts between a

company and its members. A creditor of the company is not a creditor of its members.

@?Pe%)etul $u&&e$$ion:

-erpetual succession means continued e2istence. A company is a creation of the law and

only the law can bring an end to its e2istence. (ts life does not depend on the life of its

members.

The death, insolvency or lunacy of members does not affect the life of a company. (t

continues to e2its even if all its members die. Members may come and go but the company

goes on until it is wound up.


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The shareholders become mere pawns in the game of a small cli"ue or coterie of directors.

?hareholders are often ignorant and indifferent about the working of a company. Therefore,

they fail to e2ercise their voice in the functioning of the company.

? Co%%u)t "n!e"ent:(n a company, there is often danger of fraud and misuse of property by dishonest

management. Dogus companies may be formed to deprive the investors of their hard!earned

money.

nscrupulous people may manipulate annual accounts to show artificial profits or losses for

their personal gain. The ?outh ?ea Dubble case is the most famous e2ample of how corrupt

office!holders may e2ploit shareholders for selfish gain.

;? E+&e$$ive !ove%n"ent Cont%ol:

At every stage in the management of a company, there are legal rules and regulations.

?everal legal provisions have to be followed and reports have to be filed. ?uch legal

interference in day!to!day operations results in lack of secrecy. A lot of time and money are

spent in complying with statutory re"uirements.

B? Un#elt#, $)e&ultion:

The shares of a public company are dealt in on a stock e2change. The prices of these shares

fluctuate depending upon the financial health, dividends, future prospects and reputation of

the company.

irectors of a company may indulge in speculation on the basis of inside information for

their private gain and at the cost of small investors. Bompany organization may also lead to

concentration of economic power in a few hands.

5? Confli&t of inte%e$t$:

Bompany is the only form of business wherein a permanent conflict of interests may e2ist. (n

proprietorship there is no scope for conflict and in a partnership continuous conflict results

in dissolution of the firm. Dut in a company conflicts may continue between shareholders

and board of directors or between shareholders and creditors or between management and

workers.

6? &* of $e&%e&,:

nder the Bompanies Act, a company is re"uired to disclose and publish a variety of

information on its working. Widespread publicity of affairs makes it almost impossible for

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the company to retain its business secrets. The accounts of a public company are open for

inspection to public.

T,)e$ of &o")n,:

C#%te%ed Co")nie$

These are types of companies that come into e2istence when a special Bharter or *oyal

Bharter is granted by a /ing or a Oueen or the +ead of a country. 9:. These

are formed and registered with the *egistrar of Bompanies under the provisions of the

Bompanies Act.

0n the basis of limit to liability, these companies may be classified into the following three

categories.

a. Bompanies that are limited by shares.

b. Bompanies that are limited by guarantee.

c. nlimited Bompanies

? Co")nie$ li"ited ., $#%e$

The share holders of such companies en#oy limit to the liability of the company in the event

of its winding up, to the e2tent of the unpaid value of the shares only, if any. They will not

be asked to pay anything more than the fully paid up value of the share.

.? Co")nie$ li"ited ., !u%ntee

The company may be registered in one of the two formsI

i4 Bompanies limited by guarantee having no share capital.

ii4 Bompanies limited by guarantee having share capital.

The members in case of the former type agree to pay at the time of winding up agreed sums

as stipulated in the Memorandum of Association.

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The members in case of the latter type are liable to pay the unpaid value of share capital and

in addition the amount of guarantee that they had agreed to pay while becoming shareholders

in the event of winding up of the company.

These companies are also known as guarantee companies and are usually formed to promoteart, sports, education, charity etc.

&? Unli"ited Co")nie$

These are companies, the members of which have no limit on the liability in the event of

winding up. (n case the assets of the company are insufficient to raise funds to clear the

e2ternal liabilities of the company, the shareholders may be asked to pay from their personal

properties in order to set off the company5s liabilities.

The companies limited by shares and guarantees may be classified into two categories.

3i8 P%ivte Co")nie$

3ii8 Pu.li& Co")nie$

3i4 P%ivte Co")nie$: -

According to the Bompanies Act, a -rivate Bompany is one which is formed by at least 6

persons, and which%

a4 restricts the number of members to 9

b4 *estricts invitation to public for subscriptions towards shares or debentures.

c4 *estricts transfer of shares.

3ii8 Pu.li& Co")nie$: -

The Bompanies Act does not give a direct or clear definition of a -ublic Bompany. (t states

that all the Bompanies that do not follow the three restrictions to be followed by a -rivate

Bompany are -ublic Bompanies. Also, there must be a minimum of seven members to start a

-ublic Bompany.

