Unit 6: Business Management and Human Resource Management

S. N. TOPIC PAGE NO.

Unit 6: Business Management
and Human Resource
Management

1. Principles and functions of

management 4-55

2. Organization structure: Formal

and informal organizations; 56 -83
Span of control

3. Responsibility and authority:

Delegation of authority and 84-121
decentralization
 4. Motivation and leadership:
Concept and theories 122-133

5. Corporate governance and

business ethics 134-164

Page 2

6. Human resource management:

Concept, role and functions of 165-268
HRM; Human resource planning;
Recruitment and selection;
Training and development;
Succession planning

7. Compensation management:
Job evaluation; Incentives and 269-290
fringe benefits

8. Performance appraisal
including 360 degree 291-300
performance appraisal

9. Collective bargaining and

 workers’ participation in
management 301-306

10. Personality: Perception;

Attitudes; Emotions; Group
dynamics; Power and politics; 307-356

Page 3
 Conflict and negotiation; Stress
management

11. Organizational Culture:

Organizational development
and organizational change 357-365

Page 4
What is Principles and functions of management?

Principles and functions of management

Management is essential to any organization that wishes to be

efficient and achieve its aims. Without someone in a position of
authority there would be organizational anarchy with no structure
and very little, if any focus. It has been said that management has
four basic functions – planning, organizing, leading and controlling.
Common sense dictates that without these principles of
management being in place an organization would have trouble
achieving its aims, or even coming up with aims in the first place! A
classic theory on the principles of management was written by Henri
Fayol. It seeks to divide management into 14 principles. We’ll take a
look at these basic principles of management and explain them in
easy to understand terminology.
Principles of Management – Fayol’s 14 Principles
Division of Work – This principle of management is based on
the theory that if workers are given a specialized task to do,
they will become skillful and more efficient in it than if they had
a broader range of tasks. Therefore, a process where
everyone has a specialized role will be an efficient one.
Authority – This principle looks at the concept of managerial
authority. It looks at how authority is necessary in order to
ensure that managerial commands are carried out. If
Page 5
managers did not have authority then they would lack the
ability to get work carried out. Managers should use their
authority responsibly and ethically.
Discipline – This principle relates to the fact that discipline is
needed within an organization for it to run effectively.
Organizational rules, philosophies, and structures need to be
met. In order to have disciplined workers, managers must build
a culture of mutual respect and motivation.
Unity of command – There should be a clear chain of
command in place within an organization. An employee should
know exactly whose instructions to follow.
Unity of direction – Work should be organized in a way that
means employees are working in harmony toward a shared
objective or goal using a shared method or procedure.
Subordination individual interests to the collective
interests – The interests of the organization as a whole should
take precedence over the interests of any individual employee
or group of employees. This encourages a team spirit and
collective mentality of all for one and one for all.
Remuneration – In order to motivate and be fair to
employees, they should be paid a reasonable rate for the work
they carry out. An organization that underpays will struggle to
attract quality workers who are motivated.
Centralization – This principle relates to whether decisions
should be made centrally, as in from the top down, or in a
more democratic way, from the bottom up. Different decision

Page 6
making processes are appropriate for different types of
decisions.
Scalar chain – This relates to the principle of a clear chain of
communication existing between employees and superiors.
The chain should be respected, unless speedy communication
is vital, in which case the chain may be bypassed if all parties
consent.
Order – This relates to the proper use of resources and their
effective deployment in a structured fashion.
Equity – Managers should behave ethically towards those
they manage. Almost every organization in the modern world will
have a written set of policies and procedures which will outline
exactly what is expected from staff at all levels.
Stability of tenure of personnel – It is seen as desirable
within an organization to have a low staff turnover rate. This is
due to the benefits that come with having experienced staff
and the time and expense needed to train new ones. There
should be a clear and efficient method of filling any staff
vacancies that arise.
Initiative – Employees that have an input as to how to best do
their job are likely to feel more motivated and respected. Many
organizations place a great deal of emphasis on listening to
the concerns of staff.
Morale – Keeping a high level of morale and team spirit is an
essential part of having the most productive organization
possible. Happy and motivated employees are far more likely
to be productive and less absent.
Page 7
Principles of Management – The Importance of the Principles

Having a clear management structure in place is vital for any

successful organization. Efficient and well intentioned management
sets the tone for the rest of the staff. It is common for the attitude
approach of managers to filter through the entire organization, so
having managers working in an exemplary way is an excellent
example for employees to follow.
Many management experts have discussed the functions of
management. But there is no unanimity among them about the
classification of managerial functions. The chief reason for this lack
of unanimity is that the different management experts discussed the
management functions by studying different organisations and from
different angles. We give here the classifications given by some of
the writers.
Henry Fayol, the father of principles of management, has
classified managerial functions as follows:

(a) Planning, including forecasting, (b) Organising, (c) Commanding,

(d) Coordinating, and (e) Controlling.
Gulick and Urwiik have classified management functions into seven.
They coined the word ‘PODSCORB’ to describe the functions of
management.
Each letter of this word denotes the initial letter of management
functions, namely- (a) Planning, (b) Organising, (c) Directing, (d)
Staffing, (e) Coordinating, (f) Reporting, and (g) Budgeting.
According to R.C. Davis, there are three management functions,
viz., (a) planning, (b) motivating, and (c) controlling, whereas G.R.

Page 8
Terry classified management functions into four, viz., (a) planning,
(b) organising, (c) activating, and (d) controlling.
Koontz and O’Donnell have classified management functions into
five. They have stated that “the most useful method of classifying
managerial functions is to group them around the activities of
planning, organising, staffing, directing, and controlling.” Thus,
according to them, there are five functions of management.
From the above study, we can state that the functions vary from
three to eight and there is unanimity only in respect of three functions,
viz., planning, organising and controlling. The functions of directing
which is concerned with the directing of human behaviour for getting
things done has been called by various authors as commanding,
motivating or communicating. Some authors have introduced staffing
functions by splitting the social aspect of organisation.
Thus, the functions of management may be classified as:

1. Planning,
2. Organising,
3. Staffing,
4. Directing, and
5. Controlling.
Some authors consider “co-ordinating” as a separate function. But
as the basic objective of all managerial functions is to achieve co-
ordination in organised human efforts, co-ordination is the essence
of management and it cannot be considered as a separate function.

Page 9
Koontz and O’ Donnell have stated that, in practice, it is not always
possible “to place all managerial activities neatly into these
categories since the functions tend to coalesce.”
According to Professor Haimann, it is helpful to think of these
managerial functions as a continuous circular movement.They flow
into each other and at times, it is difficult to know where the one
ends and the other begins.
Considering all these views on management functions, it may
be said that management involves the following functions:
1. Planning:

Planning is concerned with the determination of the objectives to be

achieved and the course of action to be followed to achieve them.
Before starting any action, one has to decide how the work will be
performed and where and how it has to be performed. Thus,
planning implies decision-making as to what is to be done, how it is
to be done, when it is to be done and by whom it is to done.
Planning helps in achieving the objectives efficiently and effectively.
Planning involves selecting of objectives and strategies, policies
and programmes and procedures for achieving them.
Planning function is performed by managers at every level because
planning may either be for the entire enterprise or for any section or
department thereof. Planning pervades the entire gamut of
managerial activity, and also it is continuous and never-ending.
While the managers at the top level devote more time on planning,
the managers at the lower level follow the policies, programmes and
procedures laid down by the top management.

Page 10
For any business activity, planning is a prerequisite for doing anything
and also to ensure the proper utilisation of the resources of the
business concern to achieve the desired goals. Plans can be
classified into standing plans and single-use plans. Standing plans
include objectives, policies, procedures, methods and rules and
single-use plans include budgets, programmes, strategies and
projects.
2. Organising:

According to Fayol, “to organise a business is to provide it with

everything useful to its functioning — raw materials, tools, capital
and personnel.” Thus, organising involves bringing together the
manpower and material resources for the achievement, of
objectives laid down by the enterprise.
Organising involves the following process:

(a) Determining and defining the activities involved in achieving the

objectives laid down by the management;
(b) Grouping the activities in a logical pattern;
(c) Assigning the activities to specific positions and people; and
(d) Delegating authority to their positions and people so as to
enable them to perform the activities assigned to them.
Organising function helps in increasing the efficiency of the
enterprise. Further, by avoiding repetition and duplication of activities,
it reduces the operation cost of the enterprise.
But organising function can be useful to the enterprise only when
there are clear and verifiable objectives and clear understanding of

Page 11
the activities needed to achieve the objectives and clear definition of
the authority assigned to the managers at every level.
3. Staffing:

Every enterprise is very much concerned with the quality of its people,
especially its managers. The staffing function is concerned with this
aspect of management. According to Harold Koontz and Cyril O’
Donell, “the managerial function of staffing involves manning
the organisational structure through proper and effective selection,
appraisal and development of personnel to fill the roles designed into
the structure.”
Thus, the staffing functions involve:
(a) Proper selection of candidates for positions;
(b) Proper remuneration;

(c) Proper training and development so as to enable them to

discharge their organisational functions effectively; and
(d) Proper evaluation of personnel.
Staffing function is performed by every manager of the enterprise as
he is actively associated with the recruitment, selection, training and
appraisal of his subordinates. For example, the Board of Directors
of the enterprise undertakes the staffing function by selecting and
appraising the Chief Executive who, in turn, performs these
functions in relation to his subordinates like divisional heads or
departmental heads of the enterprise. Similarly, departmental heads
or their subordinates also perform the staffing function.

Page 12
Staffing function is a difficult managerial function because it is
concerned with the selection of persons who are properly qualified
and mentally well-adjusted to the situations.
Directing is one of the important functions of management and is
the art and process of getting things done. While other functions like
planning, organising and staffing are merely preparations for doing
the work, the directing function actually starts the work.
Directing is concerned with actuating the members of the organisation
to work efficiently and effectively for the attainment of organisation
goals. Directing involves the manager telling the subordinates how
they have to perform jobs assigned to them. It is concerned with
guiding, supervising and motivating the subordinates for achieving
the enterprise objectives. According to Joseph Massie, “Directing
concerns the total manner in which a manager influences the action
of his subordinates. It is the final action of a manager in getting
others to act after all preparations have been completed.”
Directing consists of the following four sub-functions:

a. Communication or issuing of orders and instructions to

subordinates. A manager has to instruct the subordinates what to
do, how to do it and when to do it.
b. Guiding, energising and leading the subordinates to perform the
work systematically and also building up among workers confidence
and zeal in the work to be performed.
c. Inspiring the subordinates to do work with interest and
enthusiasm for the accomplishment of the enterprise’s objectives.

Page 13
d. Exercising supervision over the subordinates to ensure that the
work done by them is in conformity with the objectives that are
determined.
4. Controlling:

Controlling is related to all other management functions. It is

concerned with seeing whether the activities have been or being
performed in conformity with the plans. According to Haimann,
“Control is the process of checking to determine whether or not,
proper progress is being made towards the objectives and goals
and acting if necessary to correct any deviation.” Koontz and
O’Donnell have defined controlling “as the measurement and
correction of the performance of activities of subordinates in order to
make sure that enterprise’s objectives and the plans devised to
attain them are being accomplished.”
Thus, controlling involves the following sub-functions:

(a) Determination of standards for measuring work performance.

(b) Measurement of actual performance.
(c) Comparing actual performance with the standards.
(d) Finding variances between the two and reasons for variances.
(e) Taking corrective actions to ensure attainment of objectives.
For control to be effective and fruitful, it must be based on a plan;
there must be measurement of actual performance to ascertain
deviations and to take action to remedy the deviations.
What are the Functions of Management – Functions Performed
by all the Managers
Page 14
Management is the process of getting things done through others.
This process is identified in a set of functions performed by
managers to accomplish the goals.
Though different authors have different views on functions of
management, following functions are generally performed by
all the managers:
1. Planning:

According to Terry and Franklin, “Planning is selecting information

and making assumptions regarding the future to formulate the
activities necessary to achieve organizational objectives.”
“Planning involves selecting missions and objectives and the
actions to achieve them; it requires decision-making that is,
choosing from among alternative future courses of action.” Planning
is done at all levels of management. At higher levels, plans are
long-term in nature and at lower levels they are short-term in nature.
Planning, in simple terms, is setting targets and objectives to be
achieved, devising ways to achieve them and selecting the best action
to achieve the goals.
2. Organizing:
Organizing is:

(a) Identification and classification of objectives,

(b) Grouping of activities necessary to attain objectives,
(c) Assignment of each grouping to a manager with the authority
(delegation) necessary to supervise it, and

Page 15
(d) Co-ordinating the activities horizontally (at the same or similar
organizational level) and vertically (for example, corporate
headquarter, division and department) in the organization structure.
“Organization is the structure and process by which a cooperative
group of human beings allocates its tasks among its members,
identifies relationships, and integrates its activities towards common
objectives.”
3. Directing:

“Directing is telling 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.”
According to Unvick and Brech “directing is the guidance, the
inspiration, the leadership of those men and women that constitutes
the real core of responsibility of management.”
Directing is, thus, activating. It is bringing plans into action by
motivation, communication, leadership, supervision and team
building of the organizational members.
4. Staffing:

Staffing means identifying human resource needs, filling the

organizational structure and keeping it filled with competent people.
According to Massie, “The staffing function includes the process by
which the right person is placed in the right organizational position.”
5. Controlling:
“Control is the process that measures current performance and
guides it towards some pre-determined goal. The essence of control
Page 16
lies in checking existing actions against some desired results
determined in the planning process.”
“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”.
What are the Functions of Management – 5 Important
Functions: Planning, Organizing, Staffing, Leading and
Controlling

Management in an organization plays a dominant role to achieve

the targeted goals of profit maximization and increased market
share.
In this process, it needs to carry out some important functions
which have been briefly explained below:
1. Planning:

Planning function of management takes into account defining goals,

establishing strategies and developing plans to coordinate activities
of a business unit. The function incorporates decision making to
define goals for future organizational performance and drafting
plans of action to attain them.
It primarily involves analysis of current situation, anticipating the
future, setting objectives and deciding the activities in which
company will engage itself, selecting business strategies and deciding
about the resource requirement for achievement of organizational
goals. Hence, planning function of management works to establish
next milestone for action orientation.
2. Organizing:

Page 17
Post planning, each manager then engages himself in assigning
tasks, grouping these tasks into departments and allotting resources
to departments. These functions are grouped as organizing. He
primarily puts together human, financial, physical, information and
other resources needed to achieve pre-specified, well-defined
objectives.
Organizing function includes important activities like attracting the
right or competent people to the organization, specifying job roles
and responsibilities, grouping jobs into departments/divisions,
allocation of resources and creating conducive conditions so that
human and all other resources are put together to maximize
success.
3. Staffing:

After the organization’s structural design is in place, it needs people

with right skills, knowledge, and abilities to fill in that structure.
People are an organization’s most important resource, because
people either create or undermine an organization’s reputation for
quality in both products and services.
4. Leading:
This management function involves the use of influence to motivate
employees to achieve organizational goals.
5. Controlling:

This function is primarily directed towards monitoring of employees’

activities, ensuring the correct working of the organization and
implementing corrective measures as and when needed.

Page 18
The managers in an organization effectively manage situations
without losing a track of overall framework of the organizational
objectives and goals. A manager has to manage resources of the
organization by allotting them in an optimum way in the best interest
of the organization and welfare of employees through providing
enlightened and inspiring leadership.
Managers have distinctive abilities to churn out extraordinary results
from ordinary people. The logical aim before any manager is to
generate surplus. The manager must establish and create an
environment in which people can accomplish group goals with least
amount of time, money, material and personal dissatisfaction.
They may take decisions; allocate resources and direct activities of
others to achieve specific predetermined objectives and goals. An
organization is composed of two or more people that function on a
relatively continuous basis to achieve a common goal or set of
goals.
1. Planning:

Planning is the first and foremost function of the management. All

other .functions are based on planning function. Manager has to
determine in advance what it is to be done, when it is to be done,
and how it is to be done. Optimum utilization of resources is out of
question without planning.
Planning eliminates the tendency to work in a haphazard fashion. It
sets the direction for the entire organization to proceed towards the
goals. Planning may be regarded as the process of determining
objectives, discovering alternative courses of action and selecting
an appropriate course of action for accomplishing goals. In the

Page 19
absence of planning, no other managerial function can be
performed.
Plans are not rigid and they are supposed to be flexible in response
to changes in external environment.
The entire planning function revolves round the following:

i. Determination of objectives for the organization.

ii. Formulation of policies, budgets, programmes and schedules.
iii. Formulation of plans of action both strategic and operational.
iv. Forecasting.
v. Decision making.
Planning is an ongoing process, a persuasive function and done
across the levels of management.
2. Organizing:
The term ‘organizing’ generally connotes assembling men, money,
material and technology together. But in organizational context,
organizing is the process of establishing harmonious relationship
among the members of an organization and the creation of network
of relationship among them. Under organizing function, work is
assigned to employees, who are given authority to carry out the
work assigned and made accountable for it.
Organizing involves the following activities:
i. Determining the total activities of business essential to accomplish
organizational objectives.

Page 20
ii. Dividing and sub dividing the total activities into identifiable
groups.
iii. Grouping the activities of similar nature in terms of
departments/sections/ units.
iv. Delegation of authority to respective departments.
v. Coordinating the functions of different departments for
accomplishing the overall goals of an organization.
3. Staffing:

Once plans are put in place, and the structure of the organization
has been designed, managers seek to fill up the organizational slots
with suitable manpower.
This requires the following functions to be performed:

i. Determination of manpower requirements for the whole

organization.
ii. Arranging to identify eligible candidates and persuading them to
apply for the vacancies.
iii. Selecting suitable candidates.
iv. Formulating HR policies for governing manpower of the
organization.
v. Periodical training of manpower and their development.
vi. Compensating the manpower and incentivising decisions.
vii. Installing grievance redressal mechanism.

Page 21
viii. Periodical evaluation of human resources and promotion
decision.
ix. Transfer, promotion, disciplinary actions and termination.
x. Motivation of employees.
xi. Putting in place employee well-being measures and career
development opportunities.
All the aforesaid areas fall within the ambit of staffing domain.
4. Directing:

Directing denotes motivating, leading, guiding and communicating

with subordinates on an ongoing basis in order to accomplish pre-
set goals. Employees are kept informed of all necessary matters by
circulars, instructions, manuals, newsletters, notice-boards,
meetings, participative mechanisms, etc., in order to enable the
employees to accomplish the organizational goals.
The process of directing involves the following:
i. Issuing orders and instructions regarding the work to be
performed.
ii. Guiding, counseling, mentoring and educating the employees.
iii. Supervising the work of employees on a regular basis.
iv. Maintaining discipline among employees and rewarding those
who perform their jobs efficiently.
v. Motivating the employees and inspiring subordinates to follow the
orders and instructions.
vi. Providing effective leadership to employees.
Page 22
5. Controlling:

The process of controlling is the final function carried out in terms of

planning. This function is performed to evaluate the performance of
employees and deciding increments and promotion decisions. The
control function helps in identifying under-performers and arranging
remedial training for them. It is the control function which facilitates
synchronisation of actual performance with predetermined
standards.
The following activities are performed under control function:

i. Fixing performance standards for subordinates.

ii. Measuring the actual performance in the light of standards.
iii. Comparing the actual performance with standards.
iv. Finding out the causes for deviation and analyzing them.
v. Undertaking corrective measures in order to bring actual
performance to the standards set.
vi. Besides various control devices like accounting, auditing,
management information system, network analysis and cost control,
financial tools are also used in organizations for control purpose.
6. Co-Ordination:
Coordination is the process of synchronising the diverse functions of
domains and securing unity of action. It is compared to chariot
driven by multiple horses. The charioteer has to drive all die horses
in one direction. Similar is the case of an organization.
The CEO is charioteer like Lord Krishna in Mahabharat. It is a
conscious and rational process of pulling together various
Page 23
department of an organization and unifying them into a team to
accomplish goals in an effective manner.
1. Planning:
We can define planning as a process of creating a comprehensible
and transmittable schema (mental form) for attaining organisational
goals/ objectives using given or optimal resources, whichever is
less. It is pertinent to note that planning involves working within the
available resources or using only the optimum resource.
Plans are mental pictures and the frontal lobe of the brain is
connected with it. However, unless these mental schemas are
converted into a comprehensible and transmittable form, we cannot
process the plans. If you say that you have a plan, you are likely to
be told to put it on paper and submit it, because plans have to be
vetted and evaluated by the senior management, the funding agen-
cies, and executed by officials. Hence, mental models are insufficient.
Though several authors include setting goals/objectives as part of
planning because of their close association, it is preferable to perceive
it as a pre-planning exercise. We should accept the idea that
goals/objectives of a plan are often modified during planning because
they may prove to be unviable with the given resources. Plans should
normally end in decisions to execute the plan.
2. Organising:

Organising can be defined as the process of defining and grouping

the activities of the enterprise and establishing the power-
relationships among them with the purpose of achieving division of
labour, coordination, and cooperation for accomplishing
Page 24
goals/objectives optimally. Optimisation through specialisation and
division of labour is the point that one should note in this definition.
Organising and OB:

Organising creates the authority-power framework in an

organisation. Behaviour related to power, influence, conflicts, and
negotiations in an organisation would be influenced by it. If the
design of the structure is efficient, you can expect a conflict-free
environment. If not, the organisation would be susceptible to conflict
and this would affect people’s behaviour. Therefore, knowledge of
organising is of great importance for a student of OB.
3. Staffing:
Organising creates a structure into which each job with
responsibilities, authority, and power fit. However, it is still a
skeleton without life. Structure is inanimate and staffing makes it
animate. Staffing can be defined as the process of acquiring,
deploying, and retaining a workforce of sufficient quantity and qual-
ity, to create a positive impact on the organisation’s effectiveness.
For example, you can state that Precision Connectors should have an
insulation section with a head and that s/he should have well-
defined roles and responsibilities, but that happens only when a
person actually occupies that post. Authority is inherent in
organising, but it is exercised only when a person actually takes up
a job.
Staffing comprises acquisition (recruitment and selection),
deployment (processes leading to the employment of people), and
retention (preventing the unwanted outflow of employees from an
organisation).

Page 25
4. Directing/Leading:

The leading process vis-a-vis directing process and highlight the

importance of leading in the contemporary business context.
Directing can be defined as the process by which managers
instruct, guide, and oversee the performance of workers to achieve
predetermined goals. Mere planning, organising, and staffing do not
lead to achieving goals. Work starts when a person is told, or
directed to do it. Today, the term ‘directing’ is being fast replaced by
the term ‘leading’. Another way to look at it is that given the vision
and goals, people can direct themselves.
There are various methods of directing:

a. First, it can be done by coercion. Here, the manager gives the

direction/ order, and the subordinate is submissive and obeys.
b. Second, it can be done by providing guidance. In this method, the
manager gives guidance, intended to encourage people to work
efficiently and effectively. This makes directing ‘supportive’ in
nature.
c. Third, managers can go beyond providing guidance and
encourage, instruct, and inspire people to accomplish, which
becomes even more supporting.
d. Finally, managers may accept that all employees are
stakeholders and decide to adopt a leadership approach to
directing. Leading can be defined as the process of setting direction,
creating alignment, and creating engagement to deliver high
productivity and to facilitate change. In this sense, directing is only a
part of leading.

Page 26
Types or Styles of Directing/Leading:
Leading can be divided into two basic types—directing type and
supporting type. They can, and do coexist. Based on this
classification, we can identify four types of leading.
Such as:
a. Directing Type- It is a high directing and low supportive type of style
and gives specific direction much like a foreman does. It is well suited
for a highly committed beginner, with low competencies.
b. Coaching Type- It is high directing, high supportive, and there is
dialogue and listening to the ideas. But the decision is still with the
leader. This style suits well when dealing with a disillusioned
employee/subordinate with low commitment, but some
competencies. A typical supervisor follows this style.
c. Supporting Type- It is low directing, high supporting mode, and
encourages dialogue and decision-making by the
employee/subordinate. It is very suitable for an emerging
contributor, with moderate commitment and high competencies.
This style of directing is often referred to as ‘facilitating type’.
d. Delegating Type- It is low directing, low supporting where the leader
accepts the decisions made by the employee/subordinate. Delegation
is a suitable approach for a peak performer with high commitment and
competencies. Here, leading is more of coordinating than direction
giving.
Steps in Directing/Leading:
The important steps in leading are as follows:
Step 1- Direction Setting and Defining Values:
Page 27
In this step, the organisational direction and the core values are
discussed and frozen. This becomes the beacon for all further actions.
Step 2- Participatory Stretch Goal Setting with Outputs and
Outcomes:

In the second step, stretch goals are defined. A stretch goal is

basically a challenging goal, but not an impossible goal. It demands
extra effort to achieve these goals; but the subordinate is capable of
making that effort.
Step 3- Joint Resource Planning and Acceptance of
Deliverables:

This step sets the stage for the followers to take off on delivering the
goals or commence execution.
Step 4- Participatory Definition of Performance Indicators:
This brings clarity to goals and avoids perceived differences which
can lead to deviation from the goals. It also obviates future conflicts.
Step 5- Feedback and Feed Forward:

This is done for course correction or reconfirmation of the

effectiveness of leading, learning lessons, and for iterating the
process for continuous improvement. Feedback/feed forward is a
two way process. A leader may give feed-back to a subordinate,
and the subordinate, may in turn give feed forward to the leader.
The process can be vice versa be also.
Directing/Leading and Organisational Behaviour:

Page 28
Leading creates the organisational environment for high productivity
and performance through various actions such as direction setting,
involving people, inspiring through joint creation of stretch goals,
and working with self-motivation. It drives the ecosystem within
which the staff gets into execution mode and so, influences both
individual and group behaviour.
5. Controlling:

When you undertake activities to fulfil a goal as per a plan, it is quite

natural that small and large deviations take place. If these are not
corrected in time, their cumulative effect could result in failure to
achieve goals. Controlling can be defined as monitoring and
evaluating activities, and providing corrective mechanisms.
Often, it is considered a part of planning because, by controlling, we
ensure that a plan progresses as per the original schema. However,
we can differentiate them because planning precedes controlling.
Planning defines the standards to be achieved, whereas controlling
defines how to measure them, find out the variance or gap, and rectify
them. Controlling comes into play during execution as a way to
regulate execution, whereas planning paves the way for
execution.
Managing requires that a good proportion of your time is spent
on carrying out the following functions:

1. Planning—defining goals, forecasting and working out schedules

so that the right things are done in the right order.
2. Organizing—deciding what is required and who should do what.
3. Directing—instructing, coordinating, motivating and leading.

Page 29
4. Controlling— keeping an eye on things to check that everything is
going according to plan.
1. Planning:
In order to manage well, you need to plan. In order to plan, you
have to know your ultimate aim (goal).
You, therefore, need to know:
i. Where you are now
ii. Where you want to be
iii. How you will get there.
To plan effectively, you should be able to analyse the current situation,
forecast what has to be achieved, calculate and decide how this
will be done, and evaluate progress and make necessary adjustments
along the way.
2. Organizing:

Organizing means dividing up the work and identifying resources, both

material and human. You have to determine what tasks need to be
carried out, what materials should be used for the purpose and
who will carry out the task. To be a good organizer, you should have
the skills of thinking logically, using your resources judiciously and
making decisions.
3. Directing:

In order to direct people, you have to guide them by instruction.

People generally need direction if their actions are to be effective. It
is important to ensure that everyone involved knows what the

Page 30
overall objectives are, what, they are supposed to do, and what
standards have to be maintained.
Knowing the reasons for doing something enables people to work
more efficiently and as per prescribed standards. They can
understand the purpose of their actions and the feeling of involvement
encourages them to use their initiative. Just ordering people to do
something does not get the required results.
You should be able to lead people in the right way and in the right
direction, communicate effectively, and above all, motivate them to
perform well.
4. Controlling:
In order to control business operations, you should be good at keeping
an eye on everything—where everything is, what is going on, and
how people are performing. Controlling is the function by which you
regulate the plan. This means taking the right steps and taking
corrective action when something goes wrong.
You should be skilled at observing action, measuring performance
against standards, and deciding on and implementing necessary
action.
In conclusion, it can be said that the basic functions of managing
are:

i. Planning what you want to do

ii. Organizing who should do what and how
iii. Directing the action, and
iv. Controlling the outcome.

Page 31
Different authors have given different managerial functions. Henry
Fayol was the first to define specific functions of management. In
his words, “To manage is to forecast and plan, to organise, to
command, to co-ordinate and to control.”
He has given the following functions:

(i) Forecasting and planning,

(ii) Organising,
(iii) Commanding,
(iv) Coordination, and
(v) Control.
Luther Gulick used the word POSDCORB to describe various
functions.
This initial describes the following functions:

i. Planning (P),
ii. Organising (O),
iii. Staffing (S),
iv. Directing (D),
v. Controlling (CO),
vi. Reporting (R), and
vii. Budgeting (B).

Page 32
Ralph Davis gave three functions of management – Planning,
Organising and Control. He was of the view that command and co-
ordination facilitate control so these should be part of it.
Koontz and O’ Donnell have adopted the following functions:

(a) Planning,
(b) Organising,
(c) Staffing,
(d) Directing, and
(e) Controlling.
Earnest Dale has included innovation and representation to the earlier
mentioned functions. G.R. Terry classified managerial functions under
four heads – Planning, Organising, Actuating and Controlling. It can
be seen that there is no agreement about specific functions to be
performed by the management.
However, the following comprehensive classification can be
given of various managerial functions:
1. Planning,
2. Organising,
3. Staffing,
4. Directing –
(a) Leadership,
(b) Communication,
(c) Motivation, and
Page 33
(d) Supervision.
5. Coordinating, and
6. Controlling.
Brief outlines of these functions are given below:
1. Planning:

Planning is a basic managerial function. Planning helps in determining

the course of action to be followed for achieving various organisational
objectives. It is a decision in advance, what to do, when to do, how to
do and who will do a particular task. Planning is a process which
involves ‘thinking before doing’. Planning is concerned with the
mental state of a manager. He thinks before undertaking a work.
Other functions of management such as- organising, staffing,
directing, coordinating and controlling are also undertaken after
planning.
Hart defines planning as – “the determination in advance of a line of
action by which certain results are to be achieved.” According to
Terry, “Planning is the selecting and relating of facts and the making
and using of assumptions regarding the future in the visualisation
and formulations of proposed activities believed necessary to
achieve desired results.”
Planning is a process of looking ahead. The primary object of
planning is to achieve better results. It involves the selection of
organisational objectives and developing policies, procedure,
programmes, budgets and strategies. Planning is a continuous
process that takes place at all levels of management.

Page 34
A detailed planning is done in the beginning but the actual
performance is reviewed and suitable changes are made in plans
when actual execution is done. Plans may be of many kinds, such as-
short range plans, medium range plans, long range plans, standing
plans, single use plans, strategic plans, administrative plans and
operational plans.
The process of Planning involves a number of steps:

(i) Gathering information,

(ii) Laying down objectives,
(iii) Developing planning premises,
(iv) Examining alternative courses of action,
(v) Evaluation of action patterns,
(vi) Reviewing limitations, and
(vii) Implementation of plans.
2. Organising:

Every business enterprise needs the services of a number of

persons to look after its different aspects. The management sets up
the objectives or goals to be achieved by its personnel. The energy
of every individual is channelised to achieve the enterprise objectives.
The function of organising is to arrange, guide, co- ordinate, direct and
control the activities of other factors of production, viz., men, material,
money and machines so as to accomplish the objectives of the
enterprise.
In the words of Koontz and O’Donnel, “Organising is that part of
managing that involves establishing and intentional structure of
Page 35
roles for people in an enterprise to fill.” Organisation provides the
necessary framework within which people associate for the attainment
of business objectives.
Louis A. Allen describes organisation as – “the process of
identifying and grouping work to be performed, defining and
delegating responsibility and authority and establishing relationships
for the purpose of enabling people to work most effectively together
in accomplishing objectives.”
The process of organisation involves the following steps:

(i) To identifying the work to be performed;

(ii) To classify or group the work;
(iii) To assign these groups of activities or work to individuals;
(iv) To delegate authority and fix responsibility; and
(v) To co-ordinate these authority-responsibility relationships of
various activities.
The character and type of organisation depends upon the size and
nature of the enterprise.
Though there are many types of organisations but generally
three types of organisations are in vogue:

(i) Line organisation;

(ii) Functional organisation; and
(iii) Line and staff organisation.
In line organisation authority flows vertically from the top of the
hierarchy to the bottom. Under functional organisation, the work is
Page 36
divided into different departments. Each department deals in one
type of work and it specialises in one work only. A workman has to
work under many superiors who specialise in different functions.
Line and staff organisation provides for specialists with line
executives. It is a combination of line and functional form of
organisation.
A sound organisation contributes greatly to the continuity and success
of the enterprise. However, an organisation is not an end in itself. The
organisation structure should be flexible.
3. Staffing:

The function involves manning the positions created by organisation

process. It is concerned with human resources of an organisation.
In the words of Koontz and O’Donnel, “staffing is filling, and keeping
filled, positions in the organisation structure through defining work-
force requirements/appraising, selecting, compensating and
training.”
Thus, staffing consists of the following:

(i) Manpower planning, i.e., assessing manpower requirements in

terms of quantity and quality;
(ii) Recruitment, selection and training;
(iii) Placement of man power;
(iv) Development, promotion, transfer and appraisal; and
(v) Determination of employee remuneration.
Every manager in an organisation has to perform the staffing
function in one form or the other, in order to get things done through
Page 37
others. But, it is decidedly a difficult managerial function as it concerns
human beings whose behaviour and actions cannot be predicted, and
that is why it has become a distinct and specialised branch of
management.
4. Directing:

Directing is concerned with carrying out the desired plans. It initiates

organised and planned action and ensures effective performance by
subordinates towards the accomplishment of group activities.
Direction is called management in action. In the words of George R.
Terry, “Direction is moving to action and supplying stimulative power
to the group.” After planning, organising and staffing, the manager
has to guide and supervise his subordinates.
According to Massie, “Directing concerns the total manner in which
a manager influences the actions of subordinates. It is the final
action of a manager in getting others to act after all preparations
have been completed.”
Directing is a continuous function and is performed at all levels of
management.
The main activities involved in direction are as follows:

(a) Leadership,
(b) Communication,
(c) Motivation, and
(d) Supervision.
(a) Leadership:

Page 38
A manager has to issue orders and instructions and guide and counsel
his subordinates in their work with a view to improve their performance
and achieve enterprise objectives. Leadership is ‘the process by
which an executive or manager imaginatively directs/guides and
influences the work of others in choosing and attaining specified goals
by mediating between the individual and organisation in such a
manner that both will get maximum satisfaction’.
Leadership is the ability to build up confidence and zeal among people
and to create an urge in them, to be led. To be a successful leader, a
manager must possess the qualities of foresight, drive, initiative, self-
confidence and personal integrity. Different situations may demand
different types of leadership, viz., autocratic leadership, democratic
leadership and free rein leadership.
(b) Communication:

Communication constitutes a very important function of

management. It is said to be the number one problem of
management, today. It is an established fact that managers spend
75 to 90 per cent of their working time in communicating with others.
Communication is the means by which the behaviour of the
subordinate is modified and change is effected in their actions.
The word ‘communication’ has been derived from the Latin word
‘communis’ which means ‘common’. Thus, communication means
sharing of ideas in common. The essence of communication is getting
the receiver and the sender tuned together for a particular message.
It refers to the exchange of ideas, feelings, emotions and knowledge
and informations between two or more persons. Nothing
happens in management till communication takes place.
Page 39
Communication is a two-way process as it involves both information
and understanding. It may be written, oral, and gestural.
Communication is said to be formal when it follows the formal
channels provided in the organisation structure. It is informal
communication, when it does not follow the formal channels.
Communication flows downward from a superior to subordinates
and upward from subordinates to a superior. It also flows between two
or more persons operating at the same level of authority.
Communication is essential at all levels of management for
decision- making and planning. It increases managerial capacity
and facilitates control. It has been rightly said that good managers are
good communicators and poor managers are poor communicators.
(c) Motivation:
The term motivation is derived from the word ‘motive’ which means
a need, or an emotion that prompts an individual into action.
Motivation is the psychological process of creating urge among the
subordinates to do certain things or behave in the desired manner.
It is a very important function of management. The importance of
motivation can be realised from the fact that performance of a
worker depends upon his ability and the motivation.
There are many strategies adopted by managers for increasing the
motivation of subordinates. According to Michel Jucius, “Motivation
means the act of stimulating someone or oneself to get a desired
course of action to push the right button to get a desired reaction, a
compliment, dollar raise, and a smile, a promise of a rise, a new
typewriter, a preferred location or a new desk.”

Page 40
Thus, a manager has to provide some personal incentive to the
subordinates to motivate, persuade and inspire them for contributing
their best towards the achievement of enterprise objectives. The
incentives to be proved may be financial, such as increase in
wages, or non-financial, like better working conditions, job security,
recognition, etc. A sound motivational system must be productive,
competitive, comprehensive and flexible, and it must consider the
psychological, social, safety, ego and economic needs of the workers.
(d) Supervision:
Supervision is another important element of directing function of
management. After issuing instructions, the manager or the
supervisor has to see that the given instructions are carried out.
This is the aim of supervision. Supervision refers to the job of
overseeing subordinates at work to ensure maximum utilisation of
resources, to get the required and directed work done and to correct
the subordinates whenever they go wrong.
Though supervision is performed at all levels of management, the
major responsibility for supervision lies with the first line of
management. Sound organisational set up, effective delegation,
human approach, effective communication and management by
exception make supervision effective.
5. Co-Ordination:

Co-ordination is one of the most important functions of

management. It is essential to channelise the activities of various
individuals in the organisation for the achievement of common
goals. Every department or section is given a target to be achieved

Page 41
and they should concentrate only on their work and should not
bother about the work of other organs.
It is left to the management to see that the work of different
segments is going according to pre-determined targets and
corrective measures have to be taken if there is any deviation. Co-
ordination creates a team spirit and helps in achieving goals through
collective efforts. It is the orderly arrangement of group effort to
provide unity of action in the pursuit of common objectives.
Dalton McFarland defines co-ordination as the, “process whereby
an executive develops an orderly pattern of group effort among his
subordinates and secures unity of action in the pursuit of common
purposes.”
Co-ordination can be classified under two categories – (i) vertical
and horizontal co-ordination, and (ii) internal and external co-
ordination. Whereas vertical co-ordination is the co-ordination
between different levels of management, the term horizontal co-
ordination is used when co-ordination has to be achieved between
departments of the same level of authority. Co-ordination is internal
when it is between different sections of the same concern and external
when it is required with persons outside the organisation.
Co-ordination is regarded as the very essence of management as in
order to co-ordinate the activities of his subordinates, a manager
has to perform all the other functions of management, viz., planning,
organising, staffing, directing and controlling. It must also be noted
by the readers that co-ordination and co-operation do not mean the
same thing.
6. Co-Ordination and Co-Operation:

Page 42
Co-ordination is much wider term than co-operation. Co-operation
indicates the willingness of individuals to help each other. It is an
attitude of a group of people and is largely the result of voluntary
action. Co-ordination, on the other hand, is a conscious managerial
effort which is the result of a deliberate action.
Co-operation is essential for the achievement of co-ordination but it
is not a substitute for co-ordination. However, both co-operation and
co-ordination are essential in management.
7. Controlling:
Controlling can be defined as – “determining what is being
accomplished, that is evaluating the performance, if necessary,
applying corrective measures so that the performance takes place
according to plans.”
Control is essential for achieving objectives of an enterprise. The
planning of various activities does not ensure automatic
implementation of policies. Control is the process which enables
management to get its policies implemented and take corrective
actions if performance is not according to the pre-determined
standards. If planning is the beginning of the management process,
controlling may be said to be the final stage. If planning is looking
ahead, controlling is looking back. Control is not possible without
planning and planning is meaningless without control.
Control is a line function and executives at various levels of
management continuously assess the performance of their
subordinates. The main purpose of control is to see that the activity
is achieving the desired results. A control system, to be effective,
must conform to the nature of activity, report deviations promptly,

Page 43
reflect organisation structure, assure corrective action and be
economical.
The process of controlling involves the following steps:

(i) Establishing standards of performance;

(ii) Measuring actual performance;
(iii) Comparing the actual performance with the standard;
(iv) Finding variances or deviations, if any; and
(v) Taking corrective action or measures.
Inter-Relationship between Management Functions:

Management is an integrated process consisting of a number of

functions such as planning, organising, staffing, directing,
coordinating and controlling. Every management has to perform these
functions at one time or the other or at the same time. Though the
functions have theoretically been independent from each other but
practically they are overlapping and cannot be separated. Each
function is blended into the others and each affects the performance
of other functions.
There is no rigid sequence of performing these functions. It is not
necessary that organising will be performed only after the planning
function. No hard and fast sequence is followed for performing the
functions. It may be possible that some or all functions are
performed at the same time. So various functions are inter-related and
are dependent upon one another for improving their
performance.

Page 44
What are the Functions of Management – 5 Main Functions:
Planning, Organising, Staffing, Directing and Controlling (With
Examples)

The main aim of management is to achieve the organisational goals

while using the organisational resources most effectively.
In order to get things done as desired, the management performs
functions like:

1. Planning,
2. Organising,
3. Staffing,
4. Directing and
5. Controlling.
1. Planning:

Planning as a management function involves establishing

organisational goals, setting business targets and planning the
process to achieve the same most effectively and efficiently. In a way,
planning as a function of management determines what can be done,
when it can be done, how it can be done and who can do.
Planning predicts problems a business might come across and
formulates strategic plans to deal with them as and when they
occur.
Example – Every business has to decide about the product(s) it
would deal in, the markets it would focus, whether it would produce
or trade etc. all these decisions are part of PLANNING.

Page 45
2. Organising:

Organising as a management function organises human and

physical resources to implement decisions taken at planning stage.
It involves dividing the tasks, assigning duties, establishing authorities
and responsibilities and arranging resources. In a way, organising
as a function of management determines which activity will be done,
who will do, how it will be done and where it will be done.
To achieve efficiency of operations and effectiveness of results,
organising divides the entire business into manageable departments
or work units. The departments work under organisational hierarchy,
with established authority, responsibility and reporting relationships.
Example – Each business organisation has departments like
production, sales, finance, human resource etc. Each department
has specific responsibilities, for example, production department is
responsible to not only produce required volume of goods but also
maintain quality. A production manager heads the production
department. He organises resources, assigns responsibilities and
delegates authority to all the people working in the department to
achieve the set targets.
3. Staffing:
Staffing as a function of management involves recruiting people with
right qualification and experience for the right job at the right time. It
involves selecting people and providing training if required so that they
are capable enough to achieve organisational goals effectively
and efficiently.

Page 46
Example – A school appoints those individuals as teachers who
have adequate qualification and experience to teach the specific
subject to specific age-group. A computer teacher may have
knowledge of computers but may not be able to work as analyst or
programmer as it may require different qualifications and
experience.
4. Directing:
Directing as a function of management involves managers to use their
leadership qualities to lead, influence and motivate their subordinates
to perform the tasks assigned to them most efficiently. In a way, it
involves directing individuals what to do, how to do and ensure that it
is done the way as planned. Praise, positive criticism and timely
guidance helps employees to achieve their best.
Example – A sales manager assigns responsibilities and sets
targets for each sales executive. He reviews the performance of
each sales executive from time to time and gives them instant
feedback so that targets are achieved.
5. Controlling:

Controlling as a function of management monitors the performance

of employees’ at all critical levels. It involves comparing the current
performance with established standards of performance so that the
corrective actions are taken and organisational goals are achieved
as desired.
Example – The Production Head lays down the production plan, the
quantity of raw material to be used and the standard time to be
taken for production. Once the production process starts he

Page 47
constantly monitors the floor performance of workers and keep
giving them on the job instructions to achieve the desired targets.
I am sure by now you all must have realized that though the
management has various functions to perform but no function can
be performed in isolation. Every activity of a manager requires all
the functions of management to be performed simultaneously of
course the degree of importance for a function and time spent may be
different for different activities.
What are the Functions of Management – Planning, Organising,
Staffing, Directing and Controlling
We manage an organisation to achieve certain objectives and
goals. For this purpose, the manager performs some fundamental
functions. They are called managerial functions and basically
consist of five elements.
Let us study these elements of management under five basic
heads:
1. Planning – It is a blueprint to achieve the desired results.
2. Organising – It provides a mechanism through which the plan can
be put into effect.
3. Staffing – It means selecting the right persons for the right jobs
and then developing them.
4. Directing – He aims at inspiring and inducing individuals in an
organisation towards the desired goal.
5. Controlling – It means comparing performance against the targets
set in the plan.

