CBSE Class 12th Business Studies Revision Notes - N2

Free Business Studies - Class 12th (CBSE) - Revision Notes - N2 - Principles of Management

Principles of Management

Principles of Management are broad and general guidelines for the decision-making and behavior of managers. In other words, A principle refers to a statement which reflects the fundamental truth about some phenomena based on cause and effect relationship.

Nature / Characteristics / Features

• Universal (Pervasive) - The Principles of Management are universal in nature which means that these principles can be applied to all types of organizations irrespective of their size and nature.  Business as well as non-business small as well as large public and private sector. For example : The Principle of the division of work is applied in government offices, hospitals, schools, etc.  
• General Guidelines -  Management principles are guidelines for actions but these principles do not provide ready-made solutions for any problem. For example : The Principle of stability of tenure consists on giving a stable time period to employees to settle down but how much time to be given 6 months, 1 year, etc. vary from organization to organization.
• Formed by Practice and Experimentations - The management principles are developed only after deep and thorough research work. They are not developed overnight. Proper observations and experiments are conducted before developing them. Therefore, they are evolutionary in nature. For example : The Principle of division is not developed overnight but the principle was developed when it was observed that dividing the work results in improved performance and then this was tried and tested in different organizations.  
• Flexibility / Flexible - Management principles can be applied differently under different conditions. Some changes can be made in the application of principles according to the requirement of the company. These are not a set of rigid statements. These can be modified by the managers according to the situation. For example : The degree of concentration of authority (centralization) and its dispersal (decentralization) will depend upon the situations and circumstances of each enterprise.  
• Behavioral in Nature - Management principles are formed to guide and influence the behaviour of employees. They also establish a relationship between man and material resources. These principles insist on improving the relationship between superiors, subordinates and all the members of the organization. For example : While planning the layout of a factory, orderliness would require that workflows are matched by the flow of materials and movement of men.  
• Based on Cause and Effect Relationship - Management principles are based on cause and effect which means these principles tell us if a particular principle is applied in a situation, what might be the effect. Although these principles cannot state perfectly absolute results because these are applied to human beings, it helps in knowing some idea about the effect. For example : Setting up a new factory, a more participative approach to decision-making would be advisable. 
• Contingent  - Management principles are contingent or dependent upon the prevailing situations in the organization at a particular point in time. The application of the principle has to be changed according to the nature, size and type of organization. For example : The principle of team spirit is important for an organization where work is carried out by a group of people whereas it is of no use in companies where work is performed by individuals and not by a group.  

Importance of Management Principles

• Providing Managers with Useful Insight into Reality - Management principles act as guidelines for the managers. These principles improve the knowledge, ability and understanding of managers in various managerial situations. The effects of these principles help managers to learn from their mistakes. These principles guide managers to make the right decision at the right time. 
• Optimum Utilization of Resources - The management principles insist on planned activities and systematic arrangements of men and materials in the organization. Principles are designed to get maximum benefits from human efforts and other resources.
• Scientific Decisions - Managers have to make several decisions every day. The management principles enable managers to approach various problems systematically and scientifically.
• Meeting Changing Environment Requirement -  Every businessman has to make changes in the organization according to changes taking place in the business environment. Management principles train the managers in implementing the changes in the right direction and at the right level in the organization. Although, management principles are relative and general guidelines yet by modifying these principles changes can be made in the organization.  
• Effective Administration - Administration is the function of top-level management. In this function, major plans and policies are formed. The management principles act as guidelines and base to form various administrative policies to have systematic working in the organization.
• Fulfilling Social Responsibilities  - A business is the creation of society and makes use of the resources of society so it must do something for society also by performing social responsibilities. Management principles not only act as guidelines for achieving organizational objectives but these principles also guide managers to perform social responsibilities.
• Management, Training, Education and Research  - The management principles stress scientific judgement and logical thinking. As a result, these principles act as a base for doing research and development in management studies. As these principles provide an organized body of knowledge to perform research work and generate more and more knowledge, they have provided new ideas, imagination and a base for research and development.  

Fayol‟s  Principles of Management

Division of Work

• According to this principle, the whole work must be divided into small tasks or units instead of assigning the whole work to one person one task or unit. 
• Work should be assigned to one person according to the capability, qualification and experience of the person. 
• When a person is performing a part of a job, again and again, he will become perfect and specialized in doing that and the efficiency level will improve. 
• For example : In a furniture manufacturing company, one person can be asked to cut the wood pieces, join them, polish them, and give a finishing touch to the furniture. 
• With the division of work, each person will become specialized, effective and efficient in part of his job.

