BASICS OF PRINCIPLES OF MANAGEMENT

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Principles of Management

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Management

• Management is the process of designing and maintaining an environment in which individuals work together in groups efficiently to accomplish the selected aims.

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Management theories

• Classical• Neo classical• Modern

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The Evolution of Management Theory

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Major Classification Of Management Approaches

CLASSICAL APPROACH

SCIENTIFIC MANAGEMENT

BUREAUCRATIC MANAGEMENT

ADMINISTRATIVE MANAGEMENT

NEO-CLASSICALAPPROACH

BEHAVIORAL APPROACH

HUMAN RELATION MOVEMENT

MODERN APPROACH

THE SYSTEMS THEORY

CONTINGENCY THEORY

MANAGEMENT SCIENCE

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Classical Approach• Forms the foundation for the field of management• The classical management thoughts are:

Scientific Management Administrative Theory Bureaucratic Management

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Scientific Management

Early 1900s• It is defined as “that kind of management which

conducts a business or affairs by standards established, by facts or truths gained through systematic observation, experiment, or reasoning.”

• Major contributors: Frederick Winslow Taylor Frank and Lillian Gillbreth Henry L.Gantt Harrington Emerson

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Principles of Scientific Management

• Develop of science for each work• Scientifically select, train and develop workforce• Division of labor (separation of planning function from doing

function)• Standardization of methods, procedures, tools and equipment• Use of time and motion study• Differential wage system• Cooperation between labor and management

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Four Principles of Scientific Management

• Principles to increase efficiency:1. Study the ways jobs are performed now and determine new

ways to do them.• Gather detailed time and motion information.• Try different methods to see which is best.

2. Codify the new methods into rules.• Teach to all workers the new method.

3. Select workers whose skills match the rules.4. Establish fair levels of performance and pay a premium for

higher performance.• Workers should benefit from higher output

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F. W Taylor• “Father of scientific management”(1878)

Two major managerial practices:

• Piece-rate incentive system

• Time-and-motion study

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F.W. Taylor and Scientific Management

• Scientific Management– The systematic study of the relationships between people

and tasks for the purpose of redesigning the work process for higher efficiency.• Defined by Frederick Taylor in the late 1800’s to

replace informal rule of thumb knowledge.• Taylor sought to reduce the time a worker spent on each

task by optimizing the way the task was done.

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Frank and Lillian Gillbreth

(1868-1924)• Motion study involves finding out the best sequence and

minimum number of motions needed to complete a task.• Explore new ways for eliminating unnecessary motions

and reducing work fatigue.• To them the ultimate aim of scientific management was to

help workers reach their full potential as human beings

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Henry L.Gantt(1861-1919)• Well known for Task – and - bonus system -The Gantt

chart• If the worker completed the work fast, i.e., in less than the

standard time, he received a bonus. • It is a Simple daily balance chart that compares actual and

planned performances. • Introduced the concept of industrial responsibility.• Emphasis should be placed on services rather than on

profits.• Wider recognition of the human factor in management.

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Harrington Emerson

• First to use the term “Efficiency Engineering”• “Right thing is done in the right manner , by

the right man ,at the right place ,in the right time.”

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Limitations of Scientific Management

• Do not focus on the management of an organization from a manager’s point of view.

• people were “rational” and were motivated primarily by the desire for material gain.

• It also ignored the human desire for job satisfaction.• Fails to recognize the ideas and suggestions of workers.• Treat workers as machine.

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Administrative Theory:

• It focused on principles that could be used by managers to coordinate the internal activities of organizations.

• Henri Fayol (1841-1925)

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Six groups of work done in business enterprises

• Technical• Commercial• Financial• Security• Accounting• Managerial

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Fayol’s Principles of Management

• Division of work: allows for job specialization. – noted jobs can have too much specialization

leading to poor quality and worker dissatisfaction.• Authority and Responsibility

– Fayol included both formal and informal authority resulting from special expertise.

• Unity of Command– Employees should have only one boss.

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Fayol’s Principles of Management (cont’d)

• Line of Authority– A clear chain of command from top to bottom of

the firm.• Centralization

– The degree to which authority rests at the top of the organization.

• Unity of Direction– A single plan of action to guide the organization.