Page 48
Essentially, management process is a mental process. All the above
five elements of the management process are dealt with briefly here
to provide a foundation for further study.
1. Planning:

Planning follows the dictum “think before you act”. It means thinking
in advance. Think today what you want to do tomorrow. In day-to- day
conduct of any business, a businessman encounters many problems.
All the facts relevant to a particular problem are collected and
processed.
These processed data give us a series of alternative courses of action
to solve the problem. The solution of the problem involves choosing
an alternative that best suits the firm. The choice, therefore,
is for an alternative that optimises the gains of the business. Planning,
in this sense, amounts to decision making.
Planning foresees the future and focuses attention on choosing a
course of action to meet unforeseen and foreseen events or problems.
Planning follows a typical 4-W and 1-H formula:
(a) What ought to be done?
(b) Who shall do it?
(c) Where, action is necessary?
(d) Why should we do it?
(e) How should we do it?
The basic philosophy of planning is that one reaches where one wants
to if one knows in advance the path he should tread on. Good
Page 49
managers not only see things as they happen, but also make things
the way they wish them to happen. To sum up, planning consists of
setting up of objectives and then determining strategies, policies,
and procedures to realise these objectives.
Business planning can be defined as an integrated activity which
seeks to optimise the total effectiveness of an enterprise as a
system to achieve its purpose.
Under this concept, it is necessary to appreciate the concept of
hierarchy of plans:

1. Broad plans in the form of goals and objectives at the top

management level. It is called a corporate plan.
2. Broad plans are broken down into detailed, meaningful and specific
plan for each activity of a business. They are called the departmental
plans, e.g., a marketing plan, production plan, financial plan or
manpower plan.
3. These plans are further subdivided into more detailed and more
specific plans called activity plans.
In effect, the planning process is one which spreads out planning
functions throughout the entire organisational system. This implies
that planning requires consideration of the enterprise as an integration
of numerous decision-making subsystems.
2. Organising:

Organisation is a mechanism through which the goals set in a plan

are accomplished. Organising consists of dividing the total
workload. It follows the principle of division of labour. All similar

Page 50
activities are grouped together. Good organising demands
establishing relationships between the broken parts of the workload.
When the organisation is staffed with persons to perform a part of
the total workload, a well-defined authority-responsibility relationship
comes into being. Authority percolates from the highest to the
lowest level and responsibility moves up from the lowest to the highest
level. It is this authority-responsibility relationship which facilitates the
accomplishment of predetermined goals.
In short, a business organisation is a man-made system designed to
combine a complex of men, materials, machines and other
resources into an efficient, effective and viable business enterprise.
3. Staffing:

The staff of an organisation is made up of persons who carry-out

the work allotted to them. The organisation is so staffed that it
attains its objectives smoothly. Staffing, therefore, considers right
selection through an appropriate selection process. It also tries to
foresee future manpower needs and plans how to acquire them and
tries to develop the persons employed in the organisation.
4. Directing:

Here, the manager directs the efforts of the staff towards a common
goal. He acts as a leader for the group to do so. He not only takes into
account the capacity of his staff to do a particular work, but also sees
to it that there is a willingness on their part to do the work he desires
them to do. Through communication, that is, exchange of message
with understanding, this process becomes meaningful. He also
provides a climate for developing his subordinates.
5. Controlling:
Page 51
Any plan will be executed successfully only when it is controlled.
Controlling means reviewing the performance of the employees in
the light of the targets of the plan. If there is any deviation from the
planned objective, the manager puts things right by taking proper
corrective action.
Management at its best is a practice of the management process.
That is why we hear someone saying that management is neither
an art nor a science, but a practice.
6. Coordination:

Many management experts regard coordination as a separate

function of management. We depart from this approach, since
coordination is basically at work in all the element of management
process, right from planning to control. To coordinate means to
integrate and to harmonize.
It ensures a proper tempo for all activities and avoids duplication of
efforts. It provides for an optimum use of all the resources. All plans
are integrated into a master plan, so that they complement and
supplement one another. Organising depends on adequate co-
ordination to ensure that the specialists do not run into different
directions like wild horses, but follow the desired path.
Directing is also a coordinating activity in as much as it tries to
harmonize the personal aspirations of the staff with the
organisational goals. In controlling, those areas come to the surface
where greater coordination is needed. Plans are improved upon in the
light of these findings.
Till now, we concentrated on what “management is in terms of the
functions it performs”. The approach is labelled as a management

Page 52
process approach, and constitutes one major school of thought of
management theory. The following paragraphs review briefly the other
approaches towards management in terms of different schools of
management theory.
Management as a discipline includes interlocking functions of
formulating corporate policy, organising, planning, controlling and
directing organisation’s resources to achieve the policy’s objectives.
The 3Ms of business are machines, materials and money.
Management is the fourth M of business. It is a factor of production.
Drucker puts marketing and innovation as the basic tasks of
management.
What are the Functions of Management – Planning, Organizing,
Staffing, Directing and Controlling
Management is what management does. It is the art of getting
things done through and with people in formally organized groups.
Management includes two types of functions:

1. Preparation for actual work, i.e., management in preparation, which

includes planning and organisation, and
2. Getting the actual work done, i.e., management in action, to include
direction, motivation, coordination and control.
A manager is a man who gets things done by working with people
and other resources in order to achieve an objective. He
coordinates the activities of others rather than performs the
operations himself.

Page 53
According to George Terry, The four functions of management –
planning, organizing, actuating and controlling — constitute the
management processes.
1. Planning:

Planning is the ongoing process of developing the business’ mission

and objectives and determining how they will be accomplished.
Planning includes both the broadest view of the organisation, e.g.,
its mission, and the narrowest, e.g., a tactic for accomplishing a
specific goal. It involves taking decisions in advance of action.
The process of planning consists of:

i. Establishing objectives
ii. Making forecasts
iii. Formulating policies, procedures and rules
iv. Drawing programmes, schedules, budgets, etc.
2. Organizing:

Organizing is establishing the internal organisational structure of the

organisation. The focus is on division, coordination, and control of
tasks and the flow of information within the organisation. It is in this
function that managers distribute authority to job holders.
The process of organizing involves:
i. Identifying the activities necessary to achieve the objectives
ii. Grouping the activities into manageable units
iii. Assigning duties or tasks to appropriate individuals

Page 54
iv. Delegating necessary authority to individuals and fixing
responsibilities for results
v. Defining authority — responsibility relationships among
individuals
3. Staffing:

Staffing is filling and keeping filled with qualified people all positions
in the business. Recruiting, hiring, training, evaluating and
compensating are the specific activities included in the function. In the
family business, staffing includes all paid and unpaid positions held
by family members including the owner/operators. It is concerned with
human resources. Its aim is to fit individuals and jobs, i.e., right
man for the right job.
Staffing consists of the following activities:

Manpower planning, i.e., determining the number and quality of

employees required in organization –
i. Recruitment, selection and placement
ii. Training and development

iii. Appraisal, promotion and transfer

iv. Employee remuneration, etc.
4. Directing:

Directing is influencing people’s behavior through motivation,

communication, group dynamics, leadership and discipline. The
purpose of directing is to channel the behavior of all personnel to
accomplish the organisation’s mission and objectives while

Page 55
simultaneously helping them accomplish their own career
objectives.
Directing is concerned with the execution of plans; it initiates
organized action and breathes life into the organisation. It
constitutes the life spark of the enterprise and sets into motion like
the electric power. Directing is also known as management in
action.
It involves:
i. Influencing, guiding and motivating the subordinates for the
achievement of organisational objectives.
ii. Supervision, motivation, leadership and communication are the
sub-functions of directing.
5. Controlling:

Controlling is a four-step process of establishing performance

standards based on the firm’s objectives, measuring and reporting
actual performance, comparing the two, and taking corrective or
preventive action as necessary. The essence of control is in
determining whether the activity is achieving the desired results. It is
to ensure that everything in the organisation occurs in accordance
with the predetermined plans.
The process of control consists of the following steps:

i. Setting standards or norms for the desired performance

ii. Measuring the actual performance
iii. Interpreting and comparing actual performance with the set
standards
Page 56
iv. Analyzing deviations to fix responsibility
v. Taking corrective actions
No business can succeed without proper planning and without
direction; no plan can be put in operation. Better operation and correct
performance of business can be achieved only by
motivation, co-ordination and control of its different activities.

Page 57
What is Organization structure: Formal and
informal organizations; Span of control?

Organization structure: Formal and informal organizations;

Span of control

Command
Your chain of command is how tasks are delegated and work is
approved. An org structure allows you to define how many "rungs
of the ladder a particular department or business line should have.
In other words, who tells whom to do what? And how are issues,
requests, and proposals communicated up and down that ladder?
Span of Control
Your span of control can represent two things: who falls under a
manager's, well, management ... and which tasks fall under a
department's responsibility.
Centralization
Centralization describes where decisions are ultimately made.
Once you've established your chain of command, you'll need to
Page 58
consider which people and departments have a say in each
decision. A business can lean toward centralized, where final
decisions are made by just one or two entities; or decentralized, where
final decisions are made within the team or department in charge of
carrying out that decision.
You might not need an org structure right away, but the more products
you develop and people you hire, the harder it'll be to lead your
company without this crucial diagram.
Mechanistic Structure
Mechanistic structures, also called bureaucratic structures, are
known for having narrow spans of control, as well as high
centralization, specialization, and formalization. They're also quite
rigid in what specific departments are designed and permitted to do
for the company.
This organizational structure is much more formal than organic
structure, using specific standards and practices to govern every
decision the business makes. And while this model does hold staff
more accountable for their work, it can become a hindrance to the
creativity and agility the organization needs to keep up with random
changes in its market.
As daunting and inflexible as mechanistic structure sounds, the
chain of command, whether long or short, is always clear under this
model. As a company grows, it needs to make sure everyone (and
every team) knows what's expected of them. Teams collaborating
with other teams as needed might help get a business off the
ground in its early stages, but sustaining that growth -- with more
people and projects to keep track of -- will eventually require some

Page 59
policymaking. In other words, keep mechanistic structure in your back
pocket ... you never know when you'll need it.
Organic Structure

Organic structures (also known as "flat" structures) are known for

their wide spans of control, decentralization, low specialization, and
loose departmentalization. What's that all mean? This model might
have multiple teams answering to one person and taking on projects
based on their importance and what the team is capable of -- rather
than what the team is designed to do.
As you can probably tell, this organizational structure is much less
formal than mechanistic, and takes a bit of an ad-hoc approach to
business needs. This can sometimes make the chain of command,
whether long or short, difficult to decipher. And as a result, leaders
might give certain projects the green light more quickly but cause
confusion in a project's division of labor.
Nonetheless, the flexibility that an organic structure allows for can
be extremely helpful to a business that's navigating a fast-moving
industry, or simply trying to stabilize itself after a rough quarter. It
also empowers employees to try new things and develop as
professionals, making the organization's workforce more powerful in
the long run. Bottom line? Startups are often perfect for organic
structure, since they're simply trying to gain brand recognition and
get their wheels off the ground.
Now, let's uncover more specific types of organizational structures,
most of which fall on the more traditional, mechanistic side of the
spectrum.
Types of Organizational Structure
Page 60
 1. Functional Organizational Structure
2. Product-Based Divisional Structure
3. Market-Based Divisional Structure
4. Geographical Divisional Structure
5. Process-Based Structure
6. Matrix Structure
7. Circular Structure
8. Flat Structure
9. Network Structure
1. Functional Organizational Structure
One of the most common types of organizational structures, the
functional structure departmentalizes an organization based on
common job functions.
An organization with a functional org structure, for instance, would
group all of the marketers together in one department, group all of the
salespeople together in a separate department, and group all of
the customer service people together in a third department.

Page 61
The functional structure allows for a high degree of specialization for
employees, and is easily scalable should the organization grow.
Also this structure is mechanistic in nature -- which has the potential
to inhibit an employee's growth -- putting staff in skill-based
departments can still allow them to delve deep into their field and
find out what they're good at.
Disadvantages

Functional structure also has the potential to create barriers

between different functions -- and it can be inefficient if the
organization has a variety of different products or target markets.
The barriers created between departments can also limit peoples'
knowledge of and communication with other departments,
especially those that depend on other departments to succeed.
Page 62
2. Product-Based Divisional Structure

A divisional organizational structure is comprised of multiple,

smaller functional structures (i.e. each division within a divisional
structure can have its own marketing team, its own sales team, and
so on). In this case -- a product-based divisional structure -- each
division within the organization is dedicated to a particular product
line.

Page 63
Unit 6: Business Management and Human Resource Management

CEO

Electronics Home Goods Yummy Snacks

Division Division Division
This type of structure is ideal for organizations with multiple
products and can help shorten product development cycles. This
allows small businesses to go to market with new offerings fast.
Disadvantages

It can be difficult to scale under a product-based divisional structure,

and the organization could end up with duplicate resources as
different divisions strive to develop new offerings.
3. Market-Based Divisional Structure

Another variety of the divisional organizational structure is the market-

based structure, wherein the divisions of an organization are
based around markets, industries, or customer types.

Page 65
 CEO

Commercial Residential Government

Division Division Division

.
Page 66
The market-based structure is ideal for an organization that has
products or services that are unique to specific market segments,
and is particularly effective if that organization has advanced
knowledge of those segments. This organizational structure also
keeps the business constantly aware of demand changes among its
different audience segments.
Disadvantages

Too much autonomy within each market-based team can lead to

divisions developing systems that are incompatible with one
another. Divisions might also end up inadvertently duplicating
activities that other divisions are already handling.
4. Geographical Divisional Structure

The geographical organizational structure establishes its divisions

based on -- you guessed it -- geography. More specifically, the
divisions of a geographical structure can include territories, regions,
or districts.

Page 67
 CEO

N. America EMEA As1aP· acific

Division Division Division

Malketlf111 Sales ServiCes Mark tmg Sal s Sav1ces

!
Page 68
This type of structure is best-suited to organizations that need to be
near sources of supply and/or customers (e.g. for deliveries or for
on-site support). It also brings together many forms of business
expertise, allowing each geographical division to make decisions from
more diverse points of view.
Disadvantages
The main downside of a geographical org structure: It can be easy
for decision- making to become decentralized, as geographic
divisions (which can be hundreds, if not thousands of miles away
from corporate headquarters) often have a great deal of autonomy.
And when you have more than one marketing department -- one for
each region -- you run the risk of creating campaigns that compete
with (and weaken) other divisions across your digital channels.
5. Process-Based Structure

Process-based organizational structures are designed around the

end-to-end flow of different processes, such as "Research &
Development," "Customer Acquisition," and "Order Fulfillment." Unlike
a strictly functional structure, a process-based structure considers not
only the activities employees perform, but also how those different
activities interact with one another.
In order to fully understand the diagram below, you need to look at it
from left to right: The customer acquisition process can't start until you
have a fully developed product to sell. By the same token, the order
fulfillment process can't start until customers have been
acquired and there are product orders to fill.

Page 69
Process-based organizational structure is ideal for improving the
speed and efficiency of a business, and is best-suited for those in
rapidly changing industries, as it is easily adaptable.
Disadvantages

Similar to a few other structures on this list, process-based structure

can erect barriers between the different process groups. This leads
to problems communicating and handing off work to other teams
and employees.
6. Matrix Structure

Page 70
Unlike the other structures we've looked at so far, a matrix
organizational structure doesn't follow the traditional, hierarchical
model. Instead, all employees (represented by the green boxes)
have dual reporting relationships. Typically, there is a functional
reporting line (shown in blue) as well as a product- based reporting
line (shown in yellow).
When looking at a matrix structure org chart, solid lines represent
strong, direct-reporting relationships, whereas dotted lines indicate
that the relationship is secondary, or not as strong. In our example
below, it's clear that functional reporting takes precedence over
product-based reporting.

Page 71
The main appeal of the matrix structure is that it can provide both
flexibility and more balanced decision-making (as there are two chains
of command instead of just one). Having a single project overseen by
more than one business line also creates opportunities for these
business lines to share resources and communicate more openly with
each other -- things they might not otherwise be able to do regularly.
Disadvantages
Page 72
The primary pitfall of the matrix organizational structure?
Complexity. The more layers of approval employees have to go
through, the more confused they can be about who they're
supposed to answer to. This confusion can ultimately cause
frustration over who has authority over which decisions and
products -- and who's responsible for those decisions when things
go wrong.
7. Circular Structure
While it might appear drastically different from the other organizational
structures highlighted in this section, the circular structure still relies
on hierarchy, with higher-level employees occupying the inner rings
of the circle and lower-level employees occupying the outer rings.
That being said, the leaders or executives in a circular organization
aren't seen as sitting atop the organization, sending directives down
the chain of command. Instead, they're at the center of the
organization, spreading their vision outward.

Page 73
From an ideological perspective, a circular structure is meant to
promote communication and the free flow of information between
different parts of the organization. Whereas a traditional structure
shows different departments or divisions as occupying individual,

Page 74
semi-autonomous branches, the circular structure depicts all
divisions as being part of the same whole.
Disadvantages
From a practical perspective, the circular structure can be
confusing, especially for new employees. Unlike with a more
traditional, top-down structure, a circular structure can make it
difficult for employees to figure out who they report to and how they're
meant to fit into the organization.
8. Flat Structure
While a more traditional organizational structure might look more
like a pyramid -- with multiple tiers of supervisors, managers and
directors between staff and leadership, the flat structure limits the
levels of management so all staff are only a few steps away from
leadership. It also might not always take the form or a pyramid, or any
shape for that matter. As we mentioned earlier, It's also a form
of the "Organic Structure" we noted above.

Page 75
This structure is probably one of the most detailed, It's also thought
that employees can be more productive in an environment where
there's less hierarchy-related pressures. This structure might also
make staff feel like the managers they do have are more like equals
or team members rather than intimidating superiors.
Disadvantages

If there's a time when teams in a flat organization disagree on

something, such as a project, it can be hard to get aligned and back
on track without executive decisions from a leader or manager.
Because of how complicated the structure's design is, it can be
tricky to determine which manager an employee should go to if they
need approval or an executive decision for something. So if you do
choose to have a flat organization, you should have a clearly
marked tier of management or path that employers can refer to
when they run into these scenarios.
Page 76
9. Network Structure
A network structure is often created when one company works with
another to share resources -- or if your company has multiple
locations with different functions and leadership. You might also use
this structure to explain your company workflows if much of your
staffing or services is outsourced to freelancers or multiple other
businesses.
The structure looks nearly the same as the Divisional Structure,
shown above. However, instead of offices, it might list outsourced
services or satellite locations outside of the office.
If your company doesn't do everything under one roof, this is a great
way to show employees or stakeholders how outsourcing of off-site
processes work. For example, if an employee needs help from a
web developer for a blogging project and the company's web
developers are outsourced, the could look at this type of chart and
know which office or which person to contact outside of their own
work location.
Disadvantages

The shape of the chart can vary based on how many companies or
locations you're working with. If it's not kept simple and clear, there
may be a lot of confusion if multiple offices or freelancers do similar
things. If you do outsource or have multiple office locations, make sure
your org chart clearly states where each specific role and job function
lies so someone can easily understand your basic company
processes.
Navigating Organizational Structures

Page 77
That concludes our exploration of different types of organizational
structures. Keep in mind that what we've just looked at are simply
archetypes -- in real-world applications, organizations often use hybrid
structures, which can borrow elements from multiple structure
types.

Formal and Informal Organization:

Formal Organisation:

When the managers are carrying on organising process then as a

result of organising process an organisational structure is created to
achieve systematic working and efficient utilization of resources.
This type of structure is known as formal organisational structure.
Formal organisational structure clearly spells out the job to be
performed by each individual, the authority, responsibility assigned
to every individual, the superior- subordinate relationship and the
designation of every individual in the organisation. This structure is
created intentionally by the managers for achievement of
organisational goal.
Features of Formal organisation:
(1) The formal organisational structure is created intentionally by the
process of organising.
(2) The purpose of formal organisation structure is achievement of
organisational goal.
(3) In formal organisational structure each individual is assigned a
specific job.

Page 78
(4) In formal organisation every individual is assigned a fixed
authority or decision-making power.
(5) Formal organisational structure results in creation of superior-
subordinate relations.
(6) Formal organisational structure creates a scalar chain of
communication in the organisation.
Advantages of Formal Organisation:
1. Systematic Working:
Formal organisation structure results in systematic and smooth
functioning of an organisation.
2. Achievement of Organisational Objectives:
Formal organisational structure is established to achieve
organisational objectives.
3. No Overlapping of Work:

In formal organisation structure work is systematically divided

among various departments and employees. So there is no chance of
duplication or overlapping of work.
4. Co-ordination:

Formal organisational structure results in coordinating the activities

of various departments.
5. Creation of Chain of Command:
Formal organisational structure clearly defines superior subordinate
relationship, i.e., who reports to whom.

Page 79
6. More Emphasis on Work:
Formal organisational structure lays more emphasis on work than
interpersonal relations.
Disadvantages of Formal Organisation:
1. Delay in Action:

While following scalar chain and chain of command actions get

delayed in formal structure.
2. Ignores Social Needs of Employees:

Formal organisational structure does not give importance to

psychological and social need of employees which may lead to
demotivation of employees.
3. Emphasis on Work Only:

Formal organisational structure gives importance to work only; it

ignores human relations, creativity, talents, etc.
Informal Organisation:
In the formal organisational structure individuals are assigned
various job positions. While working at those job positions, the
individuals interact with each other and develop some social and
friendly groups in the organisation. This network of social and
friendly groups forms another structure in the organisation which is
called informal organisational structure.
The informal organisational structure gets created automatically and
the main purpose of such structure is getting psychological
satisfaction. The existence of informal structure depends upon the
formal structure because people working at different job positions
Page 80
interact with each other to form informal structure and the job positions
are created in formal structure. So, if there is no formal structure,
there will be no job position, there will be no people working at job
positions and there will be no informal structure.
Features of informal organisation:

(1) Informal organisational structure gets created automatically

without any intended efforts of managers.
(2) Informal organisational structure is formed by the employees to
get psychological satisfaction.
(3) Informal organisational structure does not follow any fixed path
of flow of authority or communication.
(4) Source of information cannot be known under informal structure
as any person can communicate with anyone in the organisation.
(5) The existence of informal organisational structure depends on
the formal organisation structure.
Advantages of Informal Organisation:
1. Fast Communication:
Informal structure does not follow scalar chain so there can be
faster spread of communication.
2. Fulfills Social Needs:

Informal communication gives due importance to psychological and

social need of employees which motivate the employees.
3. Correct Feedback:

Page 81
Through informal structure the top level managers can know the
real feedback of employees on various policies and plans.
Strategic Use of Informal Organisation. Informal organisation can be
used to get benefits in the formal organisation in the following way:
1. The knowledge of informal group can be used to gather support
of employees and improve their performance.
2. Through grapevine important information can be transmitted
quickly.
3. By cooperating with the informal groups the managers can
skillfully take the advantage of both formal and informal organisations.
Disadvantages of Informal organisation:
1. Spread Rumours:

According to a survey 70% of information spread through informal

organisational structure are rumors which may mislead the
employees.
2. No Systematic Working:
Informal structure does not form a structure for smooth working of
an organisation.
3. May Bring Negative Results:

If informal organisation opposes the policies and changes of

management, then it becomes very difficult to implement them in
organisation.
4. More Emphasis to Individual Interest:

Page 82
Informal structure gives more importance to satisfaction of individual
interest as compared to organisational interest.

Span of control

Span of Control is very simply the number of subordinates that

report to a manager. In the span of control example below we could
say that the IT Manager has a span of control of 3, as they have 3
subordinates reporting to them.

All organizations have layers. The number of layers an organization

has will depend on the size of the organization and also the span of
control of the average manager within that organization.

Page 83
If managers within an organization typically have many reports then
the organization chart will be flatter and wider. In this scenario, there
will be fewer management positions relative to the number of total
employees. Conversely, if managers within an organization have a
smaller span of control this will create an organizational chart that is
narrower and taller. In this scenario, there will be more management
positions relative to the number total employees. This is illustrated
in the following diagram highlighting the difference between tall and
flat organizations.

Each individual manager will also have two dimensions to the team
they manage:
Horizontal dimension: this refers to the number of employees
a manager has directly reporting to them.
Page 84
 Vertical dimension: this refers to the number of employees
that are indirectly managed by the manager, that is, the depth
of the organizational chart underneath a particular manager.
This vertical dimension is often referred to as a
manager’s depth of control.
The Ideal Span of Control

Sometimes an organization will define their ideal span of control.

This is the number of direct reports that managers within the
organization should ideally have. If a manager has less than the
ideal number then the organization may consider that the manager
is not being exploited to the best of their ability.
There is no right or wrong answer as to whether a large or small
span should be used within an organization. It will depend on doing
what best suits the organization in question, and there are advantages
and disadvantages to each. Here are some factors both managers
and organizations should consider:
The experience and people skills of the manager in question.
The skill level of employees. Highly skilled and qualified
professional employees often prefer to operate within a large
span of control, whilst less skilled employees often prefer
closer supervision.
The type of organization in question. If managers are required
to closely supervise their subordinates then a smaller span of
control may be more appropriate.
The organizational culture. Organizations with an autocratic
leadership style and highly supervised employees will be more
suited to a smaller span of control, whereas those with
Page 85
 a democratic leadership style where employees have lots of
autonomy will be more suited to a wide span of control.
Advantages of a Large Span of Control

In describing the advantages of a large span of control, we essentially

need to describe the advantages of a shallow or flat organizational
structure:
Faster Decision Making: with fewer layers within the
organization decisions can be made more quickly.
Lower Costs: relative to organizations with a small span of
control because fewer managers are needed relative to the
number of employees.
Improved Communications: between managers and
employees, with employees more likely to be able to interact with
senior managers, and managers more likely to understand
the issues at the coalface of the organization.
More Freedom: typically employees will feel freer and less
under a microscope than when the span is smaller.
Disadvantages of a Large Span of Control

Here, we essentially need to describe the disadvantages of a flat

organizational structure:
Fewer Opportunities for Employees: with fewer layers within
the organization there is less opportunity for employees to be
promoted.
Poor Discipline: with so much autonomy given to employees
these organizations can suffer from poor discipline.
Page 86
 Poor Relationships: with so many employees to manage it
may be difficult for the manager to form a strong and close
relationship with each of their subordinates.
Poor performance: with so little supervision of employees
performance, the overall performance of the organization may be
poor.
Advantages of a Small Span of Control

In describing the advantages of a small span of control, we essentially

need to describe the advantages of a tall organizational structure:
Easy Access to Superior: the subordinate can quickly and
easily speak to their superior whenever they need. This can
create the sense for the employee that communication is actually
better than with a wider span of control.
Better Opportunities: for employees to get promoted.
Closer supervision: and greater attention to the needs of the
employee from the manager.
Less Skill Required: than if a manager is trying to control a
much larger group of direct reports, each with more autonomy.
Disadvantages of a Small Span of Control

Here, we essentially need to describe the disadvantages of a tall

organizational structure:
Motivation: employees can feel under constant and close
supervision which can be demotivating.

Page 87
 Slower Decision Making: the increased layers within the
organization can make decision making slower.
Decreased Communication: with more layers communication
will be not only slower, but it will be much more difficult for senior
management to understand the issues being faced at the
coalface of the organization.
Span of Control and Virtual Teams

A virtual team (also known as a Geographically Dispersed Team

(GDT)) is one where team members are located offsite, and work
either individually or as part of a small team. Technology is used to
keep team members connected and on the same page. The rise of
virtual teams causes us to take another look at our understanding of
span of control.
Here, information defines the rules subordinates must obey, but
they can be completely autonomous within these rules. This rule-
based approach provides the potential for really large spans of
control. This trend towards an increasing number of direct reports
mirrors the trend that has been in place over the last 100 years,
whereby in the early 20th century spans of control were small but by
the late 20th century they were much wider, resulting in much flatter
organizations.

Page 88
hat is Responsibility and authority: Delegation of
authority and decentralization?

Responsibility and authority: Delegation of authority and

decentralization

This shows that the obligation is the essence of responsibility. In

view of organizational set up, the superior-subordinate relationship
gives rise to this responsibility as the superior is vested with the
authority to get the specified work done by his subordinates.
According to Barnard,

“Authority is the character of a communication (order) in a formal

organization, by virtue of which it is accepted by a contributor to, or
member of, the organization as governing the action he contributes;
that is, as governing or determining what he does or not do, so far
as the organization is concerned.”
According to Koontz and O’Donnell,
“Viewed internally with respect to the enterprise, responsibility may
be defined as the obligation of a subordinate, to whom a superior
has assigned a duty to perform a service required. The essence of
responsibility is then, obligation.”
Learn about the meaning, definition, concept, relationship of
authority and responsibility in management.
Page 89
Authority and Responsibility in Management – Meaning,
Definition, Concept, Characteristics and Relationship
Authority and Responsibility in Management – Meaning,
Definition and Characteristics of Authority and Responsibility
in Management
Authority:
Meaning of ‘Authority’:

Authority means a formal, institutional or legal power in a particular

job, function or position that empowers the holder of that job,
function or position to successfully perform his task.
Definitions of Authority:

According to Barnard, “Authority is the character of a

communication (order) in a formal organization, by virtue of which it
is accepted by a contributor to, or member of, the organization as
governing the action he contributes; that is, as governing or
determining what he does or not do, so far as the organization is
concerned.”
As Simon puts it, authority is the power to make decisions which
guide the action of another. It is a relationship between two
individuals—one of them superior, and the other a subordinate. The
superior frames and transmits decisions, with the expectation that
the subordinates will accept and comply with them. The subordinate
expects such decisions, and his behaviour is determined by them.
Characteristics of Authority:
(1) Exercise of authority drives staff of the organization to
perform the tasks and responsibility assigned to them:
Page 90
Authority means the right to influence the behavior of others. The
right may flow from a legal-institutional framework (a law governing
the organization, or a manual, or guidelines framed by the organi-
zation). The right may also be rooted in tradition, or the charisma of
a person.
Shareholders of a company appoint directors and delegate to them
authority to manage the affairs of the company. They do so because
the Company Law gives them this authority. Parents ask or order
children to do or not to do anything.
This is example of traditional authority. A person with extraordinary
characteristics (charisma) exercises authority over his followers,
even though the followers are neither bound by any law or tradition
to do so. They follow the leader because, according to their per-
ception, he articulates their feelings and aspirations.
(2) Only person holding authority can make decisions:
Decision-making is the main feature of authority. A manager has
authority to order his subordinates to act or not to act in a particular
manner. He does this because he has made decision about the
work behavior of his subordinates.
(3) Exercise of authority may sometimes have element of
subjectivity:

There is legal or traditional framework in an organization within

which authority may be exercised. A manager has authority to
reward and punish his subordinates based on their performance.
But his decision to do so is often influenced by his personal likes
and dislikes and socio-economic, educational and cultural
background.
Page 91
A manager who started working decades ago on a three-digit salary
might have butterflies in stomach when he appoints staff on a salary
many times exceeding his own when he had jointed the
organization. For a while he forgets that under the current global
business scenario, an efficient worker would stay only if his
compensation package compares favorably with that of similarly
qualified workers in other organizations.
Theories of ‘Sources of Authority’:
Which is the Fountainhead of Authority?

Authority is a formal or institutionalized form of power vested in a

position or office.
There are various theories to explain the sources of authority,
important among them are as follows:

1. ‘Formal’, ‘Traditional’ or ‘Top-Down’ theory.

2. ‘Acceptance’ or ‘Bottom-up’ theory.
3. ‘Competence’ or ‘Personal Authority’ theory.
1. ‘Formal’, ‘Traditional’ or ‘Top-Down Theory’ of Authority:
Formal authority flows from law, rules, and regulations that are framed
by, or with the consent of all stakeholders. For example, shareholders
of a company are the source of all legal authority to control and
manage its affairs. Through legal process, they delegate this authority
to Board of directors elected/selected by them.
The Board, on its part, selects and appoints staff that will help it
accomplish the tasks and responsibility necessary to achieve
organizational goals. Then, it assigns tasks and responsibility to the

Page 92
staff, based on their competence levels. Assignment of tasks and
responsibility will be meaningful only when it is accompanied by
delegation of necessary authority to perform the assigned tasks and
responsibility.
Top managers of the company owe responsibility and accountability
to their superiors—the board of directors—who on their part are
responsible and accountable to shareholders. Top managers
appoint senior and junior level managers and assign tasks and
responsibility to them to perform and delegate them appropriate
authority to operate and control the resources placed under their
control. Their reward is the salary and prospects of promotion to
higher responsibility positions in the organization.
The flow of legal authority is top-down at each level. Delegation of
authority from a manager to a subordinate is in proportion to the
nature of tasks and responsibility assigned to the subordinate.
However, delegation of authority does not diminish the authority and
responsibility of the manager- he continues to be the source of
authority vested in him and also continues to be responsible for per-
formance of the assigned task by him and/or his subordinate(s).
2. ‘Acceptance Theory’ of Authority:

Acceptance theory of authority is the exact opposite of the

traditional, formal theory of authority. According to acceptance theory,
authority of a manager will be in direct proportion to the acceptance
given to his authority by his subordinates. Legal authority or
social or cultural norms become irrelevant here. If the subordinates
do not accept the authority of manager, they may not willingly comply
with his decisions and orders – they may even defy
them.
Page 93
The acceptance theory was formulated by Chester Barnard who
held that authority lies in the character of a communication (order)
issued in a formal organization which makes it acceptable to the
persons for whom it is intended. The essence of the theory is that
any authority is as effective or ineffective as the willingness or
unwillingness of subordinates to accept it.
According to Barnard, “an individual will accept the exercise of
authority by his superior if the advantages to him from accepting the
authority and the disadvantages from not accepting the authority are
greater than the advantages from not accepting and the
disadvantages from accepting; conversely, he will not accept the
exercise of authority if the latter factors are greater than the former.”
This means that a subordinate will accept authority only if it falls within
his zone of acceptance. His zone of acceptance will be determined by
a number of factors.
For example, exercise of authority by his manager will fall
within his zone of acceptance if the following conditions are
satisfied:

(a) If the rewards arising from acceptance of authority are greater

than the value of skills and effort that he would be required to spend
on performing the task or responsibility;
(b) If he has a strong sense of belonging to the organization and
hence would willingly accept the authority without subjecting it to cost-
benefit analysis; and
(c) If the consequences of not accepting the authority would
damage his career prospects in the organization, including perhaps
loss of job.

Page 94
Acceptance theory would be put to test only when a manager takes
a decision and communicates it to his subordinate(s). If the
subordinate ably and willingly accept to perform the assigned tasks or
responsibility, and performs it in the manner desired by the manager,
he can rest content that his authority enjoys acceptance.
Now the question – What source of authority would best enable a
manager to perform his task? Formal and legal authority would
empower him to secure performance from his subordinates through
adoption of the ‘carrot and stick’ policy—reward to subordinate if the
task or responsibility assigned to him is performed to the
satisfaction of the manager, and punishment if it is not.
However, the ideal source of authority is that under which the
subordinates accept to perform the assigned task and responsibility
because they trust the ability and integrity of the manager. To sum
up, the ultimate source of authority rests equally on legal, social and
cultural norms that fulfill the test of validity and voluntary acceptance
of authority by subordinates.
3. ‘Competence Theory’ of Authority:

A person can influence the behavior of others even if he does not

command any formal, legal or traditional authority. This happens
when he enjoys support and confidence of his followers because
they see him as personification of their urges and aspirations. They
do so also because they trust his extraordinary technical, social and
human qualities.
At the root of his authority are his competence, charisma and
leader-like qualities. Thus, union leaders of an organization may
select a relatively junior worker to present their case before the top
management for increase in salaries because they feel he is forceful
Page 95
and logical in arguing the case and has at his command well-
documented evidence to support his viewpoint.
‘Tradition-Centric’ Authority:

Every civilized society follows certain traditions and carefully

protects and preserves them. Respecting and serving elders in
family and society is an age-old tradition, so is responsibility of parents
to raise and properly educate and train children for life ahead. Lord
Ram went into exile to honor the promise once made by his father.
Shravan Kumar spent his youth carrying parents on his shoulders
to pilgrim centers. It is a different matter though that in the modern
society this tradition-conferred authority is suffering dilution.
Senior citizens are willingly offered seats in crowded buses and trains;
no one minds their jumping the queue to visit a doctor, or to withdraw
money from bank. Tradition-centric authority has a lot to commend
itself, only it should not become a tool to exploit people who respect
it.
Responsibility:
Meaning of Responsibility:
The term responsibility has been interpreted in two different ways.
Some writers define as a duty while others call it an obligation. In a
more comprehensive sense responsibility can be defined as an
obligation of a subordinate to perform the duties assigned to him.
Thus the responsibility is the obligation to perform certain functions
and achieve results. It is the liability for proper discharge of duties.
According to Koontz and O’Donnell “the obligation of a subordinate
to whom a duty has been assigned to perform the duty”.
Page 96
“Duty” or “responsibility” refers to an obligation or liability for
performance of a task or responsibility that is assigned. Assignment
of a task or responsibility casts a duty to perform something. It means
the person who has been assigned a task or responsibility has a
duty or obligation to perform it. Koontz and O’ Donnel define it as the
obligation of a subordinate, to whom a superior has assigned a task
and delegated authority, to perform the task as required.
‘Responsibility’ Different from ‘Accountability’
Accountability means an obligation on the part of a person to
account for, or explain, why the task or responsibility assigned to
him has not been performed as desired. A person will be
accountable only when he has been assigned any task or
responsibility by the person who commands authority over him.
Accountability will shrink or expand with the nature of responsibility
assigned. A manager is accountable only to his superior but the top
management owes the maximum accountability.
Task or Responsibility only Assigned to Human Beings:

Task or responsibility can only be assigned to humans. Non-living

inanimate beings – machine, tool, capital – cannot be assigned task
or responsibility. They do not work on their own; they need humans
to work them. For this reason they cannot be held accountable for
failure or deficiency of performance.
Assignment of Task or Responsibility Requires Two or more
Persons:

Assignment of task or responsibility requires, first, an authority-

holding person to assign the task or responsibility and, second, one
or more subordinates to perform that task or responsibility. Only a
Page 97
person holding authority—legal, traditional or competence—can
assign task or responsibility. Likewise, only a person who is
subordinate to the authority-holding person can be assigned task or
responsibility.
Manager Commands, Subordinates Obey:

In a business organization a manager is vested with official and

legal authority which empowers him to assign tasks and
responsibility to his subordinates and demand accountability from
them in respect of performance of those tasks and responsibility.
The subordinates accept responsibility and are accountable
because they are bound by service contract that requires them to do
so to become entitled to monetary and other benefits and privileges
provided by the organization.
Continuous or Specific-Duration Task or Responsibility:

Task or responsibility assigned to a subordinate may be a

continuing obligation, or it may be limited in terms of time or tasks.
The relationship between CEO and the production manager of a
company is a case of continuing responsibility – the production
manager must keep performing his task or responsibility so long as
he is in the employment of the company. However, relationship
between CEO and an auditor who is appointed annually to conduct
audit of the company accounts is a specific duration task or
responsibility.
Duty or responsibility may be in terms of functions, targets or goals.
For example, when a worker is assigned the task of operating a
machine, his responsibility is to ensure that the machine is opera-
tionally fit. But if he is assigned the task of producing 100 units daily
on the machine, his responsibility is expressed in terms of a
Page 98
quantitative target. Responsibility in terms of quantitative targets is
preferable to general, non-quantitative responsibility.
The task or responsibility to produce minimum 100 units per day is a
task or responsibility expressed in quantitative terms. It will inspire the
worker to achieve the target and he will experience a sense of
fulfilment if he attains the target. But if the sales manager is
assigned the task of improving sales performance, it will be difficult
for him to work out at what point the sales performance will be deemed
satisfactory by his superior.
These are the main characteristics of the responsibility:
1. The essence of responsibility is obligation to perform the
assigned duty or task.
2. Responsibility arises from superior subordinate relationships. When
a superior assigns some work to a subordinate, the latter becomes
responsible for performance of tasks.
3. Responsibility has no meaning except as applied to a promotion.
A building or machine etc. cannot be held responsible.
4. Responsibility may be a continuing obligation or specific
obligation.
5. Responsibility is a personal attribute and it cannot be deleted.
6. Responsibility is a concomitant of authority, therefore authority
and responsibility should be equal.
Authority:

Organizing will not end by dividing the originations into smaller

homogeneous units. These units must be structured together and

Page 99
their efforts directed towards attaining the goals of the enterprise.
Establishing vertical and horizontal relationships can do this more
effectively through the sharing of authority effected by delegation.
To run the organization towards its goal and objectives the authority
of the executive has to be re-delegated to the managers down the line
to reach the bottom line managers. In every organization, this process
of re-delegation is essential to run the organization. Thus, the concept
of authority arises from the chain, which ties together the sections
emanating from different persons in the organization.
Nature of Authority and Definition:
The word authority is used with different meanings as:
A person with superior knowledge and skill is described as an
authority in the sense of an expert.
In a business organization, which is authoritarian in nature, the word
authority refers to the power of an individuals to direct others by giving
orders.
Henry Fayol defines authority as “the right to give orders and the
power to extract the obedience.”
Allen defines authority as “the sum of the powers and rights
entrusted to make possible the performance of the work delegated.”
This definition emphasise the right and power aspects and adds
another dimension, namely the implication that the authority is
delegated with a view to performance of the work and is delegated
to the extent of the responsibility for the work entrusted to the
delegatee.

Page 100
For practical purposes, the term authority can be defined as the
legal and rightful power to command or to extract action from
others. It is the power or the right to act, to command or to extract
action by others. Because the manager gets the work done by
subordinates, authority constitutes as the key to manager’s job.
Authority and right to command helps the manager get work done
by others in the organization and the degree of authority goes on
descending down the line.
Source of Authority:
There are two versions of theory of authority.
They are:

(i) Formal authority theory, and

(ii) Acceptance theory.
But as per Koontz O’ Donnel source of authority is discussed
under three headings:

(i) The formal authority theory,

(ii) The acceptance theory, and
(iii) The competence theory.
(i) The Formal Authority Theory:
The people who have belief in his theory, accept the basis that the
ultimate source of authority in a business firm is embedded in the
institution of private property, which is interested in a; person power
over material resources. Many academic theorists of the formal
authority view the legal aspects of private property as the source of
authority.
Page 101
(ii) The Acceptance Theory:

This theory is very simple, because the followers of this theory believe
that the authority flows to a manager through acceptance by his
subordinates of his power to make and implement decisions.
As Chester I. Bernard writes that “Authority is the character of
communication (order) in a formal organization by virtue of which it
is accepted by a contributor to or member of the organization as
governing the action he contributes; that is, as governing or
determining what he does or is not to do so fare as the organization
is concerned”.
As per this definition, there are two aspects involved in the concept
of authority.
They are:

(a) The subjective aspect that is the personal aspect of accepting a

communication or order as authoritative; and
(b) The objective aspect that is the character in the communication by
virtue of which it is accepted.
The subordinate will accept the authority of a command, understand
it, believe it and follow it in the interest of the organization. Bernard
says that the subordinate automatically accepts most orders given
by the manager. The acceptance theory really emphasizing the
leadership function of management that is the ability to persuade
others to work well in the interest of goals/objectives of enterprise.
(iii) The Competence Theory:

This theory believes that the technical competence and personal

competence are the basis of authority. Some persons having
Page 102
attractive personality command others to work. By mere his
personality people seek his advice and obey it. Sometimes it so
happens these attractive and commanding personality do not have
any authority, but people waits for his guidance and follow it taking it
as an order.
But one must understand that the fact that the fundamental source
of authority is formal authority emanating from an institutional
framework or from an organizational structure.
Responsibility:

Responsibility is the obligation of a subordinate to perform a duty,

which has been assigned to him by his superior. This shows that the
obligation is the essence of responsibility. In view of organizational set
up, the superior-subordinate relationship gives rise to this
responsibility as the superior is vested with the authority to get the
specified work done by his subordinates.
In general, in business organizations, the authority is a result of the
contractual agreement, under which the subordinate have agreed to
perform certain services in return of monitory benefit. Authority flows
from superior to the subordinate manager to whom certain duties
are assigned and responsibility is the obligation of the subordinate
to accomplish these duties. Responsibility can be discharged by a
single action or it may be a continuous obligation.
Responsibility and Delegation:

A manager can delegate his authority to his subordinate, but

responsibility cannot be delegated. A manager is responsible for the
performance of the duties even though he may delegate to a
subordinate authority to accomplish a service and the subordinate
Page 103
also in his turn may delegate a part of his authority received by him.
Delegation of authority to a subordinate will not relieve a manager
from responsibility to perform his duties.
Authority:
Concept of Authority:

Authority is one of the important considerations in the process of

management. Managerial action in a formal organisation needs
authority. Without authority, the executive cannot secure
compliance of his orders from his subordinates. It is always
considered to be the key to a successful Managerial job. It is the
power of the superior to make decisions which guides the actions of
his subordinates.
Getting things done by people is not possible without compliance on
the part of subordinates and the authority which ensures
compliance. Authority is the only cohesive force that sets in motion
the integrated activities of sub-ordinates in an enterprise. It is the
means through which co-operative activity becomes a success and
common objectives are achieved.
Securing compliance or obedience is the main objective behind the
whole concept of authority. It can be acquired through persuasion,
sanction, coercion, constraints or force.
The managerial authority is a rightful permission to act for the
enterprise instruct the subordinates, impose penalty for wrong doings,
use company property or to speak or act as a representatives
of the enterprise.
The whole organisational structure is based on the concept of
authority without use of authority, anarchy and utter confusion will
Page 104
prevail all around the enterprise Authority is usually respected,
recognised and followed in the organisation as a matter of course.
Authority is generally adopted with power to secure obedience. This
customary acceptance of authority is a part of our culture and day- to-
day behaviour.
But compliance of actions and carrying out of instructions by
subordinates cannot always be assured merely because the
authority is customarily accepted. Delegation of authority
establishes relationships. Vertical delegation of authority determines
relationship between a boss and his subordinate and the horizontal
division of authority determines the degree of decentralisation.
A few definitions of the term “authority” are given below:

“Authority is the right to give orders and the power to obedience”. –

Henry Fayol
“Authority is the official and the legal right to command action by others
and to enforce compliance. Compliance is obtained in a number of
ways trough persuasion, sanctions, request, coercion, constraint or
force”. – George R. Terry
“Authority means the Power to command others- to act or not to act
in a manner deemed fit by the possessor of the authority and is
exercised in furtherance of the enterprise or departmental
purpose”. – Koontz and O’Donnell
From the above definitions, two points become clear that the
possessor of authority influences the activity and behaviour of other
individuals or groups and that he has the right to issue orders and
ensure their compliance by subordinates.
Authority vs. Power:
Page 105
Authority may not mean the same thing as power A person many
have the power to influence the activity and behaviour of other
persons but he may not have the official or legal right of command
and thus enforce compliance by others. Such a person would have
power but no authority. It may, therefore, be said that authority
includes power but power may or may not be supported by
authority. Also, all authority is formal.
Types of Authority:
Authority is of Five Types:
1. Formal Authority:
According to some writers all authority is formal. It stems from the
top and is transmitted downwards through the line by the process of
delegation. The authority which a manager possesses, because of his
organisational position, is known as formal authority.
2. Acceptance Authority:

Under the acceptance theory, it is believed that authority comes to the

manager by the acceptance of power to make and enforce decisions
through his subordinates. Accordingly manager has no authority until
it is conferred upon him by his sub-ordinates.
A subordinates may accept the authority of the manager because –
(i) he wants to contribute to the accomplishment of organisational
objective (ii) he wants to obtain some reward by accepting it. (iii) He
wants to avoid disciplinary action, (iv) he regards the maturity, age
or experience of superior (v) he wants to avoid responsibility, (vi) he
believes that the authority is legitimate and should be followed.