Authority and Responsibility 

• Authority means the power to take decisions. 
• Responsibility means the obligation to complete the job assigned on time. 
• According to this principle, there must be balance or parity between authority and responsibility. 
• Excess of authority without matching responsibility may bring negative results and excess of responsibility without matching authority will not allow a worker to complete his job on time. 
• An organization should build safeguard against misuse or abuse of managerial power. 
• For example : If a person is given the responsibility to produce 100 units in one week‟s time but he is not given the authority to purchase the raw materials. If there is no raw material available in the store room, as a result, he could not complete the target of producing 100 units on time the worker cannot be blamed for not completing the task on time. 
• Because he was given only the responsibility and did not match the authority to carry on the work. Excess of responsibility with fewer authority results in non-completing of job.

Discipline

• Discipline means obedience, observance of rules and respect of the authority to organization rules and employment agreement : a) Goods superior at all levels; b) Clear and fair agreement among subordinate and superior; c) Meeting commitments at all levels. 
• Fayol insists that discipline is required at the superior as well as subordinate level. 
• The disciplinary rules shall not apply only to subordinates but discipline requires good superiors at every level, a clear and fair agreement between superiors and subordinates and judicious application of penalties. 
• For example : The employees must honor their commitment to the organization by working effectively and efficiently. On the other hand, the superior must also meet their commitments.

Unity of Command

• According to this principle, an employee should receive orders from “One Boss Only” Because If He Is Receiving Orders From More Than One Boss Then He Will Get Confused And Will not be able to understand. 
• For example : If an employee of the production department is asked to go slow in production and maintain quality standards by the production incharge and sales in charge, the employee will get confused as to whose instructions must be followed by him.

 Unity of Direction

• According to this principle “One Head and One Plan”, that is the efforts of all the members and employees of the organization must be directed towards one direction which is the achievement of a common goal. If this principle is applied it leads to coordination. 
• This principle is related to a functioning organization as a whole or as one unit. Efforts of all the employees must be directed toward one goal.

Subordination of Individual Interest to General Interest

• According to this principle, the interest of the organization must supersede the interest of individuals or employees. 
• In the organization, all the employees are working with some objective and there is always an objective of the organization. 
• If the objectives of individuals are in the same direction of the organization then there is no problem but if the objectives of both the groups are in different directions then the manager must try to reconcile individual interest with an organizational goal and if it is not possible then the individual goal must be sacrificed for achieving organizational goal. 
• For example : Before buying raw materials the manager must compare the prices and qualities of all the suppliers and give orders to the best rather than giving orders to his relative by misusing his power. 

Remuneration of Employees

• According to this principle, employees in the organization must be paid fairly or adequately to give them maximum satisfaction.
• The employees should be paid fair wages and salaries, which would give them at least a reasonable standard of living.
• The fair wage is determined according to the : a) The financial capacity of the concern; b) The wages and salary paid by the competitor; c) The skills of an employee.

    Centralization and Decentralization

• Centralization refers to the concentration of authority or power in a few hands at the top level. Decentralization means the even distribution of power at every level of management. 
• According to Fayol, A company must not be completely centralized or completely decentralized but there must be a combination of both depending on the nature and size of the organization. 
• For example : Panchayats in our country have been given more powers to decide and spend funds guaranteed to them by the government for the welfare of villages. This is decentralization at the national level. 
• There is a need to balance subordinate involvement through decentralization with the manager's retention of final authority through centralization.  

                                 Principle of Scalar Chain

• Scalar chain means line of authority or chain of superiors from highest to lowest rank. 
• Fayol insists that this chain must be followed strictly in the organization. Every piece of information must pass through every key of this chain, no skipping of any one key should be allowed. 
• According to this, If E wants to contact O he has to move through E-D-C B-A-L-M-N and then O. 
•  If this chain is broken there are chances of a communication gap. In case of emergency, Fayol permitted a shortcut in the chain which is called Gangplank. 
• Gangplank permits direct communication between employees working in different position without following the scalar chain.

Principle of Order

• In this principle, order does not mean command but it refers to the orderly arrangement of men and material that is a fixed place for everything and everyone in the organization. 
• Fayol insists that there must be a fixed place to keep every material and thing used in the organization. 
• For example : In a school, books are kept in the office, chalk in the library and office records in the staff room. In this case, the management principle of order is violated.
• In the absence of order lines, school objectives will not be achieved effectively and efficiently.