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• Equity– The provision of justice and the fair and impartial

treatment of all employees.• Order

– The arrangement of employees where they will be of the most value to the organization and to provide career opportunities.

• Initiative– The fostering of creativity and innovation by

encouraging employees to act on their own.

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• Discipline– Obedient, applied, respectful employees are necessary

for the organization to function.• Remuneration of Personnel

– An equitable uniform payment system that motivates contributes to organizational success.

• Stability of Tenure of Personnel– Long-term employment is important for the

development of skills that improve the organization’s performance.

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• Subordination of Individual Interest to the Common Interest– The interest of the organization takes precedence

over that of the individual employee.• Esprit de corps

– Comradeship, shared enthusiasm foster devotion to the common cause (organization).

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Limitations• Too formal system.• Based on a few studies and they are not empirically

tested.• Based on the assumption that organizations are closed

system.• Insensitive to employees social and psychological

needs.

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Bureaucratic ManagementWeber (1864-1920) Characteristics of Weber’s ideal Bureaucracy:• Work specification and division of labor• Abstract rules and regulations and well defined methods

for all types of works.• Formal and Impersonal relations among the members of

organization.• Interpersonal relations are based on positions and not on

personalities.• Hierarchy of organization structure.• Selection and promotion is based on technical

qualifications.

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Limitations of Bureaucratic Management

• Not universally applicable to today’s complex organizations.

• Principle characteristic of bureaucracy changes in the global environment.

• Classical theorists ignored the problems of leadership, motivation, power or information relations.

• Excessive regulation may lead to unpleasant experiences and also to inefficient operations.

• Machine like treatment make employees unconcerned about the organization.

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Neo-Classical approach

• Focused on the factors that affect human behavior at work.

• Human relation movement• Behavioral approach

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Human relation movement• Elton Mayo : father of the human relations movement.• Hawthrone studies : a series of experiments on workers

productivity in 1924 at the Hawthrone plant of Western Electric company

• Contributions of Hawthrone studies:-• The way people were treated had an important impact on

performance.• Trend towards power equalization .• Conflict free inter-relations among the members of the

organizations.

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Behavioral Approach• The behavioral approach to management emphasized

individual attitudes and behaviors and group processes, and recognized the significance of behavioral process in the workplace.

• Focused mainly on psychological needs as a means of achieving economic goals.

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Abraham Maslow’s - Hierarchy of Needs Theory – substantially satisfied need no more motivates

Self Actualization

Esteem

Needs

Affiliation or Acceptance needs

Security or Safety Needs

Physiological Needs

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Douglas McGregor – Theory X and YEither appropriate under different situations

Y – POSITIVE APPROACH Employees view work as natural play/rest. Persons accept responsibility

X – NEGATIVE APPROACH Employees dislike work, needs to be controlled and threatened

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Douglas McgregorTheory X Theory YMost People dislike work Work is a natural activity like

play.Most People must be coerced and threatened before they work.

People are capable of self direction and self control

Most people prefer to be directed. They avoid responsibility and have little ambition.

People become committed to organizational objectives if they are rewarded in doing so.

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Modern Approaches to Management

• Systems Approach

• Contingency Theory

• Management Science Approach

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System approach

• Organizations can be visualized as systems• Inputs , transformation process , output and

feedback

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Contingency approach

• Suggests the managers to develop skills to identify the important situational factors.

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Management Science

It stresses the use of mathematical models and statistical methods for decision-making.

Another name is the Operations Research.

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Emerging Approaches In Management Thought

William Ouchi, outlined new theory called Theory Z.

It is the blend of positive aspects of both American and Japanese management styles.

Quality Management is a management approach that directs the efforts of management towards bringing about continuous improvement in product and service quality to achieve higher levels of customer satisfaction and build customer loyalty.

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Functions of Management

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Functions of Management

• Forecasting• Planning• Organizing• Staffing • Decision making• Directing• Controlling

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Forecasting

• Forms the basis of planning the activities of an organization.

• Defined as an estimate of future events ,that can be obtained by systematically combining past and present data in a predetermined way and arrive at future data.

• Eg : sales forecast , production forecast

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Planning

• Determined course of action for achieving a specific objective.

• Selecting mission and objectives and actions to achieve them.