Page 106
But the acceptance theory has been criticised on the grounds
that:

i. It is unrealistic.
ii. It assumes that a subordinate has the option to accept or reject
authority and
iii. It ignores the organisational situation of the possessor of the
authority.
3. Authority of the Situation:

G. R. Terry observes “In almost every enterprise, emergency and

unusual events accrue which are not provided for in the organisational
set-up. When such an event occurs, the person assuming authority
to meet the particular circumstances is said to have derived the
authority of the situation. Such an authority exists only till emergency
lasts”.
4. Position Authority:

It is the authority a person enjoys by virtue of his superior position in

the organisation. Normally subordinates recognize authority of those
occupying higher hierarchical positions.
5. Technical Authority:

Since 1950 the term technical authority or computer authority has

come into use. Such authority stems the decision making power
granted to the processed data by a computer. But since authority is
a human possession, such authority may be described as that
authority which is possessed by the person who either interprets
computer processed results and data or underlines their significant
managerial meanings for others.
Page 107
Limits of Authority:

Unlimited authority always tends to be an instrument of corruption, It

should therefore, have arid generally does have some limitations,
which may be express and implied.
Some of these limitations are:
1. Authority is subject to the physical and mental capacity of the
subordinate who has to exercise it.
2. Authority may be subjected to the bye-laws, standing orders,
rules and regulation of the company (as per articles and memorandum
of the company)
3. Authority may be subject to the social beliefs, codes, creeds and
habits of the group over which it has to be exercised.
4. Laws, trade practices etc. may also impose certain limitations on
the use of authority.
Thus, as a matter of fact, there should be blending of power and
influence to make the authority really effective. The other means,
that it can help in making authority more effective and may include
the backing and support to lower executives, from the top
executives, due attention to their advice, usually confirming their
decisions, permitting command to flow through proper channels and
supplying adequate information and materials to them.
Other General Limits of Authority:
There are any limitations to the concept of authority. Authority is never
absolute like responsibility. It changes with time, position and
group behaviour of the subordinates etc. While exercising authority,

Page 108
the manager must keep the following limitations in his mind. It will help
him in successful utilization of his authority.
They are as follows:
1. Regard for the Mores and Folk Ways of the Group:
Authority when used commands reaction from individual as well as
groups. It may be favourable or unfavourable. So a manager while
using authority, must keep in his mind, the reaction of his orders on
employees, shareholders and customers etc.
2. Legal Limitations:
A manager’s authority is restricted by the enterprise goals,
objectives, politics, programmes and procedures etc. These are
governed by the articles and memorandum of association which are
governed themselves by the commercial and industrial laws of the
country. Every manager at any level in the organisation, must
respect the laws, traditions and restrictions etc.
3. Natural or Biological Limitations:
No subordinate can be ordered to do a job which is impossible to be
performed due to biological limitations. For example, one can hardly
order a person to walk up to side of a building or do such impossible
things.
4. Physical Limitations:

Physical limitations such as climate, geography, chemical elements

and so on, have their limiting effect on authority. For example an order
to make gold from copper.
5. Technological Limitations:

Page 109
There are technological limits on authority too. Until and unless any
performance is technically possible an order to do any such work
would be unworthy.
6. Economic Limitations:

Sometimes a manager may not get the work done from the
subordinates if the wages are not according to their expectation.
The competition in prices of the product and other economic factors
also affect the authority.
7. Authority Delegation Limitations:

The extent of delegation of authority also restricts the authority of a

manager. Generally the authority to make decisions or the right to
command decreases as it proceeds from the highest to lowest level of
an organisation.
Responsibility:
Responsibility is the most misunderstood term in the literature of
management. It is common to hear about delegating
responsibilities, holding a person responsible, discharging
responsibilities and carrying out a responsibility. The term
Responsibility is, most of the times, used to mean duty, activity,
liability, accountability or even authority.
According to Koontz and O’Donnell, “Viewed internally with respect
to the enterprise, responsibility may be defined as the obligation of a
subordinate, to whom a superior has assigned a duty to perform a
service required. The essence of responsibility is then, obligation.”
Responsibility is also an important concept and has been
defined as follows:

Page 110
Responsibility is an obligation of the individual to perform assigned
duties to the best of his ability under the direction of his executive
leader. – Keith Davis
Responsibility is the obligation of a subordinate to perform his duty
as required by his superior – Theo Haiman
Responsibility results from a superior subordinate relationship. It
may continue or cease with the accomplishment of the desired
objective.
It involves:

1. Compliance
2. Obedience and
3. Dependability.
Failure to observe these elements may call for a penalty,
punishment or disciplinary action against the erring subordinate.
Responsibility Relates to human beings only. A building, a machine or
an animal cannot be held responsible. Responsibility arises from the
superior subordinate relationship, from the fact that a superior has
the authority to get specific services from his subordinate. The
relationship between a president and his sales managers is typical
of the continuing type of obligation.
On the other hand, when the president hires some lower for seeking
legal advice and advocating a particular case in the court of law, his
obligation comes to an end when the assignment is completed. In
an enterprise responsibility is accepted by a subordinate due to
contractual relationship and in turn, he gets monetary or other
rewards.
Page 111
While the authority flows from a superior to a subordinate when
assignment of duty is made, the responsibility flows from a
subordinate to his superior when former undertakes the obligation of
accomplishing the duties assigned to him.
Thus, responsibility is an obligation to carry out certain tasks. In an
organisation responsibility is the obligation of a subordinate to perform
his duty as required by his superior. Responsibility is closely
related to authority. It is exacted upwards whereas authority flows
downwards. A manager is responsible ultimately for the performance
of his duties even though he has delegated it to his subordinates.
Therefore responsibility cannot be delegated.
Authority – Responsibility Relationship:

Authority and responsibility of a manager should be co-equal i.e.

authority should be commensurate with responsibility. According to
George R. Terry, responsibility is inseparable, there is every danger
that it may be misused by the possessor. Similarly, if responsibility
is greater than authority, the tendency of the management becomes
difficult and even ineffective. In order to ensure that authority and
responsibility are co-equal, a correlative action may be resorted to.

Delegation and Decentralisation of Authority

Authority is the right to do something; responsibility is an obligation

to do something; accountability is inseparability to superior; power is
the ability to do something; and autonomy is the freedom,
independence and discretion in what one does.

Page 112
Delegation of Authority:
Concept of Authority:

Since authority is the crux in distribution of authority. It would be

necessary to understand what the authority is. Authority is the right
to do something. Authority is the power legitimised by organisation
which empowers a manager to make decisions, to use
organisational resources, and to monitor and regulate the behaviour
of subordinates for the efficient performance of assigned work
responsibilities. Authority (right do something) is different from
power (ability to do something).
Authority is positional, but power may not be positional. Authority
has the legal power, but power is because of personal influence and
resource fullness. Authority always moves downward, but power
can move in any direction. Authority can be delegated, but not
power. Authority commands fear but power commands respect.
Characteristics of Authority:

(i) It is the right given to the managers.

(ii) The right is vested in position and the manger gets it when he
occupies the position.
(iii) Authority originates at the top and moves downward.
(iv) Authority can be delegated by a superior to his subordinate.
(v) Authority creates superior – subordinate relationship.
(vi) Manager exercises authority to influence subordinates’
behaviour so as to get the things done.
Page 113
Types of Authority:
1. Line, staff and functional Authorities:
Line authority contributes directly to attain the goals of an
organisation. Staff authority does not form part of the chain of
command and is advisory in nature. Functional authority is the right
to give orders within specific task areas and is operational only for
designated amount of time.
2. Shared Authority and wholesome Authority:

When authority is delegated to two or more persons to solve a

common problem, it is called shared authority. Wholesome authority
means giving authority to one person only to solve the problem.
3. General and specific Authority:

When the authority to perform all the functions in this department or

division subject to overall guidance and control of the superior (like
chief Marketing officer in the Marketing department), it is known as
general authority.

Under a specific authority, a person is given authority regarding

specific function or functions. Specific delegation is functional in
nature and is precise.
4. Formal and informal:

When the authority is delegated according to organisation structure,

it is known as formal delegation. A salesman being granted
authority to give cash discount of 5% on sales by the sales manager

Page 114
is formal authority. Informal authority is given to short circuit the formal
procedure to perform the task quickly.
5. Charismatic Authority and Positional Authority:
When the rights and power come through the charm and influence
of one’s personality (like Mahatma Gandhi, Napoleon Bonaparte, et
al) it is known as charismatic authority. When the authority is acquired
because one is appointed as a manager, it is positional authority.
6. Written and oral Authority:

When the authority is granted in writing it may be called legal or

written authority. Oral authority is known as traditional authority
guided by traditions and customs.
7. Downward and sideward Authority:

When authority is granted to immediate subordinate it is referred to

as downward delegation. If the authority is given to another official
of the same rank, it is known as sidewalk authority or delegation of
authority.
Concept of Delegation of Authority:
Delegation is the process by which a manger assigns or entrusts a
part of his workload to his subordinate (s).
In practice the term delegation is in use for different activities. It is a
programming technique, a TV quiz show (in Ireland), a term in
contract law (giving another person responsibility to carry out the
performance agreed to in a contract), a name of a British funk musical
band, and a second level administrative subdivision of a
country (Delegation of Tunisia).
Page 115
Process / Elements / Steps of Delegation of Authority:

In involves three steps apart from sizing-up of workload by the

manager to decide what is to be assigned to subordinates. First, the
manager assigns the responsibility or work to subordinate to do.
Second, to complete this assignment he grants necessary authority
(like to spend money to get information from confidential files, to use
company’s resources, to liaise with outsiders, to direct others, etc).
Finally, accountability of the subordinate is created towards the
manager. Accountability is an obligation of subordinate to a
manager for the use of authority and performance of assigned work.

Characteristics of Delegation of Authority:

1. It involves transfer not surrendering of authority.

2. It is a process of sharing work, granting authority and creating
accountability.
3. Delegation takes place at all the levels, where superior –
subordinate relationship exists.
Page 116
4. Delegation is possible only when the delegator has the authority.
5. No delegate is permitted to delegate the granted authority’
further.
6. A manger never gets total authority delegated; otherwise he won’t
be a manger any more.

7. Delegation is not abdication, ultimately the responsibility for

proper discharge of authority and completion of task remains of the
manager or delegator.
8. Authority once delegated can be withdrawn or revoked by the
delegator.
Need / Importance / Reasons of Delegation of Authority:

1. Higher Efficiency (A superior being able to concentrate on non-

routine jobs (delegated to subordinates) multipolices his efficiency)
2. Motivation (since delegation indicates confidence of manager, the
subordinate feels self- importance, recognition, etc. he feels
motivated)
3. Develops subordinates (Making decisions and solving problems
enables them to develop their managerial skills)
4. Better Distribution of work in the Group (since every employee
gets adequate authority to act, it also leads to prompt decision
making)
5. Foundation of Decentralisation (the delegation may be made
permanent, only if it works well temporarily, in the organisation
chart).
Page 117
Obstacles / Barriers to / Problems in Effective Delegation of
Authority:

The obstacles may come from

1. Superiors
2. Subordinates
3. Organisation
Problems with Superiors:

The superiors may be reluctant to delegate because of:

(i) Being disorganised cannot plan what to delegate;
(ii) I can do it better myself;
(iii) No trust and confidence in subordinate’s ability;
(iv) Threat to his position, if subordinate does it better than him; and
(v) Lack of ability to direct the subordinates.
Problems with the Subordinates:
Subordinates do not accept responsibility because of:

Page 118
i. Love of spoon feeding
ii. Habit of over dependence on the superior (asking a boss all the
time);
iii. Fear of failure and consequent reprimand or criticism;
iv. Absence of reward for accepting additional responsibility;
v. Being already overburdened with his own work; and
vi. Lack of commensurate authority required.
Problems with the organisation:

Organisations also impede the delegation of authority because

(i) There is no precedent of delegation so far;
(ii) Management believes in a centralised organisation philosophy;
and
(iii) The size of business is very small
Guidelines (How) to make Delegation of Authority Effective:

(i) Identify the person suitable for the job (being capable for creating
mutual trust and confidence)
(ii) Explain the job and the objectives clearly (Principle of functional
definition and principle to limits of authority)
(iii) Leave space for experimentation and creativity (Principle of
individual initiative)
(iv) Grant the necessary authority (Principle of delegation to be
consistent with results expected and principle of parity of authority
and responsibility)
Page 119
(v) Keep in touch with the delegate for support and monitoring
progress (Communication, training and control)
(vi) Acknowledge a job done well (Principle of reward – Promote the
person doing job better than you)
(vii) Instil the confidence among subordinates (Those who do, only
commit mistakes).
Centralisation and Decentralisation of Authority:

While delegation is concerned with one to one relationship, the pattern

of authority across the different positions and departments is related
to centralisation – decentralisation procures. In should be very clear
that centralisation of activities and centralisation of authority are two
different concepts. Also important to note is that on the delegation
continuum centralisation and decentralisations are the two ends.

There is no question of absoluteness of any of the two. If there is

100% centralisation, then it must be only one-man organisation and
it is beyond our study ; and if there is total decentralisation, it would

Page 120
be anarchy and again beyond the realm of our study. The
conclusion is that the two go together and are relative.
Concept of Decentralisation:

Decentralisation is a conscious process of systematic distribution of

authority by the top management down the line to create operative
levels and to make them autonomous in there functioning.
In a highly decentralised organisation, the top management restricts
itself to major decisions in areas like policy making, coordination
and control. The lower level managers have enough decision
making authority and support to introduce innovativeness in their
work.
Characteristics of Decentralisation of Authority:

1. Decentralisation is both a philosophy of management (to prepare

inside people for future positions) and a technique of organising
(creating number of centres of initiative).
2. Decentralisation of authority is different from dispersal of activities
(dispersal of activities in different geographies is a strategic
decision; decentralisation is concerned with distribution of authority,
not the activities).
3. Decentralisation is extension of Delegation: There may be
delegation without decentralisation, but no decentralisation is possible
without delegation.
4. Degree of decentralisation can be measured through number of
decisions, more important decisions, the scope of decisions, and
lesser the controls on lower-level mangers. The decision making
would be situated nearer to the point of execution.

Page 121
5. Decentralisation is just opposite to centralisation but
centralisation and decentralisation are mutually dependent in a
large organisation.
Need / Advantages / Importance / of Decentralisation:

1. Improves decision making at the top level to

2. Development of managerial personnel through exposure which
provides the opportunity to grow.
3. Increases motivation and morale which is reflected in
performance.
4. Quicker and better decisions, since decisions are not to be
refreshed.
5. Creates healthy competition between different autonomous
operative levels.
6. Adaptation to dynamic change is faster in a decentralised
structure.
Problems / Drawbacks / Limitations of Decentralisation:

1. Problem of coordination because of independent work units.

2. Increased operating cost due to duplication of management
functions in each unit.
3. It may lead to inconsistencies as uniform policies may not be
followed for same type of work in different divisions.
4. Introduction in small concerns may not be practicable.
5. During a crisis decentralisation creates its own problems.

Page 122
6. Managers, having worked in centralised systems, find
uncomfortable to work in a more decentralised form.
Concept of Centralisation:
Centralisation means a conscious and systematic process of
retention of authority in the hands of top-level managers.
Advantages / Merits of Centralisation:
1. Facilitates coordination as all the decisions are taken at one
central point.
2. There is no duplication of efforts and resources.
3. Decisions are consistent, because they are made by same set of
people each line.
4. Top management while deciding, keeps the balance among
functions and departments.
5. Centralisation helps in maintaining confidentiality.
Disadvantages / Problems / Draw backs / Limitations of
centralisation:
1. Decreases efficiency as top management is generally removed
from the facts and realities of the actual situations.
2. Middle and lower level managers feel frustrated and hesitant to
take any initiative.
3. Concentration of authority is always fraught with misuse of
authority for personal gains.
4. In case of death, leaving the organisation, organisational growth
is hampered as there is no immediate replacement.
Page 123
Factors Influencing Centralisation and Decentralisation:

Different factors / situations lead toward more of the two as given in

Table 11.1
Factors influencing Centralisation and Decentralisation:

Basis More More

Centralisation Decentralisation

Environment It is less volatile Is complex and

uncertain

Capability and Lower level Lower level

Experience managers not managers capable &
capable as top experienced to take
level managers decisions

Voice in Lower Lower level

Decisions management management wants
does not want to a voice in decisions
take decisions

Importance of Significant like Relatively minor

Decisions investment and decisions
strategies.

Page 124
Crisis Suitable for facing Corporate culture is
crisis or risk open

Geographic Not visible Yes, freedom is

Dispersion allowed to local units

Size and Smaller the size Larger the size

complexity of more the greater the degree of
organisation centralisation decentralisation

Management Conservative Progressive

Attitude

Uniformity of Required Not required

Action

Differentiating between Delegation and Decentralisation:

So far the student must have understood that delegation is the

beginning and decentralisation is the next move in organising. But
the two have much dissimilarity, which have been shown in Table
11.2.
Table 11.2: Difference between Delegation and
Decentralisation:

Page 125
Basis Delegation Decentralisation

Nature Individual, one to Totalistic, top

one management to last
but one point

Scope Creates superior- Creates operative

subordinate departments
relationships

Compulsion Compulsory Not compulsory

Purpose Multiplication of Increase

manger subordinate role in
the organisation

Withdrawal of Easy Difficult

Authority

Suitability All organisations Suitable for big

organisation

Responsibility Cannot be Responsibility is

delegated delegated

Page 126
Operational Does not grant Implies creating
Autonomy operational operative units with
autonomy to autonomy to them
subordinates

Importance Delegation does Decentralisation is

not require sought through
decentralisation delegation

Page 127
What is Motivation and leadership: Concept and
theories?

Motivation and leadership: Concept and theories

An organization is made up of people and when people are

involved, emotions automatically come into play, and a workplace is
no different. It would be unwise to assume that a workplace is all
objective, no-emotion only performance kind of a packed room
where hormones have no scope to creep in however the fact is that
emotions alone are the biggest motivator or de-motivator of an
employee.
The emotions alone, govern the performance and efficiency of a
worker and had it not been the case, we would have never talked
about the importance of work-life balance and for the present
context, the need of emotionally intelligent leaders.
The current times are very dynamic not just economically but also
socially where the social fabric is rapidly evolving due to
globalization and other influences. The average age of the
workforce is reducing and the leaders now look forward to
managing people belonging to different cultures and backgrounds.
In such a situation, it is important for a leader to be highly sensitized
to the emotional aspects of his/her transactions with people.
Emotional Intelligence is basically the ability to recognize and
understand one’s own feelings and emotions as well as those of
others and use that information to manage emotions and
Page 128
relationships. The 4 important aspects of EI as proposed by Daniel
Goleman are:
▪ Self Awareness
▪ Self Management
▪ Social Awareness
▪ Relationship Management or Social Skills
A leader tends to have a huge influence on the thoughts and
motivation of people. He/she has the capacity to enthuse optimism
and confidence in the followers and lead them to constructive
endeavors which is called resonance and on the other hand they
can negatively influence them to destruct, e.g of such leaders being
Hitler and d Osama Bin Laden which is opposite to resonance
called desonance.
Leaders are closely observed in terms of their body language, facial
expressions etc. So, it is important for a leader to consider the non-
verbal form of expressions as well, which may positively or
negatively influence followers. Therefore, if a leader is talking about
ethics in business with a slightly unconvinced and bemused look on
his face, the followers make a note of it and the message is not
received by them. A leader has to act as a role model too,
supporting his statements, ideologies and values with appropriate
actions.
As a leader one also has to be aware of one’s own capabilities and
weaknesses, it is difficult to accept guidance from a leader who is
not self aware. As managers, leaders have to empathize as well
with the situations, emotions, aspirations and motivations of the
subordinates.
Page 129
A decreasing performance of a team member might be because of
a number of reasons, a disruptive worker might be facing motivation
issues and a subordinate who uses abusive language with others
might be lacking confidence in his own abilities. A leader needs to
discern facts and try and reach to deeper levels and understand things
beyond obvious.
Apart from the above reasons, Emotional Intelligence is also important
because the followers or subordinate expect it from their leaders. A
subordinate working closely with the manager would expect the
manager to understand his situation and priorities. And not
surprisingly, whether manger does so or not, affects his level of
commitment and performance at work.
A leader has to suitably know and understand when he/she needs
to be directive and when he needs to delegate. He/she needs to be
aware, when the team members are acting as one unit and when there
are differences.
It is sometimes awkward to address emotional aspects of transactions
between people but leaders need to understand the importance and
relevance of it as it has a huge impact on the performance outcomes.
While conducting reviews and development dialogues, the feedback
has to be delivered in a manner which is acceptable.
The leader needs to be sensitive to the insecurities and
apprehensions of the subordinates which sometimes might be
expressed and sometimes kept undisclosed. At the senior level it is
all the more important as the senior executives find it hard to clearly
outline their anxieties and differences and the leader has to
anticipate some of them.
Page 130
Organizational Leadership
Organizations need strong leadership for optimum effectiveness.
Leadership, as we know, is a trait which is both inbuilt and can be
acquired also. Organizational leadership deals with both human
psychology as well as expert tactics. Organizational leadership
emphasizes on developing leadership skills and abilities that are
relevant across the organizations. It means the potential of the
individuals to face the hard times in the industry and still grow
during those times. It clearly identifies and distinguishes the leaders
from the managers. The leader should have potential to control the
group of individuals.
An ideal organizational leader should not dominate over others. He
should guide the individuals under him, give them a sense of direction
to achieve organizational goals successfully and should act
responsibly. He should be optimistic for sure. He should be
empathetic and should understand the need of the group members.
An organizational leader should not only lead others individually but
also manage the actions of the group.
Individuals who are highly ambitious, have high energy level, an
urge to lead, self-confidence, intelligence, have thorough knowledge
of job, are honest and flexible are more likely to succeed as
organizational leaders. Individuals who learn the organizational
leadership develop abilities and skills of teamwork, effective
communication, conflict resolution, and group problem solving
techniques.
Organizational leaders clearly communicate organizational mission,
vision and policies; build employees morale, ensure efficient
Page 131
business operations; help employees grow professionally and
contribute positively towards organizations mission.
Tips for Effective Organizational Leadership
1. A leader must lead himself, only then he can lead others. He
must be committed on personal and professional front, and must
be responsible. He must be a role model for others and set an
example for them.
2. A leader must boost up the morale of the employees. He
should motivate them well so that they are committed to the
organization. He should be well acquainted with them, have
concern for them and encourage them to take initiatives. This
will result in more efficient and effective employees and ensure
organizational success.
3. A leader must work as a team. He should always support his
team and respect them. He should not hurt any employee. A true
leader should not be too bossy and should not consider him
as the supreme authority. He should realize that he is part of the
organization as a whole.
Organizational leadership involves all the processes and possible
results that lead to development and achievement of organizational
goals. It includes employees’ involvement, genuineness, effective
listening and strategic communication.
Leadership Ethics - Traits of an Ethical Leader

Ethics refer to the desirable and appropriate values and morals

according to an individual or the society at large. Ethics deal with
the purity of individuals and their intentions. Ethics serve as
guidelines for analyzing “what is good or bad” in a specific scenario.
Page 132
Correlating ethics with leadership, we find that ethics is all about the
leader’s identity and the leader’s role.
Ethical theories on leadership talk about two main things: (a) The
actions and behaviour of leaders; and (b) the personality and
character of leaders. It is essential to note that “Ethics are an
essential to leadership”.

A leader drives and influences the subordinates / followers to

achieve a common goal, be it in case of team work, organizational
quest, or any project. It is an ethical job of the leader to treat his
subordinates with respect as each of them has unique personality.
The ethical environment in an organization is built and developed by
a leader as they have an influential role in the organization and due
to the fact that leaders have an influence in developing the
organizational values.
An effective and ethical leader has the following traits /
characteristics:

Dignity and respectfulness: He respects others. An ethical

leader should not use his followers as a medium to achieve his
personal goals. He should respect their feelings, decision and
values. Respecting the followers implies listening effectively to
them, being compassionate to them, as well as being liberal in
hearing opposing viewpoints. In short, it implies treating the
followers in a manner that authenticate their values and beliefs.

Serving others: He serves others. An ethical leader should

place his follower’s interests ahead of his interests. He should
be humane. He must act in a manner that is always fruitful for
his followers.
Page 133
 Justice: He is fair and just. An ethical leader must treat all his
followers equally. There should be no personal bias. Wherever
some followers are treated differently, the ground for differential
treatment should be fair, clear, and built on morality.

Community building: He develops community. An ethical

leader considers his own purpose as well as his followers’
purpose, while making efforts to achieve the goals suitable to
both of them. He is considerate to the community interests. He
does not overlook the followers’ intentions. He works harder for
the community goals.

Honesty: He is loyal and honest. Honesty is essential to be an

ethical and effective leader. Honest leaders can be always
relied upon and depended upon. They always earn respect of
their followers. An honest leader presents the fact and
circumstances truly and completely, no matter how critical and
harmful the fact may be. He does not misrepresent any fact.

It is essential to note that leadership is all about values, and it is

impossible to be a leader if you lack the awareness and concern for
your own personal values. Leadership has a moral and ethical aspect.
These ethics define leadership. Leaders can use the above mentioned
traits as yardsticks for influencing their own behaviour.
Motivation Theories

Motivation is a state-of-mind, filled with energy and enthusiasm, which

drives a person to work in a certain way to achieve desired goals.
Motivation is a force which pushes a person to work with high level of
commitment and focus even if things are against him.
Motivation translates into a certain kind of human behaviour.
Page 134
It is important to ensure that every team member in an organization
is motivated. Various psychologists have studied human behaviour
and have formalized their findings in the form various motivation
theories. These motivation theories provide great understanding on
how people behave and what motivates them.
Motivation is a huge field of study. There are many theories of
motivation. Some of the famous motivation theories include the
following:
1. Maslow’s hierarchy of needs
Abraham Maslow postulated that a person will be motivated when
his needs are fulfilled. The need starts from the lowest level basic
needs and keeps moving up as a lower level need is fulfilled. Below
is the hierarchy of needs:
Physiological: Physical survival necessities such as food,
water, and shelter.
Safety: Protection from threats, deprivation, and other
dangers.
Social (belongingness and love): The need for association,
affiliation, friendship, and so on.
Self-esteem: The need for respect and recognition.
Self-actualization: The opportunity for personal development,
learning, and fun/creative/challenging work. Self-actualization

Page 135
 Unit 6: Business Management and Human Resource Management

is the highest level need to which a human being can aspire.

Self·
actualization
ReaMzation of
potentialood abUies

Self·esteem·Status
Status,Promotions,Respects,
Raises. Goodgrades,Prizes

Belongingness and love

Relationship with our family and
friends,colleagues,team members

Safety and Security

Security ofincome,salary, body,employment,To have a place
to live,good health,financialaid, permanent scholarship

Physiological needs
Water.food,shelter,sleep

The leader will have to understand the specific need of every

individual in the team and accordingly work to help fulfil their needs.
Page 136
2. Hertzberg’s two factor theory
Hertzberg classified the needs into two broad categories namely
hygiene factors and motivating factors.

Hygiene factors are needed to make sure that an employee is not

dissatisfied. Motivation factors are needed for ensuring employee's
satisfaction and employee’s motivation for higher performance.
Mere presence of hygiene factors does not guarantee motivation,

Page 137
and presence of motivation factors in the absence of hygiene
factors also does not work.
3. McClelland’s theory of needs
McClelland affirms that we all have three motivating drivers, and it
does not depend on our gender or age. One of these drives will be
dominant in our behaviour. The dominant drive depends on our life
experiences.
The three motivators are:
Achievement: a need to accomplish and demonstrate own
competence People with a high need for achievement prefer
tasks that provide for personal responsibility and results based
on their own efforts. They also prefer quick acknowledgement
of their progress.
Affiliation: a need for love, belonging and social acceptance
People with a high need for affiliation are motivated by being
liked and accepted by others. They tend to participate in
social gatherings and may be uncomfortable with conflict.
Power: a need for control own work or the work of others
People with a high need for power desire situations in which
they exercise power and influence over others. They aspire
for positions with status and authority and tend to be more
concerned about their level of influence than about effective
work performance.
4. Vroom’s theory of expectancy

Victor Vroom stated that people will be highly productive and

motivated if two conditions are met: 1) people believe it is likely that

Page 138
their efforts will lead to successful results and 2) those people also
believe they will be rewarded for their success.
People will be motivated to exert a high level of effort when they
believe there are relationships between the efforts they put forth, the
performance they achieve, and the outcomes/ rewards they receive.
5. McGregor’s theory X and theory Y
Douglas McGregor formulated two distinct views of human being
based on participation of workers. The first is basically negative,
labelled as Theory X, and the other is basically positive, labelled as
Theory Y. Both kinds of people exist. Based on their nature they need
to be managed accordingly.
Theory X: The traditional view of the work force holds that
workers are inherently lazy, self-centred, and lacking ambition.
Therefore, an appropriate management style is strong, top-
down control.
Theory Y: This view postulates that workers are inherently
motivated and eager to accept responsibility. An appropriate
management style is to focus on creating a productive work
environment coupled with positive rewards and reinforcement.
Conclusion
Motivation is the state of mind which pushes all human being to
perform things with the highest spirit and with positivity. The leader
will have to ensure that every individual in the team and the
organization is motivated. The various motivation theories helps in
understanding what will motivate people.

Page 139
What is Corporate governance and business
ethics?

Corporate governance and business ethics

Since the origin of commerce, the ethical basis of business has

been in question. In the ancient Greek civilisation Aristotle could
readily distinguish between the basic trade required for an economy
to function, and trade for profit which could descend into
unproductive usury (Solomon 1992, 321). Most major world
religions cast a sceptical eye on business, including Christianity, Islam
and Confucianism. Shakespeare immortalised the potential venality of
business in The Merchant of Venice, “All that glisters is not gold.”
Frentrop (2003) graphically records how greed, speculation, deceit
and frequent bankruptcy punctuated the fortunes of the earliest of the
great trading companies, beginning with the Dutch East India
Company.
Adam Smith in 1776 in The Wealth of Nations made a withering
comment on company management that would echo through the
ages: “Being managers of other people’s money than their own, it
Page 140
cannot well be expected that they should watch over it with the
same anxious vigilance with which the partners in a private co- partner
frequently watch over their own … Negligence and profusion,
therefore, must always prevail more or less in the management of the
affairs of a joint-stock company” (Smith 1976,
264–265).
As technological change advanced with the industrial revolution, there
occurred a wider diffusion of ownership of many large companies as
no individual, family or group of managers could provide sufficient
capital to sustain growth. Berle and Means chronicled the profound
implications of this separation of ownership and control: “the
dissolution of the old atom of ownership into its component parts,
control and beneficial ownership” (1933, 8).
Berle and Means expressed hope that with this different concept of
a corporation there might develop a much wider accountability to
the community, recognising the significance of the diffusion of
ownership and the concentration of control in the modern
corporation: “The economic power in the hands of the few persons
who control a giant corporation is a tremendous force which can harm
or benefit a multitude of individuals, affect whole districts, shift the
currents of trade, bring ruin to one community and prosperity to
another (Berle and Means 1933, 46).
However any hope of a wider sense of fiduciary duty in corporations
was eroded away in the later decades of the twentieth century in the
Anglo- American world, as capital markets became more aggressive
and unstable, and executive compensation was propelled upwards
by stock options.

Page 141
 A succession of cycles of booming economies, followed by market
collapse and recession, culminated in 2007–2008 in the first global
financial crisis, which was also a crisis in governance and
regulation. The most severe financial disaster since the Great
Depression of the 1930s exposed the dangers of unregulated
markets, nominal corporate governance, and neglected risk
management. What also appeared in stark relief were an economic
system and corporations and managers singularly lacking in any
moral compass.
It has been argued that the dominant logic in this era, in both
finance and law of agency theory, had reduced managers to mere
agents of shareholder principles. Agency theory asserts that
shareholder value is the ultimate corporate objective which
managers are incentivised and impelled to pursue: “The crisis has
shown that managers are often incapable of resisting pressure from
shareholders. In their management decisions, the short-term market
value counts more than the long-term health of the firm” (Segrestin
and Hatchuel 2011, 484; Jordi 2010).
Agency theory has become “a cornerstone of … corporate
governance” (Lan and Heracleous 2010, 294). As governments,
regulators, and financial institutions examined what had gone wrong
during the crisis, a new sense of the importance of robust
regulation, alert corporate governance, and stronger ethical
guidelines became widespread. In effect what is now emerging is an
integration of corporate governance, corporate social responsibility
and corporate sustainability which potentially offers a new
framework for ethical business.
This newly-emerging ethical framework for business provides a
stronger base for the exercise of moral values and ethical
Page 142
reasoning. “People in business are ultimately responsible as
individuals, but they are responsible as individuals in a corporate
setting where their responsibilities are at least in part defined by
their roles and duties in the company … businesses in turn are
defined by their role(s) and responsibilities in the larger community
…” (Solomon 1992, 320). This suggests an ethical alignment of
individuals, corporations, and the economic system, which is captured
in the definition of corporate governance offered by Cadbury, and
adopted by the World Bank:

Corporate governance is concerned with holding the balance between

economic and social goals and between individual and communal
goals. The governance framework is there to encourage the efficient
use of resources and equally to require accountability for the
stewardship of those resources. The aim is to align as nearly as
possible the interests of individuals, corporations and society.
This definition highlights the importance of corporate governance in
providing the incentives and performance measures to achieve
business success, and secondly in providing the accountability and
transparency to ensure the equitable distribution of the resulting
wealth.
Finally the significance of corporate governance in enhancing the
stability and equity of society recognises a more positive and
proactive role for business. Rather than corporate governance and
regulation being inherently restrictive, they can be a means of
enabling corporations to achieve the highest goals of corporate
achievement. Equally a more positive approach to business ethics
can be imagined (Solomon 1992, 330):

Page 143
Business ethics is too often conceived as a set of impositions and
constraints, obstacles to business behavior rather than the
motivating force of that behavior … properly understood, ethics
does not and should not consist of a set of prohibitive principles or
rules, and it is the virtue of an ethics of virtue to be rather an
intrinsic part and the driving force of a successful life well lived. Its
motivation need not depend on elaborate soul-searching and
deliberation but in the best companies moves along with the easy flow
of interpersonal relations and a mutual sense of mission and
accomplishment.
Historical Development Of Corporate Governance And
Accountability

The balance of pursuing market opportunities while maintaining

accountability has proved a defining challenge for business enterprise
since the arrival of the joint-stock company in the early years of
industrialism. The accountability and responsibility of business
enterprise was constantly subject to question, and historically failed
this test—often in the view of the public. Maurice Clark deplored how
business “inherited an economics of irresponsibility” from the laissez-
faire beliefs and practices of early industrialism (1916).
He argued that business transactions do not occur in isolation, but
have wider social and economic consequences which need to be
considered, impacting directly on employment, health and the
environment. He insisted that legal regulation may be required to
ensure protection from abuses, but that this could never replace a
general sense of responsibility in business that goes beyond the letter
of the law, preventing competitive forces from leading to a
race to the bottom. Hence the periodic outbreak of destructive
Page 144
competition needed to be restrained in Clark’s view by “an
economics of responsibility, developed and embodied in our
working business ethics” (1916).
The debate concerning the true extent of the accountability and
responsibility of business enterprise has continued to the present day,
punctuated by occasional public outrage at business transgressions,
and calls for greater recognition of the social obligations of business.
At the height of the economic depression in the United States in 1932,
Dodd made a dramatic plea in the pages of the Harvard Law Review:
“There is in fact a growing feeling not only that business has
responsibilities to the community but that our corporate managers
who control business should voluntarily and without waiting for legal
compulsion manage it in such a way as to fulfill these
responsibilities.” This resonated with Berle and Means’ insistence
that large corporations “serve not alone the owners or the control,
but all society.” Though Berle subsequently commenced a
prolonged debate with Dodd on the subject of For Whom Are
Corporate Managers Trustees, he (Berle) (1955) later conceded to
Dodd’s argument that management powers were held in trust for the
entire community (Wedderburn 1985, 6).
Such forthright views did not remain at the level of academic
speculation, but often were translated into legal, policy and business
interpretations and practice. For example in Teck Corp Ltd v. Millar,
the Supreme Court of British Columbia, while retaining the
identification of company interests with those of shareholders,
nonetheless was prepared to grant directors a licence under their
fiduciary duties to take into account wider stakeholder interests
(Teck Corp Ltd v. Millar 1973, 313–314):
Page 145
The classical theory is that the directors’ duty is to the company.
The company’s shareholders are the company … and therefore no
interests outside those of the shareholders can legitimately be
considered by the directors. But even accepting that, what comes
within the definition of the interests of the shareholders? By what
standards are the shareholders’ interests to be measured? A
classical theory that once was unchallengeable must yield to the facts
of modern life. In fact, of course, it has.
If today the directors of a company were to consider the interests of
its employees no one would argue that in doing so they were not
acting bona fide in the interests of the company itself. Similarly, if
the directors were to consider the consequences to the community
of any policy that the company intended to pursue, and were deflected
in their commitment to that policy as a result, it could not be said that
they had not considered bona fide the interests of the shareholders.
Wedderburn (1985, 12) documents an equivalent deep-seated and
practical commitment of corporate responsibility to a wide
constituency in the post-war beliefs of leaders of the British
business community. A lively debate continues world-wide
concerning the scope of directors’ duties. In Australia, the
Corporations Act Section 181 obliges directors and other corporate
officers to exercise their powers and discharge their duties:
in good faith and in the best interests of the corporation;
for a proper purpose.
Under common law directors are obliged to act in the interests of
“the company as a whole.” Traditionally this phrase has been
interpreted to mean the financial well-being of the shareholders as a
Page 146
general body (though directors are obliged to consider the financial
interests of creditors when the firm is insolvent or near-insolvent). A
recent generation of financial economists helped to translate this
broad shareholder primacy principle into a narrow pursuit of
shareholder value.
This restrictive definition of shareholder value has often been
associated with short-termism and a neglect of wider corporate
responsibilities in the interests of immediate profit maximisation.
Concerns have arisen that directors who do wish to take account of
other stakeholder interests may be exposed. However there is a wider
interpretation of shareholder value which suggests that only when
all of the other constituent relationships of the corporation— with
customers, employees, suppliers, distributors and the wider
community—are fully recognised and developed, can long-term
shareholder value be released.
In 2007–2008 the first global financial crisis exposed the dangers of
unregulated markets, nominal corporate governance, and neglected
risk management
Traditionally, commercial law in many European countries has
supported a sense of the wider social and environmental obligations
of companies, which continues despite a recent enthusiasm for the
principle of shareholder value as some large European companies for
the first time seek the support of international investors. The United
Kingdom has stood apart from Europe as an influential exponent of
the Anglo-American market-based approach to corporate
governance.
However, in an effort to jettison the company-law rhetoric instituted
in the 19th century, and to make the law more accessible, a
Page 147
Company Law Review (CLR) steering group was established. The
ensuing consultative document Modern Company Law for a
Competitive Economy: Developing the Framework (2000) proposed
for the first time that there should be a statutory statement of directors’
duties (in the past the core components of those duties was found
in case law), and made a significant step in the direction of endorsing
fuller corporate social and environmental reporting (CLR 2000,
180–181):
Current accounting and reporting fail to provide adequate
transparency of qualitative and forward-looking information which is
of vital importance in assessing performance and potential for
shareholders, investors, creditors and others. This is particularly so
in the modern environment of technical change, and with the
growing importance of “soft,” or intangible assets, brands, know-
how and business relationships.
The full annual report must be effective in covering these, both as a
stewardship report and as a medium of communication to wider
markets and the public … we believe the time has come to require
larger companies to provide an operating and financial review,
which will cover the qualitative, or “soft,” or intangible, and forward-
looking information which the modern market and modern business
decision-making require, converting the practice of the best-run
companies into a requirement for all.
These issues were extensively considered in the United Kingdom
for several years in the deliberations of the Modern Company Law
Review. Two approaches were considered:
a pluralist approach under which directors’ duties would be
reformulated to permit directors to further the interests of other
Page 148
 stakeholders even if they were to the detriment of
shareholders;
an enlightened shareholder-value approach allowing directors
greater flexibility to take into account longer-term
considerations and interests of various stakeholders in
advancing shareholder value.
In considering these approaches, the essential questions of what is
the corporation, and what interests it should represent are exposed
to light, as Davies eloquently argues (2005, 4):
The crucial question is what the statutory statement says about the
interests which the directors should promote when exercising their
discretionary powers. The common law mantra that the duties of
directors are owed to the company has long obscured the answer to
this question. Although that is a statement of the utmost importance
when it comes to the enforcement of duties and their associated
remedies, it tells one nothing about the answer to our question, whose
interests should the directors promote?
This is because the company, as an artificial person, can have no
interests separate from the interests of those who are associated
with it, whether as shareholders, creditors, employers, suppliers,
customers or in some other way. So, the crucial question is, when
we refer to the company, to the interests of which of those sets of
natural persons are we referring?
As a member of the Corporate Law Review Steering Group, Davies
goes on to defend the enlightened shareholder-value view suggesting
that the pluralist approach produces a formula which is unenforceable,
and paradoxically gives management more freedom
of action than they previously enjoyed. An Australian legal expert,
Page 149
Redmond, endorses this critique of widening the scope of directors’
duties too greatly (Redmond 2005, 27):
The pluralist or multifiduciary model rests on a social, not a
property, view of the corporation. It identifies the corporate purpose
with maximizing total constituency utility. This is an indeterminate
outcome measure which poses particular difficulties in translation
into a legally enforceable duty.
The indeterminacy of the criteria for decision and performance
measurement also points to a probable loss of accountability for
directors since it offers broad scope to justify most decisions. It is
difficult to resist the conclusion of the British review that either it
confers a broad unpoliceable policy discretion on managers
themselves or just gives a broad jurisdiction to the courts. The
model needs either practical rehabilitation or a superior
performance metric. It is not clear where either might be found.
In the resulting British Company Law Reform Bill (2005) the
enlightened shareholder-value view has prevailed in clause 156,
which defines the essential directoral duty as:
Duty to promote the success of the company
1. A director of a company must act in the way he considers, in
good faith, would be most likely to promote the success of the
company for the benefit of its members as a whole.
2. Where or to the extent that the purposes of the company
consist of or include purposes other than the benefit of its
members, his duty is to act in the way he considers, in good
faith, would be most likely to achieve those purposes.

Page 150
 3. In fulfilling the duty imposed by this section a director must (so
far as reasonably practicable) have regard to:
1. the likely consequences of any decision in the long term,
2. the interests of the company’s employees,
3. the need to foster the company’s business relationships
with suppliers, customers and others,
4. the impact of the company’s operations on the
community and the environment,
5. the desirability of the company maintaining a reputation
for high standards of business conduct, and
6. the need to act fairly as between members of the
company.
4. The duty imposed by this section has effect subject to any
enactment or rule of law requiring directors, in certain
circumstances, to consider or act in the interests of creditors of
the company.
This clause replaces the discretion of directors to have regard for
stakeholder interests with a duty for directors to do this (Davies
2005, 5):
As far as directors’ duties are concerned, this is the heart of the
enlightened shareholder-value approach. The aim is to make it clear
that although shareholder interests are predominant (promotion of
the success of the company for the benefit of its members), the
promotion of shareholder interests does not require riding
roughshod over the interests of other groups upon whose activities
the business of the company is dependent for its success. In fact,
Page 151
the promotion of the interests of the shareholders will normally require
the interests of other groups of people to be fostered. The interests of
non-shareholder groups thus need to be considered by the directors,
but, of course, in this shareholder-centred approach, only to the
extent that the protection of those other interests promotes the
interests of the shareholders. The statutory formulation can be said
to express the insight that the shareholders are not likely to do well
out of a company whose workforce is constantly on strike, whose
customers don’t like its products and whose suppliers would rather
deal with its competitors.
In this way the Company Law Reform Bill treads a fine legal line
between a sense of “enlightened shareholder value” which is
becoming best practice in many leading companies, and more
radical claims for company law to adopt a more “pluralist” sense of
the ultimate objectives of the enterprise and the interests to be served.
The reform manages this balancing act by suggesting that the pluralist
objectives of maximizing company performance to the benefit of all
stakeholders can best be served by professional directors pursuing
commercial opportunities within a framework of standards and
accountability:
The overall objective should be pluralist in the sense that
companies should be run in a way which maximizes overall
competitiveness and wealth and welfare for all. But the means
which company law deploys for achieving this objective must be to
take account of the realities and dynamics which operate in practice
in the running of a commercial enterprise.
It should not be done at the expense of turning company directors
from business decision-makers into moral, political or economic
arbiters, but by harnessing focused, comprehensive, competitive
Page 152
decision-making within robust, objective professional standards and
flexible, but pertinent accountability (CLR 2000, 14).
The reform supports the ultimate power of shareholders to appoint
or dismiss directors for whatever reasons they choose, and to
intervene in management to the extent the constitution permits, and
confesses: “There is clearly an inconsistency between leaving these
powers of shareholders intact and enabling or requiring directors to
have regard to wider interests … the effect will be to make smaller
transactions within the powers of directors subject to the broad
pluralist approach, but larger ones which are for shareholders
subject only to the minimal constraints which apply to them” (CLR
2000, 26).
It is likely that the modern company law proposals will over time
facilitate the wider and more conscious adoption by British companies
of social and environmental commitments, and the willingness to
report fully on them. In time it is possible that such social and
environmental commitments will become part of widespread company
and management best practice, in the way that the commitment to
quality in the production of goods and services has become universal.
Moreover, just as the United Kingdom in the publication of the
Cadbury code of corporate governance ultimately influenced a
considerable number of other countries to adopt a similar code, it is
possible that other countries, particularly that share a common law
tradition with the United Kingdom, will begin to review their company
law with similar objectives in mind.