(n addition to the above mentioned types of companies there are the following types of

companies.

)overnment Bompanies

oreign Bompanies

+olding Bompanies

?ubsidiary Bompanies

? Gove%n"ent Co")nie$:

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?ec. :@; of the Bompanies Act defines a )overnment Bompany as one in which not less

than 9@P of the paid!up share capital is held by the Bentral or ?tate )overnment or partly by

both central and state )overnments.

.? 'o%ei!n Co")nie$:oreign Bompanies are companies incorporated outside the country but have transactions in

places within (ndia. These companies transact business in (ndia in accordance with the

regulations laid down by the (ndian Bompanies Act as far as their operations within (ndia are

concerned.

&? (oldin! Co")nie$:

A +olding Bompany is a company that holds more than 9@P of the *egistered Bapital of

another company. ?ince they are the ma#or shareholders, they have the right of appointing or

removing directors of the company whose shares are held by the +olding Bompany.

d? Su.$idi%, Co")nie$:

?ubsidiary Bompanies are companies whose shares are held by another company to the

e2tent of 9P or above its nominal value of share capital.

Diffe%en&e .eteen )%ivte nd )u.li& &o")n,:

The distinction between a public company and a private company are e2plained in the

following manner%

1? Mini"u" nu".e% of "e".e%$

The minimum number of person re"uired to form a public company is seven, whereas in a

private company their number is only two.

@? M+i"u" nu".e% of "e".e%$

There is no limit on the ma2imum number of member of a public company, but a private

company cannot have more than fifty members e2cluding past and present employees.


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A multinational corporationCcompany is an organization doing business in more than one

country. 5(n other words it is an organization or enterprise carrying on business in not only

the country where it is registered but also in several other countries. (t may also be termed as

(nternational Borporation, global giant and transnational corporation.According to the nited Eations a multinational corporation is $an enterprise which owns or

controls production or service facilities outside the country in which it is based$. (n the

words of W + Moreland, $Multinational Borporations or Bompanies are those enterprises

whose management, ownership and controls are spread in more than one foreign country$.

Thus a multinational company carries on business operations in two or more countries. (ts

head"uarters are located in one country 3home country4 but its activities are spread over in

other countries 3host countries4. MEB5s may engage in various activities like e2porting,

importing, manufacturing in different countries. (t may also lend its patents, licences and

managerial services to firms in host countries.

C#%&te%i$ti&$ of Multintionl Co")nie$ 3MNC$8

The distinctive features of multinational companies are as follows.

1?%!e Sie%

A multinational company is generally big in size. ?ome of the multinational companies own

and control assets worth billions of dollars. Their annual sales turnover is more than the

gross national product of many small countries.

@?o%ldide o)e%tion$%

A multinational corporation carries on business in more than one country. A multinational

corporation such as Boco cola has branches in as many as seventy countries around the

world.


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Module-III

ORGANIZATIONA STRUCTURE

Int%odu&tion

?ome important definitions of organization are given below%

"It is grouping of activities necessary to attain enterprise objectives and the

assignment of each grouping to a manager with authority necessary to supervise it".

>oont nd OFDonnel

"he process of identifying and grouping the work to be performed! defining and

delegating responsibility and authority and establishing relationship for the purpose

of enabling people to work more effectively together in accomplishing objects".

oui$ A? Allen

"he structure and process by which a cooperative group of human beings allocates

its tasks among its members! identifies relationship! and integrates its activities

towards common objectives". o$e)# ?M$$ive

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3ii4 )rouping of interrelated activities.

3iii4 Assigning duties to persons with re"uisite competence,

3iv4 elegating authority, and

3v4 Boordinating the efforts of different persons and groups.When we consider organization as a process, it becomes the function of every manager.

0rganizing is a continuous process and goes on throughout the life time of an enterprise.

Whenever there is a change in the circumstances or material change in situation, new type of

activities spring up. ?o, there is a need for constant review and reassignment of duties. *ight

persons have to be recruited and necessary training has to be imparted to enable them to be

competent to handle the #obs.

The process of organization thus, involves dividing the work into rational way and

interpreting the activities with work situation and personnel. (t also represents humanistic

view of the enterprise since it is the people which are uppermost in the process of integration

of activities. Bontinuous review and ad#ustment makes this dynamic as well.