• Consist of goals , policies ,procedures , rules , methods , budgets strategies and programmes

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Types of Plans• Mission – Basic function or task for which the organization is existing• Objectives or Goals – Ends towards which an activity is aimed in

specific terms• Strategies – General programme of actions and deployment of

resources to attain comprehensive objectives• Policies – General statements or understandings which guide or

channel thinking in decision making• Procedures – Plans that establish a required method of handling future

activities• Rules – Spell out specific required action or non action, allowing no

discretion• Programmes – complex of goals , policies, procedures, rules, task

assignments, steps to be taken etc.• Budgets – Statement of expected results expressed in numerical terms

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Steps in Planning

• Being aware of opportunities and threats• Analyze strengths and weakness• Setting objectives and goals• Developing premises and alternatives• Evaluating alternatives• Choosing alternatives• Selecting course of action• Formulating supporting plans

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Organization

• Organizing involves process by which the structure and allocation of jobs is determined

• It is the formalized intentional structure of roles and positions

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Organization definition

• Process of:– Identifying, classifying and grouping the work

to be performed– Defining and delegating responsibility and

authority– Establishing relationships for the purpose of

enabling people to work most effectively together in accomplishing objectives

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Principles of Organization

• Objectives• Relationship of components• Responsibility• Authority• Span of control• Dividing, Grouping and specialization of work• Effective delegation• Communication• Defining line and staff functions• Balance• Stability• Flexibility

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Organization structure• Systematic arrangement of people working for

the organization in order to achieve pre decided objectives

• Provides appropriate framework for authority and responsibility and relationship between components

• Represented in the form of an organization chart• Dimensions

– Vertical – hierarchy of managers and subordinates– Horizontal – basic departmentation

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Organization structure

• Portrays graphically the structural relationship

• Structure depends on– Size of organization– Nature of product/service– complexity

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Types of organization structures

• Line type organization• Functional organization• Line and staff organization• Matrix type organization• Teams

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Line Type Organization

• Relative authority and responsibility• No specialization• Superior gives instructions and are executed

• Advantages– Flexible– Clear division of authority and responsibility– Clear Communication

• Disadvantages– No specialization– Overloading– Small organization

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Line Type OrganisationChief Engineer

Dy. CE

EE

AEE

EE

AEE

AE

Dy. CE

EE

AEE

Dy. CE

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Functional Organization• Divided according to functions with

functional specialists

• Advantages– Specialization– Relieves line executives– Quality of work improved

• Disadvantages– Co ordination difficult– Fixing responsibility difficulty– All-round people cannot be developed

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Functional Type OrganisationManaging Director

GM(Materials)

Purchase Manager

Stores Manager

GM(Marketing) GM(HR) GM(Productio

n)

Production Manager

Maintenance Manager

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Functional Organisation

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Line and staff Type Organization

• Takes advantage of functional specialists reporting as staff relationships

• Advantages– Expert advice of specialists

• Disadvantages– Additional cost of staff executives

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Project Type Organization

• A separate division for one time activities

• Adopted for special one time activities

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Matrix Type of Organization

• Combination of functional type and project type of organization

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Span of control• Number of subordinates that report to an executive• Optimum 2 to 20• Small span – oversupervison• Large span – lack of supervision• Factors effecting span

– Training and experience of subordinates– Specialized and repetitive work– R&D and Maintenance– Requiring close supervision– Capacity of executive– Efficient control systems

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Directing• Process by which the actual performance of

subordinates is guided towards the common goals of the enterprise

• Involves– Giving instructions to subordinates– Guiding subordinates to do the work– Supervise subordinates to make certain that work

done by them is as per the plans established

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Directing involves

• Leadership• Communication• Motivation• supervision

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Leadership• Leadership is the quality of the behavior of the

persons whereby they inspire confidence and trust in their subordinates , get maximum cooperation from them, and guide their activities in organized effort

• Three Types– Authoritarian – leader makes decisions and

commands– Democratic – Promotes participation of subordinates– Free reign or Laissez faire – minimum control

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Communication

• Process by which ideas are transmitted received and understood by others for the purpose of achieving desired results

• Types– Upward– Downward– Horizontal

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Motivation

• Inspiring the subordinates to do a work for achieving organization objectives effectively and efficiently

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Factors contributing towards motivation