Page 153
Moral liability occurs when corporations violate stakeholder
expectations of ethical behaviour in ways that put business value at
risk
One reason why the agenda of corporate responsibility is increasingly
irresistible is that while legal liability of corporations is deepening,
what has been described as an emerging and hardening moral liability
is exerting increasing influence. In this respect the legislative process
lags behind what society thinks, values and respects. Moral liability
occurs when corporations violate stakeholder expectations of ethical
behaviour in ways that put business value at risk. There is an
increasing convergence between these two forms of liability, as
corporations come under scrutiny both by the law and—often more
immediately and pointedly—by public opinion (SustainAbility 2004, 5).
CORPORATE SOCIAL RESPONSIBILITY

The narrow focus of corporate governance exclusively upon the

internal control of the firm and simply complying with regulation is
no longer tenable. In the past this has allowed corporations to act in
extremely irresponsible ways by externalising social and
environmental costs. Corporate objectives described as “wealth
generating” too frequently have resulted in the loss of well-being to
communities and the ecology.
But increasingly in the future the license to operate will not be given
so readily to corporations and other entities. A license to operate will
depend on maintaining the highest standards of integrity and
practice in corporate behavior. Corporate governance essentially
will involve sustained and responsible monitoring of not just the

Page 154
financial health of the company, but the social and environmental
impact of the company.
A substantial increase in the range, significance and impact of
corporate social and environmental initiatives in recent years
suggests the growing materiality of sustainability. Once regarded as
a concern of a few philanthropic individuals and companies, corporate
social and environmental responsibility appears to be becoming
established in many corporations as a critical element of strategic
direction, and one of the main drivers of business development, as
well as an essential component of risk management. Corporate social
and environmental responsibility (CSR) seems to be rapidly moving
from the margins to the mainstream of corporate activity, with greater
recognition of a direct and inescapable relationship between corporate
governance, corporate responsibility, and sustainable development.
The burgeoning importance of this newly revived movement is
demonstrated by the current frequency and scale of activity at every
level (Calder and Culverwell 2005, 43). Among international
organizations the United Nations is coordinating a public-private
partnership between UNEP and 170 banks, insurers and asset
managers world-wide including Deutsche Bank, Dresdner Kleinwort
Wasserstein, Goldman Sachs, HSBC and UBS to explore the financial
materiality of environmental, social and governance (ESG) issues to
securities valuation (UNEP 2004).
Early in 2005 the UN convened a group of 20 of the world’s largest
institutional investors to negotiate a set of Principles for Responsible
Investment, and published a Working Capital report in early 2006 as
a guide to the investment community on how to incorporate
environmental, social and governance issues into their investment
Page 155
decision-making and ownership processes. This builds on the work
of the UN Global Compact with more than 1,500 corporate
signatories, which is working with the world’s leading stock
exchanges and the World Federation of Exchanges to advance the
principles of corporate responsibility in capital markets and with public
corporations (UN 2000).
In 2005 institutional investors representing US$21 trillion in assets
came together for the third Carbon Disclosure Project meeting,
collectively requesting the world’s largest corporations to disclose
information on greenhouse-gas emissions and their approach to the
management of carbon risks (UNEP FI 2005). Finally, 36 of the
world’s largest banks, representing more than 80% of the global
project finance market, have adopted the Equator Principles, a set
of voluntary principles outlining environmental, social and human
rights disciplines associated with project finance above US$50
million (Freshfields Bruckhaus Deringer 2005). The principles
originally were developed by the International Finance Corporation
(IFC), the private sector investment arm of the World Bank. The
OECD also is active in the promotion of CSR in its guidelines for the
operations of multinational corporations; and the European Union is
actively encouraging CSR as the business contribution to
sustainable development (OECD 2000; European Commission
2003, 2004).
At the national level a growing number of governments in Europe, and
across the globe, have identified strongly with the call for corporate
social and environmental responsibility, even with the evident
difficulties in applying the Kyoto Protocol and creating an
effective international climate-policy regime.

Page 156
At the corporate level the World Business Council for Sustainable
Development, and World Economic Forum Global Corporate
Citizenship Initiative have projected corporate responsibility in the
minds of the international business elite (WBCSD 2002, 2004; WEF
2005). Other business organizations active in promoting CSR
include the Business Leaders’ Initiative on Human Rights, the
Conference Board, Business in the Community, and Business for
Social Responsibility.
A large number of leading corporations have signed up for the
Global Reporting Initiative and more than 2,000 international
corporations now publish reports on their CSR performance (many
accessible on www.csrwire.com). In 2011 the GRI published new
guidelines on materiality, stakeholder inclusiveness, sustainability
context, and completeness of reporting (GRI 2011). Reinforcing the
new-found willingness on the part of corporate executives to
disclose their commitments to CSR are the new indices including
the Dow Jones Sustainability Index and FTSE4Good. Finally, there
are a proliferating number of consultancies, NGOs and campaign
groups offering guidance and actively monitoring CSR activities
along the entire length of the global value chain (World Bank 2003).
Corporate governance essentially will involve sustained and
responsible monitoring of not just the financial health of the
company, but the social and environmental impact of the company
Questions are often addressed regarding the sincerity of corporate
social and environmental initiatives; the legality of company
directors engaging in these concerns; equally, the legality of the
trustees of investment institutions attending to these interests; and
the verifiability of CSR activities and outcomes.
Page 157
 It is important to clarify the continuing and emerging legal and
commercial basis for corporations to pursue corporate social and
environmental responsibility; the ongoing legal and material support
for institutional trustees to prioritize socially and environmentally
responsible investments; to examine developments in verification on
corporate reporting of CSR performance; and to consider some
illustrations of current best practice.
THE INTEGRITY OF CORPORATE SOCIAL RESPONSIBILITY

Despite the recent burst of enthusiasm for corporate social and

environmental responsibility in some quarters of the business
community, the concept and practice still provoke a degree of
understandable scepticism (partly due to CSR’s record of lapsing
into amoral apologetics for unacceptable corporate behavior)
(Najam 2000; Christian Aid 2004; Corporate Responsibility Coalition
2005; OECD Watch 2005). David Vogel in a review conducted for
the Brookings Institute, The Market for Virtue: The Potential and
Limits of Corporate Social Responsibility (2005), contends there are
many reasons why companies may choose to behave more
responsibly in the absence of legal requirements to do so, including
strategic, defensive, altruistic or public-spirited motivations.
However despite pressure from consumers for responsibly-made
products, the influence of socially-responsible investors, and the
insistent call for companies to be accountable to a broader community
of stakeholders, there are important limits to the market for virtue:
CSR is best understood as a niche rather than a generic strategy: it
makes sense for some firms in some areas under some
circumstances. Many of the proponents of corporate social
responsibility mistakenly assume that because some companies are
Page 158
behaving more responsibly in some areas, some firms can be
expected to behave more responsibly in more areas. This assumption
is misinformed. There is a place in the market economy for
responsible firms.
But there is also a large place for their less responsible competitors
… Precisely because CSR is voluntary and market-driven,
companies will engage in CSR only to the extent that it makes
business sense for them to do so. Civil regulation has proven
capable of forcing some companies to internalize some of the
negative externalities associated with some of their economic
activities. But CSR can reduce only some market failures (2005, 3–
4).
Vogel concludes that CSR has a multidimensional nature, and that
companies, like individuals, do not always exhibit consistent moral
or social behaviour, and may behave better in some countries than
others depending on the social and environmental policies existing
there. Since the origins of capitalism, there have always been more
or less responsible firms, and it is heartening that executives in
many highly visible firms may be becoming more responsive (if only
as a result of external stakeholder pressures). However the reality is
that the amounts wasted on losses due to financial fraud, the very
substantial—and some would argue unwarranted—increases in
executive compensation in corporations, and the huge losses in the
global financial crisis, in recent years far exceed any resources
companies have devoted to CSR.
In a similar vein Deborah Doane who is Chair of the Corporate
Responsibility Coalition in the United Kingdom, is sceptical
regarding optimism about the power of market mechanisms to

Page 159
deliver social and environmental change, referring to the key myths
informing the CSR movement as follows:
The market can deliver both short-term financial returns and
long-term social benefits.
The ethical consumer will drive change.
There will be a competitive “race to the top” over ethics
amongst businesses.
In the global economy countries will compete to have the best
ethical practices.
In support of her argument that these are largely mythological
trends, she highlights the insistence of stock markets upon short-
term results and the failure of companies to invest in long-term
benefits; the considerable gap between green consciousness
expressed by consumers and their consumer behavior; the
inconsistency between companies’ alignment to CSR schemes, and
their successful efforts to bring about the sustained fall in corporate
taxation in the United States and other jurisdictions in recent decades;
and finally the evidence emerging in developing countries of
governments competing to reduce their insistence on the observance
of social and environmental standards to attract international
investment (Doane 2005).
It may well be the case that further legislative and regulatory
intervention will be required to ensure all corporations fully respond
to the growing public demand that they recognize their wider social
and environmental responsibilities. However, it is useful to examine
how far CSR objectives can be achieved within existing law and
regulation.
Page 160
 If there is substantial evidence of leading corporations
demonstrating that it is possible to voluntarily commit to social and
environmental performance and to achieve commercial success—
perhaps because of, rather than in spite of, ethical commitments—
then it will be more straightforward to press for the legislative changes
necessary to deal with corporations that refuse to acknowledge their
wider responsibilities, as well as find appropriate legislative support
for companies that wish to develop further their CSR commitments.
In the meantime, the practical fact is that corporations and
governments currently are struggling with an “almost bewildering
array of international CSR initiatives” (Calder and Culverwell 2005,
7; McKague and Cragg 2005). Reviewing the efforts to develop
CSR following the World Summit on Sustainable Development, a
survey by the Royal Institute for International Affairs of stakeholders
from governments, businesses and civil society groups identified a
range of significant weaknesses in current approaches to promoting
CSR which governments should seek to address:
an over-proliferation of CSR initiatives at the international level
and lack of clarity about how these initiatives relate to each other
in a coherent way;
an excessive focus on getting businesses to make
commitments to CSR and not enough focus on enabling them
to implement them effectively;
an absence of credible monitoring and verification processes
of CSR initiatives;

Page 161
 a lack of effective mechanisms of redress for communities
affected by companies that flout national or international norms
on sustainable development or human rights;
a lack of engagement with developing-country governments
and their sustainable development priorities (e.g. economic
development and poverty reduction);
a failure to bridge the governance gap created by weak public-
sector governance of the private sector in many developing
countries; the limited impact on national and international
sustainable-development goals;
a lack of government involvement and/or investment in
international CSR initiatives, which is contributing significantly
to their underperformance (Calder and Culverwell 2005, 7).
DEFINING CORPORATE SOCIAL RESPONSIBILITY AND
SUSTAINABILITY

The rapidly developing interest in CSR and sustainabilty has

resulted in a plethora of definitions and interpretations of the two
concepts from international agencies, consultancies and
practitioners (Calder and Culverwell 2005; McKague and Cragg
2005). A first difficulty is that the most commonly employed
acronym, CSR, refers to corporate social responsibility, though in
most interpretations it is meant to include environmental responsibility
also. The use of the simpler term corporate responsibility and
acronym CR is not in widespread use, though it would more readily
embrace all corporate responsibilities. The UN’s recent adoption of
the environmental, social and governance (ESG) acronym may
become influential, since it explicitly links governance
to social and environmental responsibility.
Page 162
Corporate sustainability is a critical issue because of the economic
scale and significance of these entities and their growing impact on
the economy, society and environment
More confusingly still, in some definitions sustainability is included
within CSR, while in others CSR is subsumed under sustainability.
One source of this confusion is that often different levels of analysis
are being addressed. At the highest level the sustainability of the
planet is at issue, and at lower levels the sustainability of economies
and societies, industries and organisations. Corporate sustainability is
a critical issue because of the economic scale and significance of
these entities and their growing impact on the economy, society and
environment.
“Corporations have magnified capacities relative to individuals, in their
financial resources, scale of operations, organizational capacity
and capacity for social and individual harm” (Redmond
2005, 1). Once the primary (in some cases sole) concern was to
produce goods and services that might generate the profits to achieve
the financial sustainability of the corporation (everything else was
written off as externalities).
“Defining limited liability is simple. It means that no matter how
much environmental damage a corporation causes, no matter how
much debt it defaults on, no matter how many Malibus explode or tires
burst or workers or consumers die of asbestosis, no matter how
many people it puts out of work without their pension benefits or
other protections; in short, no matter how much pain it causes, the
corporation is responsible for paying damages (if at all) only in
the amount of assets it has” (Mitchell 2001).

Page 163
Increasingly today the social and environmental impact of the
corporation will be assessed in deciding whether it is viable or not,
by governments, regulators, or other stakeholders, even if the
corporation’s management is reluctant to make this assessment.
The license to operate can no longer be readily assumed for any
corporation, and in an increasing number of contexts needs to be
earned with verifiable evidence of the social and environmental
responsibility of the corporation.
Definitions of CSR and sustainability range from the basic to the
most demanding, from a specific reference to a number of
necessary activities to demonstrate responsibility, to a general call
for a comprehensive, integrated and committed pursuit of social and
environmental sustainability. The following representative range of
definitions of CSR is in ascending order from the least to the most
demanding:
the integration of stakeholders’ social, environmental and other
concerns into a company’s business operations (EIU 2005, 2);
the commitment of businesses to contribute to sustainable
economic development by working with their employees, their
families, the local community and society at large to improve
their lives in ways which are good for business and for
development (World Business Council for Sustainable
Development 2002, 2011).
Corporate social responsibility is at heart a process of
managing the costs and benefits of business activity to both
internal (for example, workers, shareholders, investors) and
external (institutions of public governance, community
members, civil society groups, other enterprises) stakeholders.
Page 164
Setting the boundaries for how those costs and benefits are
managed is partly a question of business policy and strategy
and partly a question of public governance (World Bank 2002,
1).
a concept whereby companies integrate social and
environmental concerns into their business operations and
their interaction with their stakeholders on a voluntary basis
(European Commission 2001, 2009); – a company’s
commitment to operating in an economically, socially, and
environmentally sustainable manner, while recognizing the
interests of its stakeholders, including investors, customers,
employees, business partners, local communities, the
environment, and society at large (Certified General Accountants
Association of Canada 2005, 20).
CSR is essentially about how the company makes its profits,
not only what it does with them afterwards. CSR is about how
the company manages, first its core business operations—in
the board room, in the workplace, in the marketplace, and
along the supply chain; second, its community investment and
philanthropic activities; and third, its engagement in public
policy dialogue and institution building (Kennedy School of
Government Corporate Responsibility Initiative 2004, 33).
a business approach embodying open and transparent
business practices, ethical behavior, respect for stakeholders
and a commitment to add economic, social and environmental
value (SustainAbility 2011); – Sustainability performance refers
to an organization’s total performance, which might include its
policies, decisions, and actions that create social,
Page 165
 environmental and/or economic (including financial) outcomes
(AccountAbility 2005, 10).
Sustainability as a whole (planet, environment, species) is an
altogether more ambitious project with more expansive definitions
than CSR. Corporations have a vital role to play in this also, beginning
with a modest recognition of their necessary subordination to the
interests of maintaining a balanced ecosystem. Sustainability is
defined as:
meeting the needs of the present generation without
compromising the ability of future generations to meet their
needs (Bruntland Commission 1987);
Sustainable development, sustainable growth, and sustainable
use have been used interchangeably, as if their meanings
were the same. They are not. Sustainable growth is a
contradiction in terms: nothing physical can grow indefinitely.
Sustainable use is only applicable to renewable resources.
Sustainable development is used in this strategy to mean:
improving the quality of human life whilst living within the carrying
capacity of the ecosystems (IUCN, UNEP, WWF
1991).
Putting the entire field into perspective, according to the Global
Reporting Initiative (GRI) 2011 Sustainability Reporting Guidelines:
Environmental impact means an organization’s impact on
living and non-living natural systems, including ecosystems,
land, air and water. Examples include energy use and
greenhouse gas emissions.

Page 166
 Social impact means an organization’s impact on the social
system within which it operates. This includes labor practices,
human rights and other social issues.
Economic impact means an organization’s impact both direct
and indirect on the economic resources of its stakeholders and
on economic systems at the local, national and global levels.
FROM THE MARGINS TO THE MAINSTREAM

However challenging the prospects, there are growing indications of

large corporations taking their social and environmental
responsibilities more seriously, and of these issues becoming more
critical in the business agenda. KPMG since 1993 has conducted an
international survey of corporate responsibility every three years
which has revealed the developing prevalence of this commitment.
Surveying the largest 100 companies in a sample of advanced
industrial OECD countries (with the addition of the Global 250
companies from 1999), KPMG (2008) finds a steadily rising trend in
companies issuing separate corporate-responsibility annual reports.
From 13% of national 100 companies reporting on corporate
responsibility matters in 1993, by 2008 this had risen to 43% (up to
80% if including information in annual reports).
A more substantial increase in the Global 250 reporting occurred
with 35% reporting in 1999, 52% in 2005, and 79% by 2008. In
addition some companies have integrated their corporate
responsibility report with their main financial report. Publication of
corporate responsibility reports as part of the annual financial
reports of companies sometimes implies the issue is regarded as of
greater salience, and companies often progress from separate to
integrated CSR and financial reports.
Page 167
Large corporations are taking their social and environmental
responsibilities more seriously, and these issues are becoming
more critical in the business agenda
More importantly, the substance of company reports is changing, from
purely environmental reporting up until 1999, to sustainability
reporting (social, environmental and economic), which has become
the mainstream approach of the G250 companies and is becoming so
among the national 100 companies. The two leading countries in
terms of separate corporate responsibility reporting are Japan (88%
of top 100 companies) and the UK (84% of top 100 companies) in
2008.
Finally the KPMG survey reveals a balanced range of business drivers
for CSR reporting, beginning with ethical considerations (69% of
companies); economic considerations (68%); innovation and
learning (55%); reputation or brand (55%); employee motivation
(52%); risk management (35%) and access to capital (29%). The
survey suggests there were solid reasons for acting and reporting
on CSR: “As in previous years, the overall drivers for reporting are
ethical and economic considerations. Although these responses are
fairly broad, they indicate that companies realize they operate in a
context where they play key roles in contributing to healthy
societies, ecosystems, and economies—and that it is in their best
interest to maintain and improve these spheres” (KPMG 2005, 18).
In a further international survey of 136 corporate executives and 65
executives of institutional investors on the importance of corporate
responsibility (CR) the Economist Intelligence Unit (EIU) discovered
a similar growth in interest:

Page 168
A total of 88% of executives said that CR is a “central” or “important”
consideration in decision-making. This compares with 54% of
executives who said it was a “central” or “important” consideration
five years ago. The biggest percentage change between now and
five years ago was among European executives. A total of 46% said
CR was “central” or “important” five years ago compared with 84%
at the present time. In Asia, the proportion rose from 49% to 82%
and in North America from 66% to 88%. The survey of professional
investors reveals a sharper trend. Eighty-one percent of those
surveyed said CR was currently a “central” or “important”
consideration in their investment decisions, compared with 34%
who said it was “central” or “important” five years ago. In fact, 14%
of them said CR was not a consideration at all five years ago. Now,
not a single investor said it was not a consideration (EIU 2005, 5).
As with the gap noticed earlier between consumer consciousness
and behavior, it is likely there will be a mighty gulf between the
expressed concerns of executives for corporate responsibility and
their actual behavior in different circumstances and in the
exigencies of difficult situations; however, simply expressing concerns
is an advance over stony- faced refusals to even acknowledge
responsibilities that may have occurred in the past. “Corporate
responsibility is really about ensuring that the company can grow on
a sustainable basis, while ensuring fairness to all stakeholders,” says
N. R. Murthy, the chairman of an Indian IT firm, Infosys (EIU 2005, 2).
Though some of the expressed concern may be part of the discourse
of political correctness, there do appear to be grounds for a significant
shifting of opinion among executives, as
the EIU comments:

Page 169
Until recently, board members often regarded corporate
responsibility as a piece of rhetoric intended to placate
environmentalists and human rights campaigners. But now,
companies are beginning to regard corporate responsibility as a
normal facet of business and are thinking about ways to develop
internal structures and processes that will emphasize it more
heavily. In the not-too-distant future, companies that are not
focusing on corporate responsibility may come to be seen as
outliers. As companies focus on non-financial performance, an
important yardstick of corporate responsibility, the measurement of
intangibles, such as customer satisfaction and employee morale,
are likely to become less vague and more credible (EIU 2005, 3).
One of the surprising results of the EIU survey was that after more
than a decade of the exhortation of the primacy in all circumstances
of shareholder value, the executives surveyed still possessed a
balanced appreciation of the relative importance of key stakeholders
to the company, identifying customers, employees and shareholders
in that order. The EIU compiled some of the contextual highlights for
these changes in executive views in the emerging evidence that
corporate social and environmental responsibility is moving
substantially from the margins to the mainstream of economic activity:
The New York-based GovernanceMetrics International (GMI),
which covers corporate governance and CR, now produces in-
depth rating reports on 2,000 companies around the world and
has a growing client base including TIAA-CREF, State Street
Bank and ABP, the largest pension fund in Europe.
More than 10,000 individuals and 3,000 listed companies have
helped to develop the standards of the Global Reporting
Page 170
 Initiative (GRI), an organization based in Amsterdam, trying to
create a single global measure for CR performance. Among its
corporate clients implementing GRI standards are Bayer,
Canon, Deutsche Bank, General Motors, Heineken and Shell.
A group of five major European institutional investors,
including the second-largest pension fund in the United Kingdom
and the largest pension fund in the Netherlands, jointly stated
in October 2004 that they would allocate 5% of their budgets
for the purchase of non- financial research analysis of such
topics as corporate governance, labor management and
environmental practices.
One in every nine investment dollars under professional
management in the United States is now invested in socially
responsible funds. This amounts to US$2 trillion out of a total
of US$19 trillion in investible funds, according to the 2003
report on socially-responsible investing (SRI) produced by the
Social Investment Forum, the national trade body for the SRI
industry (EIU 2005, 4–5).
A final promising development is the new Manifesto for a “Global
Economic Ethic” encompassing consequences for global
businesses, which was declared at a business-ethics symposium held
at the UN headquarters in New York. The Global Economic Ethic
Manifesto is a self- regulatory moral framework/code of conduct
“which is both interactive and interdependent with the economic
function of the main institutions of the economic system: markets,
governments, civil society, and supranational
organizations” (Kung 2009).

Page 171
What is Human resource management: Concept,
role and functions of HRM; Human resource
planning; Recruitment and selection; Training
and development; Succession planning?

Human resource management: Concept, role and functions of

HRM

Before we define HRM, it seems pertinent to first define the term

‘human resources’. In common parlance, human resources means
the people. However, different management experts have defined
human resources differently. For example, Michael J. Jucius has
defined human resources as “a whole consisting of inter-related,
inter-dependent and interacting physiological, psychological,
sociological and ethical components”.
According to Leon C. Megginson “From the national point of view
human resources are knowledge, skills, creative abilities, talents,

Page 172
and attitudes obtained in the population; whereas from the view- point
of the individual enterprise, they represent the total of the inherent
abilities, acquired knowledge and skills as exemplified in the talents
and aptitude of its employees”.

Sumantra Ghosal considers human resources as human capital. He

classifies human capita into three categories-intellectual capitals,
social capital and emotional capital. Intellectual capital consists of
specialized knowledge, tacit knowledge and skills, cognitive
complexity, and learning capacity.
Social capital is made up of network of relationships, sociability, and
trustworthiness Emotional capital consists of self-confidence, ambition
and courage, risk-bearing ability, and resilience. Now it is clear from
above definitions that human resources refer to the qualitative and
quantitative aspects of employees working in an organisation.
In simple words, HRM is a process of making the efficient and
effective use of human resources so that the set goals are
achieved. Let us also consider some important definitions of HRM.
According to Flippo “Personnel management, or say, human
resource management is the planning, organising, directing and
controlling of the procurement development compensation integration,
4intenance, and separation of human resources to the end that
individual, organisational and social objectives are accomplished”.
The National Institute of Personnel Management (NIPM) of India
has defined human resource/personnel management as “that part of
Page 173
management which is concerned with people at work and with their
relationship within an enterprise. Its aim is to bring together and
develop into an effective organisation of the men and women who
make up an enterprise and having regard for the well-being of the
individuals and of working groups, to enable them to make their best
contribution to its success”.
According to Decenzo and Robbins “HRM is concerned with the
people dimension in management. Since every organisation is
made up of people, acquiring their services, developing their skills,
motivating them to higher levels of performance and ensuring that
they continue to maintain their commitment to the organisation are
essential to achieving organisational objectives. This is true,
regardless of the type of organisation-government, business,
education, health, recreation, or social action”.
Thus, HRM can be defined as a process of procuring, developing
and maintaining competent human resources in the organisation so
that the goals of an organisation are achieved in an effective and
efficient manner. In short, HRM is an art of managing people at
work in such a manner that they give their best to the organisation
for achieving its set goals.
Objectives:

The primary objective of HRM is to ensure the availability of right

people for right jobs so as the organisational goals are achieved
effectively.
This primary objective can further be divided into the following
sub-objectives:

Page 174
1. To help the organisation to attain its goals effectively and efficiently
by providing competent and motivated employees.
2. To utilize the available human resources effectively.
3. To increase to the fullest the employee’s job satisfaction and self-
actualisation.
4. To develop and maintain the quality of work life (QWL) which makes
employment in the organisation a desirable personal and social
situation.
5. To help maintain ethical policies and behaviour inside and
outside the organisation.
6. To establish and maintain cordial relations between employees
and management.
7. To reconcile individual/group goals with organisational goals.
Werther and Davis have classified the objectives of HRM into four
categories as shown in table 1.2.
Table 1.2: HRM Objectives and Functions:

Page 175
Scope:

The scope of HRM is, indeed, very vast and wide. It includes all
activities starting from manpower planning till employee leaves the
organisation. Accordingly, the scope of HRM consists of acquisition,
development, maintenance/retention, and control of human resources
in the organisation (see figure 1.1). The same forms the subject matter
of HRM. As the subsequent pages unfold, all these
are discussed, in detail, in seriatim.

Page 176
The National Institute of personnel Management, Calcutta has
specified the scope of HRM as follows:
1. The Labour or Personnel Aspect:
This is concerned with manpower planning, recruitment, selection,
placement, transfer, promotion, training and development, lay-off
and retrenchment, remuneration, incentives, productivity, etc.
2. Welfare Aspect:

It deals with working conditions, and amenities such as canteen,

creches, rest and lunch rooms, housing, transport, medical
assistance, education, health and safety, recreation facilities, etc.
3. Industrial Relations Aspects:

Page 177
This covers union-management relations, joint consultation,
collective bargaining, grievance and disciplinary actions, settlement of
disputes, etc.
Functions:

We have already defined HRM. The definition of HRM is based on

what managers do. The functions performed by managers are
common to all organizations. For the convenience of study, the
function performed by the resource management can broadly be
classified into two categories, viz.
(1) Managerial functions, and
(2) Operative functions (see fig. 1.2).
These are discussed in turn.
(1) Managerial Functions:
Planning:
Planning is a predetermined course of actions. It is a process of
determining the organisational goals and formulation of policies and
programmes for achieving them. Thus planning is future oriented
concerned with clearly charting out the desired direction of business
activities in future. Forecasting is one of the important elements in
the planning process. Other functions of managers depend on
planning function.
Organising:

Organising is a process by which the structure and allocation of jobs

are determined. Thus organising involves giving each subordinate a
specific task establishing departments, delegating authority to

Page 178
subordinates, establishing channels of authority and
communication, coordinating the work of subordinates, and so on.

Staffing:

TOs is a process by which managers select, train, promote and

retire their subordinates This involves deciding what type of people
should be hired, recruiting prospective employees, selecting
employees, setting performance standard, compensating
employees, evaluating performance, counseling employees, training
and developing employees.
Page 179
Directing is the process of activating group efforts to achieve the
desired goals. It includes activities like getting subordinates to get
the job done, maintaining morale motivating subordinates etc. for
achieving the goals of the organisation.
Controlling:

It is the process of setting standards for performance, checking to see

how actual performance compares with these set standards, and
taking corrective actions as needed.
(2) Operative Functions:

The operative, also called, service functions are those which are
relevant to specific department. These functions vary from department
to department depending on the nature of the department
Viewed from this standpoint, the operative functions of HRM relate to
ensuring right people for right jobs at right times. These functions
include procurement, development, compensation, and maintenance
functions of HRM.
A brief description of these follows:
Procurement:

It involves procuring the right kind of people in appropriate number

to be placed in the organisation. It consists of activities such as
manpower planning, recruitment, selection placement and induction
or orientation of new employees.
Development:

This function involves activities meant to improve the knowledge, skills

aptitudes and values of employees so as to enable them to
perform their jobs in a better manner in future. These functions may
Page 180
comprise training to employees, executive training to develop
managers, organisation development to strike a better fit between
organisational climate/culture and employees.
Compensation:

Compensation function involves determination of wages and

salaries matching with contribution made by employees to
organisational goals. In other words, this function ensures equitable
and fair remuneration for employees in the organisation. It consists
of activities such as job evaluation, wage and salary administration,
bonus, incentives, etc.
Maintenance:

It is concerned with protecting and promoting employees while at

work. For this purpose virus benefits such as housing, medical,
educational, transport facilities, etc. are provided to the employees.
Several social security measures such as provident fund, pension,
gratuity, group insurance, etc. are also arranged.

Human resource planning

Human resources undoubtedly play the most important part in the

functioning of an organization. The term ‘resource’ or ‘human
resource’ signifies potentials, abilities, capacities, and skills, which
can be developed through continuous interaction in an
organizational setting.
The interactions, interrelationships, and activities performed all
contribute in some way or other to the development of human
potential. Organizational productivity, growth of companies, and
Page 181
economic development are to a large extent contingent upon the
effective utilization of human capacities.
Hence, it is essential for an organization to take steps for effective
utilization of these resources. In the various stages in the growth of
an organization, effective planning of human resources plays a key
role. Matching the requirements of the job with the individual is
important at all stages, including the recruitment procedures, in this
endeavour.
When organizations contemplate diversification or expansion, or
when employees have to be promoted, human resource planning
plays an important role. Further, the organizational plans, goals, and
strategies also require effective human resource planning.
Meaning:

E.W. Vetter viewed human resource planning as “a process by

which an organisation should move from its current manpower
position to its desired manpower position. Through planning,
management strives to have the right number and right kind of people
at the right places at the right time, doing things which result in both
the organisation and the individual receiving maximum long- run
benefit.”
According to Leon C. Megginson human resource planning is “an
integrated approach to performing the planning aspects of the
personnel function in order to have a sufficient supply of adequately
developed and motivated people to perform the duties and tasks
required to meet organisational objectives and satisfy the individual
needs and goals of organisational members.”

Page 182
Human resource planning may be viewed as foreseeing the human
resource requirements of an organisation and the future supply of
human resources and- (i) making necessary adjustments between
these two and organisational plans; and (ii) foreseeing the
possibility of developing the supply of human resources in order to
match it with requirements by introducing necessary changes in the
functions of human resource management. In this definition, human
resource means skill, knowledge, values, ability, commitment,
motivation, etc., in addition to the number/of employees.
Human resource planning (HRP) is the first step in the HRM
process. HRP is the process by which an organization ensures that
it has the right number and kind of people, at the right place, at the
right time, capable of effectively and efficiently completing those tasks
that will help the organization achieve its overall objectives..
Human Resource Planning – Definition:
The organisation’s objectives and strategies for the future determine
future requirement of human resources. It only means that the number
and mix of human resources are reaction to the overall organisational
strategy. If the intent is to get closer to people possessing requisite
qualifications, the organisation should act quickly.
Human Resource Planning or Manpower Planning (HRP) is the
process of systematically reviewing HR requirements to ensure that
the required number of employees with the required skills is
available when they are needed. Getting the right number of
qualified people into the right job is the crux of the problem here.
The following points highlight the need and importance of HRP
in the organizations:
Page 183
I. Assessing Future Personnel Needs:
Whether it is surplus labour or labour shortage, it gives a picture of
defective planning or absence of planning in an organization. A
number of organizations, especially public sector units (PSUs) in India
are facing the problem of surplus labour.
It is the result of surplus labour that the companies later on offer
schemes like Voluntary Retirement Scheme (VRS) to eliminate
surplus staff. Thus, it is better to plan well about employees in
advance. Through HRP, one can ensure the employment of proper
number and type of personnel.
II. Foundation for Other HRM Functions:

HRP is the first step in all HRM functions. So, HRP provides the
essential information needed for the other HRM functions like
recruitment, selection, training and development, promotion, etc.
III. Coping with Change:

Changes in the business environment like competition, technology,

government guidelines, global market, etc. bring changes in the
nature of the job. This means changes in the demand of personnel,
content of job, qualification and experience needed. HRP helps the
organization in adjusting to new changes.
IV. Investment Perspective:

As a result of change in the mindset of management, investment in

human resources is viewed as a better concept in the long run
success of the enterprise. Human assets can increase in value as
opposed to physical assets. Thus, HRP is considered important for
the proper planning of future employees.

Page 184
V. Expansion and Diversification Plans:
During the expansion and diversification drives, more employees at
various levels are needed. Through proper HRP, an organization
comes to know about the exact requirement of personnel in future
plans.
VI. Employee Turnover:

Every organization suffers from the small turnover of labour,

sometime or the other. This is high among young graduates in the
private sector. This necessitates again doing manpower planning for
further recruiting and hiring.
VII. Conformity with Government Guidelines:

In order to protect the weaker sections of the society, the Indian

Government has prescribed some norms for organizations to follow.
For example, reservations for SC/ST, BC, physically handicapped, ex-
servicemen, etc. in the jobs. While planning for fresh candidates, HR
manager takes into consideration all the Government guidelines.
VIII. International Expansion Strategies:

International expansion strategies of an organization depend upon

HRP. Under International Human Resource Management (IHRM),
HRP becomes more challenging. An organization may want to fill
the foreign subsidiary’s key positions from its home country
employees or from host-country or from a third country. All this
demands very effective HRP.
IX. Having Highly Talented Manpower Inventory:
Page 185
Due to changing business environment, jobs have become more
challenging and there is an increasing need for dynamic and ambitious
employees to fill the positions. Efficient HRP is needed for attracting
and retaining well qualified, highly skilled and talented employees.
Human Resource Planning – Objectives:
The main objectives of HRP are:

(i) Proper assessment of human resources needs in future.

(ii) Anticipation of deficient or surplus manpower and taking the
corrective action.
(iii) To create a highly talented workforce in the organization.
(iv) To protect the weaker sections of the society.
(v) To manage the challenges in the organization due to
modernization, restructuring and re-engineering.
(vi) To facilitate the realization of the organization’s objectives by
providing right number and types of personnel.
(vii) To reduce the costs associated with personnel by proper
planning.
(viii) To determine the future skill requirements of the organization.
(ix) To plan careers for individual employee.
(x) Providing a better view of HR dimensions to top management.
(xi) Determining the training and development needs of employees.
Human Resource Planning – Organisation:

Page 186
Every line manager is responsible for planning manpower of the
respective department and the top management is responsible for
the planning of resources for the entire organisation. The personnel
department supplies relevant information and data to all the line
managers and helps those regarding interdepartmental transfers,
promotions, demotions etc. Personnel department also helps in
using the techniques and forecasting the manpower.

Personnel department forecasts internal mobility surplus or deficit of

human resources for the entire organisation, prepares action plans
regarding redeployment, redundancy, employment, development
and internal mobility and submits plans to the management at the
top which either by its own or by appointing a committee reviews
departmental plans and overall plans, make necessary adjustments
and finalises the plans. Personnel department in its turn prepares
modified plans for the departments based on finalised overall plan and
communicates them to respective heads of department.
Personnel department may co-ordinate the control activity of human
resource plan and it has to send coordinated reports to the
management at the top for actual review, control and monitor the
human resource system. The management at the top may appoint a
committee consisting of heads of department and external
identification of deviations, reasons thereof and steps to be taken to
correct the deviations. The committee further helps the
management in executing the programmes of corrections.
Human Resource Plan – Factors:
Several factors affect HRP. These factors can be classified into
external factors and internal factors.
Page 187
External Factors:

i. Government Policies – Policies of the government like labour

policy, industrial relations policy, policy towards reserving certain
jobs for different communities and sons-of the soil, etc. affect the
HRP.
ii. Level of Economic Development – Level of economic
development determines the level of HRD in the country and
thereby the supply of human resources in the future in the country.
iii. Business Environment – External business environmental factors
influence the volume and mix of production and thereby the future
demand for human resources.
iv. Level of Technology – Level of technology determines the kind of
human resources required.
v. International Factors – International factors like the demand for
resources and supply of human resources in various countries.
vi. Outsourcing – Availability of outsourcing facilities with required
skills and knowledge of people reduces the dependency on HRP
and vice-versa.
Internal Factors:
i. Company policies and strategies – Company policies and
strategies relating to expansion, diversification, alliances, etc.
determines the human resource demand in terms of quality and
quantity.
ii. Human resource policies – Human resources policies of the
company regarding quality of human resource, compensation level,
quality of work-life, etc., influences human resource plan.
Page 188
iii. Job analysis – Fundamentally, human resource plan is based on
job analysis. Job description and job specification determines the kind
of employees required.
iv. Time horizons – Companies with stable competitive environment
can plan for the long run whereas the firms with unstable
competitive environment can plan for only short- term range.
v. Type and quality of information – Any planning process needs
qualitative and accurate information. This is more so with human
resource plan; strategic, organisational and specific information.
vi. Company’s production operations policy – Company’s policy
regarding how much to produce and how much to buy from outside
to prepare a final product influence the number and kind of people
required.
vii. Trade unions – Influence of trade unions regarding number of
working hours per week, recruitment sources, etc., affect the HRP.
Human Resource Planning at Different Levels:
Different institutions make HRP at different levels for their own
purposes, of which national level, industry level, unit level,
departmental level and job level are important.
i. National level – Generally, government at the centre plan for
human resources at the national level. It forecasts the demand for and
supply of human resource, for the entire nation.
ii. Sector level – Manpower requirements for a particular sector like
agricultural sector, industrial sector or tertiary sector are projected
based on the government policy, projected output/operations, etc.

Page 189
iii. Industry level – Manpower needs of a particular industry like
cement, textiles, chemical are predicted taking into account the
output/operational level of that particular industry.
iv. Unit level – This covers the estimation of human resource needs
of an organisation or company based on its corporate/business
plan.
v. Departmental level – This covers the manpower needs of a
particular department in a company.
vi. Job level – Manpower needs of a particular job family within
department like Mechanical Engineer is forecast at this level.
vii. Information technology – The impact of information technology
on business activities, human resource requirement and human
resource plan is significant. It requires multi skilled experts,
preferably less in number.
Human Resource Planning – Quantitative and Qualitative
Dimensions:

Human resources have a dual role to play in the economic

development of a country. On one hand they are the consumers of
the products and services produced by the organizations while on
the other hand they are one of the factors of production.
Along with capital and other factors of production, human resources
can lead to increase in production and economic development. The
rate of growth of human resources is determined by two aspects
quantitative and qualitative.
Variables Determining the Quantity of Human Resources:
1. Population Policy:
Page 190
Some population policies operate by influencing the factors
responsible for growth such as fertility, marriage and mortality.
These are known as population influencing policies. Another
category of policies known as responsive policies are implemented
to adjust to observed population trends with the help of programmes
like health, nutrition, education, housing, etc. The aim of population
policies is to achieve an optimum population for enhancing the
country’s development.
2. Population Structure:

The structure or composition of the population is determined by two

factors, sex composition and age composition.
(i) Sex Composition:
Sex ratio is the ratio of males to females in the population. It is the
basic measure of the sex composition of the population of any area.
Higher the number of females, higher will be the population growth
rate in future.
(ii) Age Composition:

It is the distribution of population by age groups. Age composition is

the result of past trends in fertility and mortality. The supply of
labour depends on age composition as economically active population
falls in range of 15-65 age groups.
3. Migration:

Net migration is another factor which causes changes in the

population. Age and sex composition determine the natural growth
in population, but for calculating the overall changes in population it
is important to consider net migration also.

Page 191
Net migration = total immigrants – total emigrants
A positive net migration will lead to a rise in population growth rate
while negative net migration will reduce the growth rate of
population. Migration can be both interregional and international.
4. Labour Force Participation:

The population of any country consists of workers and non-workers.

The workers are the people, usually in age group of 15-65, who
participate in economically productive activities by their mental or
physical presence.
These include:
i. Employers,
ii. Employees,
iii. Self-employed persons, and
iv. Those engaged in family enterprises without pay.
The others in the population are the non-workers such as students,
infants, elderly, beggars, retired people, inmates of jail or mental
institutions, unemployed, etc. They do not contribute to any productive
economic activity. It is the changes in the working population which
affect the growth of human resources. The number of people who are
unemployed but available for work also impacts the availability of
labour.
Qualitative Aspects of Human Resource Planning:

The quantitative dimensions help to ascertain human resources in

numbers while the productive power of human resources is
assessed by the qualitative dimensions. For example, there may be
Page 192
hundreds of applicants for 20 vacancies, but out of these only a few
may meet the quality standards required for the job.
Factors which determine the quality of human resources are:
1. Education and Training:
The quantity and quality of education and training received by
human resources impacts their knowledge and skills. Education and
training are important for the upliftment of both individual and
society. It can be of two types, formal and informal.
Formal education is imparted through schools and colleges while
informal education and training takes place through on-the-job training
methods. Formal education stresses the transfer of theoretical
knowledge, while informal education emphasizes on practical
application of knowledge.
2. Health and Nutrition:

Health and nutrition along with education are vital for Human
Resource Development. Health and nutrition impact the quality of
life, productivity of labour and the average life expectancy.
Health status is determined by:
(i) Purchasing power of people.
(ii) Public sanitation, climate and availability of medical facilities.
(iii) People’s understanding and knowledge of health, hygiene and
nutrition.
3. Equality of Opportunity:

Page 193
Not all segments of people comprising human resources get equal
employment opportunities. There is bound to be some
discrimination.
The most common forms of discrimination are:

(i) Social discrimination – Discrimination on basis of gender, religion

or social standing.
(ii) Economic discrimination – Discrimination based on financial
positions or possession of wealth by the sections of workforce.
(iii) Regional discrimination – These are in form of discrimination
between rural and urban population or between people belonging to
different regions/ states.
Discrimination affects the quality and productivity of the human
resources belonging to different sections of the population. The
privileged classes get access to best education, nutrition and health
facilities while underprivileged are deprived of their right share in the
development process. For the overall, well rounded development of
the country’s human resources, effective policies need to be
implemented to deal with the problem of discrimination.
Human Resource Planning – Prerequisites:

i. There should be a proper linkage between HR plan and

organizational plan.
ii. Top management support is essential.
iii. Proper balance should be kept between the qualitative and
quantitative approaches to HRP.
iv. Involvement of operating managers is necessary.
Page 194
v. Proper alignment between short-term HR plans and long-term HR
plans should be there.
vi. HR plan should have in-built flexibility in order to adopt
environmental uncertainties.
vii. Time period of HR plan should be appropriate to needs and
circumstances of the organization.
Human Resource Planning – Relationship with Other Personnel
Processes:

From a systems view, human resource planning is interrelated with

many of the organization’s other endeavors in personnel
management. The strongest relationship exists between human
resource planning and selection. In fact, all selection efforts really
are an integral part of the whole human resource planning process.
Organizations that have either stable or increasing human resource
needs must go into the external labour market and hire employees
even though they generally follow a promotion-from within policy.
In addition, human resource planning is related to both performance
appraisal and training and development. Performance appraisals
can pinpoint the skills that will be required for employees to move
into higher-level positions via promotion, while training and
development efforts may then be designed to provide these skills.
To meet organizational goals, human resource planning seeks to
ensure that the organization’s demand for individuals at any
particular time will be just met by available human resources. This
view assumes that “stockpiling” employees at levels greater than
needed and being understaffed are both undesirable.

Page 195
This assumption represents a major difference between planning for
human resources and planning for non-human resources. Although
it is generally unacceptable to stockpile or build inventories of
human resources, organizations may find it necessary or desirable
to build up raw materials or finished-goods inventories.
It is unacceptable to hold human resource inventories for three
reasons. First, human resources are costly and it may be difficult to
justify the expense of excess personnel. There are sounder and more
cost-effective options available to personnel planners in business
firms. Second, excess people are not engaged in productive work,
and are likely to be bored and frustrated by the lack of anything
constructive to do.
Such boredom and frustration can create problems because excess
people may make unnecessary work for productive people and may
even inhibit the firm’s total productive efforts.
Third, since human resources, particularly skilled and professional
people, may be in short supply, taking productive workers out of the
economy’s labour pool may be considered socially unacceptable.
It is equally undesirable for an organization to operate with too few
employees. As with “stockpiled” employees, individuals may feel
frustrated, but in this case because of overwork rather than a lack of
productive activity. This situation may also be dysfunctional to an
organization’s goals.
Consider, for example, a department store during the holiday
season with a shortage of sales personnel. In addition to the
frustrations experienced by employees, such understaffing may also
result in loss of employee efficiency.

Page 196
Customers may respond to long lines and excessive waiting by taking
their business elsewhere, with resultant loss of sales by the
organization. Having too many or too few employees may create
numerous problems for organizations-problems that can be reduced
or eliminated through effective human resource planning.
Human Resource Planning – Cost Contribution Analysis:

Cost-contribution analysis of human resources is most important in

HRP with a view to plan for more effective human resource system.
The human resource components necessary to maximise employee
contribution to the job and the organisation, and minimise the cost,
should be determined in advance with the help of human resource
accounting techniques.
The optimum human resource system should be planned and
determined as the human resources system is the control system in
the organisation because it emphasises the human contribution which
critically influences the organisational effectiveness. Planning the
human resource system includes determining the type of human
resource components like creative and innovative skills and abilities,
dynamism, leadership qualities, commitment, identification with the
organisation, etc., considering the measures to acquire those
human resources through recruitment, training and development
and adjusting the components.
Similarly, cost of human resource should be streamlined and it should
be taken as investment on human resources and not as mere
cost. These items include remuneration cost (Pay, allowances,
fringe benefits, other indirect costs), recruitment cost
(cost of job design, advertising cost, cost for conducting tests,

Page 197
interview, reference checks, medical examination and induction),
training costs, etc.
Human Resource Accounting (HRA) envisages capitalisation of all
expenses like cost of recruitment, training etc. One of the systems
of HRA i.e., replacement cost of human asset is an important tool
for the formulation of manpower budget and plan for human
resources.
Human Resource Planning – Responsibility:
Human resource planning is the responsibility of the personnel
department. In this task, it is aided by the industrial engineering
department, the top management and the team of directors of different
departments. It is mostly a staffing or personnel function.
The overall responsibility lies with the Board of Directors because,
as the manpower planning scheme of Hindustan Lever indicates,
“these members are in a position to direct the future course of
business, set appropriate goals for the management concerned in
the formulation of personnel policies.”
The personnel department’s responsibility is “to recommend
relevant personnel policies in respect of manpower planning, devise
methods of procedure, and determine the quantitative aspects of
manpower planning.”
The responsibilities of the personnel department in regard to
manpower planning have been stated by Geisler in the
following words:

(i) To assist, counsel and pressurise the operating management to

plan and establish objectives;

Page 198
(ii) To collect and summarise data in total organisation terms and to
ensure consistency with long- range objectives and other elements
of the total business plan;
(iii) To monitor and measure performance against the plan and keep
the top management informed about it; and
(iv) To provide the research necessary for effective manpower and
organisational planning.
Integration of Strategic Planning and Human Resource
Planning:

Human resource planning like production planning, financial

planning and marketing planning, should be a unified,
comprehensive and integrated part of the total corporation. Human
resource manager provides inputs like key HR areas, HR
environmental constraints and internal HR capabilities and HR
capability constraints to the corporate strategists. The corporate
strategists in turn communicate their needs and constraints to the
HR manager. The corporate strategic plan and HR plan thus
incorporates both HR and other functional plans.
Corporations formulate plans to fit four time spans:

i. Strategic plans that establish company’s vision, mission and major

long-range objectives. The time span for strategic plans is usually
considered to be five or more years.
ii. Intermediate – range plans covering about a three year period.
These are more specific plans in support of strategic plan.