O%!nition $ $t%u&tu%e o% f%"eo%* of %eltion$#i)$: As structure, organization is

a network of internal authority, responsibility relationships. (t is the framework of

relationship of persons, operating at various levels, to accomplish common ob#ectives. An

organization structure is a systematic combination of people, functions and physical

facilities. (t constitutes a formal structure with definite authority and clear responsibility. (t

has to be first designed for determining the channel of communication and flow of authority

and responsibility. or this, analysis of different types has to be done. -eter . rucker

suggests following three types of analysis%

3i4 Activities analysis

3ii4 ecision analysis, and

3iii4 *elations analysis,

(n an organizational structure, both formal and informal organizations take shape. The

former is a per!planned one and defined by the e2ecutive action. The latter is a spontaneous

formation, being laid down by the common sentiments, interactions and other interrelated

attributes of the people in the organization. Doth formal and informal organizations, thus,

have structure.

STEPS IN T(E PROCESS O' ORGANISING

The managerial function of organizing may be called as the 5process of organizing5. When

the ob#ectives have been set and policies framed, the necessary infrastructure of organization

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has to be built up. The concentration goes to activities and functions. These form 5the

building blocks5 of the organizational structure. There are no such rules as to which will lead

to the best organizational structure. Dut the following steps can be of great help in the

designing a suitable structure, which will laid in achieving enterprise ob#ectives%1? Cle% definition of o./e&tive$: The first step in developing an organizational structure is

to lay down its ob#ectives in very clear terms. This will help in determining the type, stability

and basic characteristics of the organization. (n fact, organization activities are detailed in

terms of ob#ective to be achieved.

@? Dete%"inin! &tivitie$: (n order to achieve the ob#ectives of the enterprise, certain

activities are necessary. The activities will depend upon the nature and size of the enterprise.

or e2ample, a manufacturing concern will have production, marketing and other activities.

There is no production activity in retail establishment.


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8. A static business soon grows stale and get out of run. (t should grow from a small

scale concern to a medium scale one and from a medium scale concern to large scale

one. 0rganization plays an important role in this respect.


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2. De)%t"enttion: epartmentation is the process of grouping activities into units

for purposes of administration. (n other words, it denotes grouping of related #obs and

activities without violating the principle of homogeneity over which an e2ecutive has

authority to e2ercise and assert. The main advantages of departmentation are that itenables individual e2ecutive to mange his subordinates effectively since a

manageable number of persons are brought under the direct supervision of individual

e2ecutive.

2i. Effi&ien&,: The organization should be able to attain the predetermined ob#ectives at

the minimum cost. (t is done soI it will satisfy the test of efficiency. rom the point of

view of an individual, a good organization should provide the ma2imum work

satisfaction. ?imilarly, from the social point of view, an organization will be efficient

when it contributes the ma2imum towards the welfare of the society.

2ii. S&l% )%in&i)le: ?calar chain refers to the vertical placement of superiors starting

from the chief e2ecutive at the top through the middle level to the supervisory level

at the bottom. -roper scalar chain or line of command is prere"uisite for effective

organization.

2iii. Unit, of di%e&tion: This means that each group of activities having the same

ob#ectives should have one plan and one head. There should be one plan or program

for each segment of work which is to be carried under the control and supervision of

one head or superior. (f different plans or policies are followed in one department by

the subordinates, confusion is bound to occur.

2iv. Continuit,: The form of organization structure should be such which is able to serve

the enterprise to attain its ob#ectives for a long period of time.

2v. Coo%dintion: The principal of coordination underlines that there should be proper

liaison and cooperation between different departments and units of work. nity of

efforts for the accomplishment of desired ob#ectives is the main aim of organization.

This can be achieved through the principle of coordination.

2vi. Aut#o%it, nd %e$)on$i.ilit,% Authority should commensurate with responsibility.

While assigning the responsibility, authority should also be assigned. (f authority is

not granted, the subordinates cannot discharge their responsibility properly.

AD2ANTAGES O' ORGANIZATION

The primary duty of management is to achieve the ob#ectives of the enterprise. The

ob#ectives may be social, economic, political or religious. -roper organization of men,

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materials, money and e"uipment is necessary. 0rganization is the mechanism, through

which management directs, coordinates and controls the business. A sound organization

offers the following advantages, which summarizes its importance%

@. En#n&e"ent of "n!e%il effi&ien&,: A sound organization brings a propercoordination among various factors of production and leads to their optimum

utilization. (t avoids confusion, duplication and delays in work. (t motivates the

worker by proper division of work and labor. (t reduces the work load of e2ecutives

by delegation of authority.

6. G%ot#4 e+)n$ion nd dive%$ifi&tion: 0rganization provides the framework

within which an enterprise can e2pand and grow. Through organization, management

can multiply its strength. (n a good organization, the money and effort spent on

different activities are in proportion to their contributions. (t is through proper

organization setup that many firms have grown from humble beginning to a giant

size.