• Achievement – satisfaction of completion of a job

• Advancement – promotions

• GrowthLearning, new skills advancement

• Recognition – Acknowledgement of a job done well

• Responsibility and authority – to one’s job

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Factors which demotivate

• Organization policy and administration• Job security• Interpersonal relations• Salary• Status • Supervision• Personal Life

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Motivation and Theories of Motivation

• Inspiring the subordinates to do a work for achieving organizational objectives effectively and efficiently

• Theories of Motivation– Abraham Maslow’s - Hierarchy of Needs

Theory– Frederick Herzberg’s - two factor theory– David C McClelland - needs theory– Douglas McGregor – theory X and Y

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Frederick Herzberg’s - two factor theory Hygiene factors do not motivate an

employeeHYGIENE FACTOR

SAbsence >

Dissatisfacti

onPresence >

No Dissatisfacti

on

MOTIVATOR

SAbsence >

No Satisfactio

nPresence > Satisfactio

n

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David C McClelland – Three Needs TheoryIdentify the person type and motivate

NEED FOR POWER

•Great concern to Exercise influence and control•Forceful, outspoken, hard headed and demanding

NEED FOR AFFILIATION•Derive pleasure from being loved and avoid the pain of rejection•Enjoy sense of intimacy and understanding

NEED FOR ACHIEVEMENT

•Intense desire for success and fear of failure•Take difficult goals and take a realistic approach to risk

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Controlling

• Monitoring the activities to make sure that objectives are being met.

• The initiation of corrective action to overcome problems

• Controlling process– Sets standards– Measures job performance– Takes corrective actions

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Decision making

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Decision making

• Conclusion of a process by which one chooses between two or more available alternative courses of action for the purpose of attaining goals

• All functions of management involve decision making

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Steps in Decision making

• Defining problem• Searching for alternatives• Evaluating the alternatives• Selecting the alternative

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Types of decisions

• Programmed and non programmed• Routine and strategic decisions• Organizational and personals decisions• Individual and group decisions

• Decision making process• decision making.pptx

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Decision Making• Process by which a course of action is

consciously chosen from available alternatives for purpose of achieving objectives

• Decision making Classified into• Single stage – selecting alternatives on the

basis of available information at a point of time• Multistage – sequence of decisions in which

following each decision a chance event occurs which in turn influences further decisions

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Single stage decision making steps

• Identification of various possible outcomes or states of nature or events for which the decision maker hasn’t got any control

• Identification of all courses of action or strategies where the decision maker has got control

• Determination of the payoff function which describe the consequences

• Choosing from various alternatives

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Single Stage Decision making situations

• Decision making under certainty – Decision maker has clear idea about the outcomes

• Decision making under uncertainty – The decision maker can no way assess the probabilities of various states of nature

• Decision making under Risk – The decision maker chooses to consider several possible outcomes and the probabilities of occurrence can be stated

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Example• An electrical machines dealer wants to take a

decision on how many capacitors are to be kept in stock to meet the customers demand

• Given• Selling price of one capacitor = Rs. 100• Cost price = Rs. 80• Disposal price of unsold capacitor = Rs. 30• Demand for a month = between 18 and 20 nos.• How much should be kept in stock for maximisng the

returns (profit)?

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Analysis• Three Possible EVENTS • E1 = 18, E2 = 19, E3 = 20

• Three Possible STRATEGIES• S1 = 18, S2 = 19, S3 = 20

• To choose from three possible STRATEGIES with three possible EVENTS which are mutually exclusive

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Payoff Functions

• Let D = Demand• Let Q = Quantity decided to purchase• Two situtaions D >= Q or D<Q• When D>=Q• Payoff = 100Q-80Q = 20Q• When D<Q• Payoff = [100D+30(Q-D)] – 80Q = 70D-

50Q

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Payoff Matrix

STRATEGIES

A1 = 18 A2 = 19 A3 = 20

EVENTS

E1 = 18 360 310 260

E2 = 19 360 380 330

E3 = 20 360 380 400

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Decision Making Under Certainty

• Decision maker knows the exact demand

• Choose the strategy which gives the maximum Returns

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Decision Making under UncertaintyPrinciple 1 – Laplace Equally likely Principle