                                   Principle of Equity

• Equity means no discrimination on account of sex, religion, language, caste, belief or nationality. In other words, Equity refers to the kind, fair and just treatment of employees. 
• Employees will put in their maximum efforts only when they are treated with kindness and justice. 
• Equity does not mean equal salary to a peon and supervisor but equity means the application of some disciplinary rules, and leave rules, in the same way, irrespective of their grades, positions and gender. 
• For example : In multinational corporations, people of various nationalities work together in a discrimination-free environment. Equal opportunities are available for everyone in such companies to rise

                                          Initiative

• The initiative refers to taking the first step with self-motivation. 
• Fayol suggested that employees in the organization must be allowed to take some initiative in making and executing a plan. 
• Workers should be encouraged to develop and carry out their plans for improvements within the prescribed limits of authority. 

                     Stability of Tenure of Personnel

• It refers to no frequent termination and transfer of employees. 
• According to this principle, the management must provide the feeling of job security among the employees because, with the feeling of insecurity for the job, the employees cannot contribute their maximum. 
• Frequent turnover of employees is bad for the organization and such decisions must be taken when they are almost unavoidable. 

                                     Esprit De Corps

• Management must encourage and promote team spirit, unity and harmony. 
• This will bring coordination and cooperation to the organization. A manager should replace “I” with “We”. 
• This will give rise to mutual trust and belonging among team members. It will minimize the need for using penalties. 

                                                                           Scientific Management

Scientific management can be defined as the application of science to every element of management.

According to Taylor, “Scientific management means knowing exactly what you want men to do and seeing that they do it in the best and cheapest way. 

Scientific Principles of Management

Science, Not the Rule of Thumb 

According to this principle, Taylor insists that each job performed in the organization should be based on scientific inquiry and not on intuition, experience and „Hit and Miss Methods. Rule of thumb means the dictatorship of managers whereas scientific decisions are based on cause and effect and scientific measurement of methods and ways of production. Taylor believed that there is only one best method to maximize efficiency this method can be developed through work-study and analysis. 

Harmony, Not Discord 

 According to this principle, those who work together in an organization must work in harmony that is with mutual consent and proper understanding. Generally, in every organization, there are two groups of people—the workers group and the management group and both groups work as rivals of each other as workers always feel that they are underpaid and are overburdened with the work and management always feels that workers are good for nothing. Taylor insists that there is a need for both groups to change their attitudes toward each other. He insists on a mental revolution which means a complete change of attitude and outlook for each other. He insists on a mental revolution which means a complete change of attitude and outlook for each other.

Mental Revolution -The objectives of the mental revolution are : 

Change in mental attitudes of workers and management towards each other. Cooperation between workers and management. Ruling out the feeling of suspicious or prejudice from the minds of workers and management to adopt systematic thinking Taylor said that generally in the organization workers feel that management exploits them, overburdens them with excess work and pays less; on the other hand, the manager feels that workers always grumble. Taylor stressed that there is a need to drastically change the attitude of both groups towards each other. He referred to the change as a revolution of mind to develop positive thinking and a feeling of cooperation for each other.

Cooperation, Not Individualism

This principle is the extension of harmony, not discord. According to Taylor, There should be an almost equal division of work and responsibility between worker and management. All day long the management should work almost side by side with the workers helping, encouraging and smoothing the way for them”. There should be complete cooperation between the labor and the management instead of individualism. Competition should be replaced by cooperation.  

Development of Workers to their Greatest Efficiency and Prosperity

Industrial efficiency depends upon the efficiency of workers. Workers' efficiency depends upon proper training and selection. Taylor insisted due care should be taken while selecting the employees and after selecting they must be given a job according to their qualification. Employees must be sent for training from time to time to update their knowledge. This will ensure the greatest efficiency and prosperity for both company and its workers.  

Scientific Techniques of Taylor 

Functional Foremanship  

In this technique, Taylor suggested the division of the factory into two departments : a) Planning Department b) Production department

Taylor felt that workers must be free from the burden of planning and they must concentrate on work and production. To develop a specialization in productivity, Taylor suggested under each department there must be some functional experts to supervise, guide and instruct the worker. 

This technique is an extension of the division of work and specialization on the shop floor. 

Function foremanship is a technique which aims to improve the quality of supervision at top flow by putting a worker under eight specialist foremen. In this technique, planning is separated from execution.   