7. S)e&ilition: A sound organization structure provides the benefits of

specialization. Garious activities are allocated between different individualsaccording to their "ualifications, e2perience and aptitude. (t increases their

efficiency. ?ystematic organization of activities helps to secure economics and to

minimize costs.

8. Ado)tion of ne tenolo!,:A properly designed and well! balanced organization

permits prompt adoption and optimum use of technological improvements. (t has the

capacity to absorb changes in the environment of business and to provide a suitable

reaction to such changes. A good organization helps in the development of new and

improved means of doing things.

9. Coo%dintion:0rganization facilitates coordination of diverse activities. ifferent

functions are welded together to accomplish the desired ob#ectives. Blear lines of

authority and responsibility between various positionsI ensure mutual cooperation

and harmony in the enterprise. A good organization enables people to work with

team spirit.

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'o%"l o%!nitionrefers to the structure of relationships deliberately built up by the

top management to realize the ob#ectives. (n this form instruction, responsibility,

authority, accountability, lines of command, and positions and authority are clearly

defined and declared.


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rules as to who is to report to whom.


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i? ine O%!nition

The line organization represents the structure in a direct vertical relationship through

which authority flows. (t is the simplest form of organization structure and is also known

as scalar or military organization. nder this, the line of authority flows vertically

downward from top to bottom throughout the organization. The "uantum of authority is

highest at the top and reduces at each successive level down the hierarchy.


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which specialists are attached to line e2ecutives to provide them specialized assistance

on matters of great importance to be enterprise.

ine nd Stff O%!nition

The line e2ecutive is often described as the individual who stands in the primary chain of

command and is directly concerned with the accomplishment of primary ob#ectives. &ine

organization provides decision!making authority to the individuals at the top of the

organization structure and a channel for the flow of communication through a scalar

chain of authority. &ine e2ecutives are generalists and do not possess specialized

knowledge which is a must to tackle complicated problems. With a view to give

specialist aid to line e2ecutives, staff positions are created throughout the structure. ?taffelements bring e2pert and specialized knowledge to provide advice to line managers so

that they may discharge their responsibilities successfully.

(n line and staff organization, the line authority remains the same as it does in the line

organization. Authority flows from top to bottom. The main difference is that specialists

are attached to line managers to advise them on important matters. These specialists

stand ready with their specialty to serve line men as and when their services are called

for to collect information and to give help which will enable the line officials to carry out

their activities better. The staff officers do not have any power of command in the

organization as they are employed to provide e2pert advice to the line officers. ?taff

means a supporting function intended to help the line manager. (n most organizations,

the use of staff can be traced to the need for help in handling details, gathering data for

decision!making and offering advice on specific managerial problems. ?taff investigates

and supplies information and recommendations to managers who make decisions.

?pecialized staff positions are created to give counsel and assistance in each specializedfield of effort &ine and staff structure has gained popularity because certain problems of

management have become very comple2 and, in order to deal with them, e2pert

knowledge is necessary which can be provided by the staff officers. or instance,

personnel department is established as staff department to advise the line e2ecutives on

personnel matters. ?imilarly, finance, law and public relations departments may be set up

to advice on problems related to finance and accounting, law and public relations . The

staff officers do not have any power of command in the organization as they are

employed to provide advice to the line officers. (n most organizations, the use of staff

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can be traced to the need for help in handing details, gathering data and offering advice

on specific managerial problems.

Advnt!e$ of ine nd Stff O%!nition

a4 S)e&ilied *noled!e. &ine managers get the benefit of specialized knowledge of

staff specialists at various levels.

b4 Redu&tion of .u%den. ?taff specialists relieve the line managers of the botheration

of concentrating on specialized functions like accounting, selection and training,

public relations, etc.

c4 P%o)e% ei!#t !e. Many problems that are ignored or poorly handled in the line

organization can be properly covered in the line and staff organization by the use of

staff specialists.

d4 9ette% de&i$ion$. ?taff specialists help the line e2ecutives in taking better decisions

by providing them with ade"uate information of right type at the right moment and

e2pert advice.

e4 'le+i.ilit,? &ine and staff organization is more fle2ible as compared to the line

organization. )eneral staff can be employed to help line managers at various levels.

f4 Unit, of &o""nd. nder this system, the e2perts provide special guidance without

giving orders. (t is the line manager who only has got the right to give orders. The

result is that the enterprises takes advantage of functional organization while

maintaining the unity of command i.e., one subordinate receiving orders from one

boss only.

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3i4 ?taff makes available e2pert advice to line e2ecutives. This is necessary to deal with

comple2 problems of management. or instance, personnel department is established as a

staff department to advise the top e2ecutives and other line e2ecutives on personnel

matters.

3ii4 Detter decisions are ensured in line and staff organization as compared to a si

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