• Consider all events as equally probable• Find out the expected mean value of

payoff for each strategy • Chose the strategy with highest expected

mean payoff

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Payoff Matrix

STRATEGIES

A1 = 18 A2 = 19 A3 = 20

EVENTS

E1 = 18 360 310 260

E2 = 19 360 380 330

E3 = 20 360 380 400

Mean expected

payoff

360 356.6 330

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Decision Making under UncertaintyPrinciple 2 – MaxiMin or MiniMax Principle

• Adopted by pessimistic decision makers who are conservative in their approach

• Find the minimum payoff associated with each strategy

• Choose the maximum payoff from among these minimum payoff

• Choosing the best profit from the set of worst profits

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Payoff Matrix

STRATEGIES

A1 = 18 A2 = 19 A3 = 20

EVENTS

E1 = 18 360 310 260

E2 = 19 360 380 330

E3 = 20 360 380 400

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Decision Making under UncertaintyPrinciple 3 – MaxiMax or MiniMin Principle

• Adopted by optimistic decision makers• Find Maximum payoff associated with

each strategy• Choose the maximum payoff from among

these maximum payoffs.• Choosing the best profit from among the

best payoffs

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Payoff Matrix

STRATEGIES

A1 = 18 A2 = 19 A3 = 20

EVENTS

E1 = 18 360 310 260

E2 = 19 360 380 330

E3 = 20 360 380 400

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Decision Making under UncertaintyPrinciple 4 – Hurwitz Principle

• Decision making between optimism and pessimism

• Define the index of optimism α which can take values from 0 (extreme pessimism) to 1 (extreme optimism)

• Multiply maximum profit by α and minimum profit by I – α and select the maximum of HC

• HC = (α) (Max Payoff) + (1-α)(Min Payoff)

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Payoff Matrix – if α = 0.6

STRATEGIES

A1 = 18 A2 = 19 A3 = 20

EVENTS

E1 = 18 360 310 260

E2 = 19 360 380 330

E3 = 20 360 380 400

HC 360 352 344

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Decision Making under Risk

• Decision maker chooses to consider several possible outcomes and the probability of their occurrence could be stated.

• Probabilities determined from past records.

• Probabilities are mutually exclusive and collectively exhaustive events

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Payoff Matrix

STRATEGIES

Probabilities

A1 = 18 A2 = 19 A3 = 20

0.3 EVENTS

E1 = 18 360 310 260

0.5 E2 = 19 360 380 330

0.2 E3 = 20 360 380 400

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Decision Making under RiskPrinciple 1 – Maximum Likelihood Principle

• Consider the event that is most likely to occur

• Decide the action which has maximum conditional payoff corresponding to the above

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Payoff Matrix

STRATEGIES

Probabilities

A1 = 18 A2 = 19 A3 = 20

0.3 EVENTS

E1 = 18 360 310 260

0.5 E2 = 19 360 380 330

0.2 E3 = 20 360 380 400

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Decision Making under RiskPrinciple 2 – Expectation Principle

• Calculate the expected payoff for each strategy by multiplying the payoff values with respective probabilities and then add it

• The strategy with the highest expected payoff represents the optimal choice.

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Payoff Matrix

STRATEGIES

Probabilities

A1 = 18 A2 = 19 A3 = 20

0.3 EVENTS

E1 = 18 360 310 260

0.5 E2 = 19 360 380 330

0.2 E3 = 20 360 380 400

Mean Expected

Payoff

360 359 323

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Decision Trees

• Multistage Decision making problems• Characterized by a sequence of decisions

in which following each decision a chance event occurs which in turn influences the next decision

• A decision tree is a graphical representation of the sequences of action event combinations available to the decision maker

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Decision Trees

• Decision making criteria based on expectation principle, choosing the alternative that maximizes the expected profit

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Decision Tree Symbols

• Decision NodeDecision maker to take a decision

• Chance NodeChances that can occur

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Example• Mary is a manager of a gadget factory. Her factory has been quite

successful the past three years. She is wondering whether or not it is a good idea to expand her factory this year. The cost to expand her factory is $1.5M. If she does nothing and the economy stays good and people continue to buy lots of gadgets she expects $3M in revenue; while only $1M if the economy is bad.

• If she expands the factory, she expects to receive $6M if economy is good and $2M if economy is bad.

• She also assumes that there is a 40% chance of a good economy and a 60% chance of a bad economy.

• (a) Draw a Decision Tree showing these choices.

BASICS OF PRINCIPLES OF MANAGEMENT

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