Page 199
iii. Operating plans cover about one year. Plans are prepared month
by month in sufficient detail for profit, human resources, budget and
cost control.
iv. Activity plans are the day-by-day and week-by-week plans.
These plans may not be documented presents the link between
strategic plan and human resource plan.
Strategic Plan Vis-a-Vis Human Resource Plan- Corporate —
Level Plan:

Top management formulates corporate-level plan based on

corporate philosophy, policy, vision and mission. The HRM role is to
raise the broad and policy issues relating to human resources. The
HR issues are related to employment policy, HRD policies,
remuneration policies, etc. The HR department prepares HR
strategies, objectives and policies consistent with company strategy.
I. Intermediate – Level Plan:

Large-scale and diversified companies organise Strategic Business

Units (SBU) for the related activities. SBUs prepare intermediate plans
and implement them. HR managers prepare specific plans for
acquiring future managers, key personnel and total number of
employees in support of company requirements over the next three
years.
II. Operation Plan:

Operation plans are prepared at the lowest business profit centre

level. These plans are supported by the HR plans relating to
recruitment of skilled personnel, developing compensation structure,
designing new jobs, developing leadership, improving work-life, etc.

Page 200
III. Short-Term Activities Plan:
Day-to-day business plans are formulated by the lowest level
strategists. Day-to-day HR plans relating to handling employee
benefits, grievances, disciplinary cases, accident reports, etc., are
formulated by the HR managers.
Human Resource Planning and Environmental Scanning:

Environment influences human resource management as well as

business. Environmental scanning helps to know the nature and
degree of environmental influence on human resource plan as well as
business plan.
Managers have to scan the following environmental factors in
particular:
i. Social factors including cultural factors, religious factors, child- care,
educational programmes and priorities.
ii. Technological developments including information technology,
people soft, automation and robotics.
iii. Economic factors including international, national and regional
factors.
iv. Political factors including legal issues, laws and administrative
factors.
v. Demographic factors including gender, age and literacy.
vi. Industry growth trends, competitive trends, new products, new
processes, services and innovations.

Page 201
The environmental scanning will help the managers to foresee the
possible changes and make the adjustments in order to prevent the
possible negative effects and get ready for the positive effects.
In addition to scanning the external environmental factors,
organisations like Infosys, Satyam, Volvo and Southwest Airlines scan
internal environmental factors. Organisational cultures, employees’
cultures affect the human resource plan as well as other areas of
HRM. Organisations conduct cultural audits to know the impact of
attitudes, values and activities of employees. As observed by Sears,
employee positive attitude has direct and positive impact on customer
satisfaction and revenue.
Most of the companies benchmark their standing and progress
against each other as environmental scanning and HR planning are
aimed at competitive advantage. Benchmarking is identifying the
best HR practices like training and compensation in the industry,
compare them with those of the firm and take steps to improve the
practices to match with those of the best practices in the industry.
Target for benchmarking need not be a competitor, but the best in
the industry, or companies in other industries. ‘Human Capital
Benchmarking Report’ published by the Saratoga Institute provides
information of 900 companies’ practices. Companies can use this
source as well as the survey report of ‘Business Today’, published
every year in addition to various research reports on pay structure,
return on investment per employee, turnover rates, cost per hire,
etc.
Human Resource Planning – Mapping an Organisation’s
Human Capital Architecture:

Page 202
The linkage between strategy and HR should focus on the
development of core competencies. Some of the MNCs like Sony,
Starbucks, Domino’s Pizza and South-West Airlines revolutionised
their companies by developing core competencies.
These competencies helped these companies to have leverage by
learning faster than others. Core competency is a portfolio of
employee skills. Different skills of employees can be grouped based
on ‘Strategic value’ they create and their distinctiveness to the
organisation.
They are as follows:
i. Core Knowledge Workers:

This group of employees possesses firm-specific skills which are

linked to the company’s strategy like R&D skills for pharmaceutical
company and teaching skills for university employees. Companies
invest in training of these employees, provide them with freedom
and autonomy and offer higher salaries.
ii. Traditional Job-Based Employees:

This group of employees possesses skills that are important to the

organisation, but are not critical/unique (like accountants, finance,
marketing personnel). Companies invest less in developing these
employees, but provide short-term financial benefits.
iii. Contract Labour:

This category of employees possesses skills, which are of less

strategic value (like clerks, receptionists, drivers, security, etc.). This
category of employees is normally hired from external agencies on

Page 203
contact basis. Organisations do not invest in training these employees
and the employment relations are transactional.
iv. Alliance/Partners:
This group of employees has unique skills, but not directly related to
organisation’s core function like lawyers, auditors and consultants.
Companies do not employ them on regular basis, given their
tangible link to the strategy but establish long- term alliances and
partnerships with them.
HR managers make decisions with regard to whom to employ
internally, whom to contract externally and the type of the employment
relationship to be maintained. HR manager also considers the cost-
benefit approach of internal employment vs. external contract in HRP.
v. Ensuring Fit and Flexibility:
Alignment between strategic planning and programmes, policies
and practices of HR is vital and need to achieve two types of fit viz.,
external fit and internal fit.
A. External Fit:
External fit brings alignment between the business objectives/goals
and major HR initiatives/practices. Growth strategy of the company
is to be aligned with recruiting people with creative and innovative
skills, providing freedom to them and investing on training for
developing such skills. Low cost strategy is to be aligned with
employing performance/productivity oriented employees.
B. Internal Fit:

Page 204
Internal fit brings alignment among various HR policies and
practices in order to establish configuration that is mutually
reinforcing. Efficiency and creativity come from integrated effort of
job design, HR Plan, recruitment and selection, training,
performance management, compensation and motivation.
Therefore, there should be integration among all HR functions. In
addition, management should follow either individual approach or
team approach for all HR functions.
Successful external and internal strategy and HRM alignment helps
the organisation to increase organisational capability and
competitive advantage.
vi. Cohort Analysis:

It is an analysis of risk factors of groups in which a group having

one or more similar characteristics is closely monitored over time
simultaneously with another group. It is one type of clinical study
design and should be compared with a cross-sectional study.
Cohort studies are largely about the life histories of segments of
populations, and the individual people who constitute these segments.
This method is used where case study approach is not feasible,
creates too many statistical problems, or generally produces
unreliable results. This is also called follow up study.
Cohort analysis helps to separate growth metrics from engagement
metrics and helps to measure growth and identify growth problems.
Edgar Schein’s Human Resource Planning and Development
System:

In his article entitled Increasing Organizational Effectiveness

through Better Human Resource Planning and Development, Edgar
Page 205
Schein suggests that the process of HR planning and developing staff
must take into account two important sets of needs – the needs of the
company, and the needs and desires of the individual employees.
In the new millennium with companies showing less concern about
employee career development, it’s useful to pay attention to the
idea that when both employee and corporate needs are taken into
account, the results, for both parties are much superior to the situation
where only one set is considered.
Schein’s approach integrates HR planning and employee
development.
This approach contains the following components:

1. Strategic business planning

2. Job/Role planning
3. Manpower planning and Human Resource Inventorying.
In addition staffing processes also form a part of the model
4. Job analysis
5. Recruitment and selection
6. Induction/socialization and initial training
7. Job design and job assignment
8. Development planning
9. Inventorying of development plans
10. Follow-up of development activities
Page 206
11. Career development processes and a good deal more.
When doing an internal scan for purposes of human resource
planning the questions that should be addressed.
When evaluating an organization’s current human resource
capabilities for the purposes of human resource planning, the
following questions and issues need to be addressed:

1. Are there any key forces affecting the organization’s operations

(collective agreements, staffing issues, cultural issues, work/life
balance, demographics, technology requirements, budget issues,
expectation of clients)?
2. What knowledge, skills, abilities and capabilities does the
organization have?
3. What is the company’s current internal environment? What
elements support the company’s strategic direction? What elements
deter the organization from reaching its goals?
4. How has the organization changed its organizational structure?
How is it likely to change in the future?
5. How has the organization changed with respect to the type and
amount of work it does and how is it likely to change in the future?
6. How has the organization changed regarding the use of technology
and how will it change in the future?
7. How has the company changed with respect to the way people
are recruited?

Page 207
8. What is the public’s (or customers’) perceptions of the quality of
the organization’s products, programmes, and/or services? What is
being done well? What can be done better?
9. Are current programmes, processes or services contributing to
the achievement of specific organizational goals?
When doing an external scan of the environment for purposes
of human resources planning (HR planning), we should look
for:
In order to do human resource planning, we need to have a sense
of both the current external environment, and anticipate things that
may happen in the future in the labour market place. We do this via
an external scan or environmental scan that can address the following
issues and questions.
1. How is the current external environment? What elements of the
current environment are relevant to the company? Which are likely
to inhibit the company from arriving its goals?
2. What are the company’s specific issues and implications of these
issues? What key forces in this environment need to be addressed
and which ones are less critical?
3. What is the impact of local trends on the company (demographic,
economic, political, intergovernmental, cultural, technology, etc.)?
4. Are there comparable operations that provide a similar service?
How might that change? How would that affect the company?
5. Where does the work of the company come from? How might that
change and how would it affect the organization?

Page 208
6. How might the external environment differ in the future? What
forces at work might change the external environment? What
implications will this have for the organization?
7. What kinds of trends or forces affect similar work in other
jurisdictions?
8. What kinds of trends or forces affect the company’s
partners/stakeholders and customers?
Human Resource Planning – Benefits:

Human Resource Planning (HRP) anticipates not only the required

kind and number of employees but also determines the action plan for
all the functions of personnel management.
The major benefits of human resource planning are:

i. It checks the corporate plan of the organisation.

ii. HRP offsets uncertainties and changes to the maximum extent
possible and enables the organisation to have right men at right
time and in right place.
iii. It provides scope for advancement and development of
employees through training, development, etc.
iv. It helps to anticipate the cost of salary enhancement, better
benefits, etc.
v. It helps to anticipate the cost of salary, benefits and all the cost of
human resources facilitating the formulation of budgets in an
organisation.
vi. To foresee the need for redundancy and plan to check it or to
provide alternative employment in consultation with trade unions,
Page 209
other organisations and government through remodeling
organisational, industrial and economic plans.
vii. To foresee the changes in values, aptitude and attitude of
human resources and to change the techniques of interpersonal,
management, etc.
viii. To plan for physical facilities, working conditions and the volume
of fringe benefits like canteen, schools, hospitals, conveyance, child
care centres, quarters, company stores, etc.
ix. It gives an idea of type of tests to be used and interview techniques
in selection based on the level of skills, qualifications, intelligence,
values, etc., of future human resource.
x. It causes the development of various sources of human
resources to meet the organisational needs.
xi. It helps to take steps to improve human resource contributions in
the form of increased productivity, sales, turnover, etc.
xii. It facilitates the control of all the functions, operations, contribution
and cost of human resources.
Human Resource Planning – Problems:

Though HRP is beneficial to the organisation, employees and trade

unions, some problems crop up in the process of HRP.
Important among them are:
1. Resistance by Employers and Employees:

Many employers resist HRP as they think that it increases the cost
of manpower as trade unions demand for employees based on the
plan, more facilities and benefits including training and
Page 210
development. Further, employers feel that HRP is not necessary as
candidates are/will be available as and when required in India due
to unemployment situation. Employers’ version may be true about
unskilled and clerical staff but it is not true in the case of all other
categories as there is shortage for certain categories of human
resources.
Trade unions and employees also resist HRP as they view that it
increases the workload of employees and prepares programme for
securing the human resources mostly from outside. The other
reason for their resistance is that HRP aims at controlling the
employees through productivity maximisation, etc.
2. Uncertainties:

Uncertainties are quite prominent in human resource practices in India

due to absenteeism, seasonal employment, labour turnover, etc.
Further, the uncertainties in industrial scene like technological
change, marketing conditions also cause uncertainties in human
resource management. The uncertainties make the HRP less reliable.
3. Inadequacies of Information System:
Information system regarding human resources has not yet fully
developed in Indian industries due to low status given to personnel
department and less importance attached to HRP. Further, reliable
data and information about the economy, other industries, labour
market, trends in human resources, etc., are not available.
Human Resource Planning – Recent Implications:
Most of the organisations, employed human resources without
proper HR plans before 1990s. This was more acute in the public
Page 211
sector whose objective was creation of employment opportunities.
The absence of human resources planning before 1990s led to the
following implications in Indian companies.
(i) Overstaffing – Most of the organisations are found to be overstaffed
compared to their counterparts in other countries.
(ii) VRSI Golden-handshake – The absence of human resources
planning led to overstaffing. Consequently, most of the
organisations announced VRS/Golden-handshake programmes in
order to reduce the consequences of overstaffing.
(iii) Delayering and Downsizings Most of the organisations de- layered
their organisations and announced downsizing programmes to rectify
the consequences of overstaffing.
Human Resource Planning – Recent Trends:

Unfortunately, the human resource planning efforts of organizations

have often been inadequate by failing to emphasize the truly
systematized approach geared toward meeting overall objectives.
As Lopez and others have observed:

Some organizations have perceived manpower planning primarily in

terms of budgeting to control labour costs; others have viewed it as
a management development technique; still others see it as a table
of back-ups and replacements for current employees; and finally,
others have viewed it as a means of establishing a human resource
information system and a personnel inventory.
Since each of these approaches is necessarily limited in scope, the
state of the art in human resource planning has limped along quite
slowly.

Page 212
Toward More Sophisticated Human Resource Planning:

In recent years, both personnel practitioners and researchers

emphasized some of the basic facets of personnel decision making
(1) taking systems and contingency approaches, and (2) developing
more sophisticated human resource forecasting and planning models.
For example, the growth of equal employment opportunity regulations
in recent years has increased the awareness of human resource
planners of the effects of external changes on personnel systems.
The observations are in order regarding these more sophisticated
approaches. First, more complex planning systems have generally
been used in larger firms. Large organizations generally must
undertake complex human resource planning and can afford the
higher costs of such approaches.
Second, although a wide range of human resource models have
been developed, some of these models have ignored so many “real
life” personnel variables that they have had virtually no practical
application. On the positive side, there have been numerous
quantitative models that have been very useful to organizations.
There are a number of reasons for the recent increase in the use of
more sophisticated human resource planning models. For example,
organizations simply have been growing larger and more complex,
requiring more sophisticated approaches. This has been especially
true in those organizations in which interdependencies have
increased.
The invention and development of the computer has made possible
the analysis of complex human resource problems that would
Page 213
previously have been so time-consuming as to be cost prohibitive or
virtually impossible to deal with by manual computations.
“The manpower mix in organizations had gradually come to focus
around highly skilled managerial and technical talent.” Such personnel
have at times been in short supply, and more of a lead time has been
required for their training and development.
Once an integrated, well-thought-out human resource planning
programme has been initiated, managers tend to appreciate its
benefits and work together with the firm’s human resource
specialists in developing viable programmes-“they are more willing
to plan in this area, if only they are shown how to begin,”
Problems with Sophistication in Human Resource Planning:
Despite these reasons for the growth of more sophisticated
human resource planning, such approaches face a number of
problems:

1. There is an inherent mathematical complexity associated with

efforts to model human resource systems.
2. Always there is a lack of certainty surrounding human resource
needs in the future, coupled with the existence of an acquisition
lead time for meeting those needs. Even if an organization’s human
resource planning experts were completely uncertain about the
number of operation researchers that would be needed at a point in
future, the organization would face no problems if it could at that future
time instantaneously obtain any number of such personnel to
meet its objectives.

Page 214
Recruitment and selection

Everything you need to know about the recruitment and selection

process in HRM. Recruitment & selection is one of the important
aspects of human resource planning. Human resource planning
ensures that right kind and right quality of employees are employed
so as to achieve the organizational goals.
Recruitment helps in creating a pool of suitable and interested job
applicants, out of which few are chosen for the further selection
process. Hence, it forms a base for selection process. If the
recruitment process is carried out properly, it will help in employing
workforce that suits the organizational requirements.
Selection of candidates begins where their recruitment ends. In
other words, it is only after an adequate number of applications
have been secured through different sources of recruitment –
internal or external that the process of selection begins.
In this article we will discuss about the recruitment and selection
process in HRM. Learn about the process, steps and stages
involved in the recruitment and selection process of employees.
The enterprise has to choose the best and the most promising
persons from among the applicants. In this sense, it may be said
that while recruitment is a positive function in that it seeks to induce
as many persons as possible to apply for a job in the enterprise.
Selection is negative function because it aims at eliminating those
applicants who are not found suitable in one respect or the other.
Recruitment and Selection Process in HRM: Process, Steps
and Stages
Page 215
Recruitment and Selection Process in HRM – Complete
Process of Recruitment & Selection: Starting from Application
Form to Personnel Statistics

Recruitment & selection is one of the important aspects of human

resource planning. Human resource planning ensures that right kind
and right quality of employees are employed so as to achieve the
organizational goals.
According to Edward Flippo, “Recruitment is a process of searching
prospective employees and stimulating them to apply for jobs.”

According to Dale Yoder, “Recruitment is a process to discover the

sources of manpower to meet the requirements of the staffing
schedule and to employ effective measures for attracting that
manpower in adequate numbers to facilitate effective selection of an
efficient working force.”
The process of searching suitable candidates and attracting them to
apply for the vacancies in the organization is termed as recruitment.
It is the first step for selection and appointment of right employees
for the organization. The organization publicises vacancies in the
organization through newspaper advertisements, online job portals,
consultancy services etc.
Recruitment helps in creating a pool of suitable and interested job
applicants, out of which few are chosen for the further selection
process. Hence, it forms a base for selection process. If the
recruitment process is carried out properly, it will help in employing
workforce that suits the organizational requirements.

Page 216
Selection of candidates begins where their recruitment ends. In
other words, it is only after an adequate number of applications
have been secured through different sources of recruitment –
internal or external that the process of selection begins.
Selection involved a careful screening and testing of candidates
who have put in their applications for a job in the enterprise.
The enterprise has to choose the best and the most promising
persons from among the applicants. In this sense, it may be said
that while recruitment is a positive function in that it seeks to induce
as many persons as possible to apply for a job in the enterprise.
Selection is negative function because it aims at eliminating those
applicants who are not found suitable in one respect or the other.
The various process involved are:
1. Application Form:

The application form is designed to contain detailed information

about the candidates. It also helps in comparing the merits of the
applicants.
The information required in the application form will include
some or all of the following:

(i) Post applied for.

(ii) Personal data – name, address, telephone number, age, sex,
marital status, children, nationality, next of kin.
(iii) Education – school, college and university attended, degree/
diploma passed, year of passing, subjects offered, grade or division
obtained.
Page 217
(iv) Professional qualification(s).
(v) Languages known- ability to read, write and speak.
(vi) Employment history of all jobs since leaving college/ university,
dates from and to, employer’s name, address and nature of
business, position and duties held, reasons for leaving.
(vii) Personal circumstances; when required, prepared to serve
anywhere or not, etc.
(viii) Medical history; brief details of any serious illness, disability,
major operation, etc.

(ix) Interest, hobbies, sports and other activities.

(x) Anything else which an applicant may like to add.
(xi) References
Space for the candidate’s signature, date and place and for office
use is given at the end. The printed forms generally contain too
much printed matter leaving little space for the applicant to fill in his
particulars. There should be at least four times as much space to
write in the form as is covered by the print. Some companies have
forms printed in different colours for different categories of posts.
This facilitates the sorting out and handling of applications by the
concerned officials.
2. Interview:

An interview is the first face to face interaction between the

candidate and the company representatives. It is a sine qua non for
applicants who qualify in the first screening as probable ones having
Page 218
all the basic requirements. The objectives of selection interviews are
to elicit information about the candidate’s motives and behaviour, to
assess personality, to check the factual information already given by
him and to inform him about the job and the company.
The interview may be held either in two stages – preliminary and
final – or in one stage only. A preliminary interview could help in
recruiting the most probable candidates who could be called for the
final interview. It must be conducted by skilled interviewers; otherwise
some potential candidates may be lost.
In some cases companies organise successive interviews, i.e. the
same candidate is interviewed by one or more interviewers separately
one after another. The panel or the board interviews are, however,
more common. The panel may consist of a small number of experts
while a board may have a larger number.
The interview may be patterned or open. In a patterned interview a
set of questions is already prepared. The interviewers are able to
collect information about the candidate in a systematic and uniform
manner. The candidate’s basic characteristics and motivations should
also be probed into by the interviewers to arrive at a judgement. In a
non-patterned or open interview, interviewers put such questions as
they feel would make the candidate reveal his mind and his strong
and weak points.
For recruiting technical and highly skilled personnel, technical
interviews may be arranged to assess the competence of the
candidates in their own special fields. The technical expert on the
selection board should properly assess the candidate’s strengths
and weaknesses. If he gives his judgement in such terms as a ‘nice

Page 219
chap’, or ‘got rattled easily’, or a ‘bit glib’, he does not take his job
seriously.
Each candidate may be interviewed separately or a number of
candidates may be interviewed in a group. Personal interview
exposes the candidate only before the board, but group interview
exposes him before the other applicants also. In a group interview,
a candidate must get an opportunity to show his initiative and
leadership qualities better than in a personal interview.
The interview aims at selecting the best out of the most probable
candidates. It must be conducted in an objective manner. The
interviewers should not permit their personal likes and dislikes and
prejudices to come in the way of proper assessment of the
candidates. They should not allow the filtering of information about
the candidate through their own ‘subjective screen of views, needs
and prejudices’. They are supposed to pay the same degree of
attention to all the candidates on similar aspects of performance.
The very often committed errors by interviewers are:

i. The halo error- giving high rating to the candidates whose liking
and disliking seem similar to his own
ii. The logical error- judging on a wrong yardstick
iii. The errors of leniency- helping to come out for something which
the candidate cannot cope with
iv. The contrast error- penalizing the candidate for having opposite
ideas or preferences.

Page 220
An objective assessment of a candidate’s performance would
require an unbiased evaluation by the interviewer of the
following qualities, as suggested by John Munro Fraser:

i. First impression and physical make-up

ii. Qualifications
iii. Brain and abilities
iv. Motivations
v. Adjustments
The interviewer should keep an open mind till the end of the interview.
Too much warming up to the candidate should also be avoided. The
candidates should be given an opportunity to talk in a free
atmosphere. There should be minimum stress in the beginning so that
the candidate does not feel nervous. The room where the interview
is conducted should be free from interruptions of telephone
calls or visitors.
The assessment of the interviews should be recorded immediately
after the interviews are over. All members of the board/panel should
give their rating on a defined scale such as- A = Outstanding, B =
Good, C = Average and D = Poor. Final selection should be made
on the basis of consensus as far as possible after discussing the
relative merits and demerits of potential candidates who are on the
top of the list.
3. Employment Tests:

As a method of selection, the employment tests are an exception

rather than the rule. They may be used to supplement the
information already collected through the application forms and
Page 221
interviews. The future performance of the candidate in a particular
field may be predicted to some extent by the tests specially
designed for the purpose. The disappointment which arises from
failures and dropouts in training and later on the job can be avoided
by the use of the tests of ability and potential of applicants.
The five main groups of psychological tests are:
I. Intelligence tests:

Intelligence tests are particularly useful in selecting candidates for

jobs which call for problem solving abilities or which involve
extensive training. Different forms of intelligence tests are used for
candidates of different age groups.

II. Attainment tests:

Attainment tests measure the degree to which a person has

acquired knowledge or skill. Tests of knowledge have been developed
for spelling, vocabulary, arithmetic, mechanical information and a
range of more specialised subjects.
III. Aptitude tests:
Aptitude tests identify an individual’s innate suitability for particular
types of work and can indicate whether a man would be more suited
to one type of work rather than another. Tests of ‘sales aptitude’,
‘managerial aptitude’, ‘mechanical aptitude’, etc. are used to identify
the candidate’s potentialities in a chosen area. The General
Aptitude Test Battery identifies a candidate’s abilities in such areas
as verbal comprehension, numerical ability, motor coordination,
manual dexterity, general intelligence, etc.

Page 222
IV. Interest tests:

Interest tests help in predicting the areas in which the candidates

are most likely to settle down and be satisfied. The candidate’s
preference for indoor or outdoor jobs, routine or creative work and
individual or group responsibilities may be ascertained by
administering interest tests.
V. Personality tests:

Personality tests are designed to measure the degree to which an

individual possesses such qualities as drive/ persuasiveness, self-
confidence, stability, etc. The most promising kind of test to throw light
on the personality area is the situational test, e.g. the
leaderless group discussion.
The psychological tests have some limitations. The predictions
based upon these tests cannot be hundred percent correct. Further,
the candidates brought up in poor families, and in the rural and
backward regions may be put to a disadvantage as compared to those
coming from affluent urban families when these tests are used as
a primary measure for judging their abilities, levels of maturity, etc.
The tests should be properly designed and administered by the
experts. They should be used to supplement other methods.
4. References:

References should be sought, after the selection is finalised. These

may be either in a written form or checked over the telephone. If
references are sought before the interview, they may bias the thinking
of the members of the selection board. The opinions of the
previous employers and other persons referred to by the candidate

Page 223
are only as reliable as the judgement of the person giving them.
References may help in checking certain facts given by the
candidate in the application form.
5. Medical Test:

The selected candidates are medically examined by the company’s

doctor or approved medical practitioners. Medical tests may vary from
the comprehensive to the nominal, depending upon the nature of the
job. The manual jobs may require comprehensive medical tests to
prevent infection, detect ailments and complicated diseases.
6. Appointment Order:
The selected candidates are issued letters of appointment after the
recommendations of the selection board are approved by
competent authority in the company. Appointments at senior positions
such as the chief executives, general managers, financial advisors,
etc. need the approval of the board of directors. The chief executive
may be the approving authority in the case of other posts.
An appointment order states the post offered, salary and
perquisites, service conditions, duration of the post (permanent,
temporary, contractual), reporting authority, time limit for
communicating acceptance and joining the post, etc. It is duly
signed by the employing authority and becomes the first basis of
contractual relationship between the company and the candidate.
7. Personnel Research:

The objective of recruitment these days is not only to select a good

person but also to retain a motivated work force as this tends to
keep the conflicts low. For this purpose a personnel manager has to
fall back on reliable data maintained in his own organisation,
Page 224
researches carried out by other bodies/research institutions or appoint
consultants to study a specific area and offer advice.
An independent study by a consultant or a research body
brings credibility to the findings and recommendations as:
(i) Generally, it is objective and devoid of subjectiveness and
prejudices of individuals.
(ii) It is systematic and properly identifies the problem, its magnitude
and draws a scientific plan of study.
(iii) It is purposive as the problem is clearly spelt out and the
information collected serves the specific purpose of dissecting the
problem and seeking answers to it.
(iv) It is scientific. By being systematic and purposive, it identifies
methods, tools, approaches and techniques to understand/ solve
the problem.
(v) It can be generalised. As the study is controlled for specific
purposes, extraneous factors and irrelevant matters are not allowed
to influence it and clear conclusions which can be generalised are
easy to draw.
Personnel research is the task of searching and analysing facts for
solving personnel problems and arriving at principles/laws
governing their solution. It is necessary for anticipating personnel
problems likely to occur; evaluating current policies, changes in
policies and practices; predicting employees’ response to changes
(be it machinery, change of work, promotion policies, staggering
holidays, performance appraisals, welfare measures, etc.)

Page 225
Since research is selection of facts in specified areas and search for
trends that will help in solving the problems, it can be of various
types or an amalgamation of a few types such as, specific case
studies, historical studies; opinion survey, exploratory studies,
experimental studies. What is important is a sound knowledge of the
process of research and various steps that are to be followed
through the identification of problems, methods of data collection,
analysis and conclusions.
The contents of research reports generally vary depending on
the type of study but these should essentially include the
following:
i. Title of the study
ii. Purpose of the study
iii. Statement of the problem clearly and precisely
iv. Magnitude of the problem
v. Methods and procedures adopted for the study
vi. Limitations of the study, if any

vii. Discussions and analysis of the problem

viii. How the inference and conclusion have been drawn
ix. Area of extended studies and future research
x. References
8. Personnel Statistics:

Page 226
Depending on the size of the company, a statistical cell to collect
and collate data may be helpful in analysing many problems and
decision-making processes to reduce conflicts and confrontations.
The areas of collection and maintenance of statistics on
routine basis could be:

i. Employee’s Record – Age; sex; length of service; region;

occupation; size of the family; education; training; salary range; etc.
compared occasionally with similar firms. Exchange of statistical
reports with a similar industry is a healthy practice after taking due
care of the confidential nature of the data.
ii. Transfers – Reason for transfers; whether by request or by the
management itself; relationship of expertise with the department; type
of work; age; sex; length of service; earning; occupational hazards,
etc.
iii. Absenteeism – Causes of absenteeism. Correlation with season,
age, sex, occupation, department, length of service, health, etc.
iv. Health – Cause of illness and whether it is related to the working
conditions, age, sex, size of family, etc.
v. Accident Proneness – Analyse accident rates according to
department, working environment, age, sex, season/shift, type of
accident. Compare the trend of accidents and severity rate.
vi. Grievance and Resignation – Analyse cause, subject,
department of work, frequency, education level, sex, rank, etc.
vii. Manpower Productivity and Standards – Number of employees;
time standards; output records; productivity and value added per

Page 227
person according to department, age, sex, qualifications, working
environments, etc. compared with similar industries.
viii. Personal Appraisal Reports – For purposes of promotion, transfer,
training needs, changes before and after training, future development
prospects, etc.
ix. Recruitment and Training Expenses – Department-wise, trade-
wise: qualifications, age and sex for comparison with similar firms.
x. Payroll Data and Control of Overtime – According to trade,
department, age, sex, accident, health, etc.
xi. Suggestion Records – Suggestions received, reviewed, accepted
and rewarded, savings effected, classifying them according to
qualifications, department, age, sex, salary, etc.
xii. Service and Welfare Records – How the employees are making
use of canteens, cafeterias, libraries, recreation and sports facilities to
examine the trends.
The data collected, analysed and tabulated should not be merely for
the sake of records. It should be periodically analysed and made
use of for the good of the company.
Data collected should be periodically examined with a similar
industry with a view to:

i. Decreasing – absenteeism; resignation, accidents; health

hazards; reprimands; grievances; conflicts; disparities; stoppages of
work, etc.
ii. Increasing – employee effectiveness; utilisation; output;
productivity; value added per person; time standards; job security.

Page 228
iii. Improving – working conditions; welfare measures; morale and
motivation; suggestion schemes; sense of belonging and pride of
working for the company; community/ labour relations; industrial
peace and safety.
Recruitment and Selection Process in HRM – Important Steps
in Recruitment and Selection Process

Recruitment is a set of activities viz. advertising, establishing

preliminary contacts and performing initial screening to create a
qualified pool of job applicants for an organization. Selection
involves choosing from a pool of applicants (created by the
recruitment process) the person or persons who offer the greatest
performance potential.
1. Temporary or Permanent Employee:

The first step in the selection and recruitment process is to

determine if the job should be filled by employing a temporary or a
permanent employee. When an employee suddenly exits from the
organization leaving behind a vacancy to be filled urgently, it is
worthwhile in most instances to find a temporary employee to fill the
post to allow for suitable timeframe for formal selection and recruit-
ment of a permanent employee.
In other scenarios, a particular job may be seasonal in nature and
thus, temporary employees would be more suitable for such a job. For
example, retail stores usually increase the number of
employees during the festival season like Deepawali, Christmas,
and Eid, keeping in view the huge rush of customers during this
time. Many of these employees are temporary and are laid-off after
the season gets over.

Page 229
It is generally easier to handle temporary employment as these are
short-term contracts and the employee knows from the beginning
that the employment will lapse after the term gets completed. There
are however advantages of this approach in which temporary
employment gives the opportunity to the employee to demonstrate his
capabilities to the employer and also, to learn the skills typical of the
organization. Later, if the need be, the employer may consider the
temporary employee for permanent employment.
2. Perform Job Analysis and Create Job Description:

Successful employee selection is dependent on a clear

understanding of a job’s components. A job analysis is used to
identify job tasks and responsibilities. This may be accomplished by
collecting information about the position; by interviewing workers,
supervisors, and other employers; and by observing current
employees. The end result of job analysis is the job description and
specifications.
Let us take an example of a job description and specifications
at the pharmaceutical major Novartis:
General:
i. Job title – Program Director
ii. Department- Human Resources
iii. Reports to – Head of Learning
Job Purpose:

The Program Director designs and delivers learning programs that will
enhance the skills and capabilities of Novartis’ current and
future leaders around the world. These programs are designed in
Page 230
close cooperation with and sponsored by members of the Executive
Committee. This position reports to the Head of Learning and is based
in Novartis worldwide headquarters in Basel, Switzerland.
Major Accountabilities:

i. Serves as an expert for the design, development, implementation,

and on-going updates of specific learning programs in close contact
with the Head of Learning
ii. Is the first point of contact for the business partners and identifies
the development needs

iii. Deals directly with all potential vendors in the design and
development phase
iv. Is personally present in key learning programs, deals with
internal senior faculty and senior business school, consultancy
representatives
v. Contributes to the overall learning strategy of the company
Key Performance Indicators:

i. Feedback/Ratings on specific programs

ii. Favourable feedback from senior management partners
Job Dimensions:

i. Number of associates- Administrative Support depends on scope

ii. Financial responsibility- 5-10 Mio CHF
iii. Impact on the organization: Learning programs regarded as an
essential part of people development, high impact on the job
performance
Page 231
Background—Education and Experience:
i. University degree with a preference for MBA
ii. Strong business acumen
iii. Excellent people and communication skills
iv. 6-10 years’ experience in an internationally operating company
3. Determine the Recruitment Strategy:

The next step involves reaching out to the intended audience with
the information that a vacancy exists for a particular position in the
company. The objective here is to have as many applicants as
possible for the vacancy so that the employer gets ample choice to
find the best candidate for the job. Ways to advertise the position
include- company website, present employees, previous applicants,
trade journals, newspapers, vocational schools, universities, and
employment agencies.
Many times, people come looking for work when there is no
vacancy existing in the organization at that point in time. It is a good
idea to make them fill up a simple form (requiring bare minimum
information) so that they may be contacted when there is a relevant
opening. Such a database is very handy for expanding the applicant
pool for a job vacancy in the due course.
4. Determine the Selection Tools to be Used and the Sequence
Thereof:
There are various tools to check the abilities, knowledge, and skills
of the applicants. For example, preliminary screening (say by using
group discussions), application forms/resumes, written tests,
personal interviews, reference checks, letters of recommendations,
Page 232
medical check-up, etc. Some tools are better than the other in some
respects. Therefore, it is best to use a combination of them in a
predetermined sequence.
Factors reflecting worker motivation, such as punctuality and
attendance, may, be elicited within the interview, but contacting
previous employers may give more reliable information. If possible,
try to verify evidence of specific skills, knowledge, and abilities at
more than one point in the selection process. It is useful to identify
specific tools which would be utilized for measuring the specific
skills, knowledge or ability by using a table.
The questions and situations to be used in the various methods
deployed-in the selection process need to be finalized beforehand
keeping in view the various attributes to be gauged in the applicant.
Some of the tools like the preliminary screening and application forms
may be used to eliminate a proportion of the applicants when the
number of applicants is very large. The sequence of the hurdles (in
the form of selection tools) is generally kept such that the more
expensive and time-consuming selection tools are used later in the
selection process.
Inviting candidates to participate can include a description of the steps
in the process, their sequence, and any required applicant
preparation. The sequence of hurdles may be programmed to
minimize travel and expense for both applicants and employer. A
preliminary telephone interview with geographically distant
applicants may eliminate unnecessary travel. Written tests can
sometimes be mailed when they can be administered to applicants by
a trusted, qualified third party.
5. Perform a Pre-Interview Orientation:
Page 233
A pre-interview orientation is very helpful for the potential
candidates. This orientation should brief them of the company
profile, its activities, and future outlook. It allows the candidates to
clarify any doubts about the job and the company by asking questions.
It also helps in arousing the interest of the potential candidates to
apply for the job in the company.
6. Preliminary Screening:

When the number of applicants for a job is very large, preliminary

screening can be performed to eliminate less worthy candidates.
Group discussions have been found useful for screening candidates
for managerial positions. The communication skills, listening skills,
team skills, and leadership acumen of the candidates are tested
through group discussions. Some organizations prefer to conduct
objective-type tests to screen out candidates.
7. Review Application Forms and Resumes:
Well-drafted application forms aid in capturing the academic and
employment history of candidates. Similarly, resumes and
curriculum vitae (CV) are helpful in this regard. The advantage of a
standard application form vis-a-vis resume is that it facilitates easy
comparison of the profile of two or more candidates on various
parameters—gaps in employment, too short stints with
organizations in the past, etc.—evident in the application form provide
opportunity to the selection committee to seek clarifications later
during the personal interview stage.
8. Conduct Written Test:

Written tests constitute the next step in the selection process. There
are various types of tests to measure knowledge, ability, skills,
Page 234
aptitude, attitude, honesty, and personality. These are – power tests
(to gauge the knowledge and analytical abilities), speed tests (to
measure the ability to perform repetitive tasks in a set time frame),
open-book-open-web exams (in which the candidates are allowed
access to study material and the Internet), etc.
The formats of the tests can also be varied, e.g. multiple-choice, short-
answer, fill-in-the-blank, and long-answer or essay questions.
Naturally, essay questions are relatively time-consuming during
evaluations compared to the objective- type tests (multiple choices),
however they provide better insights about the candidate’s written
communication skills.
9. Conduct Personal Interview:

Candidates qualifying in the written test are subjected to the

personal interview. Personal interview provides a perfect
opportunity to the selection committee to check the personality,
knowledge, verbal communication skills, etiquettes, dressing sense,
and ability to respond to situations impromptu. Structured interviews
require the questions and their sequence to be determined prior to the
interview. A structured format is helpful in comparing the performance
of two or more candidates.
10. Perform Reference Checks:

It is important to perform reference checks for the candidate, if

found worthy during the personal interview stage. It provides various
insights about the personality, academic and employment history of
the candidate. The details of the people to be contacted for
referencing is usually sought from the candidate in the application
form/resume itself.

Page 235
Unless the candidate gives permission to do so, the current employers
should not be contacted as it may unnecessarily create challenges of
various sorts for the candidate. Reference checks can be performed
through email or by phone calls.
11. Make the Job Offer:

If the reference checks result in good feedback about the candidate,

offer letters sent to the candidate. Otherwise, it is customary to send
a formal rejection letter. It is not uncommon that a few candidates
do not accept the final offer of employment made by an
organization.
If no response is obtained from the candidate or a negative
response about the offer is received, the records of the candidate
are entered in archives for future action as per company policies.
The policies of some organizations prohibit such an applicant from
applying again for a job, while other organizations have a lenient
and open policy whereby the candidate gets an opportunity to apply
again in future.
The offer letter should include a joining date after consultation with the
candidate. Normally, there is a notice period varying from 1 month to
3 months, which has to be given by the candidate to his current
employer before exiting. If the selected candidate requires relocation
to a new place, some time period for transiting and settling down
should be allowed. The relocation expenses are normally borne by
the employer and all the modalities in this regard should be mentioned
in the offer letter.
12. Medical Examination:

Page 236
A post-offer pre-employment medical examination (of the candidate
and dependent family members) is a must especially when the
company has to cover the candidate and his dependent family
members by medical insurance. The cost of such a medical
examination is borne by the employer.
13. Induction and Orientation:

The new employees are most receptive to change in their career

time, when they are joining a new employment. Therefore, formal
induction and orientation of the employees help them in understanding
the various facets of the organization. Unwritten rules, traditions
or informal perks should be discussed with employees as part of the
orientation period.
The first day in office is always special for everybody. Therefore,
proper arrangements have to be made before the joining date of the
employee. This includes suitable workstation/room, stationary,
computer hardware/software, and a welcome gathering (as per the
traditions of the organization).
Generally, the recruitment and selection procedure consists of
several stages, important among which are as follows:
1. Receipt and Scrutiny of Applications:
Everyone who applied for a job in an enterprise may not possess
the necessary qualifications or experience for it Candidates with
insufficient qualifications or experience should therefore, be
eliminated from the list of those who have to be called for
preliminary interview.
If such elimination is not done, all applicants whether having the
necessary qualifications and experience or not should have to be
Page 237
called for the preliminary interview. This would only mean waste of
time and money for both the enterprise and the candidates.
2. Preliminary Interview:
The object of preliminary interview is to see if an applicant appears
to be physically and mentally suitable for the job. Questions put to a
candidate during such an interview are of a general and definite
nature and mostly concerned with his qualifications, experience,
interests, age, residence, etc.
Candidates who pass the preliminary interview are asked to fill up a
blank application form especially designed by the enterprise.
3. Blank Application Forms:

After a candidate has successfully cleared the preliminary interview,

he is asked to fill up a blank application form designed especially to
suit the requirements of the enterprise.
4. Tests:

Tests serve as an important device in the process of selection.

These are aimed at measuring such skills and abilities in a worker
which, according to the job analysis and job description, would help
him in performing his job well.
Advantages:
If properly designed and effectively carried out test offer the
following advantages to the employer:

(i) Assessment of suitability of candidates – Test provide a good

basis for measuring a candidate’s suitability or unsuitability for a
given job.
Page 238
(ii) Verification of facts – Claims made by candidate in respect of his
qualifications, experience etc. can be properly checked through
tests.
(iii) Objective assessment – Tests eliminate the possibility of
personal preference or prejudice concerning any candidate.
(iv) Establishment of standards – Tests help in establishing
standards of job performance.
Disadvantages:
Tests suffer from certain drawbacks.
Important among them are as follows:

(i) Unreliable – Tests are rarely a reliable indicator of the skill and
ability of a candidate.
(ii) Liable to abuse – Highly qualified and experienced candidates
may be rejected and less qualified persons may be selected.
(iii) Unfair to some – Candidates coming from socially and
economically backward sections of society may not be able to face
the test as successfully as those belonging to privileged sections.
(iv) Fear of Exposures – Some individuals however qualified and
experienced do not like the idea of being given a test for a job.
Types of Tests:
Some of the tests may be given as follows:

(i) Intelligence Tests – Intelligence tests are the most commonly used,
standardised and the oldest in industry. They determine
general intelligence.

Page 239
Intelligence tests in connection with other tests give quite satisfac-
tory results.
(ii) Aptitude Tests – Aptitude tests are used to explore inborn
tendencies. It helps in determining the potential ability and capacity
of the candidates to learn the skills required to perform the specific
jobs.
The aptitude tests measure specific ability and capacity.
(iii) Achievement Tests – Aptitude is a capacity to learn in the future,
whereas achievement is concerned with what one has
accomplished in the past. It is the test of the knowledge which the
candidate claims to have achieved such tests include as typing and
dictation to a candidate for steno-typist
(iv) Interest Tests – The object of these tests is to measure a
candidate’s interest in a particular kind of work. On the basis of an
interest test, it becomes easy to assign to each person a work for
which he has the greatest liking so that he derives maximum job
satisfaction and is enabled to contribute his most to the enterprise.
(v) Personality Test – Many individuals possessing intelligence,
interest and aptitude have failed because of their inability to get
along and motivate others. These tests measure the non-intellectual
traits of a candidate such as his ability to mix up with people or to
motivate them properly.
Personality tests bring out any strong characteristics possessed by
a candidate such as courage, cowardice, initiative, bad temper, likes
and dislikes and so on. Here the aim is to ensure that the candidate
has necessary temperamental and emotional make up to handle the
join for which he is to be employed.
Page 240
5. Interviews:
An interview is a formal consultation to evaluate the aptitude,
training etc. of a prospective employee. It is a “face-to-face
observational and personal appraisal method” to evaluate a
candidate for a job.
In any selection process interviews may be of various kinds,
important among them are as follows:
(i) Direct Interview – This form of interview is brief but straight forward,
face-to-face question and answer sessions between the interviewer
and the interviewee.
No analysis of a candidate’s ability, skills, characteristics or attitudes
can be possible in such an interview.
(ii) Indirect Interview – In such an interview, no direct or straight
questions are put to the candidate. On the other hand, he is
encouraged to express his views on any topic of his liking. The
propose is to know which issues he considers fit to be discussed by
him.
(iii) Patterned Interview – Under this method, a number of standard
questions to be put to a candidate are framed in advance. Ideal
answers to these questions are also determined beforehand. Then the
answers given by the candidate are checked with the ideal answers
to assess his suitability for the job in question.
(iv) Stress Interview – In such an interview, the interviewer deliberately
creates a situation that subjects the candidate to considerable stress
and strain. The purpose is to know how the
candidate reacts to such situation.

