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CHAPTER

1 NATURE AND SCOPE OF

MANAGEMENT

Learning Objectives

l Definition of Management l Levels of Management

l Concepts of Management l Nature of Management

l Role and Importance of l Professionalisation of

Management Management

l Distinction between l Skills of Management

Management and Administration l Scope of Management

Every human being has several needs and desires. But no individualcan satisfy all his wants. Therefore, people work together to meet

their mutual needs which they cannot fulfil individually. Moreover,man is a social being as he likes to live together with other people. It isby working and living together in organised groups and institutionsthat people satisfy their economic and social needs. As a result thereare several types of groups, eg., family, school, government, army, abusiness firm, a cricket team and the like. Such formal groups canachieve their goals effectively only when the efforts of the peopleworking in these groups are properly coordinated and controlled. Thetask of getting results through others by coordinating their efforts isknown as management. Just as the mind coordinates and regulates allthe activities of a person, management coordinates and regulates theactivities of various members of an organisation.

2 t Management�Principles and Practices

1.1 DEFINITION OF MANAGEMENT

It is very difficult to give a precise definition of the term ‘management’.Different scholars from different disciplines view and interpretmanagement from their own angles. The economists consider man-agement as a resource like land, labour, capital and organisation. Thebureaucrats look upon it as a system of authority to achieve businessgoals. The sociologists consider managers as a part of the class elite inthe society.

The definitions by some of the leading management thinkers andpractitioners are given below:

(i) Management consists in guiding human and physical resourcesinto dynamic, hard-hitting organisation unit that attains itsobjectives to the satisfaction of those served and with a highdegree of morale and sense of attainment on the part of thoserendering the service. —Lawrence A. Appley

(ii) Management is the coordination of all resources through theprocess of planning, organising, directing and controlling inorder to attain stated objectives. —Henry L. Sisk.

(iii) Management is principally the task of planning, coordinating,motivating and controlling the efforts of others towards a specificobjective. —James L. Lundy

(iv) Management is the art and science of organising and directinghuman efforts applied to control the forces and utilise the mate-rials of nature for the benefit of man.

—American Society of Mechanical Engineers(v) Management is the creation and maintenance of an internal

environment in an enterprise where individuals, working ingroups, can perform efficiently and effectively towards theattainment of group goals.

—Harold Koontz and Cyrill O’Donnell(vi) Management is the art of knowing what you want to do and

then seeing that it is done in the best and cheapest way.—F.W. Taylor

(vii) To manage is to forecast and to plan, to organise to command,to coordinate and to control. —Henry Fayol

(viii) Management is the function of executive leadership anywhere.—Ralph C. Davis

(ix) Management is concerned with seeing that the job gets done; itstasks all centre on planning and guiding the operations that aregoing on in the enterprise. —E.F.L. Breach

(x) Management is a distinct process consisting of planning,organising, actuating and controlling performed to determineand accomplish the objectives by the use of people and resources.

—George R. Terry

Nature and Scope of Management t 3

(xi) Management is guiding human and physical resources intodynamic organisational units which attain their objectives to thesatisfaction of those served and with a high degree of moraleand sense of attainment on the part of those rendering service.

—American Management Association(xii) Management is a multipurpose organ that manage a business

and manages Managers and manages Workers and work.—Peter Drucker

1.2 CONCEPTS OF MANAGEMENT

The term management has been interpreted in several ways; some ofwhich are given below:

Management as an Activity

Management is an activity just like playing, studying, teaching etc. Asan activity management has been defined as the art of getting thingsdone through the efforts of other people. Management is a groupactivity wherein managers do to achieve the objectives of the group.The activities of management are:l Interpersonal activitiesl Decisional activitiesl Informative activities

Management as a Process

Management is considered a process because it involves a series ofinterrelated functions. It consists of getting the objectives of an organ-isation and taking steps to achieve objectives. The management processincludes planning, organising, staffing, directing and controllingfunctions.

Management as a process has the following implications:

(i) Social Process: Management involves interactions among people.Goals can be achieved only when relations between people areproductive. Human factor is the most important part of themanagement.

(ii) Integrated Process: Management brings human, physical andfinancial resources together to put into effort. Management alsointegrates human efforts so as to maintain harmony among them.

(iii) Continuous Process: Management involves continuous identify-ing and solving problems. It is repeated every now and then tillthe goal is achieved.