Taylor said a foreman must be intelligent, educated, energetic, honest, specialized or a professional expert.   

The Eight Functional Experts Suggested by Taylor are : 

a) Under the Planning Department :

i. Route Clerk : This foreman is responsible to fix up the sequence of steps for performing mechanical or manual jobs. It specifies the route of production.

ii. Instruction Card Clerk : This foreman is responsible for giving general instructions necessary to carry on the job in a specified manner. It drafts instructions for the workers. 

iii. Time and Cost Clerk : This foreman is responsible to fix up the time for starting and completing a job. He also prepares the cost sheet for every job. 

iv. Disciplinarian : This foreman is responsible for the performance of the job in an orderly and systematic way. It ensures discipline.  

b) Under the Production Department :

i. Gang Boss : He arranges all the machines, tools and other resources required for the performance of the job so that there is no delay. 

ii. Speed Boss : This foreman assures timely completion of the job. 

iii. Repair Boss : This boss ensures that machines and tools are kept in working conditions. 

iv. Inspector : This boss keeps a check on the quality control of the output.

Standardization & Simplification of Work  

Standardization refers to the process of setting standards for every business activity. It does not mean only quality standards but it refers to setting up standards for the size, type, weights, measures and quality of the product. 

 Simplification emphasizes the elimination of unnecessary diversity of products, sizes and types. As more varieties mean more inventory, more types of machinery, more labor cost etc. it will also help in improving the quality and reduction of cost. For example, A paper manufacturing company in the USA reduced its varieties from 2000 to 200 which brought positive results for the company.

Work Study 

It includes :  Fatigue Study , Method Study,  Motion Study , Time Study

Fatigue Study  

A person is bound to get tired when he is performing a job for a long time. There is always a need for a rest interval. Taylor suggested that the time and frequency of the rest interval should not be decided by the wish and experience of the manager but to give a scientific approach, a fatigue study must be conducted. 

The technique is conducted to find out : a) Observe an average worker when he performs a job b) Note down the time when that work starts getting tiring then give him a break. c) This time can be noted to decide the frequency of the rest interval and during the break after how much time the worker became fresh to rejoin the work can be the time for rest interval.

Method Study 

The method study technique of scientific management is conducted to find out the best method or way of performing the job which keeps minimum production cost and makes maximum use of resources of the organization. Taylor suggested that the method of production should not be decided by the rule of thumb method. All the methods must be tried in the organization and the one which brings maximum benefits with minimum cost must be selected. The objective of the method study is to minimize the cost of production and maximize quality and customer satisfaction.

Time Study 

 It is to determine the standard time, i.e. the time taken by a worker of reasonable skill and efficiency to perform a well-defined job. The objective of the time study is to determine the standard time taken by a worker number of workers to be employed; frame suitable incentive schemes and determine labour costs. Taylor suggested that the time required to perform the job should not be decided by intuition, will and wish of the manager, but Time Study must be conducted to determine standard time. 

Motion Study 

Motion study refers to the study of movements like lifting, putting objective, sitting and changing positions etc.; which are undertaken while doing a typical job. The objective of the motion study is to eliminate unnecessary and wasteful movements so that it takes less time to complete the job efficiently. It helps to increase productivity. 

For example : On a close examination of the body, it is possible to find out : a) Productive Motions. b) Incidental Motions. c) Unproductive Motions. Taylor used stopwatches and various symbols and colors to identify different motions.

Differential Piece Wage System 

 This technique emphasizes paying different rates of wages for efficient and inefficient employees. Taylor wanted to differentiate between efficient and inefficient workers. He wanted to reward efficient workers. So, he introduced different rate wage payments for those who performed above standard and those who performed below standard. 

For example, It is determined that the standard output per worker per day is 10 units and those who made standard or more than standard will get Rs 50 per unit and those below will get Rs 40 per unit. An efficient worker making 11 units will get 11 x 50 = Rs 550 per day. On the other hand, an inefficient worker who makes 9 units will get 9 x 40 = Rs 360 per day. According to Taylor, The difference of Rs 190 should be enough for the inefficient worker to be motivated to perform better.

The differences between Henry Fayol and F.W. Taylor are 

The End

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A List of Notes:

Chapter 1  |  Chapter 2  |  Chapter 3  |  Chapter 4  |  Chapter 5  |  Chapter 6  |  Chapter 7  |  Chapter 8  |  Chapter 9  |  Chapter 10  |  Chapter 11  |  Chapter 12