Page 241
(v) Systematic Interview – As the name suggests, this kind of interview
is planned in advance. The interviewers plan the questions to be
asked on a particular subject. The purpose is to get an integrated view
of the skills and personality of the candidate.
(vi) Board of Panel Interview – In this interview, there are not one
but many interviewers to put questions to a candidate. Each
interviewer is assigned an area from which he has to choose his
questions e.g. one on educational background, another on his
professional skills, yet another on his interests and aptitudes and so
on.
(vii) Group Interview – Under this method, a number of candidates
are interviewed simultaneously, a question or a problem situation is
posed before them and each candidate is asked to participate in the
discussion that follows. On the basis of a candidate’s performance
during this group discussion, he is selected or rejected.
6. Checking of References:

A candidate applying for a job in an enterprise is usually asked to

provide some references i.e. names of persons to whom inquiries
as to his educational background skills, experience, and character
might be addressed.
A verification of references might prove to be quite rewarding in some
cases. This is because some candidates may provide incorrect
information as to the dates of their previous employments, job titles,
past salary or as to reasons for leaving a prior position.
7. Preliminary and Final Selection:

Up to the stage of checking of references, the preliminary selection

process is handled by the staff executives. From there onwards, the
Page 242
line management takes over. Because the requisition for additional
employment is made by line executive and because it is their
responsibility to order and control performance of their
subordinates, it is only proper that they should also have the right to
make the final selection of their subordinates.
8. Medical Examination:

For jobs that prescribe certain physical standards as to height, weight,

eyesight, hearing etc. a medical check-up prior to the placement of
the candidate, becomes necessary. Selection in the armed forces or
civil services, for example, is subject to the candidate clearing his
medical examination.
9. Placement and Orientations:
Even when a person has been finally selected for a job, the
selection process is not complete. The last act is the placement of the
selected candidate into his new job and his orientation to the
organisational environment. For this purpose, it is necessary to give
the new man a copy of the rules, policies and procedures to be
followed by him. He should also be provided with complete description
of his job. This is not all; the new employee should also be told about
his authority and responsibility, who shall be his immediate and
ultimate boss? Who are the people whom he can command? And
so on.
From the point of view of the employee, the induction should create
a favorable impression and attitude, establish a sense of belonging
and facilitate learning and teamwork. And from the organisation’s
point of view it should seek to reduce turnover, save time and troubles
for supervisor and fellow employees and reduce
grievances.
Page 243
Recruitment and Selection Process in HRM
Selection is the process used to identify and hire individuals or groups
of individuals to fill vacancies within an organisation. Often based on
an initial job analysis, the ultimate goal of personnel selection is to
ensure an adequate return on investment —in other words, to make
sure the productivity of the new hire warrants the costs spent on
recruiting and training that hire.
Several screening methods exist that may be used in personnel
selection. Examples include the use of minimum or desired
qualifications, resume / application review, oral interviews, work
performance measures (e.g., writing samples), and traditional tests
(e.g., of job knowledge). The field of personnel selection has a long
history and is associated with several fields of research and
application, including human resources and industrial psychology.
After you have finished all the interviews your next step is to assess
each candidate. You want to see which one is the strongest in terms
of skills, experience and qualifications. Also, you want to assess
intangibles such as the person’s fit to your company. If the applicant
is weak in a particular area how will it affect you and the rest of your
employees?
A. Checking References:

Once you have selected your top candidate the next step is
checking references. In talking to the applicant’s current or previous
managers or co-workers, you are making sure the applicant has the
skills and experience listed on their resume. Reference checks are
important since research shows that about third of all applicants are
creative with or lie about their employment history. You want to
make sure the person will not be a liability to you and your clients if
Page 244
they claim to have technical expertise that they do not in fact possess.
B. Making Your Offer:
Before you contact the unsuccessful employees, make sure your
top candidate is willing to take your job offer. They may well have
found another job by the time you reach this step. In your call briefly
tell the applicant why you want to hire them, confirm salary range
and other details.
C. Completing the Paperwork:

Finish off your recruitment process by tying up the loose ends. This
includes sending your offer letter with the job title, start date, and
salary to the successful applicant. Send the unsuccessful
interviewees a short letter explaining that the position has been
filled and wishing them success in their job search. Some of them may
wish to approach you in the future for a different position.
Hence it is important for the recruiting firm to understand the job that
needs filling?
i. How has the job changed since it was last filled?
ii. Do we still need the job to be done?
iii. What does the job now involve?
iv. Does it need to be done in the same way as before?
v. Is there a Job Description?
It is also important for the firm to know what sort of person they
need –

Page 245
1. To fit the job-
i. Is it a lonely job?
ii. Does it require unsocial hours working?
iii. Does it need a team person?
2. To fit the organisation-
i. What do we believe in?
ii. Obedience to the boss—or Independence?
iii. Competition—or Co-operation?
iv. Customer First—or—Organisation First?
3. Do we want help to change?
D. Recruitment Policies and Procedure:

One of the first steps in planning for the recruitment of employees into
the organisation is to establish proper policies and procedures. A
recruitment policy indicates the organisation’s code of conduct in this
area of activity. A typical policy statement for recruitment may run
thus.
Once the recruitment policy is made explicit, the company can
evolve a detailed procedure to make the whole exercise systematic.
Such a systematic approach will enable people within or outside the
organisation to follow a predictable path. The recruitment
procedures should, however, be flexible enough to permit personnel
department to respond quickly to demands made on them by
various departments and by potential candidates.

Page 246
Recruitment, it should be remembered, is a marketing activity as
well as a public relations exercise. When recruiting people,
organisations are going out into their external environment and
competing with others for suitable candidates. Such activities
therefore, should be conducted in a manner that sustains or enhances
the prestige and public image of the organisation concerned.
The various steps involved are:
1. Placing the Requisition:
The Line Manager or head of department submit the requisition for
recruitment to the personnel department. The requisition specify the
position for which persons are required, the number to be recruited,
the time by which persons should be available, salary to be offered
etc. This form is prepared in duplicate; one copy is being sent to
personnel department and the other retained by requisition
department for reference
2. Recruitment:

It is defined as the process of searching prospective employees and

stimulating them to apply for jobs in the organisation. Recruitment is
called as the subset of selection, means recruitment is a part of
selection.
But in practice both employee and employer search for each other.
The success of the two depends on each other which in turn
depend on three factors:
1. Communication medium- Recruitment is not possible if it is not
communicated to the willing people.

Page 247
2. Perception- Candidate should assess themselves whether my
skills, knowledge, experience etc. is fit for that particular job or not.
3. Motivation- The capacity of organisation, package offered,
working environment acts as motivation factor to get the right
candidate.
Sources of Recruitment:
(a) Internal

(i) Job Postings

(ii) Newsletters
(iii) Succession Planning, e.g., Promotion
(b) External:
(i) Education institution
(ii) Similar organisation
(iii) Employment exchange
(iv) Advertisements
(v) Recruitment
(vi) Casual callers
(vii) Recommendations
(viii) e-Recruitment
(a) Internal Sources:
It refers to present working force of a company. In event of vacancy
someone already on payroll is promoted or transferred.
Page 248
Merits:

(i) Economical
(ii) Reliable
(iii) Satisfactory
Demerits:

(i) Limited choice

(ii) Inbreeding
(iii) Bone of contention
(iv) Inefficiency
(b) External Sources:
It refers to hiring people from outside an organisation.
Merits:
(i) Wide choice
(ii) Injection of fresh blood
(iii) Motivational force
Demerits:

(i) Expensive
(ii) Time-consuming
(iii) Demotivation
Alternatives to Recruitment:

Page 249
A company cannot fill all its vacancies from one single source. It
must carefully combine some of the sources on the basis of quality
of men they supply, cost, etc.
Following are the alternatives to recruitment:

I. Overtime
II. Subcontracting
III. Temporary employees
IV. Employee leasing
V. Outsourcing
Evaluation of Sources of Recruitment:
I. Measuring past recruitment can help predict
II. Timeliness of recruitment
III. Budget needed
IV. Methods that yield greatest number of best quality candidates
V. Assess performance of recruiters
3. Selection:

It is the process of choosing the right candidate for the job. Right
candidate is the person who has minimum educational qualification,
skills and experience to perform a job in a well manner.
Selection is the process of gathering information for the purpose of
evaluating and deciding who should be hired, under legal
guidelines, for the short and long-term interests of the individual and
the organisation. (Schuler, Dowling, and Smart, 1992)
Page 250
Steps in Selection Process:
There is no any standardised set for the selection process. It differs
from organisation to organisation.
i. Preliminary interview
ii. Receiving application
iii. Screening of application
iv. Employment test
v. Employment interview
vi. Reference checks
vii. Medical examination
Selection Decision:
Case 1 – Candidate who is selected/accepted is successful doing
the job then decision is correct.
Case 2- Candidate who has been rejected might be successful
(assume to be successful) in performing the job, then this decision
of rejection suffers from error.
Case 3- Candidate who has been selected for the job is
unsuccessful in doing the job, then decision is regarded as an error.
Case 4- It is assumed that candidate who has been rejected must
be unsuccessful in performing the job, then decision is correct.
Selection Tests:
Test is an important step of selection procedure.

Page 251
Some of the commonly used employment tests may be stated
thus:
1. Intelligence Test
2. Aptitude Test
3. Personality Test
(a) Projective Tests
(b) Interest Tests
(c) Preference Test
4. Achievement Tests
5. Simulation Tests
6. Assessment Centre
(a) The in-basket
(b) The leaderless group-discussion
(c) Individual presentation
Guidelines for Selection Tests:

1. Should supplement not substitute other methods?

2. Are a screening device
3. Are not precise measures
4. Test conditions are important
5. Must be conducted/assessed by competent persons
Cost of Poor Selection:
Page 252
I. Direct costs
(a) Re-advertising costs
(b) Panel time and effort
(c) HR staff time and effort
II. Hidden costs

(a) Reduced productivity

(b) Lost productivity whilst position vacant
(c) Time taken for new hire to become productive
4. Interview Types:

Various techniques and methods are used to obtain the desired

information about an applicant during the interview. Interviews can
be classified according to the techniques used. These are patterned
or structured, non-directive, multiple and group, and the stress
interview. Despite all the criticisms, employment interviews continue
to be widely used.
i. Patterned or Structured Interview:

In this type of interview a detailed form is used, with specific questions

to be asked, and space provided for answers. The form is completed
either during the interview or immediately afterwards from memory.
The subjects covered in the procedure include the background,
knowledge, attitudes and motivation of the applicant. These interviews
guide the interviewer in getting the facts about the candidate, provide
a set of principles for use in interpreting the facts, and provide a
means for minimizing an interviewer’s biases
and prejudices.
Page 253
ii. Non-Directive Interview:

The main purpose of this type of interview is to get the individual to

talk freely in expressing himself or herself. The questions asked by
the interviewer are broad and general in nature. The role of the
interviewer is one of a good listener, using questions sparingly and
phrasing responses briefly. Interviewers do not impose their values,
attitudes or their way of thinking about the candidate but give the
candidates an opportunity to reveal their own identity.
iii. Depth Interviewing:

This type of interview is a combination of the patterned and non-

directive type of interviews. While the approach is similar to the non-
directive interview, the questionnaire used provides some structure
to it. The questionnaire used in this type of interview covers work,
education, social relationships, economic, personality and ambitions
to be responded to by the applicant. The questions are designed so
as to permit the candidate to say as much as he or she wishes in
response to them. This method of interview overcomes some of the
limitations of patterned and non-directive interviews.
iv. Group Interview:

This type of interview is getting popular in the companies which

encourage a group approach to decision-making and functioning. This
method involves the use of more than one interviewer. The candidate
spends time talking to several different people separately or he meets
with a panel or Board whose members alternate in asking questions.
Normally, the group evaluation is derived after discussion among the
various interviewers, but independent estimates can be obtained
from each interviewer, and these then
are averaged to achieve a final decision.
Page 254
Revlon Inc., reports that group interviews not only save executives’
time but seem to result in better selection decisions. Studies show that
factors such as initiative, aggressiveness, poise, adaptability to new
situations, tact, ability to get along with people, and similar qualities
are observed during group interviews.
A well-known airline uses group interviews for selecting cadet pilots
and the company is happy with this process. At Microsoft, interviewers
include human resource professionals, managers from functional
departments, peers, and people outside the department who are well
grounded in the corporate culture.
5. Placement:

After selecting a candidate he/she should be placed on a suitable job.

It is the process of assigning specific job and work places to the
selected candidates. It is the process of matching individual and the
job. Correct placement is no way less important than selection.
Even competent employee may be dissatisfied if put on a wrong job.
If a candidate is not placed properly then it may lead to
absenteeism, turnover, poor performance, etc.
If the new recruit fails to adjust himself to the job and turns out to
the poor performance, the organisation may consider his name for
placement elsewhere.
6. Induction:
Induction refers to the activities involved in introducing the new
employee to the organisation and its policies, procedure, rules and
regulations. When a new employee reports for work he/she must be
helped to get acquainted and adjusted with the work environment
and fellow employees.

Page 255
Importance of Induction:

1. Reduce the cost and inconvenience of early leavers

2. Increase commitment
3. Socialisation
4. Accelerate progress up the ‘learning curve’
Three Basic Components of Induction:

1. Company/organisational Induction
2. Departmental Induction
3. Follow-up
Objectives of Induction:
1. Clarifying the job
2. Developing the realistic expectation about the organisation
3. Strengthening the relationship between new employee, his
superiors and peers.
Topics of Induction Programme:
I. Organisational Issues:

(a) History of company

(b) Names and titles of key executives
(c) Products/service offered
(d) Disciplinary issues
(e) Company’s policies and rules
Page 256
II. Employees Benefit:
(a) Pay scale
(b) Holidays, vacations
(c) Insurance
(d) Medical
(e) Retirement benefits
(f) Promotion
(g) Transfer
(h) Training and Development
(i) Counseling
III. Introduction:
(a) To supervisors
(b) To co-workers
(c) To trainers
IV. Job Duties:

(a) Job location

(b) Job tasks
(c) Job objectives
(d) Relationship with other jobs
(e) Job safety needs

Page 257
Succession planning

Everything you need to know about succession planning.

Succession planning is a process of ensuring a suitable supply of
successors for current and future key jobs.
Succession planning is an essential activity that focuses on
planning and managing the career of individuals to optimize their
needs and aspirations.
The term succession planning can be better understood by studying
its characteristics. A succession of persons to fill key positions over
time is essential for the survival and success of an organisation.
The purpose of succession planning is to identify and develop
people to replace current incumbents in key positions in cases of
resignation, retirement, promotions, growth, expansion and creation
of new positions.
Succession by people from within provides opportunities to
employees for progress in their careers.
The purpose of succession planning is to identify, develop, and
make the people ready to occupy higher level jobs as and when
they fall vacant higher level jobs fall vacant due to various reasons
like retirement, resignation, promotion, death, creation of new position
and new assignments.
Succession Planning
Succession planning is a process whereby an organization ensures
that employees are recruited and developed to fill each key role
within the company. In a recent survey, HR executives and non-HR
Page 258
executives were asked to name their top human capital challenge.
Nearly one-third of both executive groups cited succession
planning, but less than 20% of companies with a succession plan
addressed non-management positions. Slightly more than 40% of
firms didn’t have a plan in place.
Looking across organizations succession planning takes a number
of forms (including no form at all). An absence of succession planning
should be a red flag, since the competitive advantage of a growing
percentage of firms is predicated on their stock of human capital and
ability to manage such capital in the future. One of the overarching
themes of becoming better at succession is that effective
organizations become much better at developing and promoting talent
from within.
Succession planning is needed for:
1. Ensures Business Continuity:

Succession planning ensures business continuity. It means the

organization does not cease to exist when the key positions become
vacant due to sudden death, resignation or retirement.
2. Develops Potential Employees:

Succession planning is important for grooming and developing

competency of the next possible successor. The right training helps
the potential successor to improve his strengths and overcome
weaknesses. It also prepares him for various duties, challenges that
he might face in future if he fills up the position.
3. Identifies Next Successor:

Page 259
The process helps to identify next possible successor in advance.
Identification of successor in advance (before
retirement/resignation/death of person on the key position) helps the
organization to plan for future. Every business organization must
invest in identifying the next successor for the organization.
4. Smooth Functioning:

Succession planning ensures smooth functioning of the

organization. There is supply of competent and skilled employees to
take up the role or responsibility of key manager whenever the need
arises. Hence, temporary or sudden absence of key manager does
not halt the activities of the organization.
5. Reduces Cost of the Organization:
With succession planning, the demand for human resources is met
within the organization. It lowers the cost of organization as the
time, money, energy required to recruit employee from external
source is saved.
6. Developing Career Paths:

Succession planning helps the HR department to set up career

advancement plans for competent employees. The assessment of
skills and interest helps in providing right training to employees. It also
helps to select suitable employee for specific job roles.
7. Corporate Image:

Organization invests in identifying and grooming employees. It also

provides varied growth opportunities within the organization. This
increases job satisfaction of employees, which results in increased
performance and productivity. This ultimately improves image of the

Page 260
organization in market and attracts competent workforce towards
the organization.
8. Reduces Employee Turnover:

Succession planning provides growth opportunities to employees

within the organization itself. It offers varied job roles to prepare
employees to take up higher roles in future. The employees feel
important and valuable as the organization takes interest in their
career and personal development. Thus, it reduces rate of
employee turnover and helps to retain competent workforce.
Nature
The nature of succession planning can be listed as follows:
(i) Senior leaders are personally involved.
(ii) Senior leaders hold themselves responsible for growing leaders.
(iii) Employees are committed to their own self development.
(iv) Success is based on a business case for long term needs.
(v) Succession is linked to strategic planning and investment in the
future.
(vi) Workforce data and analysis inform the process.
(vii) Leadership competencies are identified and used for the
selection and development.
(viii) A pool of talent is identified and developed early for long term
needs.
(ix) Development is based on challenging and varied job based
experience.
Page 261
(x) Senior leaders form a partnership with human resources.
(xi) Succession planning addresses challenges such as diversity,
recruitment and retention.
Succession Planning – Purpose

Survival, growth and efficient continuous existence of an

organisation require a succession of people to fill various important
jobs. The purpose of succession planning is to identify, develop,
and make the people ready to occupy higher level jobs as and when
they fall vacant higher level jobs fall vacant due to various reasons
like retirement, resignation, promotion, death, creation of new position
and new assignments.
Succession may be from internal employees or external people.
Succession from internal employees is advantageous to the
organisation as well as to the internal employees. Organisation can
buy the employees loyalty and commitment, belongingness, shared
feeling of development along with the organisation by promoting the
internal employees.
Employees get the benefits of growth in the organisation. The
organisation mostly prefers to encourage the growth and
development of its employees and as such tend to prefer
succession from within.
Organisations appraise employees’ potentialities, identify training
gaps for future vacancies, develop them for higher and varied jobs.
The scope of succession plan would be more when the organisation
grows steadily and employees have potentialities to take up higher
responsibilities.

Page 262
Professionally run organisations ask their managers to identify the
internal employees having potentialities and develop them in order
to occupy their positions as and when they fell vacant.
However, it is necessary to allow the inflow of new blood also. Hence,
organisations should also search for outside talent in certain cases
like when competent internal people are not available, when major
expansion, diversification and growth plans are in offing, complete
dependence on either internal source or external source is not
advisable to any organisation. Hence, a judicial balance
between these two sources should be maintained.
: Systematic Process, Supply of Labour, Used for Higher Level
Organizational Positions, Internal Selection & Key Succession
Plan

Succession planning is a necessary part of an organization’s human

resource management system. It is a process where company
identifies possible replacements for critical roles. Some of the
critical roles are at management level and other roles include key
functions where the loss of an employee could put the organization
at risk.
They can be highly technical roles or sales positions with significant
levels of customer interaction. Succession planning identifies
individuals with the potential to develop into these critical roles.
Following are the features of succession planning:
1. Systematic Process:

Succession planning is the systematic process of defining future

management requirements and identifying candidates who best
meet the requirements.
Page 263
2. Supply of Labour:

Succession planning ensures supply of labour within the

organization for future staffing needs. With succession planning the
skills and abilities of current manpower are assessed to see which
future positions they may take within the organization when other
employees leave their positions.
3. Used for Higher Level Organizational Positions:

Succession planning is typically used for higher level organizational

positions such as executive level positions. Like if a company predicts
that its CEO will retire in near future, the organization may begin
looking months or even years in advance to determine which current
employee might be capable of taking over the position of CEO.
4. Internal Selection:

Succession planning makes use of internal selection as opposed to

hiring employees from outside the organization. With internal
selection, the organization becomes aware of current employee
skills and abilities and therefore is often better able to predict future
performance than when hiring from outside.
5. Key Succession Plan:

The key to succession planning is preparing a written succession

plan. This document provides for the continued operation of a
business in the event that the owner or a key member of the
management team – leaves the company, is terminated, retires, or
dies. It details the change that will take place as leadership is
transferred from one generation to next.

Page 264
3 Main Elements: Positions for which Successors are Needed,
Identification of Successors and Grooming of Successors
Along with career planning many organization undertake the
exercise of succession planning. Succession refers to coming into
another’s place fallen vacant to fall vacant in near future.
Succession planning, as an organizational practice is comparatively
new technique but it has been in practice in princely states since
long in which an heir used to be nominated and efforts used to be
made to groom him to take the place of the king.
There are three main elements of succession planning:
1. Positions for which Successors are Needed – The first element of
succession planning is to determine the positions for which
successors are needed. Some organizations prepare succession plan
for key positions which play strategic role in organizations. Sometimes
these positions are separated from top management to be known as
strategic management group.
2. Identification of Successors – The second element of succession
planning is the determination of likely successors for different
positions that are likely to fall vacant in future. Depending on the
organizational practice, such successors may be from the
organization itself or from outside.
3. Grooming of Successors – When successors are identified by
key positions attempts are made to groom them so that they are
fully equipped to take the positions ear marked when these fall vacant.
In the case of internal successors, this exercise brings much
ahead of the likely vacancy.

Page 265
As succession planning deals with developing future
managers and leaders, it should constantly involve:

i. Planning changes and habituating the same amongst the people

ii. Identify the potential of the existing employees and managers and
utilizing the same for their further growth and development
iii. Ensuring continuity of leadership and executive positions
iv. Identifying gaps in existing talent pool

Succession Planning – Guidelines

The guidelines for preparing succession planning are:
1. Capacity and Needs Assessment:
i. Identify Key Positions for the Organization:
These include the executive directors, senior management and
other staff members, who would, for their specialized skills or level
of experience, be hard to replace. Ask which positions would need
to be filled almost immediately to ensure that organization continues
to function effectively.
ii. Review and Prioritize Current and Emerging Needs:

This will involve examining strategic and operational plans to clearly

articulate priorities.
iii. Prepare Charts Identifying Key Position and Individuals:

Page 266
Prepare a chart that identifies the key positions and individuals in
the organization. The positions might include those listed in step 1
and/or others that are pertinent to an organization.
iv. Identify and List Gaps:
Identify and list the gaps by asking questions such as:

a. Which individuals are slated to or likely to leave (through

retirement, project completion, etc.,) and when?
b. Which new positions will be required to support the strategic
plan?
c. Which positions have become or will become obsolete (for
example, those related to a programme that has been terminated)?
d. What skills and knowledge will need to be developed (for
example, to support a new programme)?
v. Evaluate and Assess Staff Members for Goal Identification:

Evaluate/assess all staff members with the goal of identifying those

who have the skills and knowledge or the potential along with the
desire to be promoted to existing and new positions.
a. The evaluation can be formal or informal and can include, but is not
limited to, performance reviews, 360 degree assessments and
informal conversations with the individuals under consideration.
b. Every employee has aspirations to and the capacity to move up.
This may be an opportunity to recognise this goal and support it.

c. Take this opportunity to give younger workers a chance. Many

young people enthusiastically enter the sector and then, finding few
opportunities for advancement, leave. Younger workers can remain
Page 267
engaged if you help to match their interests to opportunities
provided through effective succession planning.
2. Development and Implementation of Succession Plan:
i. Develop and Nurture Key People for Future:
Based on the evaluation and on the requirements of strategic plan,
identify the key person, one would like to develop and nurture for
the future, the position we would like to groom them for, and the
time frame required to prepare them. Consider different ways of
developing employees like – self- development, books/journals,
mentor programmes, special project work.
ii. Identify Career Paths for Key Talent:
Identify the career paths that the selected individuals should be
following. Customise the path to fit the individual’s abilities and talents
by developing an action plan. The plan must be dynamic — able to
be changed as the individual’s and the organization’s needs change.
It must also consider the specific needs, learning style and personality
of the individuals involved in order to be effective.
iii. Formalize Coaching and Mentoring Actions:

Formalise education, training, coaching, mentoring and assessment

activities. The mix of activities included within the action plan should
be linked to timeliness and specific outcomes.
iv. Formalise Aggressive Job Rotation:

If possible, move people into different areas for experience and

training before they are needed in critical positions. Have individuals
job-shadow for an agreed upon period of time to give the successor
a real sense of the responsibilities and to allow the organization the
Page 268
chance to determine whether, the individual really is suited for the
new position.
3. Monitor and Manage the Plan:
i. Always Update Grooming Plans:

As people leave and new people assume their responsibilities, the

plan will have to be updated to identify the next person to be groomed
for promotion and the requirements of his or her individual action plan.
For organizations that engage in an annual (or regular) strategic
planning process, the succession plan should be included in that
discussion.
ii. Address Concerns of Staff not Selected in Career
Advancement or Succession Plans:

Be prepared to address issues such as concerns of staff who have

not been selected for career advancement. Ensure alternative paths
are identified to allow all employees who are interested in career
enhancement to be given some type of professional development
opportunity. Professional development can include such wide
ranging activities as formal education and training, workshops and
seminars as well as less formal learning opportunities such as the
chance to represent the organization at a consultation.
iii. Address Contingencies – Events which may or may not
Happen:

Recognise that no matter how well you plan, something can still
happen which the succession plan doesn’t address. For example,
you may have dutifully trained a “second” only to have that person
leave. Even though, there may be no one able to fill the breach

Page 269
immediately, the succession plan will ensure that there is a process
to follow in filling the position.
The process of succession planning includes the following
steps:
1. Planning:

The first step is to develop a strategic plan that will provide a blueprint
of how the succession plan is to be implemented. The long-term
vision and goals of the organization are identified and the current
personnel policies and procedures are studied. For a succession plan
to be successful, it is vital to integrate the plan with the interests and
aspirations of the senior employees who are being groomed for
succession.
2. Analysis:

In this step, the various challenges the company is likely to face in

the future and the skills and competencies the CEO would need to
meet them are analyzed. The future CEO would need a variety of
managerial and technical skills to be able to fulfil his responsibilities
effectively. The current supply of manpower in the organization should
be studied in relation to the anticipated demand.
Efforts should be made to determine the knowledge, talents, skills and
capabilities that would be required in the organization in the future. It
is necessary to identify the overall long term talent needs of the
company and not just of a particular position.
3. Identification of Talent Pools:
The competencies and skill levels of the current workers need to be
assessed in order to identify the available pool of talent. These may
Page 270
be measured by the use of performance evaluation tools like 360°
Feedback, critical incident methods and rating scales. It is also
necessary to evaluate the employee’s capacity to perform in more
responsible jobs in future through potential appraisal techniques
and psychological appraisal.
Factors like the employee’s educational background, time spent
with the company, his behaviour and attitude should also be taken into
account. The skill sets of the employees should be compared with the
skills needed for the key leadership roles and any gaps between the
two should be identified.
4. Development Planning:
After the gaps have been identified, the next step involves creating
development plans. The development plan includes the formal
development procedures, coaching and mentoring, special job
assignments, learning projects, etc. which will help the employees
to gain the necessary skills and experiences. The employee’s
progress will be monitored against the plan. The duration of the
development plan would depend upon the succession plan strategy of
the organization.
5. Implementing the Succession Plan:

The succession plan should be linked to the HR processes like

compensation, recruitment, performance planning, workforce
planning, etc. It is a long-term plan, and sometimes the succession
planning process is started from the time a brilliantly outstanding
employee begins his career (Jack Welch, the highly successful former
CEO of GE was being groomed for senior positions from the time he
started his career as a junior chemical engineer in the same
company).
Page 271
Implementing the succession plan includes the retention strategies
like retention bonuses, promotions, challenging work, etc. It is
essential to compare the progress of the succession plan with the
upcoming personnel requirements of the organization so that a
capable employee is available to fill a prestigious post should it fall
vacant either expectedly (due to planned retirement), or
unexpectedly (due to death, disability, illness, etc. of the position
holder).
Difference between Career Planning and Succession Planning

Although the terms career planning and succession planning appear

similar, they are different from each other. Career planning covers
all levels of employees; whereas succession planning is generally
meant for higher-level executives that are required to fill key
positions in case of resignation, retirement, promotion, and death of
existing higher-level executives.
Succession planning is essential for the survival and success of an
organization as it identifies and prepares the existing workforce to
replace the key personnel employed in the key positions. Moreover,
succession planning provides opportunities to the existing potential
employees to advance their careers.
While creating a succession plan, every key executive is asked to
identify three or four employees at junior levels who have the potential
to replace them when needed. For instance, a general manager who
is about to retire after two years can select the four potential
candidates as his/her replacement options.
The career paths for different types of jobs. It represents the career
path that can be taken by an unskilled worker, which passes from
semi-skilled job, skilled job, and highly skilled job before reaching
Page 272
the position of a foreman. Similarly, the career path of a clerk involves
the position of a senior clerk, assistant, and section officer, before
acquiring the final position of undersecretary.
A supervisor has to achieve different milestones, such as assistant
manager, deputy manager, and manager, to become a chief
manager. Similarly, a lecturer has to pass from the designations of
associate professor, professor, dean of faculty, and pro-vice
chancellor to acquire the position of vice chancellor.
Top 10 Benefits: Fulfillment of Leadership Gaps, Handle Attrition,
Avoid Uninspiring Results in Executive Recruitment, Economy
and a Few Others
Succession planning is more important than ever. With an aging
workforce and approaching mass retirements, one part of the
succession planning includes the need to capture and pass on the
expertise, judgement, and insight of senior leaders before they
retire. The second aspect of succession planning relates to the
identification of employees within the organization who have the
potential to move into leadership positions.
Following benefits are provided by the succession planning to
the organizations opting for it:
1. Fulfillment of Leadership Gaps:
Succession planning identifies the needs of future employees and
develops key skills and competencies among them for effective
current and future leaders in the organization. These persons may
replace the persons leaving the organization.
2. Handle Attrition:

Page 273
Every organization will have some form of job vacancy due to
attrition of people retiring from their jobs. But it is important for
organizations to continue to function smoothly irrespective of
loosing such key employees when organization have a succession
plan, it makes it easier for them to handle any unforeseen attrition and
prevent the organization from being greatly imparted by such
attrition.
Succession management identifies and monitors various talent
pools within the organization to match the future needs of the
organization with the bench strength of available talent. Thus
succession planning plays very important roles to fill the positions
that arise due to forthcoming retirement of key workers.
3. Avoid Uninspiring Results in Executive Recruitment:

Succession planning helps to avoid uninspiring results in executive

recruitment from external sources as they are inexperienced and
less effective. In succession planning, we recruit internally groomed
successors who understand the unique organizational agenda and
environment.
4. Economy:

Dedicating time to plan the future of the organization saves the

company’s time and money. Plans to promote and train people
within the company means less time spent on recruitment of
external candidates, interviewing them and checking their
references. Money allotted to those efforts will also decrease with a
solid succession plan in place.
5. Uncovering the Weaknesses:

Page 274
Finding future leaders reveals the strengths within the workforce,
but it also uncovers the weaknesses that your organization must
work on to secure business and financial growth. Succession planning
helps the company to discover weaker areas so that it could timely
take action for the improvement of performance.
6. Rapid Recruitment to Meet Growth Needs:

Succession planning recognizes that some jobs are the lifeblood of

the organisation and too critical to be left vacant or filled by any but
the best qualified persons. Effectively done, succession planning is
critical to mission success and creates an effective process for
recognizing, developing and retaining top leadership.
7. Planning for the Disaster:
No matter how good the organization and its staff are at revenue
projections or economic predictions, no one can truly plan for the
disaster whether it’s an unforeseen illness, a natural disaster or a
CEOs decision to suddenly retire, the reasons for having the
succession planning in place before it is needed are endless. So
one cannot plan for disaster, but can put into place a series of
contingencies.
8. Motivates the Employees:

Succession planning motivates the employees to do their best for

the accomplishment of the predetermined objectives of the
organization. Employees are motivated and engaged when they can
see a career path for their continued growth and development.
When an effective succession planning is done in an organization,
the managers are required to identify the organization’s long term
goals and recruit or hire superior staff for the purpose. Through
Page 275
succession planning process, organization also retains superior
employees because they appreciate the time, attention and
development that firms are investing in them.
9. Strengthens Departmental Relationships:

When regular communication occurs between departments, the

organization more likely to experience synergy, which breeds a
culture of strength. The succession planning activities are linked
with human resource. By including HR in succession planning, one
can incorporate elements like the employee evaluation process, which
can help when deciding whether to fill vacancies with internal
candidates.
10. Development of New Skills and Adjusting Development
Programs Accordingly:

Development of learning ability plus other future oriented

competencies as part of a flexible development planning process.
Regular review of the process allows it to remain current and
meaningful and always anticipatory of future business needs.
Succession management identifies and monitors various talent
pools within the organization to match the future needs of the
organization with the bench strength of available talent. Not having the
right talent in the place is often a growth limiting factor in achieving
business potential.
These are as follows:
1. Narrow Focus:

Succession planning allows leaders to focus on potential new

managers who are employed by the organization but does not allow
Page 276
for candidates outside the company. In many cases, managers will
consider only their direct reports as potential successors. This is good
in terms of career development for those inside the
organization but it does not necessarily meet the company’s best
interests.
In some situations it is better to replace a manager with an external
candidate to bring new skills to the team. Other times there simply
may not be a suitable candidate within the organization.
2. Changes in Organizational Structure:

Succession planning sometimes takes place even though an

organization’s structure may not be completely stable. There is a
need to develop leaders so that they can change the organization to
meet the new business challenges. Sometimes a person may be
developed for a role in the organization that may not exist in the future.
This can have negative impact on motivation of the earmarked
individual. In addition to this the money spent on the training of the
employee also gets wasted if the role for which he was developed
no longer exists.
3. Managing HR Information:

The problem that can occur in succession planning is the concern with
managing large amounts of HR information. Because
succession planning requires retention of a great deal of
information, it is typically best to store and manage it on a computer.
Attempting to maintain such records by hand may prove daunting.
Even on the computer it is very difficult to identify and evaluate the
many years’ worth of information about employees’ performance.
Page 277
4. Crowned Prince Syndrome:

Another problem with the succession planning occurs when upper

management only considers for advancement, those employees
who have become visible to them. In other words, rather than
looking at a wider array of individual employees and their
capabilities, upper management focuses only on one person – the
crowned prince. This person is often one who has been involved in
high profile projects, has a powerful and prominent mentor who has
networked well with the organization leaders.
There are often employees throughout the organisation who are
capable of and interested in promotion who may be overlooked
because of the more visible and obvious ‘crowned prince’, who is
likely to be promoted even if these other employees are available.
Further not only the performance problems are the outcome of this
syndrome, but also the motivation of current employees may suffer
if they feel that this high performance has been overlooked.
5. Talent Drain:
Talent drain is also one of the problems of succession planning.
Because upper management identifies small group of managers to
receive training and development for promotion. Thus not all
employees can be identified as successors. Consequently, there is
the potential for some employees to feel left out, passed over and
underappreciated.
So those managers who are not assigned to development activities
may feel overlooked and therefore leave the organization. This
turnover may reduce the number of talented managers that the
organisation has at the lower and middle levels of the hierarchy.
Due to this the talented managers may work for a competing firm or
Page 278
start their own business, thus creating increased competition for
their former company.
6. Negative Effects on Motivation:

It is not always totally clear cut that to which employee a manager

should prime for future leadership. In some cases there may be two
or more strong candidates for the role. If leaders do not handle
succession plan carefully and objectively other may see the person
being trained for leadership as favoured. This can lead to motivated
individuals losing interest and not trying as hard in the workplace. It
may have the effect of making those employees think it is not worth
their effort if there are no progression possibilities.
The challenges faced by succession planning are:
1. Size of the Organization – Some organizations have so few
positions that they may not have the ability to offer opportunities for
advancement; employees with the potential and the desire to advance
their careers may move to larger organizations .
2. Lack of Financial Resources – Employees may leave for better
salaries and benefits offered in other workplaces.
3. The Nature of Funding – As more and more organizations
depend on funding as opposed to core funding, there are fewer core
staff members available to take up positions in the organizations.
4. Attrition – Staff come and go and may not be seen to be part of
the talent pool available to organizations.
5. Absence of Young Talent – In some cases, senior managers are
staying on in their positions, despite the fact that the skills needed

Page 279
for the job may have changed or they are no longer making a
meaningful and productive contribution to the organization.

What is Compensation management: Job

evaluation; Incentives and fringe benefits?

Compensation management: Job evaluation; Incentives and

fringe benefits

Page 280
A compensation program encompasses more than just a pay
schedule. Compensation includes job design components and
complete benefits, such as insurance and vacation, and provides
organizations with a strong competitive tool in the marketplace. No
compensation program develops in a vacuum; it is vigorously
worked on and must take into account the unique human resource
needs of the organization, the environment in which it operates, and
relevant local, regional and national legislation, as may be
applicable. Compensation programs need to be reviewed on a regular
basis and should also be developed so that major revisions are
required only occasionally.
Job evaluation is part of the balanced compensation package. It’s a
process that serves the needs of the compensation system in an
organization by determining the relative value of one job in relation
to another. Professionally done it helps eliminate pay inequities which
may exist because of illogical pay structures, such as might develop
over time when care is not taken in how compensation is determined.
People are a much undervalued resource in many organizations.
They are taken for granted until problems develop. People value
their jobs. They are major determinants of the amount of financial
compensation and other benefits received. Organizations pay for
the value perceived to attach to certain duties, responsibilities, and
other job-related factors, like working conditions. The relative worth
of jobs is usually determined through a combination of job analysis,
job descriptions, and job evaluation. Job analysis and job
description determine and express the content of a given job, while
job evaluation makes use of this data to compare jobs and set

Page 281
compensation. When well done it serves to focus management
valuing people and makes for sound human and industrial relations.
Job evaluation is used to accomplish the following tasks:

Identify the job structure of the organization;

Bring order and equity to the relationship among jobs;
Develop a hierarchy of job value to create a pay structure;
Achieve a consensus among managers and employees
concerning jobs and pay.
Among the decisions to be made is whether a single or a multiple
job evaluation plan will be instituted. Job evaluation plans usually vary
depending on the job families, classifications or groupings, for
example, clerical or professional.
Breckenhill has a special interest international development. In any
environment, but especially in developing, under-developed or post-
conflict countries a well-designed, appropriate process for paying
and rewarding people, reflective of cultural, operational, economic and
social environments will go a long way into reducing the temptation to
participate in corrupt activities. The person who feels fairly treated,
recognized for his contribution, receiving sufficient income to look after
his various needs will normally be able to see that it is not in his
or her interest to jeopardize their position situation.
Breckenhill has the experience, tested methodologies and other
tools to develop balanced, merit-based comprehensive
compensation programs. We cover the range of key processes from
the analysis of the short and long-term strategy of the organization,
Page 282
its organizational and operational processes, job description and job
evaluation. We create salary and benefit programs that take into
account both the internal and external economic environments,
performance and reward management including the review and/or
development of the relevant legislative framework, policies,
procedures, forms and others documentation.
Fringe Benefits in HRM

Everything you need to know about fringe benefits in HRM. Fringe

benefits are supplementary compensation made in addition to
wages, the object being to stimulate the interest of the workers and
to make the job more attractive and conducive.
Fringe benefits include status (cars, entertainment facilities,
holidays, foreign travel, telephone); security (insurance, medical
facilities, children’s education), and work benefits (office
ac•commodation, secretarial services, management training,
company scholarships etc.). Key benefits are benefits such as share
schemes, profit sharing, and retirement counselling house
purchase.
Fringe Benefits in HRM
Fringe benefits are supplementary compensation made in addition
to wages, the object being to stimulate the interest of the workers
and to make the job more attractive and conducive. They are, as a
matter of fact, indirect benefits. As to their nature, we can say, they
are neither mere “fringes” nor peripheral “wage trimmings” but a
substantial part of the wage and salary structure.

Page 283
To quote Belcher, these benefits are “any wage cost not directly
connected with employee’s productive effort, performance, service
or sacrifice”. Webster defines “fringe” as “an ornamental border, an
edging, trimming or a margin”. However, these benefits are aimed at
attracting and retaining efficient and contented workforce through
boosting up of their real earnings.
There are wide variations in opinions as to the benefits covered by the
term “fringe benefits”. We quote here Fisher and Chapman according
to whom the classification of fringe benefits are – (a) premiums for
time worked, (b) pay for time not worked (c) employee benefits, and
(d) employee activities.
Cockman defines employee benefits as “those benefits supplied by
an employer, to or for, the ben•efit of an employee which are not in
the form of wages, salaries and time-related payments”. Ac-cording
to him, benefits are basically of two types – fringe and key.
Fringe benefits include status (cars, entertainment facilities,
holidays, foreign travel, telephone); security (insurance, medical
facilities, children’s education), and work benefits (office
ac•commodation, secretarial services, management training,
company scholarships etc.). Key benefits are benefits such as share
schemes, profit sharing, and retirement counselling house
purchase.
Benefits that have no relation to employment or wages should not
be regarded as fringe benefits, even though they may constitute a
significant part of the worker’s total income. This is fairly obvious in
the case of public parks, sanitation services, and public and fire
protection.
Examples of fringe benefit:
Page 284
(a) Statutory benefits – The Employees Provident Fund Scheme,
Gratuity or Pension Schemes and Employees State Insurance
Scheme.
(b) Non-•statutory benefits – Payments towards Employees
Provident Fund Scheme, Gratuity and Pension Fund contribution,
medical facilities, canteens, uniform and recreational facilities.
Fringe benefits also cover profit and other kinds of bonus such as
attendance bonus, service bonus and gratuities, loans for house
purchases, leave travel concession, children’s free education, fair
price shops for essential commodities, loans for purchase of car.
Fringe benefits, in spite of some of these drawbacks, have come to
stay. They have now become an important part of compensation
plans.
So far as the corporate management is concerned, it is necessary
to take several broad policy decisions regarding wages. One
fundamental issue is the break-up of the compensation package.
Several options are available –
(a) high/low basic wage
(b) high/low fringe benefit package, and
(c) high/low retirement benefits.
The management has to consider whether to pay just above or
below or at par with “the going wage rate” in the area. The Bonus
Act is a matter for consideration by the corporate management. “To
a large extent, such issues are decided by the value system and
managerial style of the corporate management and how they view

Page 285
wages as contributing to the organisation’s mission” (Monappa and
Saiyadain).
Fringe Benefits in HRM – Meaning
The word “fringes” with reference to remuneration or compensation
came into usage primarily during the Second World War period in
the U.S.A. The War Labour Board, which was entrusted with the
responsibility of controlling wage increases with a view to prevent
inflationary pressure, permitted provision of non-cash benefits.
The board adopted this policy on the premise that these benefits were
at the fringe of usual wages and salaries, and could not immediately
affect the purchasing power of the employees and were not related
to consumer demands. Initially, fringe benefits constituted only a
minor portion of the total compensation.
However, the term “fringe benefits” in the sense of all non-monetary
benefits and services came to be widely used in spite of its limited
value in describing the actual practices. David W. Belcher says,
“The large proportion of total compensation that such benefits
represent appears inadequately accounted for by a name implying
trimming or frills.”
In spite of some obvious limitations in the use of the term, it came to
be variously interpreted. The National Industrial Conference Board
(U.S.A.) has defined “fringe benefits” as “payments to workers over
and above the wages paid on the basis of time worked or
production completed.”
Some subsequent interpretations emphasised such elements as
follows – (i) employer’s labour costs beyond wages and salaries, (ii)
compensation beyond wages and salaries requiring no additional

Page 286
productivity and (iii) compensation, benefits or services not related
to employee performance. Despite these differences in approaches,
the term has continued to be in wide usage even today.
Fringe Benefits in HRM – Definition Given by Various
Institution and Some Eminent Authors

The term ‘fringe benefits’ refers to various extra benefits provided by

employers to their employees, in addition to wages and salaries
paid to them. They are also known as ‘sub-wages’ or ‘social
charges’ or ‘perquisites other than wages’ etc. There is therefore no
unanimous opinion about the meaning of the term ‘fringe benefits’.
Some have expressed doubt whether the benefits given according
to the provisions of law should be considered as fringe benefits.
The term ‘fringe benefits’ perhaps came into use in the 1950’s and
can be credited to the regional chairman of the National War
La•bour Board in the United States.
In the words of Cockmar, “Fringe benefits are those benefits which
are provided by an employer to or for the benefit of an employee
and which are not in the form of wages, salaries and time- related
payments.”
The ILO has described fringe benefits as follows:

“Wages are often augmented by special cash benefits, by the

provisions of medical and other services or payments in kind that
form part of the wage for expenditure on the goods and services. In
addition, workers commonly receive such benefits and holiday with
pay, low cost meals, low rent housing etc. Such additions to the wage
proper are sometimes referred to as fringe benefits. Ben•efits
that have no relation to employment or wages should not be

Page 287
regarded as fringe benefits even though they may constitute a
sig•nificant part of the worker’s total income.”
According to the Employer’s Federation of India, Fringe benefits
include payments for non-working time, profits and bonus, legally
sanctioned payments on social security schemes, workmen’s
compensation, welfareness, and the contributions made by
employer under such voluntary schemes as cater for the post-
retirement, medical, educational, cultural and recreational needs of
workmen. The term also includes the monetary equivalent of free
lighting, water, fuel etc. which are provided for workers, and
subsidized housing and related services.
Thus, fringe benefits include both monetary and non-monetary
ben•efits given to the employees during as well as post-employment
period. These benefits are connected with the employment but not
to the em-ployees’ contributions to the organisation.
Fringe Benefits in HRM – Objectives and Special
Characteristics
Many years ago, benefits and services were labeled “fringe”
benefits because they were relatively insignificant or fringe
components of compensation. However, the situation now is
different, as these have, more or less, become important part of a
comprehensive compensation package offered by employers to
employees.
The main purpose of fringe benefits is to increase the financial
position of the employees. They include items which are over and
above the normal earnings.

Page 288
Considering the above point of view in mind the important objectives
of fringe benefits are:
1. To recruit and retain the talented personnel in the organisation.
2. To maintain sound industrial relations and avoid unrest in the
organisation.
3. To identify unsatisfied needs of the employees and convert those
into satisfying needs by utilizing appropriate steps.
4. To protect social security of the employees during old age by
providing provident fund, gratuity and pension.
As per Article 43 of the constitution of India, “All workers should be
given a living wage conditions of work ensuring decent standard of
life and fuller enjoyment to ensure social and cultural opportunities.”
Therefore fringe benefits act as a social level to the employees
because worker is not a commodity. He is an active participant in
programme of economic development and social reconstruction.
5. To develop a sense of belongingness among employees of the
organisation.
6. To comply various legislations related with fringe benefits which are
formulated by central and state Government.
7. To ensure cooperation, loyalty and faithfulness among
employees of the organisation.
8. To develop Brand Image of the organisation in the eyes of public.
The special characters of fringe benefits are as follows:

i. Fringe benefits are supplementary forms of compensation.

Page 289
ii. Such benefits are paid not as incentives but based on
membership of the employees with the organization.
iii. Benefits are linked to performance; these are extended as a
condition of employment.
iv. Such benefits raise the standards of living of employees, therefore,
contributes to enrichment of quality of work life (QWL).
v. Some of the benefits may be statutory while others may be
voluntary.
vi. Payment of fringe benefits in India are primarily made for
reasons like, employee demands, presence of trade union,
employers’ preference to motivate employees, as social security
measures and finally to create a motivating environment.
Fringe Benefits in HRM – Importance to Employees and
Employer
Fringe/employee benefits are important not only for the employers
and employees, but also for the community. A brief mention of these
will be appropriate for discerning their importance. Some of the
popular employee benefits comprise the following – medical and
sickness benefits, workmen’s compensation, insurance, provident
fund, pension, maternity benefit, housing accommodation with
ancillary facilities, transport facility, leave travel facility and
education facilities for the children of the employees.
These benefits may be provided under the company policy or under
the agreement with the union or as a result of legislation.
1. Importance for Employees:

Page 290
The benefits are important to the employees for the following main
reasons:
(i) They enhance the real earnings of the employees and enable them
to save money, which they would, otherwise, have spent in the
absence of these benefits.
(ii) Money value of these benefits has, for long, not been taxable under
income tax law, thus enhancing employees’ living standards.
However, during more recent years, the value of these benefits is
adjusted in the income tax payable by individual employees, but many
of these still do not come into the ambit of income tax deductions.
(iii) Availability of the social security benefits in the event of such
contingences as unemployment, sickness, disability, old age,
maternity and so on mitigates the worries of the employees
regarding apprehended insecurity.
(iv) Many benefits, particularly medical and refreshment facilities,
are conducive to the protection of health of employees and
enhancement of their efficiency.
(v) Housing accommodation with ancillary amenities and transport
facilities result in saving of time and add to employees’
convenience.
(vi) Many benefits are made available to the employees’ family
members, which promote congenial family life and strengthen
employees’ motivation.
(vii) Many companies make available to their employees plots for
construction of houses or flats on lease basis, and also bear a part

Page 291
of the burden of interests on house loans. Thus, a major item of worry
of the employees is mitigated.

(viii) Some companies advance loans to their employees on liberal

terms for the purchase of vehicles and household appliances. This
facility also raises the living standards of employees.
2. Importance for Employers:

Fringe/employee benefits are advantageous to the employers for

the following main reasons:
(i) Employers have, for long, been enjoying substantial rebate on
these benefits under income tax law. This advantage has, however,
increasingly diminished during more recent years. Nonetheless,
employers still receive rebates for expenditure on many of these
benefits.
(ii) In establishments facing chronic problems of unstable workforce
and absenteeism, long-term social security benefits such as life
insurance cover, provident fund and pension and housing
accommodation have proved effective in reducing their incidence.
(iii) These benefits generally tend to strengthen employees’
motivation and efficiency resulting in higher production and
reduction of labour cost.
(iv) Many companies have experienced establishment of sound
employee and industrial relations as a result of provision of these
benefits, especially when these benefits have emanated from
agreement with the union.

Page 292
(v) In some cases, the companies have been able to keep wage-
rates at a low level on the ground of providing substantial benefits to
their employees.
(vi) Provision of these benefits also enhances the prestige of the
company in the community and enables competent workers to be
attracted towards the company.
Fringe/employee benefits are also significant for the community and
economy. It was during the Second World War period in the USA
that the concept of “fringes” emerged in the context of
compensation. The War Labour Board, which was entrusted with
the responsibility of controlling wage increases, allowed fringe
benefits holding that these would not stand in the way of measures
intended to prevent inflation.
i. Social Context:

Every society takes care of its members by providing some kinds of

benefits. The value and form of benefits depend on the economic
conditions of the society. The basic logic behind such benefits is
that members of the society will enjoy comparatively better lives as
compared to what they can enjoy in the absence of these benefits.
The objective is not necessarily to make them more efficient to
work.
Therefore, every country adopts the concept of benefits in its
framework which governs the country. For example, Constitution of
India provides in its Article 43 that “all workers should be given living
wage, conditions of work ensuring decent standard of life and fuller
enjoyment to social and cultural opportunities.” Various benefits and
services provided to the employees serve this purpose.

Page 293
ii. Organizational Context:
Since every organization of a society is not similar to others, each
organization adopts its own approach in providing the benefits to
employees. The organizations which adopt philanthropic approach
provide more generous benefits and services.
In general, from the organization’s point of view, the objectives of
benefits and services are as follows:
1. To maintain parity with the general practices adopted by other
organizations in the same geographical area or industry sector.
2. To provide community and commonly shared services which
employees cannot provide individually.
3. To create better image of the organization so as to attract and
retain competent employees.
4. To increase morale and work life of employees so that they can
concentrate on their jobs.
5. To satisfy the trade unions by providing benefits and services to
employees.
Fringe Benefits in HRM – Types: Employment Security; Health
Protection; Old Age and Retirement; Personnel Identification;
Participation and Stimulation & Miscellaneous
Organizations provide a variety of fringe benefits.

The fringe benefits are classified under five heads as given here:
1. Employment Security:

Page 294
Benefits under this head include unemployment, insurance,
technological adjustment pay, leave travel pay, overtime pay, level
for negotiation, leave for maternity, leave for grievances, holidays,
cost of living bonus, call-back pay, lay-off, retiring rooms, jobs to the
sons/daughters of the employees and the like.
2. Health Protection:

Benefits under this head include accident insurance, disability

insurance, health insurance, hospitalization, life insurance, medical
care, sick benefits, sick leave, etc.
3. Old Age and Retirement:

Benefits under this category include deferred income plans,

pension, gratuity, provident fund, old age assistance, old age
counseling, and medical benefits for retired employees, traveling
concession to retired employees, jobs to sons/daughters of the
deceased employee and the like.
4. Personnel Identification, Participation and Stimulation:
This category covers the benefits like anniversary awards, attendance
bonus, canteen, cooperative credit societies, educational facilities,
beauty parlor services, housing, income tax aid, counseling, quality
bonus, recreational programs, stress counselling, safety measures,
etc.
Other Miscellaneous Categories:

i. Payment for Time Not Worked:

Benefits under this category include sick leave with pay, vacation pay,
paid rest and relief time, paid lunch periods, grievance time,
bargaining time, travel time, etc.
Page 295
ii. Extra Pay for Time Worked:

This category covers the benefits such as premium pay, incentive

bonus, shift premium, old age insurance, profit sharing,
unemployment compensation, Christmas bonus, Deewali or Pooja
bonus, food cost subsidy, housing subsidy, recreation.
iii. Retrenchment Compensation:

The Industrial Disputes Act, 1947 provides for the payment of

compensation in case of lay-off and retrenchment. The non-
seasonal industrial establishments employing 50 or more workers
have to give one month’s notice or one month’s wages to all the
workers who are retrenched after one year’s continuous service.
The compensation is paid at the rate of 15 days wage for every
completed year of service with a maximum of 45 days wage in a
year. Workers are eligible for compensation as stated above even in
case of closing down of undertakings.
iv. Lay-Off Compensation:
Layoff is the temporary suspension or permanent termination of
employment of an employee or a group of employees for business
reasons, such as the decision that certain positions are no longer
necessary or business slow•down or interruption in work.
Originally the term ‘layoff’ referred exclusively to a temporary
interruption in work, as when factory work cyclically falls off. In case
of lay-off, employees are entitled to lay-off compensation at the rate
to 50% of the total of the basic wage and dearness allowance for
the period of their lay-off except for weekly holidays. Lay-off
compensation can normally be paid up to 45 days in a year.

Page 296
Fringe Benefits in HRM – Statutory Benefits: Applicable to the
Employees after Retirement and during Old Age
These benefits are related to the social security of employees
because the economic and saving conditions of the employees are
very poor due to the low wages and high living cost.

With a view to develop social security feeling after retirement and

during old age the following statutory fringe benefits are applicable
to the employees:
1. Gratuity:
As per the Payment of Gratuity Act, 1972, the gratuity is payable to
all the employees who render a minimum continuous service of five
year with the present employer or at the age of superannuation or
death or disablement due to accident or disease. The maximum
limit of gratuity payable to an employee shall not exceed Rs.3.5
Lakhs and the rate for the purpose of calculation is that the 15 days
wages for every completed year of service.
2. Provident Funds:

The Employee’s Provident Fund and Miscellaneous Provisions Act,

1952 provides provident fund and deposit linked insurance to the
employees. Both employer and employees contribute to the fund. The
rate of contribution is the 12% of the Basic Pay and Dearness
Allowance in case of contribution to provident fund scheme and only
12% of the Basic Pay in case of provident fund scheme where the
contribution from the employer side is not applicable.

Page 297
Generally the organizations pay this fund amount with interest to the
employee on superannuation or separation from the organisation by
any means or to the dependents of the employee, in case of death.
3. Deposit Linked Insurance:

This scheme was introduced in 1976 in the Provident Fund Act. If a

member of Employees Provident Fund dies during in service then
his dependents will be paid an additional amount equal to the average
balance during last three years in his account. The maximum amount
payable is Rs.10000 under this scheme.
4. Pension:
The Government of India introduced a pension scheme in the year
1995 where the contributory provident fund scheme is applicable.
5. The Employee State Insurance Act, 1948:
The Workmen Compensation Act, 1923 and Maternity Benefit Act,
1961 are another statutory benefit schemes related to the health of
employees comes under fringe benefits category.
The Human Resource Department is generally responsible for
administration of the organisation. These are one of the means to
ensure welfare of employees and to develop a sense of
belongingness among employees towards organisation. Some of
the organisations may provide even more than the aforementioned
various fringe benefits programmes or may not provide all the benefits
described due to the financial ability of the organizations.
Fringe Benefits in HRM – Administration (With Problems and
Steps)

Page 298
Fringe benefits and services are very useful for the employees. These
provide help to the employees and fulfil their needs. It contributes to
maintain the satisfied workforce. For this, it is required that the benefits
and services must be managed properly. But in many organisations
management does not pay proper attention towards administration of
benefits and services.
Following are the problems faced in administration of benefits and
services:
(a) Workers have different interest in benefits and services.
(b) Trade unions oppose such schemes.
(c) Workers and managers do not have knowledge about benefit
policy of the company.
(d) Managers are overloaded with work. Hence they are not able to
pay proper attention towards administration of benefits and
services.
(e) Lack of training in administration of benefits and services.
Administration of benefits and services must be proper; otherwise it
will lead to confusion.
Following steps must be taken for effective management of benefits
and services:
(a) Study of environmental factors.
(b) Study of competitor’s schemes and their administration.
(c) Formulation of benefit and service objectives.
(d) Fixing responsibility of administration of benefits and services.

Page 299
(e) Communications of scheme to the employees and trade unions.
(f) Control of costs of benefits and services.
(g) Review of existing schemes.
Fringe Benefits in HRM – Types of Benefits Offered by Various
Organisation in India: Hours of Work, Rest Period, Holidays, Shift
Premium and a Few More
The provision of fringe benefits in Indian industries has not been
very remarkable. There has been diversity in nature and quantum of
these benefits in various industries. There are two types of fringe
benefits being provided by Indian employers, some are legal, and
some are voluntary.
The contribution to the provident fund of the employees, pension
schemes, gratuity, contribution to employees, states insurance fund,
lay off compensation, leave travel concession; maternity benefits
are some examples of legal fringe benefits, which cost on an
average equal to 21.3% of the annual wages.

The fringe benefits offered by various organisation in India

may be following types:

1. Hours of Work – As per Section 15 of the Factories Act, 1948,

that no adult worker shall be allowed to work in a Factory for more
than 48 hours in a week and more than 9 hours in a day.
2. Rest Period – Tea break or coffee break are allowed during the
day to allow the worker to rest.
Page 300
3. Holidays – As per the Factories Act, 1948, an adult worker shall
have weekly paid holiday in general on Sunday or any other day in
a week.
4. Shift Premium – Shift premium to the workers who are required to
work during second and third shifts in a day.
5. Paid Vacation – Workers are eligible for paid vacation from 15
days to 30 days in a calendar year.
6. Holidays Pay – Independence Day, Republic Day, Gandhi
Jayanti, Deepawali, Dusshera, Holi, Id and Christmas are gazetted
paid holidays. Generally organizations after double the normal rate
of the salary if the workers worked during these holidays.
7. Sick Leave – The employees are entitled to get full day when he
is out of work due to sick for a 10 days in a calendar year.
8. Maternity Benefit – The Women are entitled to maternity leave for
12 weeks (six weeks before the delivery and six weeks after the
delivery) in addition to cash benefit of 75 paise per day or twice of
sickness benefit, whichever is higher.
9. Disable Benefit – The employees are entitled to get the benefit
under Workmen’s Compensation Act 1923, if he is disabled
temporarily or permanently (partial or total) during employment
injury or occupational diseases.
10. Absence Leave – The pay is provided to an employee if he is
absent from the work place due to the participating in training and
development programmes.
11. Canteens – Fully or partially subsidized food and refreshments
is provided to the employees during working hours.

Page 301
12. Transport Facilities – Many organizations are providing
conveyance facilities to employees from their residence to work
place and back.
13. Housing Facilities – The big houses are providing company
owners housing or subsidized housing facilities to their employees.
14. Purchasing Facilities – Many of the large organizations has set
up the consumer stores in the employee’s colonies and supply all
essential goods and services at fair prices.
15. Educational Service – Educational services include tuition fees
refunds, scholarships, setting up of schools and colleges, libraries
and many more. These facilities not only provide to the employees
of the organisation but also to their family members.
16. Medical Facilities – These include clinics, hospitals and
counselling services. It reduces tiredness, absenteeism and employee
turnover.
17. Financial and Legal Aid – Many organizations are provided loan
funds, income-tax service, assistance in legal matters and group
insurance plans to their employees.
18. Recreational Facilities – Organisations provide social clubs,
arrange parties and picnics, reading rooms, libraries and
entertainment programmes for their employees.
19. Travel Concessions – Many organizations are providing leave
and travel concessions one time in a financial year to their
employees.

Page 302
20. Miscellaneous – Many organisations are providing other benefits
to their employees such as Dipawali gifts, birthday gifts, pooja gifts
and productivity or performance rewards, etc.

What is Performance appraisal including 360

degree performance appraisal?

Performance appraisal including 360 degree performance

appraisal

Performance Appraisal
It is referred to as a systematic evaluation of performance of
employees in an organization. This is mainly done to have an
understanding of the abilities of the resources for future growth and

Page 303
development. The objectives of performance appraisal are as follows:
(i). Data maintenance to decide salary packages, increase in salary,
pay structure etc.
(ii). To know the strengths and weaknesses of the resources in
order to put them at the right job.
(iii). To understand the probable interests of the employees for
future development.
(iv). Give feedback to the manpower about their performance at a
given point of time.
(v). Analyze and keep hold of the training programs for the
promotion of the employees.
Importance of Performance Appraisal

When we discuss in a deeper sense, we can say that Performance

Appraisal is an asset to the organization. This statement can be
justified as follows:
1. Selection justification: Performance Appraisal helps the HR
managers in validating the selection made by them. It makes
them clear as to the strengths and weaknesses of the employees
selected by them. This can be kept as sample study for
future selection of employees.
2. Compensation: Appraisal system helps in merit rating from
where a good compensation program can be chalked out. A
compensation system which has good pay, bonuses, variable
allowances and benefits is very much reliant on performance
appraisal.
Page 304
 3. Promotion: It helps in deciding promotion programs for
competent employees. By this, inefficient workers can be
either demoted or dismissed from the company.
4. Employee Development: A very good appraisal system helps
the HR managers in developing good training programs. This
in turn helps the employees to discuss their interests in getting
trained in various programs with their managers.
5. Motivation: Appraisal can be called as a motivational tool for
employees. By setting standards to achieve the targets, the
employees are motivated to perform as well as to develop their
performance in future.
Methods of Performance Appraisal
They are broadly classified into Traditional and Modern methods.
Let us first discuss the Traditional methods.
1. Rating Scale Method: It is the most common method of assessing
the performance. Under this method a scale is created from 1 to
10. The components of this method are traits like attitude, regularity,
performance and accountability, which will be rated on a scale of 10.
In India, many telecommunication industries are using this method to
evaluate their employees. Here the employees are assessed as per
the nature of the job or company. The number of points scored for
all the traits are finally added; employee who scores more is
regarded as good performer than the employee who has a descending
score.
2. Essay Appraisal Method: It is also called the “free form method”
because the superior gives a detailed description of its manpower’s
performance. This will include supporting documents and examples
Page 305
of his/her performance. The main hitch of this method is that it is
highly biased. The rater under this method may use Rating Scale
method also to rate the weaknesses and strengths of an employee
to validate his essay appraisal. This method is very time consuming
as the rater should find enough time to collate all the documents. It
is considered to be a non quantitative evaluation method of
appraisal.
3. Ranking Method: Under this, the manager compares the
performance of employees with other employees of the same rank
or grade. A fixed percentage of employees are kept in different
performance categories like excellent, average, below average,
poor etc. This method is used when the managers have to make
decision as to which person is the best worker for a given period, who
has to be promoted, which employee is being laid off etc. Under
such circumstances the Ranking Method comes handy to HR
Managers in evaluating them correctly.
4. Critical Incident Method: As the name suggests these are
based on events or incidents. Here logs are maintained for each
employee to record the events or decisive incidents of behavior of
employees. At the conclusion of the performance period these
events are collated to find out the rating of the employees. The main
drawback of this method is that the negative incidents are more
obvious than the positive ones. Sometimes the employees will not like
such close supervision by managers.
5. Confidential Report System: This method is very well known in
government organizations. Here the superiors will write a
confidential report on the subordinates with respect to his/her behavior
and duties in the organization. This report will not be
exposed to anyone, and finally will be referred the top management.
Page 306
In India this method is being used by most of the government
organizations like the Armed Forces, Police department, CBI etc.
The main factors assessed here are:
(a). Temperament of the employee.
(b). Promptness of employee.
(c). Unlawful absenteeism.
(d). Truthfulness and sincerity.
(e). His/her behavior with the public.
6. Check List Method: Under this method, the appraiser is given a
set of metaphors to be used for rating the employees. This
comprises of a list of questions based on which the rater evaluates
the acts of the human resources. Let us see the below statements
or descriptions used as checklist:
(a). Is the employee actually interested in the job? Yes/No (b).
Do they give respect to their superiors? Yes/No (c). Do
they follow the directives? Yes/No (d).
Mistakes are made frequently? Yes/No
7. Graphic Rating Scale Method: It is a widely accepted
conventional technique of performance appraisal. Here the core
traits of the employees are cautiously defined. These traits are
assigned numbers on a scale of 5 to evaluate for a given appraisal
period. The values of each trait is added to find out the best performer
during the period of performance appraisal, the score will
vary from person to person giving the appraiser a clear picture as to

Page 307
who is the best performer. Look at the example below for better
understanding of the method.

Perso Except Excel Stan Reaso Po

nality ional lent dard nable or

Attitude 5 4 3 2 1

Discipline 5 4 3 2 1

Team 5 4 3 2 1
Work

Honesty 5 4 3 2 1

Knowledg 5 4 3 2 1
e of work

Manageri 5 4 3 2 1
al Skills

Regular 5 4 3 2 1

Page 308
Perso Except Excel Stan Reaso Po
nality ional lent dard nable or

Originalit 5 4 3 2 1
y

Responsi 5 4 3 2 1
bility

Responsi 5 4 3 2 1
bility

Table Title: Graphic Rating Scale Method

Now let’s see some new techniques of Performance Appraisal. To
overcome the drawbacks of the traditional performance appraisal
methods a few modern techniques were used by the organization.
1. The BARS Method: This is called Behaviorally Anchored Rating
Scale which is comparatively a new one. It’s a combination of two
methods like graphical rating scale and critical incident method. This
method consists of a set of behavioral statements that explains the
performance of the resources towards a particular job as good or
bad. These statements are derived from critical incidents or events.
Under this method the definite behavior is compared with the
preferred behavior. The critical behavior thus obtained is given a

age 309
numeric value based on which performance is rated. The below
example can make us understand better.

Performance Points Behavior

Can be laid off 7 Employee can be expected to give

important suggestions

Good 6 Employee can be expected to

commence resourceful ideas

Beyond 5 Can expect him to do well

Average

Average 4 Can cope with difficulty to reach

goals

Below Average 3 Can be given training

Poor 2 Can be demoted

Extremely 1 Can be laid off

Poor

Page 310
Table Title: BARS (Behaviorally Anchored Rating Scale)
2. Human Resource Accounting Method: This method measures
the efficiency of personnel management behavior and how the people
are used in an organization. This is handing over, budgeting and
reporting of how much cost is involved in the acquisition of human
resources, which includes salaries and wages. There is a saying, ‘the
human resources are the assets of an organization.’ HRA method
finds out net worth of these resources in monitory terms. Under this
method the cost incurred on employees right from recruitment to
induction is calculated and the contribution of employees which in this
method is the total value added, is also calculated. The difference
between the cost and input is considered to be the performance of
the manpower hired; preferably the contribution from the employee’s
side should be greater than the cost incurred.
3. MBO (Management by Objectives): It is a process where in
both the managers and subordinates recognize common goals and
characterize the individual’s responsibility towards achieving those
goals. It is a shared goal setting method, along with setting these
goals, the key constituent of MBO method is a constant
performance review sessions that happens between managers and
subordinates. This helps in evaluating the growth on regular basis.

360 Degree Appraisal System

It is a system in which employees will get feedback from all the people
they work with. There are about 7 to 12 people who will fill out a
form which is usually a feedback form. The contents of the
form may vary from broad range competencies to work
Page 311
environment. The employee who receives the feedback will also be
required to fill out a self assessment which again might consist of
the same components. This system is used to get an improved
understanding of every one’s strengths and weaknesses.
There are three general reasons as to why an organization would
go in for a 360 degree appraisal.
▪ To get a better view of the performance and prospective of
future leaders.
▪ To have a broad insight of developmental needs of manpower.
▪ To collect more feedback so as to ensure justice to the job
performed by the employees.
In 360 degree appraisal system, the feedback is collected from
managers, peers, subordinates, customers, team members etc. A
survey is conducted to get close understanding of-on the job
performance of the employees. A 360 degree appraisal has four
stages in it:
▪ Self Appraisal
▪ Superior’s Appraisal
▪ Sub-ordinates Appraisal
▪ Peer Appraisal
It is not an easy task to implement 360 degree appraisal. For this
appraisal to be effective one needs to bear in mind the following:
→ Right skills to be assessed are determined.
→ Appraiser should be selected properly.

Page 312
→ He should be well aware of the system, if proper training on the
appraisal system is not given.
→ Elucidate the intention of this kind of appraisal system.
→ Ensure the process to be simple.

What is Collective bargaining and workers’

participation in management?
Page 313
Collective bargaining

Like other behavioural terms, WPM means different things to

different people depending upon their objectives and expectations.
Thus, WPM is an elastic concept. For example, for management it
is a joint consultation prior to decision making, for workers it means
co-determination, for trade unions It is the harbinger of a new order
of social relationship and a new set of power equation within
organisations, while for government it is an association of labour
with management without the final authority or responsibility in
decision making.
Let us also go through some important definitions of WPM.
According to Keith Davis, “Workers’ participation refers to the
mental and emotional involvement of a person in a group situation
which encourages him to contribute to group goals and share in
responsibility of achieving them”.
In the words of Mehtras “Applied to industry, the concept of
participation means sharing the decision-making power by the rank
and file of an industrial organisation through their representatives, at
all the appropriate levels of management in the entire range of
managerial action”.
A clear and more comprehensive definition of WPM is given by the
International Labour Organisation (ILO).
According to the ILO:

“Workers’ participation may, broadly be taken to cover all terms of

association of workers and their representatives with the decision-
making process, ranging from exchange of information, con-
sultations, decisions and negotiations to more institutionalized forms
Page 314
such as the presence of workers’ members on management or
supervisory boards or even management by workers themselves as
practised in Yugoslavia”.
In Yugoslavia, WPM is governed by the Law on Workers’
Management of State Economic Enterprises and Higher Economic
Association. The Act consists of a three-tier participation structure:
collective bargaining, workers’ council, and hoard of management.
In fact, the basic reason for differences in perception of WPM is
mainly due to the differential pattern of practices adopted by various
countries while implementing workers’ participation in management.
For example, in Great Britain and Sweden, WPM is in the form of
Joint Consultation through Joint Consultative Committees, Works
Committees in France, Co-determination Committees in West Ger-
many, Joint Work Council in Belgium, Workers’ Council and
Management Board in Yugoslavia and Union Management Co-
operation in USA.
In India, WPM is in the form of, what we call Labour Management
Cooperation and Workers’ Participation in Management. It is
implemented through the agencies like Works Committees, Joint
Management Councils (JMCs) Shop Councils, Unit Councils and Joint
Councils. Notwithstanding, these different forms of WPM differ only in
degree, not in nature.
Be the perceptual differences as these may, WPM is a system of
communication and consultation, either formal or informal, by which
the workers of an organisation are kept informed, as and when
required, about the affairs of the undertaking and through which
they express their opinion and contribute to decision-making
process of management.
Page 315
Characteristics:
The following are the main characteristics of WPM:
1. Participation implies practices which increase the scope for
employees’ share of influence in decision-making process with the
assumption of responsibility.
2. Participation presupposes willing acceptance of responsibility by
workers.
3. Workers participate in management not as individuals but as a
group through their representatives.
4. Worker’s participation in management differs from collective
bargaining in the sense that while the former is based on mutual
trust, information sharing and mutual problem solving; the latter is
essentially based on power play, pressure tactics, and negotiations.
5. The basic rationale tor worker’s participation in management is
that workers invest their Iabour and their fates to their place of work.
Thus, they contribute to the outcomes of organization. Hence, they
have a legitimate right to share in decision-making activities of
organisation.
Objectives:

The objectives of WPM are closely netted to the ration-able for

WPM. Accordingly, the objectives of WPM vary from country to
country depending on their levels of socio-economic development
political philosophies, industrial relations scenes, and attitude of the
working class.
To quote, the objective of WPM is to co-determine at the various
levels of enterprises in Germany, assign the final to workers over all
Page 316
matters relating to an undertaking in Yugoslavia, promote good
communication and understanding between labour and
management on the issues of business administration and
production in Japan, and enable work-force to influence the working
of industries in China, for example.
In India the objective of the government in advocating for workers’
participation in management, as stated in the Industrial Policy
Resolution 1956, is a part of its overall endeavour to create a socialist
society, wherein the sharing of a part of the managerial powers by
workers is considered necessary.
The objective of WPM, as envisaged in the Second Five Year
Plan of India is to ensure:

1. Increase in productivity for the benefit of all concerned to an

enterprise, i.e., the employer, the employees and the community at
large.
2. Satisfaction of worker’s urge for self-expression in the matters of
enterprise management.
3 Making employees better understood of their roles in the
organisation.
In ultimate sense, the objective of WPM in India is to achieve
organizational effectiveness and the satisfaction of the employees.
Accordingly, the objectives of WPM in India are to:

1. Promote mutual understanding between management and

workers, i.e., industrial harmony.
2. Establish and encourage good communication system at all
levels.
Page 317
3. Create and promote a sense of belongingness among workers.
4. Help handle resistance to change.
5. Induce a sense among workers to contribute their best for the cause
of organisation.
6. Create a sense of commitment to decisions to which they were a
party.
Levels of Participation:

Having known the objectives of WPM, the question then is to what

extent workers can participate in decision-making process. In other
words, it is important to know the extents/levels of co-determination
in an organisation.
Viewed from this angle, Mehtras has suggested five levels of
workers’ participation ranging from the minimum to the maximum.
Since these levels of workers’ influence the process and quality of
decision making in an organisation. We are therefore highlighting here
these levels briefly ranking them from the minimum to the maximum
level of participation.
Informative Participation:
This refers to management’s information sharing with workers on
such items those are concerned with workers. Balance Sheet,
production, economic conditions of the plant etc., are the examples
of such items. It is important to note that here workers have no right
of close scrutiny of the information provided and management has
its prerogative to make decisions on issues concerned with workers.
Consultative Participation:

Page 318
In this type of participation, workers are consulted in those matters
which relate to them. Here, the role of workers is restricted to give
their views only. However the acceptance and non-acceptance of
these views depends on management. Nonetheless, it provides an
opportunity to the workers to express their views on matters
involving their interest.
Associative Participation:

Here, the role of the workers’ council is not just advisory unlike
consultative participation. In a way, this is an advanced and
improved form of consultative participation. Now, the management
is under a moral obligation to acknowledge, accept and implement the
unanimous decision of the council.
Administrative Participation:
In the administrative participation, decisions already taken are
implemented by the workers. Compared to the former three levels of
participation, the degree of sharing authority and responsibility by
the workers is definitely more in this participation.
Decisive Participation:
Here, the decisions are taken jointly by the management and the
workers of an organisation. In fact, this is the ultimate level of
workers’ participation in management.

Page 319
What is Personality: Perception; Attitudes;
Emotions; Group dynamics; Power and politics;
Conflict and negotiation; Stress?

Personality: Characteristics, Factors, Roles, Theories of

Personality

Personality is a patterned body of habits, traits, attitudes, and ideas

of an individual’s, as these are organized externally into roles and
statues and as they relate internally to motivation, goals, and
various aspects of selfhood.
The term personality is derived from the Latin word “Persona” which
means to speak through.
This Latin term was used to denote the mask, the actors used to
wear in ancient Rome and Greece, An individual’s personality is the
combination of traits and patterns that influence their behavior,
thought, motivation, and emotion.
It drives individuals to consistently think, feel, and behave in specific
ways; in essence, it is what makes each individual unique.
Over time, these patterns strongly influence personal expectations,
perceptions, values, and attitudes. In addition to this, personality
arises from within the individual and remains fairly consistent
throughout life. It is a pattern of stable states and characteristics of
a person that influence his or her behavior towards goal achievement.
Each person has unique ways of projecting these
states.
Page 320
The study of personality focuses on two broad areas;
1. One is understanding individual differences in particular
personality characteristics, such as sociability or irritability.
2. The other is understanding how the various parts of a person
come together as a whole.
Personality

According to Gordon Allport, “Personality is the dynamic

organization within the individuals of those psychophysical systems
that determine his unique adjustments to his environments”.
Feist and Feist said, “personality is a pattern of relatively permanent
traits and unique characteristics that give both consistency and
individuality to a person’s behavior.”
By personality Ogburn means “the integration of the socio-
psychological behavior of the human being, represented by habits
of action and feeling, attitudes and opinions.”
According to Lundberg and others, “The term personality refers to
the habits, attitudes and other social traits that are characteristic of
a given individual’s behavior”.
Lawrence A. Pewin said, “Personality represents those structural
and dynamic properties of an individual or individuals as they reflect
themselves in characteristic responses to situations”.
Hence personality is a sum total of ways in which an individual
reacts and interacts with others. It is individual differences in
characteristic patterns of thinking, feeling and behaving. It is the
supreme realization of the innate habit of a living being.

Page 321
It is an act of courage flung in the face of life, the absolute
affirmation of all that constitutes the individual, the most successful
adaptation to the universal conditions of existence, coupled with the
greatest possible freedom of self-determination.
For example- he has a very pleasant personality or he was an
influential personality in genetic engineering.
Characteristics of Personality

The term personality is used in various senses.

Generally, it is used to indicate the external outlook of an individual.
In philosophy, it means internal quality.
But in social psychology, the term personality indicates-neither the
external or outward pattern nor does it indicate the internal quality. It
means an integrated whole. In the modem world and psychology, it
has come to indicate the sum total of an individual’s characteristics
and qualities.
Various thinkers, social psychologists, and others have defined
personality in various ways. It is a sum of physical, mental and
social qualities in an integrated manner.
Thus, personality is the sum of the ideas, attitudes, and values of a
person which determine his role in society and form an integral part
of his character. Personality is acquired by the individual as a result
of his participation in group life. It refers to something much more
essential and enduring about a person.
Beyond this basic point of agreement, personality has
other characteristics or features in common.
Personality is something which is unique in each individual.
Page 322
 Personality refers particularly to the persistent qualities of an
individual.
Personality represents a dynamic orientation of an organism to
the environment.
Personality is greatly influenced by social interactions.
Personality represents a unique organization of persistent
dynamic and social predisposition.
Consistency.
Psychological and physiological.
It impacts behaviors and actions.
Multiple expressions.
Personality is something which is unique in each individual
Personality refers to internal as well as external qualities, some of
which are quite general. But it is unique to each individual. It is not
possible for a person to reproduce or imitate the qualities of the
personality of another person.
Personality refers particularly to persistent qualities of an
individual

Every individual has a certain feeling as well as other permanent traits

and qualities.
Personality is mainly composed of the persistent or permanent
qualities that exhibit themselves in form of social behavior and
attempt to make an adjustment with the environment.

Page 323
Personality represents a dynamic orientation of an organism to
the environment

Personality represents the process of learning. It takes place in

reference to the environment. We do not acquire all the traits of
personality at once.
Personality is greatly influenced by social interactions

Personality is not an individual quality. It is a result of social-

interaction.
In other words, it means that when we come in contact with other
members of society, we acquire certain qualities while We exhibit
certain others. All these come to form personality.
Personality represents a unique organization of persistent
dynamic and social predisposition

In personality, various qualities are not put together.

They are, in fact, integrated into one. This integration is nothing but
a result of organization which may be different from man to man.
The behavior of a person directed to one particular individual may
differ from the behavior of another person.
That is why; we put the condition of a suitable environment. This
suitability is concerned with individual specificity.
Consistency

There is generally a recognizable order and regularity to behaviors.

Essentially, people act in the same ways or similar ways in a variety
of situations.
Psychological and physiological
Page 324
Personality is a psychological construct, but research suggests that
it is also influenced by biological processes and needs.
It impacts behaviors and actions
Personality does not just influence how we move and respond in our
environment; it also causes us to act in certain ways.
Multiple expressions

Personality is displayed in more than just behavior. It can also be

seen in our thoughts, feelings, close relationships, and other social
interactions.
Actually, personality is the unique combination of patterns that
influence behavior, thought, motivation, and emotion in a human
being. There are many approaches to the modem psychological study
of personality, including the psychodynamic, learning, humanistic,
biological, trait, and cultural perspectives.
It can be described as how a person affects others, how he
understands, and views himself, and his pattern of inner and outer
measurable traits. It encompasses the relatively stable feelings,
thoughts, and behavioral patterns a person has.
In fact, our personality changes over long periods of time.
Factors of Personality

In the field of organizational behavior, personality is the aggregate

of a person’s feelings, thinking, behaviors and responses to different
situations and people.
Our personality differentiates us from other people, and
understanding someone’s personality gives us clues about how that
Page 325
person is likely to act and feel in a variety of situations. In order to
effectively manage organizational behavior, an understanding of
different employees’ personalities is helpful.
Having this knowledge is also useful for placing people in jobs and
organizations. Having a strong personality is the key to success.
This is also a key determinant of good leadership.
A person with a positive attitude can direct his thoughts, control his
emotions and regulate his attitude. Every person has a different
personality and there are a lot of factors which contribute to that
personality. We call them the ‘determinants of personality’or
the‘factors of personality’.
Environmental Factors.
Physical Factors.
Situational Factors.
Hereditary.
Family and Social Factors.
Identification Process.
Cultural Factors.
Intelligence.
Sex Differences.
Psychological Factors.
Environmental Factors

Page 326
Among the factors that exert pressures on our personality formation
are the culture in which we are raised; our early conditioning; the
norms among our family, friends, and social groups; and other
influences that we experience.
These environmental factors play a substantial role in shaping our
personalities.
It establishes the attitudes, values, norms, and perceptions of an
individual. Based on the cultures and traditions, different senses of
right and wrong are formed in individuals.
These environmental factors also include the neighborhood a
person lives in, his school, college, university, workplace, friends,
parents; everybody plays a role as the determinants of one’s
personality.
Physical Factors

There are many physical factors which will determine a person’s

personality. These physical factors include the overall physical
structure of a person: his height, weight, color, sex, beauty, body
language, etc.
Physical factors are one of the major reasons for that. Most of the
physical structures change from time to time, and so does the
personality. With exercises, cosmetics, surgeries etc. many physical
features are changed, and therefore, the personality of the
individual also evolves.
Situational Factors

The situational factors can be commonly observed when a person

behaves contrastingly and exhibits different traits and
Page 327
characteristics. In this way, situational factors impact a personality
in a significant way.
They often bring out the traits of a person that are not commonly
seen. An individual’s personality, although generally stable and
consistent, does change in different situations.
The different demands of different situations call forth different
aspects of one’s personality. So we shouldn’t look at personality
patterns in isolation (canon, & Porter, 19&). This aspect is very
important for organization behavior because the manager has
control over the organizational situation.
Hereditary

Heredity refers to those factors that were determined at conception.

Physical structure, facial attractiveness, gender, temperament,
muscle composition, and reflexes, energy level, and biological
rhythms are characteristics that are generally considered to be
either completely or substantially influenced by the parents.
Hereditary predisposes a certain mental, physical and emotional
states. It has been established through research that those
psychological characteristics can be transmitted through hereditary.
However such conclusive proof is not available for human beings.
Family and Social Factors

Family and social groups have the most significant impact on

personality development. Parents and other family members have a
strong influence on the personality development of the child.
Parents have more effect on personality development as compared
to other members of the family.

Page 328
Besides a person’s home environment and family members, there
are other influences arising from social factors like- friends,
neighbor, relatives, etc. These groups have their impact through
socialization and identification process.
Identification Process

The identification process occurs when a person tries to identify

himself with some person to whom he feels ideal in the family.
First identification can be viewed as the similarity of behavior between
the child and the model.
Second identification can be looked in as the child motives or
desires to be like the model.
Third, it can be viewed as the process through which the child actually
takes on the attributes of the model.
Cultural Factors

Culture is the underlying determinant of human decision making. It

generally determines attitude towards independence, aggression
competition, and cooperation. Each culture expects and trains its
members to behave in a way that is acceptable to the group
Intelligence
There is definitely some relationship between intelligence and
personality. Intelligence is mainly hereditary. Persons who are very
intelligent can make a better adjustment in home, school, and
society than those persons who are less intelligent.
Sex Differences

Page 329
Boys are generally more assertive, tough-minded and vigorous.
They have better need to succeed with regard to interest and
aptitudes. Boys show interest in machinery and outdoor activities.
They prefer adventures.
But girls are less vigorous games. They are quieter and interested
in personal appearance. They are more injured by personal,
emotional and social problems.
Thus sex differences play a vital role in the development of the
personality of an individual.
Psychological Factors
Psychological factors play a big role in the functioning of human
behavior and the development of one’s personality. Some of the
psychological factors are- motives, acquired interests, attitudes,
character, intellectual capacities etc.
Beyond the joint influence of these factors however, the relative
contribution of each factor to personality varies with the character or
personality process involved and perhaps with the individual
concerned.
Roles of Personality in Organizational Behavior
Personality plays a key role in organizational behavior because
of the way that people think, feel, and behave effects many aspects
of the workplace. People’s personalities influence their behavior in
groups, their attitudes, and the way they make decisions.
In the workplace, personality affects such things as motivation,
leadership, performance, and conflict. The more that management

Page 330
understands how personality in organizational behavior works, the
better equipped they are to be effective and accomplish their goals.

Perception Management

We often hear the term, perceptions matter more than reality

bandied about in the media and in organizational behaviour textbooks.
In addition, we also come across how marketers and branding
experts often indulge in perception management wherein they
create a positive climate for their products to be sold in the
market.

Moreover, we also read how equity markets and share traders often
base their buy and sell orders on perceptions of publicly held
companies. So, what is perception management and why is it so
important for organizations.
First, perception is how we think about a particular person, situation,
event, or anything for that matter based on the stimuli we receive
and the feelings and thoughts that we have about that entity.
Mind you, the entity in question might or might not be what we
perceive them to be and this is where perception management is
important as irrespective of reality, we either perceive that entity in a
favourable manner or we have a negative perception.
Therefore, the art and science of perception management is all
about how entities create a favourable impression of themselves to
their stakeholders be it prospective or existing employees,

Page 331
shareholders, consumers, and society at large. Thus, organizations
have to ensure that they are perceived well by their stakeholders.
Real World Examples of Successful Perception Management

It is not only corporates but also any other entities who have to
manage perceptions. During our corporate careers, we came across
situations where it was important for our employers to manage the
employees’ perceptions about it.
For instance, right from the design of the lobby where visitors could
be received and to the piped music that was being played, our
employers ensured that both employees and visitors had a positive
perception and the ambient atmosphere meant that irrespective of
what the reality was, at least the perceptions were positive.
Apart from this, we also learnt in training sessions on how perceptions
were important and why it was imperative to engage in perception
management.
For instance, during one such training, our trainer recounted how he
could prevent an ugly situation when he was working in a bank that
faced a liquidity crunch and hence, its depositors rushed to
withdraw their money.
He mentioned how the bank manager displayed a ward of notes
and bundles of currency notes on a table for all to see to convince
panicked customers that their money was safe. In this way,
irrespective of whether what was the reality, the bank manager
ensured that the situation was handled by adroit perception
management.
Reality has to Match the Image and There Must be Substance
to the Hype
Page 332
Having said that, it is also not the case that it is enough to manage
perceptions in the immediate or short term without creating longer
term advantages.
For instance, the present Indian government is often accused by its
critics of managing perceptions rather than creating wealth for all in
reality.
It is also accused of marketing and perception management in
virtually all spheres without having anything to show for.
Moreover, in our Electronic and Digital media driven world, it is often
easy to manage perceptions rather than creating longer term and
deep and durable narratives.
Indeed, with the power of the visual media where a Picture Speaks
a Thousand Words, it is clear that perceptions can easily be
managed.
In all this intoxicating information transmission and consumption, often
the viewers and the readers are the victims of information warfare
through perception management and hence, from a purely ethical
point of view, there must be limits to perception management or
otherwise, there is a risk of losing the plot altogether.
The Promise and Peril of Perception Management in the Digital
Age

Indeed, in the present Digital Age, perception management and

information warfare have become so rampant that sometimes, it is
difficult to separate myth from fact and image from reality.
This is where astute marketers and business leaders can step in
and ensure that there is substance to go with the story and there is

Page 333
narrative to go with the branding. In other words, to create longer term
value and truly sustainable organizations and marketing campaigns,
these leaders can deliver on the promise and ensure the reality
matches the image.
Indeed, the Digital Age has spawned numerous challenges for all
stakeholders wherein the speed of events is such that, even
masters of perception management can lose the plot where creating
favourable impressions is concerned.
In addition, with no checks and balances to prevent those from
going overboard, even perceptions can backfire on them.
This is more the reason why perception management has to follow
some structure and rules if it has to succeed not only in the immediate
term but also over the longer term.
With so much Information Overload, it is also difficult to create positive
perceptions without the consumers being bombarded with nonstop
barrage of information. In turn, this leads to fatigue and a switching
off by the consumers which defeats the whole purpose.
First Impressions and Long Term
Last, while we are easy to Fall In Love At First Sight and First
Impressions are Best Impressions, we need to be mindful of the fact
that for longer term benefits and sustainable relationships, it is
important for us to not only create positive perceptions but also
reinforce them through reality based actions and then actualize a
positive loop of action, feedback, and reinforcement leading to more
sustainable actions.
Work Attitudes

Page 334
How we behave at work often depends on how we feel about being
there. Therefore, making sense of how people behave depends on
understanding their work attitudes. An attitude refers to our
opinions, beliefs, and feelings about aspects of our environment.
We have attitudes toward the food we eat, people we meet, courses
we take, and things we do.
At work, two job attitudes have the greatest potential to influence
how we behave. These are job satisfaction and organizational
commitment.
Job satisfaction refers to the feelings people have toward their job. If
the number of studies conducted on job satisfaction is an indicator,
job satisfaction is probably the most important job attitude. Institutions
such as Gallup or the Society for Human Resource Management
(SHRM) periodically conduct studies of job satisfaction to track how
satisfied employees are at work. According to a recent Gallup survey,
90% of the employees surveyed said that they were at least
somewhat satisfied with their jobs. A recent SHRM study revealed
40% who were very satisfied. For many employees, a dream job
is one that isn’t a nightmare.
Organizational commitment is the emotional attachment people
have toward the company they work for. A highly committed employee
is one who accepts and believes in the company’s values, is
willing to put out effort to meet the company’s goals, and has a strong
desire to remain with the company. People who are committed to
their company often refer to their company as “we” as
opposed to “they” as in “in this company, we have great benefits.”

Page 335
The way we refer to the company indicates the type of attachment
and identification we have with the company.
There is a high degree of overlap between job satisfaction and
organizational commitment because things that make us happy with
our job often make us more committed to the company as well.
Companies believe that these attitudes are worth tracking because
they often are associated with outcomes that are important to the
Controlling role, such as performance, helping others, absenteeism,
and turnover.
Causes Positive Work Attitudes

What makes you satisfied with your job and develop commitment to
your company? Research shows that people pay attention to
several factors of their work environment, including characteristics
of the job (a function of Organizing activities), how they are treated
(related to Leadership actions), the relationships they form with
colleagues and managers (also Leadership related), and the level of
stress the job entails.
As we have seen earlier in this chapter, personality and values play
important roles in how employees feel about their jobs.
Figure 2.14 Factors Contributing to Job Satisfaction and
Organizational Commitment

Page 336
Job Characteristics

Employees tend to be more satisfied and committed in jobs that

involve certain characteristics. The ability to use a variety of skills,
having autonomy at work, receiving feedback on the job, and
performing a significant task are some job characteristics that are
related to satisfaction and commitment. However, the presence of
these factors is not important for everyone. Some people have a
high need for growth. These employees tend to be more satisfied
when their jobs help them build new skills and improve.
Organizational Justice and the Psychological Contract
A strong influence over our satisfaction level is how fairly we are
treated. People pay attention to the fairness of company policies
and procedures, fair and kind treatment from supervisors, and fairness
of their pay and other rewards they receive from the company.
Organizational justice can be classified into three categories:
(1) procedural (fairness in the way policies and processes are
carried out),
Page 337
(2) distributive (the allocation of resources or compensation and
benefits), and
(3) interactional (the degree to which people are treated with dignity
and respect). At the root of organizational justice is trust, something
that is easier to break than to repair if broken.
The psychological contract is the unspoken, informal understanding
that an employee will contribute certain things to the organization
(e.g., work ability and a willing attitude) and will receive certain
things in return (e.g., reasonable pay and benefits).
Under the psychological contract, an employee may believe that if
he or she works hard and receives favorable performance
evaluations, he or she will receive an annual bonus, periodic raises
and promotions, and will not be laid off. Since the “downsizing”
trend of the past 20 years, many commentators have declared that
the psychological contract is violated more often than not.
Relationships at Work
Two strong predictors of our happiness at work and commitment to
the company are our relationships with coworkers and managers.
The people we interact with, how friendly they are, whether we are
socially accepted in our work group, whether we are treated with
respect by them are important to our happiness at work. Research
also shows that our relationship with our manager, how considerate
the manager is, and whether we build a trust-based relationship with
our manager are critically important to our job satisfaction and
organizational commitment.
When our manager and overall management listen to us, care about
us, and value our opinions, we tend to feel good at work. When
Page 338
establishing effective relations with employees, little signals that you
care about your employees go a long way. For example, in 2004
San Francisco’s Hotel Carlton was taken over and renovated by a
new management group, Joie de Vivre Hospitality.
One of the small things the new management did that created
dramatic results was that, in response to an employee attitude survey,
they replaced the old vacuum cleaners housekeepers were using and
started replacing them every year. It did not cost the company much
to replace old machinery, but this simple act of listening to employee
problems and taking action went a long way to make employees feel
better.
Stress
Not surprisingly, the amount of stress present in a job is related to
employee satisfaction and commitment. Stressors range from
environmental ones (noise, heat, inadequate ventilation) to
interpersonal ones (organizational politics, conflicts with coworkers) to
organizational ones (pressure to avoid making mistakes, worrying
about the security of the job). Some jobs, such as intensive care
unit nurse and military fighter pilot, are inherently very stressful.
Another source of stress has to do with the roles people are
expected to fulfill on and off the job. Role ambiguity is uncertainty
about what our responsibilities are in the job. Role conflict involves
contradictory demands at work; it can also involve conflict between
fulfilling one’s role as an employee and other roles in life, such as
the role of parent, friend, or community volunteer.
Generally speaking, the higher the stress level, the lower job
satisfaction tends to be. But not all stress is bad, and some
stressors actually make us happier! For example, working under
Page 339
time pressure and having a high degree of responsibility are stressful,
but they are also perceived as challenges and tend to be related to
high levels of satisfaction.
Assessing Work Attitudes in the Workplace

Given that work attitudes may give us clues about who will leave or
stay, who will perform better, and who will be more engaged,
tracking satisfaction and commitment levels is a helpful step for
companies. If there are companywide issues that make employees
unhappy and disengaged, these need to be resolved.
There are at least two systematic ways in which companies can
track work attitudes: through attitude surveys and exit interviews.
Companies such as KFC and Long John Silver restaurants, the
SAS Institute, Google, and others give periodic attitude surveys, which
are used to track employee work attitudes.
Companies can get more out of these surveys if responses are held
confidential. If employees become concerned that their individual
responses will be shared with their immediate manager, they are
less likely to respond honestly. Moreover, success of these surveys
depends on the credibility of management in the eye of employees.
If management periodically collects these surveys but no action
comes out of them, employees may adopt a more cynical attitude
and start ignoring these surveys, hampering the success of future
efforts. Exit interviews involve a meeting with the departing
employee. This meeting is often conducted by a member of the
human resource management department. If conducted well, this
meeting may reveal what makes employees dissatisfied at work and
give management clues about areas for improvement.

Page 340
How strong is the attitude-behavior link? First of all, it depends on
the attitude in question. Your attitudes toward your colleagues may
influence whether you actually help them on a project, but they may
not be a good predictor of whether you quit your job.
Second, it is worth noting that attitudes are more strongly related to
intentions to behave in a certain way, rather than actual behaviors.
When you are dissatisfied with your job, you will have the intention
to leave. Whether you actually leave will be a different story! Your
leaving will depend on many factors, such as availability of alternative
jobs in the market, your employability in a different company, and
sacrifices you have to make while changing jobs.
Thus, while the attitudes assessed through employee satisfaction
surveys and exit interviews can provide some basis for predicting how
a person might behave in a job, remember that behavior is also
strongly influenced by situational constraints.
Key Takeaway
Work attitudes are the feelings we have toward different aspects of
the work environment. Job satisfaction and organizational
commitment are two key attitudes that are the most relevant to
important outcomes. In addition to personality and fit with the
organization, work attitudes are influenced by the characteristics of
the job, perceptions of organizational justice and the psychological
contract, relationships with coworkers and managers, and the stress
levels experienced on the job. Many companies assess employee
attitudes through surveys of worker satisfaction and through exit
interviews. The usefulness of such information is limited, however,
because attitudes create an intention to behave in a certain way, but
they do not always predict actual behaviors.
Page 341
Group Dynamics in the Workplace

A sound understanding of group dynamics, and the role it plays in

business, is a critical component of successful management. When
a good dynamic exists within a group working toward a common
goal, each individual member will perform effectively and achieve
goals set by the group. Poor group dynamics can adversely affect
performance, leading to a negative outcome on the common goal or
project. Many variables contribute to a good work dynamic.

Below are 4 key points to understanding group dynamics, and how

to create and maintain a positive, productive dynamic in any group.
You can also expand your knowledge around the impact of group
dynamics in the workplace through coursework within Maryville’s
Online MBA program.
1. Strong leadership is important within a group.

This does not mean that a manager needs to bully or strong-arm the
team to maintain control. A leader should guide the development of
Page 342
the group and the path to the goal that needs to be reached. He or
she can do this by defining specific roles and responsibilities for
members of the group, as well as a timeline for the common project
so members can understand the place of their role within the timeline.
2. Recognize how personalities affect team dynamics.

Obviously each person working within a group brings to that group his
or her own individual personality and skill set. Recognizing each
person’s style of work, motivation, and level of aptitude can help a
manager understand how that person fits within the group as a whole.
This can also provide an opportunity for managers to note any gaps
in experience or behavior that need to be filled with additional team
members in order for the group to successfully accomplish its goal.
Along with members who contribute positively to the group, there may
also be those whose behavior, attitude, or work style negatively affects
the dynamics of the overall group.
Some may be obvious- an aggressive personality dominating and
bullying other group members, or a distracting person who is
constantly off-task. Some disruptive roles may be less easy to
pinpoint, but can have an adverse effect on group dynamics as well.
For example, “social loafing” may occur, meaning some members of
the group may exert less effort than they would if working alone. A
manager who recognizes and reacts quickly to these roles can
influence the dynamic of the group in positive ways. A dominating or
distracting member of the group may benefit from a separate
conversation with the manager, addressing expectations of roles
within the group. If each member of the group sees his or her
Page 343
contribution as valuable and accountable to the larger group, then
social loafing is less likely to occur among group members.
3. Understand the life cycle of a group.
The way a group comes together as one can be demonstrated in 5
steps:
1. Forming: The coming together of a group.
2. Storming: Members of the group seek out like-minded
members. At this stage, conflicts between different sub-groups
may arise.
3. Norming: Members become invested in the group as a whole
and the common goal of the group.
4. Performing: The members of the group now function as a
whole, contributing to complete the task within the standards
that have been defined in the previous steps.
5. Adjourning: If the group has formed to meet a specific goal,
then the group will disband after the completion of the task and
any subsequent needed evaluation.
Consideration of where the group is within this cycle can provide
perspective to all members of the group as they move through it.
4. Communication is key.

How effectively a group communicates can determine the overall

success or failure of the group in reaching its goal. Many methods
of communication may be used within groups working toward a
common business goal.

Page 344
Emails, project management software, group documents, and
video/telephone conferencing are some of the many ways that the
traditional face-to-face group meeting is becoming less prevalent. It
is imperative for all members of a group to fully understand and utilize
the chosen methods of communication.
Open and transparent communication through the group’s chosen
methods of communication builds and maintains a sense of trust
within the group as a whole, and keeps the group working together
toward the goal. Side conversations via separate emails or “IM” chat
features can be detrimental to the group’s overall trust.
Power and Politics

Power And Politics Within a Business Organizational

Every environment has their own internal system that is dictated by

aspects such as power and politics. These things have as much
control over the functionality of an organizational as the individual
features of organizational behavior. Often, they can shift how those
components develop and affect those in the environment as well.
Their impact-and that of those who control them-can shape the
entire dynamics of an organization more so than any other force.
Power and politics within a business or organization are rather
similar to the traditional political structures of government: authority
is divided throughout the different parts of the system that power is
exerted in.1 There are often different sources of power competing for
control, which isn't necessarily a bad thing until someone decides to
fight dirty. The internal politics of an organization, too, can be
polarized as everyone will most likely relate to one side of an issue
over another no matter how neutral they attempt to remain. All in all,
the organizational power and politics in a business can be a
Page 345
fascinating and unique thing that can have a serious impact on
organizational behavior.
Power Struggles In Business
Power struggles are a common occurrence in society, not just
business. One person wants something from someone else, yet that
person isn't willing to budge on the issue and just hand it over. In
response, that first person may try to exert their own power and
authority (perceived or actual) to try and persuade the other person
to concede.2 It's a tactic that can work on occasion, but it can make
a situation turn combative and toxic when it isn't successful. It
occurs between co-workers, employees and their supervisors,
amongst management, between different departments, and in board
rooms in businesses across the world.
As normal as they are, power struggles are not an effective way to
get things done in a working environment. They can damage the
climate of the workplace, turning it toxic and stressful even for those
who are not involved. It wastes time that can be better used towards
productivity and often causes the situation to unnecessarily
escalate.3 When a power struggle escalates, it often drags office
politics into the mix and forces people to take a side. Attempts to
avoid taking sides or getting roped in don't always work, and you
may still be bombarded with the conflict even if you are successful
in staying out of the situation.
The ability to stay out of a power struggle is a skill that can give you
a lot of power in business, one that is best used to protect yourself.
Surviving a power struggle is often the goal regardless of what
industry you work in. There's still the aftermath to deal with when
the dust settles, and the effects can hit anyone who happens to be
Page 346
standing too close. Experts say that if you want to not get involved
with a power struggle, then your best bet is to not acknowledge a
person's position in an argument, but their feelings.4 Make neutral
observations, which can be used supportively should either party
confront you about the situation and your stance in it; i.e. 'This has got
to be so frustrating. I hope you two are able to work things out' or
something similar that validates the emotional component of the
situation.
Power Types and What They Do

Power in a business environment typically translates into authority

and influence, and can manifest differently. People develop
professional power differently, based on factors like their job, their
position within the company, and the industry that the business is in.
Typically, there are five types of power present in business:
Legitimate-Based on a person's position in the structural
hierarchy of a business. Legitimate power can only be given and
wielded through, well, legitimate means, e.g. the person earned
their position.5 Those with legitimate power often can only exert their
power on those below them in the hierarchy, not above. A CEO, for
example, has legitimate power over a general manager in the same
company, but the general manager doesn't have legitimate power
over the CEO.
Coercive-Coercive power can be rather harsh and easily
prone to abuse due to the abilities associated with it. Those with
coercive power influence others through punishments, sanctions,
and threats. It works well to ensure that employee behavior follows
policy and can be used to deal with violations. Most disciplinary

Page 347
actions are carried out via coercive power, including firing or
terminating someone from the business.

Reward-The opposite of coercive power, this type

influences other with rewards like promotions and bonuses. 6 It
generates an incentive to motivate someone to do something and
acts as a positive reinforcement for behavior. Performance reviews
and their administrators tend to how some level of reward power in
a business.
Referent-Those who are revered or admired in a business
have referent power. Typically, leaders gain this power when their
actions prompt a positive rapport and trust between them and the
employees under them. Most of the time, it will be evident if a
person has referent power by talking to their employees; positive
praise, loyalty, and other responses are good indicators.
Expert-Those who have expert status tend to have power
over those who do not. It is gained through experience, skill, and
knowledge in regards to certain topics or areas of interest.7 A
person doesn't necessarily have to have expert status to have
expert power; those with more knowledge of a subject can have
expert power over those who know less. Those with expert power tend
to have it reflected in their reputation and their credibility on things.
The Politics of Business

As mentioned before, there is a political side to business. In a

sense, it follows the same science behind the politics found in
government.8 There is leadership that guides the group as a whole
and a company philosophy and ethical code that everyone is
expected to adhere to. The set up and style of the business'
Page 348
leadership determines how power is divided and what role, if any,
the employees have in how the business is run. The people in that
business tend to have their own agenda in all of this, shaped by
their behavior and viewpoints, that surpasses the agenda of the
organization as a whole-which is the entire premise behind
organizational or business poltics.9
Politics tend to come up in a business when someone begins to act
on their own interest without regard to others in the company. It
commonly comes into play during times of conflict and power
struggles, as people with conflicting agendas will typically be the ones
at odds. Most experts and leaders state that business politics are
more harmful than good; they're inherently selfish.10 Business
politics bring down productivity amongst employees through
distraction, hurts motivation and morale, increases stress levels,
and warps the environment of the business.
Business politics do the worst damage when business leaders act
according to their personal agendas. Those in positions of power
will exert their authority based on their politics, which can lead to
abuse. This may also encourage conflict between opposing political
sides. Leaders higher up in the business' hierarchy, like CEOs, can
stir-up politics in their company regardless of if they are political
themselves.11 Changes to policies and leadership, as well as
changes to the components of organizational behavior, can help
reduce the power of office politics-or bolster them, if not done
correctly.
Warning Signs Of Abuse In Positions Of Power

When politics and power come into play in a business, there is the
chance that someone will abuse the authority that they have. This
Page 349
can be anyone who has some degree of power, no matter where
they sit in the business' hierarchy or how long they've held that
position. When a person abuses their power or goes on a power
trip, it can have damaging consequences for everyone. Depending on
how it starts and the person's position, it may not be immediately
evident that they are abusing their power. Here are some of the
warning signs common to abuse of power in the workplace:

Unfair Disciplinary Measures-In some cases, a person will

abuse their power in order to bully those they have seniority over.
As a result, they may inflict unfair disciplinary measures on others for
mistakes. These tend to be punishments that do not fit the error that
was made-if one was actually made, that is. A person could
intentionally be picking on a specific employee or unleashing their
power on everyone during a power trip.
Superiority-Superiority develops when someone is put into
a higher position and their ego takes over. It's usually done to rub
the fact that they now have power into the face of someone who
doesn't and boost their ego. They may humiliate those who are
positioned below them and make people do things simply because
they can make them do that.12 One of the worst parts of this is that
they will most likely try to convince you that you have no power over
them and you can't do nothing. (Spoiler alert: You can.)
"My Way or the Highway" Behavior-If a person has an
authoritarian streak in their personality, it's quite likely that it will
come out in full force once they get an inkling of power over
someone else. They will try to get their way through ultimatums and
bullying, and will most likely micromanage everyone to make sure
Page 350
no one strays.13 There's no leeway for anyone (except for them) and
even the tiniest deviation is enough to warrant their wrath.
Sometimes this is a tactic that is used to prevent anyone else from
looking professionally better than them and to block any kind of
advancement or growth.14
Disrespecting Boundaries and Abilities-Usually tied in
as a kind of discrimination or harassment (depending on how it's being
carried out), disrespecting employees personal boundaries and
abilities tends to generate a very hostile work environment. It's usually
done to get something else from a person-such as in sexual
harassment-or to demean or humiliate them. This can be especially
problematic because instances can extend outside of the business
and drag down morale within it.
Aggression-Everyone has lost their temper with another
person before but it's not supposed to be a normal occurrence. Abuse
in the workplace isn't always going to manifest solely as a byproduct
of authority. Verbal and physical abuse has occurred in the
professional world in varying degrees. Violence can be an intense
way to intimidate people and it's one of the most common causes of
injury and death in the workplace.15
How To Deal with Workplace Abuse

No one wants abuses of power to happen in their business. It's

harmful to employees, the customers, productivity, and the
business' overall environment. Preventing it doesn't always work, as
people cannot be fully controlled. If there are abuses of power
occurring in your business, here are a few things that can be done:
Confront The Person-Best done carefully and in private,
confronting the person who is on a power trip or abusing their power
Page 351
is one way of getting them to stop.16 Someone who has only
recently started to become abusive due to their power may not realize
that what they are doing is hurtful and unprofessional; power can be
an intoxicating force. It should be noted that this can backfire and
should definitely not be done without assistance in severe
cases.
Document It-Keep track of instances of abuse by
documenting it. Write down notes on what happened, when, and
where, and take it home with you; never leave it at work where an
abusive person may find it and use it as a motive to attack.17 Check
what laws and policies there are regarding recording someone without
their permission. If there is physical evidence, take photos and keep
them with your notes. All of this can be presented to the business'
human resources department and used against an
abuser.
Human Resources-Here's that spoiler alert from earlier. A
business' human resources department is designed to handle any
instance of misbehavior amongst the staff at work. They will have
the resources to deal with the situation and will know what can or
cannot be done. Submitting a complaint-with copies of what you've
documented-can at least bring abusive behavior to the company's
attention. In severe cases where outside intervention like police or
legal action is needed, the HR department will usually need to get
involved in the situation on behalf of the business.

Conflict and negotiation

The term conflict refers to perceived incompatibilities resulting

typically from some form of interference or opposition. Conflict
Page 352
management, then, is the employment of strategies to correct these
perceived differences in a positive manner. For many decades,
managers had been taught to view conflict as a negative force.
However, conflict may actually be either functional or dysfunctional.
Whereas dysfunctional conflict is destructive and leads to
decreased productivity, functional conflict may actually encourage
greater work effort and help task performance. Borisoff and Victor
(1998) point out, "We have come to recognize and to acknowledge
the benefits dealing with conflict affords. Because of our differences,
we communicate, we are challenged, and we are driven to find
creative solutions to problems."
THE EVOLUTION OF CONFLICT
MANAGEMENT

The early approach to conflict management was based on the

assumption that all conflict was bad and would always be
counterproductive to organizational goals. Conflict management,
therefore, was synonymous with conflict avoidance. This left the
people experiencing the conflict with essentially only one outcome:
a win-lose scenario. In such cases, the loser would feel slighted and
this, in turn, would lead to renewed belligerence. Therefore, most
managers viewed conflict as something they must eliminate from their
organization. This avoidance approach to conflict management was
prevalent during the latter part of the nineteenth century and
continued until the mid-1940s.
Nevertheless, conflict avoidance is not a satisfactory strategy for
dealing with most conflict. Conflict avoidance usually leaves those
people who are being avoided feeling as if they are being neglected.
Also, conflict avoidance usually fails to reconcile the perceived
differences that originally caused the conflict. As a result, the
Page 353
original basis for the conflict continues unabated, held in check only
temporarily until another confrontation arises to set the same
unresolved tensions into motion again. Therefore, conflict avoidance
strategies are not especially useful in the long run.
The human relations view of conflict management dominated from the
late 1940s through the mid-1970s. This viewpoint argued that
conflict was a natural and inevitable occurrence in any
organizational setting. Because conflict was considered
unavoidable, the human relations approach recommended
acceptance of conflict. In other words, conflict cannot be eliminated
and may even benefit the organization. It was during this time
period that the term "conflict management" was introduced, according
to Nurmi and Darling.
Since the mid-1970s a new position on organizational conflict has
emerged. This theoretical perspective is the interactionist approach.
This viewpoint espouses not only accepting conflict, but also
encouraging it. Theorists are of the opinion that a conflict-free,
harmonious, and cooperative organization tends to become
stagnant and nonreponsive to market change and advancement.
Therefore, it is necessary for managers to interject a minimum level
of conflict to maintain an optimal level of organizational
performance. For example, Shelton and Darling suggest conflict is a
necessary condition for both individual and organizational
progression. They encourage managers to "embrace conflict and
use it for continuous transformation."
SOURCES OF CONFLICT

According to both Daft and Terry, several factors may create

organizational conflict. They are as follows:
Page 354
Scarce Resources. Resources may include money, supplies,
people, or information. Often, organizational units are in
competition for scarce or declining resources. This creates a
situation where conflict is inevitable.
Jurisdictional Ambiguities. Conflicts may also surface when job
boundaries and task responsibilities are unclear. Individuals may
disagree about who has the responsibility for tasks and
resources.
Personality Clashes. A personality conflict emerges when two
people simply do not get along or do not view things similarly.
Personality tensions are caused by differences in personality,
attitudes, values, and beliefs.
Power and Status Differences. Power and status conflict may
occur when one individual has questionable influence over
another. People might engage in conflict to increase their
power or status in an organization.
Goal Differences. Conflict may occur because people are
pursuing different goals. Goal conflicts in individual work units
are a natural part of any organization.
Communication Breakdown. Communication-based barriers
may be derived from differences in speaking styles, writing
styles, and nonverbal communication styles. These stylistic
differences frequently distort the communication process.
Faulty communication leads to misperceptions and
misunderstandings that can lead to long-standing conflict.
Additional barriers to communication may emerge from the
cross-gender and cross-cultural differences of participants.
Such fundamental differences may affect both the ways in
Page 355
 which the parties express themselves and how they are likely
to interpret the communication they receive. These distortions,
in turn, frequently result in mis-reading by the parties involved.
Moreover, it is common for the parties involved to be oblivious to
these false impressions. The resultant misunderstandings
subsequently lead the parties involved to believe that a conflict
based on misunderstood behavior exists when, in fact, no
conflict actually does exist. Miller and Steinberg call this
misreading "pseudo-conflict," that is, perceived conflict rather
than actual conflict. Much of what managers take to be an actual
conflict is the product of such pseudo-conflict.
CONFLICT MANAGEMENT
METHODOLOGIES

Management theorists have developed and suggested a range of

options for handling organizational conflict. Figure 1 outlines the
various components of the Conflict Resolution Grid, which is the result
of widely accepted research presented by Thomas and
Kilmann.

Page 356
Figure 1
Based on Thomas-Kilmann Conflict Mode Instrument

Thomas and Kilmann identified a conflict-handling grid comprised of

five conflict management styles based on two dimensions:
assertiveness and cooperativeness. Assertiveness is the motivation
of an individual to achieve his/her own goals, objectives, and
outcomes, while cooperativeness assesses the willingness to allow
or help the other party to achieve its goals or outcomes. Any of the
five conflict resolution styles might be appropriate based on the
circumstances of the situation and the personalities of the
individuals involved.
1. Avoiding Conflict Resolution Style. The avoiding style is low on
both assertiveness and cooperativeness. In other words, the
manager is not very cooperative in helping the other
individuals to achieve their goals, but neither is he/she
Page 357
 aggressively pursuing his/her own preferred outcomes in the
situation. The original problem, conflict, or situation is never
directly addressed or resolved. However, avoiding behavior
might be appropriate when the issue is perceived by the
manager to be trivial. It might also be an appropriate approach
to use when there is no chance of winning or when disruption
would be very costly.
2. Competing Conflict Resolution Style. The competing style of
resolving conflict is also known as the win-lose approach. A
manager using this style, characterized by high assertiveness
and low cooperativeness, seeks to reach his/her own preferred
outcomes at the expense of other individuals. This approach
may be appropriate when quick, decisive action is needed,
such as during emergencies. It can also be used to confront
unpopular actions, such as urgent cost cutting.
3. Accommodating Conflict Resolution Style. This style reflects a
high degree of cooperativeness. It has also been labeled as
obliging. A manager using this style subjugates his/her own
goals, objectives, and desired outcomes to allow other
individuals to achieve their goals and outcomes. This behavior
is appropriate when people realize that they are in the wrong
or when an issue is more important to one side than the other.
This conflict resolution style is important for preserving future
relations between the parties.
4. Compromising Conflict Resolution Style. This style is
characterized by moderate levels of both assertiveness and
cooperativeness. Compromise can also be referred to as
bargaining or trading. It generally produces suboptimal results.
This behavior can be used when the goals of both sides are of
Page 358
 equal importance, when both sides have equal power, or when
it is necessary to find a temporary, timely solution. It should not
be used when there is a complex problem requiring a problem-
solving approach.
5. Collaborating Conflict Resolution Style. This approach, high on
both assertiveness and cooperativeness, is often described as
the win-win scenario. Both sides creatively work towards
achieving the goals and desired outcomes of all parties involved.
The collaboration style is appropriate when the concerns are
complex and a creative or novel synthesis of ideas is required.
The downside of this approach is that the process of
collaborating mandates sincere effort by all parties involved and
it may require a lot of time to reach a consensus.
Of the five modes described in the matrix, only the strategy employing
collaboration as a mode of conflict management breaks free of the
win-lose paradigm. It has become almost habitual to fall back on the
win-win alternative, but this was not the authors' original intention.
They did not reject win-lose configurations out of hand. Instead,
strategic considerations for managing conflict according to varied
circumstances were identified. For instance, in a conflict centered on
bids by two alternative suppliers, the best choice might well be a
competing strategy with a winner and loser. After all, the objective in
such a situation is to win the contract for one's own company. In most
cases, winning the contract can be accomplished only at the expense
of the competing supplier, who by definition becomes the loser.
In contrast, a competing approach almost never works well in the
interpersonal conflict of people working in the same office (or even
the same organization). Unlike the case of competing suppliers,
Page 359
coworkers—both the winner and the loser—must go on working
together. Indeed, in many conflicts revolving around office politics,
an accommodating strategy may actually enable individuals to
strengthen their future negotiating position through allowing
themselves to lose in conflicts over issues they do not feel particularly
strongly about.
In such situations, accommodating can be seen as a form of
winning through losing. For instance, a manager may choose to
concede an issue to an employee who is experiencing considerable
stress as a means to motivate him or her. Similarly, an individual
might choose an accommodating strategy to add balance to
negotiations in which one's counterpart has already had to give up
several other points. Indeed, a winner in a win-lose scenario who
fails to put forth some effort to accommodate the other party may
even provoke a backlash in the form of lack of commitment or open
resistance.
Even the traditional approach of conflict avoidance has its place as an
occasionally acceptable strategy. While conflict avoidance has justly
been the subject of considerable condemnation, it can be rather
useful in allowing both parties to cool off or in buying time until all
the facts of a matter have been gathered. A manager might choose
to avoid an employee in the throes of an emotional outburst, for
example, until the employee has had sufficient time to calm down.
Finally, compromise is often a useful strategy when dealing with
relatively small concerns. This differs from an accommodating
strategy, in which the conceding party finds an issue unimportant
that the opposing party considers comparatively important. A
manager might enlist a compromise approach most effectively when
Page 360
both parties consider the issue to be of moderate or little
importance. In such cases, compromising saves both parties the
time required to employ problem-solving techniques to address the
fundamental core of the conflict.
While all of these modes have their place among the strategies
available to the manager, the collaborating approach to conflict
management represents the most beneficial mode for most types of
conflict management. In the collaborating mode, conflict itself acts
as a managerial tool. The manager utilizes the conflict to guide the
conflicting parties to address what essentially are obstacles faced
by the organization. Through collaborative behavior, the conflicting
parties pool their creative energies to find innovative answers to old
problems.
It is in this key respect that the collaborative mode of conflict
management differs from the other four conflict-handling modes.
Accommodating, avoiding, competing, and compromising—as
permutations of the win-lose scenario—are simply forms of conflict
interventions. Collaboration as a conflict-handling mode, on the
other hand, represents an attempt to channel conflict in a positive
direction, thus enabling the manager to use conflict as a tool to resolve
otherwise incompatible objectives within the organization. In other
words, this method of handling conflict acts less as a conflict
intervention and more as true conflict management.
However, any of the five conflict resolution styles may be
appropriate and effective depending on the specific situation, the
parties' personality styles, the desired outcomes, and the time
available, The key to becoming more prepared is to understand the
advantages and disadvantages of each method.
Page 361
THE FIVE A'S TECHNIQUE

Borisoff and Victor identify five steps in the conflict management

process that they call the "five A's" of conflict management:
assessment, acknowledgement, attitude, action, and analysis. They
assert that these five steps allow for a sustained, ongoing process
of problem-solving-oriented conflict management.
ASSESSMENT

In the assessment step, the parties involved collect appropriate

information regarding the problem. The parties involved also choose
which of the conflict-handling modes is most appropriate for the
situation. The parties collectively decide what is and what is not
central to the problem. The parties involved also indicate areas in
which they may be willing to compromise, and what each party
actually wants.
ACKNOWLEDGEMENT

The acknowledgement step is one in which each party attempts to

hear out the other. Acknowledgement allows both parties to build
the empathy needed for the motivation of a synergistic solution to
the problem. The acknowledgement acts as feedback to the other
party and it demonstrates that one understands (without necessarily
agreeing with) the other party's position. Acknowledgement goes
beyond merely responding to what is said, however; it involves
actively encouraging the other party to openly communicate its
concerns. This is aided by the use of active listening techniques and
overt, nonverbal encouragement.
ATTITUDE

Page 362
The attitude step tries to remove the foundation for pseudo-conflict.
Stereotypical assumptions about different, culturally-based
behaviors are uncovered. For example, a member of a high-context
culture may misinterpret what a member of a low-context culture
says as being needlessly blunt or even rude. Conversely, a member
of a low-context culture may misinterpret what a person from a high-
context culture says as being needlessly indirect or even outright
deceptive.
Such communication variations (as the works of Edward Hall have
explained) have little to do with the actual intent or content of the
messages, but represent instead culturally learned approaches to
using implicit versus explicit communication styles. Similarly, in the
attitude step, one acknowledges differences in the way that men
and women are generally conditioned to communicate. Experts
such as Borisoff and Merrill, for example, have delineated clearly
differentiated communication styles between men and women,
which are compounded by sex-trait stereotyping regarding issues of
assertiveness, interruptive behavior, and perceptions of politeness.
Finally, in the attitude step, one analyzes potentially problematic
variations in styles of writing, speaking, and nonverbal mannerisms.
Such differences may blur meanings. It is the role of the effective
conflict participant to maintain an open mind toward all parties
involved.
ACTION

The action step begins to actively implement the chosen conflict-

handling mode. If the selected mode is the problem-solving approach,
the manager conveys the opportunity for a conflict resolution based
on trust and ongoing feedback on those points on
which the parties have already agreed. Simultaneously, each
Page 363
individual evaluates the behavior of the other parties (often, little more
than subtle hints) to ascertain where potential trouble spots might
arise. Also, each individual must remain aware of his or her own
communication style and general behavior. Finally, all parties must
stay alert to new issues that are raised and look for productive
solutions.
ANALYSIS

In this last step participants decide on what they will do, and then
summarize and review what they have agreed upon. Part of the
analysis step is to ascertain whether every participant's
requirements have been addressed (and met, if possible). Finally,
the analysis step initiates the impetus for approaching conflict
management as an ongoing process. Analysis enables participants
to monitor both the short-term and long-term results of the conflict
resolution.
QUANTUM SKILLS

Shelton and Darling suggest a new set of management skills, more

appropriate for the ever-changing, conflict-ridden contemporary
organization. They refer to these skills as the quantum skills. The
suggested managerial skills are derived from the field of quantum
physics. They are as follows:
1. Quantum seeing. This skill is defined as the ability to see
intentionally. When conflict occurs, managers must explore
their own assumptions about the parties and search for the
underlying intentions that are creating the conflict. Each party
must then come to recognize the relationship between
individual thought processes and perceptions, and set clear
intentions for positively resolving the situation.
Page 364
2. Quantum thinking. This skill involves the ability to think
paradoxically. Effective conflict resolution is a paradoxical
process. "Win-win solutions require paradoxical thinking. They
require the ability to find a fully acceptable solution to divergent
points of view" (Shelton and Darling 2004, p. 30). In other words,
collaborative solutions to conflicts that involve diametrically-
opposed positions are unlikely to be achieved through linear
problem-solving processes and thus require more unorthodox
thinking.
3. Quantum feeling. This skill is defined as the ability to feel
vitally alive. It is based on the premise that the level of
organizational conflict is influenced by the negative emotions
pervasive throughout the business world. As schedules have
become more fast-paced and jobs have become more
stressful, the level of organizational conflict has increased.
Managers committed to the quantum feeling technique of conflict
management must train themselves to view even negative
events positively. They must challenge all parties in conflict to
utilize creative, brain-storming techniques in an effort to
construct "impossible" win-win solutions.
4. Quantum knowing. This skill is the ability to know intuitively.
Managers wishing to develop this skill must integrate times of
relaxation and reflection into their work routines. This skill
focuses on staying mindful or aware of the organizational
environment. Managers involved in conflict situations must guide
all parties towards a more centered response to the negative
emotions.
5. Quantum acting. This skill is based on the ability to act
responsibly. Quantum acting is predicated on the belief that
Page 365
 everything in the universe is a part of a complex whole in
which each part is influenced by every other part. Therefore, a
manager's thoughts affect the entire organizational unit. Thus,
if managers want to encourage more creative responses to
conflict, they must begin by modeling this behavior
themselves.
6. Quantum trusting. This skill is the ability to trust life's process.
It is derived from chaos theory. This theory suggests that without
chaos organizations will become stagnant and, if left alone, they
will return to a nonchaotic state. This skill may be appealing to
managers experiencing conflict. It suggests that managers
must simply "ride the rapids of conflict, fully participating in the
dance without attempting to actively manage the course of
resolution" (Shelton and Darling 2004, p. 37). The
organizational unit will eventually self-organize.
7. Quantum being. This skill is the ability to be in a relationship,
specifically, "the ability to literally become so connected to
another that one can see the world through the other's eyes"
(Shelton and Darling 2004, p.38). This skill provides the
foundation for all parties to learn from and understand each
other. It is a relationship of continuous learning.
This set of skills is grounded in a new science: worldview. These
skills provide a whole-brained alternative for managing people and
conflict.

Stress Management Key to Keeping Business (and Owner)

Alive

Page 366
Get help and focus on what's important to manage stress.

Failing to manage stress has serious repercussions for the

individual and for his or her company. Stress has negative
effects emotionally, mentally and physically if not managed
properly.
Stress management can be achieved by maintaining a good
work/life balance and promoting best business practices.
With stress management tools in place, businesses will benefit
from fewer sick days, increased productivity and lower
turnover rates.
The challenges of owning a business aren't always about hiring
employees or satisfying customers. Sometimes, the struggles are a
little more personal. And usually, the end result is stress.
Learning how to deal with stress may be as important to your long-
term business success as learning how to make a profit. In
fact, failing to manage stress can kill you, past studies have
demonstrated.
Yet stress and business ownership go hand in hand. In a 2011 survey
of small business owners, 65% say they are almost always on the
go, and only half said they had enough time to spend with their friends
and family.
Discovering the ideal work-life balance

"Finding the right work-life balance and giving back to the

community are top priorities," according to a statement from
USBancorp, which conducted the survey.
Page 367
However, creating that balance can be a real challenge, said
Rosalie Moscoe, owner of Toronto-based Health in Harmony, a
wellness consulting firm that specializes in helping workers deal
with stress.
"When you're in your own business, there are many things to think
about that you didn't have to worry about before," Moscoe told
Business News Daily. "Making loan payments, spending your savings,
no money coming in and all your money going out."
The personal struggles faced by small business owners are
emotional, physical, mental and financial, Moscoe said.
There is little one can to do eliminate the issues that cause stress.
You'll most likely be working more hours than you were before,
you'll be overwhelmed and overworked. If you're just starting out,
you may also find starting your own business is lonely, which can also
cause stress, Moscoe said.
Dangers of on-the-job stress

On the job, stress is linked to higher weight, and job stress is known
to fuel disease. Women are more sensitive to stress than men and
are more likely to be depressed by stress, another study found.
The key to managing stress is keeping a good balance between
work and home, even if you work long hours. Moscoe makes these
suggestions:
Set a schedule as if you were going to a regular job.
Plan out your day in the morning.
Be clear with yourself about your top priorities, and focus on
the ones that are going to bring in business.
Page 368
 Initially, focus on marketing your business don't spend all of
your time on administration.
Keep reassessing your goals, and don't let things get away
from you.
Get help. Don't do it all yourself.
Have a social support network of friends and family.
Don't sacrifice relationships for your business.
Get up early and go for a walk.
Eat properly and not at your desk.
Drink lots of water.
"You have to live like a normal person," Moscoe said.
stress management
According to Mayo Clinic, stress management is "learning skills
such as problem solving and time management, enhancing your
ability to cope with adversity, improving personal relationships and
practicing relaxation techniques." These skills allow the person to turn
a stressful situation into a positive opportunity for growth and
betterment. By learning how to handle stressors, you gain more
control over your life and reactions.
Work can be a great source of stress for many, but you must learn
how to fight back when the negative feelings become overwhelming.
Each person may have his or her own approach to managing
stress. Some may find deep breathing helpful, while others may
need to take a short walk to regroup.

Page 369
Better business management for fewer incidences of work stress

Just as important as carving out time for yourself is finding ways to

manage your business that will result in less stress.
"Without organization and good management, the compressed time
schedules associated with modern business can cause stress and
make extraordinary demands on people," according to research by
the Small Business Administration. "An effective management
structure can reduce stress and channel the productive capacity of
employees into business growth and profits."
Finding employees who can share your responsibilities will go a
long way to reducing your stress, too.
"The heroic single leader is no longer congruent with the burdening
demands of today's leadership," said J. Richard Hackman,
professor of social and organizational psychology at Harvard
University, in a recent study on shared leadership.
"The most important conditions for effective shared team leadership
include a team that is a mature and reasonably bounded group,"
Hackman said. "They must know each other's strengths and
weaknesses in order to identify who to go to for specific tasks. The
second condition is being interdependent on one another for some
specific shared purpose or goal."
Benefits of better managing stress

Moscoe also believes it's important to keep your focus on why you
started your business in the first place.

Page 370
"It's the hardest job in world," Moscoe said. "But you if you're in
your own business, you'll feel you have control over how you're
going to do it and that's the biggest factor in reducing stress."
Stress management is good for you and your business. Without
managing stress among employees, staff may take more sick days
and have lower productivity. According to the Wellness Council of
America, stress management produces improved employee morale,
fewer sick days, less employee turnover and a positive company
culture. Provide trainings and wellness programs to help you and
your employees learn strategies to best manage stress levels.

What is Organizational Culture: Organizational

development and organizational change?

Page 371
Organizational Culture: Organizational development and
organizational change

ORGANIZATIONAL CULTURE According to Dessler (2011),

organization culture refers to characteristics of values, traditions, or
behaviors that company employees share. A value is a basic belief
about what is right or wrong; or in other words, about what should
be done or not done. Values are important because they guide and
channel a person’s behavior.
Managing people and shaping their behavior therefore depends on
shaping the values they use as behavior guides. Organizational
culture is divided into three different levels. The first level of culture
involves the artifacts. Artifacts and creations include constructed
physical and social environment, physical space and layout,
technological output, written and spoken language and overt behavior
of group members.
Level two involves espoused values. These are values and beliefs that
guide a person’s behavior. While level three involves basic underlying
assumptions. In this level, when a solution to a problem works
repeatedly, it comes to be taken for granted and becomes a norm of
practice. These are therefore, assumptions that actually guide
behavior and determine how group members perceive, think and feel
about things (Aryasri & Aijaz, 2013). Different types of organization
culture can be found in an organization. Some of these include power
culture, role culture, task culture and person culture. The power
culture depends on a certain power source with rays of influence from
a central figure throughout the organization. This kind
of culture is mostly found in small entrepreneurial organization and
Page 372
rules on trust, empathy and personal communication for its
effectiveness.
Control is exercised from the center by the selection of key
individual. There are a few rules and procedures and little
bureaucracy. It is a political organization with decisions taken
largely on the balance of influence. On the other hand role culture is
bureaucratic and works by logic and rationality. It rests on the strength
of organizational pillar, the functions of specialists. The work of
and interaction between the pillars is controlled by procedures and
rules and coordinated by the pediment of a small band of senior
managers.
Role or job description is often more important than the main
sources of power.
Functions of Organizational Culture
Behavioral Control
Most systems of social organization attempt to control the variability
of member behavior. Whether it is a business organization, a club,
community or nation, social systems need to limit certain behaviors
and encourage others.
At one level organizations setup rules, procedures and standards
along with various consequences for compliance and non-
compliance. This system of formalization is part of the
organization's formal structure. However, we often find a high
degree of behavioral regularity (cross individual behavioral
consistency) in system without a strong formal system of rules and
regulations. In these cases, it is often the organizational or group
culture that provides informal direction. Cultural plays an important
Page 373
role in providing control mechanisms (Ashkansy, Wilderon, &
Peterson, 2011).
Encourages stability

Turnover and transitions exists in most, if not, all social systems.

Despite changes in membership and leadership, many
organizations maintain certain characteristics, problems are handled
essentially the same way, and behavior continues to be directed
toward the same mission and goals. An organization's culture is
often passed on from "generation" to "generation" creating a relatively
high level of stability over time Schein, H. Edgar, (2010).
Provides Source of Identity
According to Ashkansy, et. al. (2011) individuals continually search
to define their social identities. Sometimes identities are defined by
roles or professions and in other cases people define themselves
through their organizational membership. When taking on an
organization as a source of identity, people are taking on the values
and accomplishments of that organization. The organization also
adopts its own identity by creating distinctive cultures.
Liabilities of Culture

Though culture plays an important role in an organization, it may bring

conflicts within the set structures and standards.
Barrier to Change and Improvement

The very fact that cultural derived norms, values and mental models
are often internalized by members makes them often resistant to
change when they see these changes in conflict with these values.

Page 374
This is especially true when organizational change is implemented
through structural change.
For example, while a new reward or incentive system is
implemented in support of the change in direction or strategy,
employee values and other cultural mechanisms supporting the
former direction are still deeply imbedded which conflict with the
new structure. This becomes a battle over the relative strengths of the
structure and culture. Even if the structure ends up being a more
powerful force, the implementation of the change is slowed as multiple
forms of resistance emerge.

ORGANIZATIONAL DEVELOPMENT

The pace of global, economic and technological development

makes change an inevitable feature of organizational life. However,
change that happens to an organization can be distinguished from
change that is planned by its members. That is, change that comes
as a force from external or from even within the organization from
the change that is well planned and anticipated. Organizational
development is a field of research, theory, and practice dedicated to
expanding the knowledge and effectiveness of people to accomplish
more successful organizational change and performance.
OD is a process of continuous diagnosis, action planning,
implementation and evaluation, with the goal of transferring
knowledge and skills to organizations to improve their capacity for
solving problems and managing future change. Organizational
development is meant to bring about planned change to increase an
Page 375
organization’s effectiveness and capability to change itself. It is
generally initiated and done by managers, often with the help of an
OD practitioner from either inside or outside of the organization.
Organizations can use planned change to solve problems, to learn
from experience, to reframe shared perceptions, to adapt to external
environmental changes, to improve performance, and to influence
future changes.
All approaches to OD rely on some theory about planned change. The
theories describe the different stages through which planned change
may be effected in organizations and explain the temporal process of
applying OD methods to help organization members manage change
(Cumming & Wolley, 2014). Organization development can be
distinguished from change management and organizational change.
OD and change management both address the effective
implementation of planned change.
They are both concerned with the sequence of activities, the
processes, and the leadership that produce organization
improvements. They differ, however in their underlying value
orientation. OD’s foundations support values of human potential,
participation and development in addition to performance and
competitive advantage. Change management focuses more
narrowly on values of cost, quality and schedule. As a result, OD’s
distinguishing feature is its concerns with the transfer of knowledge
and skill so that the organization is more able to manage change in
the future. Change management does not necessarily require the
transfer of these skills. In short, all OD involves change
management, but change management may not involve OD.
Theories Governing OD Many theories have been put forward
concerning organization development.
Page 376
This section only looks at some of the major theories in the field of
OD.
The Action Research

Theory This theory or model is credited to Kurt Lewin in the mid

1940’s. This theory is the foundation stone of organizational
development practice and states that there can not be action
without research nor research without action.
The theory provides the very heart of the purpose of the OD
diagnostic stage in the OD cycle. It provides the basis to build the
knowledge of the causes and dynamics of organizational issues, the
understanding of organizational change and the need for collaborative
inquiry between OD practitioner and the organizational players
experiencing the change.
Ultimately the theory provides both the theoretical underpinnings
and the pragmatic applications of organizational change (McLean,
2006).
Complexity Theory In complexity theory, as found in the work of
Amagoh (2008), the future is unknowable and as such the ability to
learn is absolutely critical to ongoing organization effectiveness,
navigating the paradox of the desire for stability with that of the
need to flex, adapt and change. T
oo much stability will stagnant the organization and prevent
proactive adaptive change, too little and the organization becomes
impossible to manage. Complexity theory therefore promotes the idea
of organizations as complex adaptive systems which need to respond
to the external and internal environment by remaining on
the edge of chaos whilst at the same time self-organizing and

Page 377
continuously re-inventing the organizational. The proponents
include Morgan (1997), Wheatley (1992), Black (2000) and Stacey
(2000).

ORGANIZATIONAL CHANGE

OD can help an organization to create effective responses to

changes, whether triggered from within or from without, and in many
cases, to proactively influence the strategic direction of the firm. Three
major trends are shaping change in organizations: globalization,
information technology and managerial innovation.
First, globalization is changing the markets and environments in which
organizations operate as well as the way they function. The world is
rapidly becoming smaller and more tightly interconnected
economically, socially and ecologically. Significant movements of
goods and services, technology, human resources and capital
across international borders have intensified the economic
interdependence among nations and organizations. This
globalization opens up new markets and source of innovations and
capital for organizations. But this brings risk of economic problems
that are due from another sector of the world. Moreover, social
differences along cultural, political and religious lines have rendered
global markets increasingly uncertain, complex and conflictive.
Growing international debates about climate change and calls for
more responsible and sustainable organizational practices score the
ecological consequence of globalization (Cumming & Wolley, 2014).
Second, information technology is redefining the traditional
business model by changing how work is performed, how
knowledge is used and how the cost of doing business is calculated.
Page 378
Information technology is at the heart of emerging e-commerce
strategies and organization. The amount of business that is being
done over the internet is increasing with a great magnitude.
The ability to move information easily and inexpensively throughout
and among organizations has fuelled the downsizing, de-layering
and restructuring of firms. The internet has enabled new forms of work
such as virtual teams and telecommuting. It has enabled many
companies to outsource customer-service functions to global
regions where labor is relatively inexpensive. It is changing how
organizations create and use knowledge. It assists in strategic
decision making. Information technology is also widely shared
throughout the organizations.
Types of changes
Planned or unplanned changes:

planned changes are those brought about through the purposeful

efforts of organizational stakeholders who are accountable for the
organization’s operations. Unplanned changes are those brought
into the organizations due to environmental or uncontrollable forces
(e.g. fire burns down plant, governmental shutdown of production)
or emergent processes and interactions in the organization.
( e.g drift in practices, erosion of skills). There is sometimes a fine
distinction between planned change and planned responses to
unplanned change. For example, the death of a founder CEO would
count as an unplanned change but the process of replacing that
founder with a successor would be considered planned change.
Major unplanned changes in the circumstances of organizations
often require responses that are more than mere crisis intervention.
Page 379
In some cases lengthy and complex planned changes are
necessary (Lewis, 2011). Change can also be described in terms of
the objects that are changed.
These include such things like technologies, programs, policies,
processes and personnel. Organizational changes usually have
multiple components that are difficult to describe with a single term.
For example, technological changes usually have implications for new
policy and new procedures and specify new role relationships. Making
a new technology available necessitates specifying the appropriate
use and users of the technology; the schedule and manner of use;
and the personnel who can use and approve use.
Further, the purposes of technologies are often to improve process
or products. For these reasons, it may not be useful or very
accurate to describe change type in terms of whether they are
technologies, procedures or policies. Such theorizing is likely to be
unreliable since so many changes have multiple components. In this
regard differences may also be drawn between discursive change and
material change. Discursive change is a change that involves the
change of terminologies or words without necessarily doing
things differently.

Page 380
Unit 6: Business Management and Human Resource Management

Page 381