(iv) Interactive process: Managerial functions are contained within eachother. For example, when a manager prepares plans, he is alsolaying down standards for control.

Management as an Economic Resource

Like land, labour and capital, management is an important factor ofproduction. Management occupies the central place among produc-tive factors as it combines and coordinates all other resources. This isshown in Fig. 1.1.

Fig. 1.1 Management as resource

Management as a Team

As a group of persons, management consists of all those who have theresponsibility of guiding and coordinating the efforts of other persons.These persons are called as managers who operate at different levelsof authority (top, middle, operating). Some of these managers haveownership stake in their firms while others have become managers byvirtue of their training and experience. Civil servants and defence per-sonnel who manage public sector undertakings are also part of themanagement team. As a group managers have become an elite class insociety occupying positions with enormous power and prestige.

Management as an Academic Discipline

Management has emerged as a specialised branch of knowledge. Itcomprises principles and practices for effective management oforganisations. Management has become as very popular field of study


as is evident from the great rush for admission into institutes ofmanagement. Management offers a very rewarding and challengingcareer.

Management as a Group

Management means the group of persons occupying managerialpositions. It refers to all those individuals who perform managerialfunctions. All the managers, e.g., chief executive (managing director),departmental heads, supervisors and so on are collectively known asmanagement.

For example, when one remarks that the management of RelianceIndustries Ltd. is good, he is referring to the persons who are manag-ing the company. There are several types of managers which are listedas under.

(i) Family managers who have become managers by virtue of theirbeing owners or relatives of the owners of a company.

(ii) Professional managers who have been appointed on account oftheir degree or diploma in management.

(iii) Civil Servants who manage public sector undertakings.

Managers have become a very powerful and respected group inmodern society. This is because the senior managers of companies takedecisions that affect the lives of a large number of people. For example,if the managers of Reliance Industries Limited decide to expand pro-duction it will create job for thousands of people. Managers also helpto improve the social life of the public and the economic progress ofthe country. Senior managers also enjoy a high standard of living insociety. They have, therefore, become an elite group in the society.

Nature and Characteristics of Management

The salient features which highlight the nature of management are asfollows:

(i) Management is goal-oriented: Management is not an end in itself.It is a means to achieve certain goals. Management has nojustification to exist without goals. Management goals are calledgroup goals or organisational goals. The basic goal of manage-ment is to ensure efficiency and economy in the utilisation ofhuman, physical and financial resources. The success ofmanagement is measured by the extent to which the establishedgoals one achieved. Thus, management is purposefull.

(ii) Management is universal: Management is an essential element ofevery organised activity irrespective of the size or type of activity.


Wherever two or more persons are engaged in working for acommon goal, management is necessary. All types of organi-sations, e.g., family, club, university, government, army, cricketteam or business, require management. Thus, management is apervasive activity. The fundamental principles of managementare applicable in all areas of organised effort. Managers at alllevels perform the same basic functions.

(iii) Management is an Integrative Force: The essence of managementlies in the coordination of individual efforts in to a team. Man-agement reconciles the individual goals with organisationalgoals. As unifying force, management creates a whole that ismore than the sum of individual parts. It integrates human andother resources.

(iv) Management is a Social Process: Management is done by people,through people and for people. It is a social process because it isconcerned with interpersonal relations. Human factor is the mostimportant element in management. According to Appley, “Man-agement is the development of people not the direction of things.A good manager is a leader not a boss. It is the pervasiveness ofhuman element which gives management its special characteras a social process”.

(v) Management is multidisciplinary: Management has to deal withhuman behaviour under dynamic conditions. Therefore, itdepends upon wide knowledge derived from several disciplineslike engineering, sociology, psychology, economics, anthropol-ogy, etc. The vast body of knowledge in management drawsheavily upon other fields of study.

(vi) Management is a continuous Process: Management is a dynamicand an on-going process. The cycle of management continues tooperate so long as there is organised action for the achievementof group goals.

(vii) Management is Intangible: Management is an unseen or invisibleforce. It cannot be seen but its presence can be felt everywherein the form of results. However, the managers who perform thefunctions of management are very much tangible and visible.

(viii) Management is an Art as well as Science: It contains a systematicbody of theoretical knowledge and it also involves the practicalapplication of such knowledge. Management is also a disciplineinvolving specialised training and an ethical code arising out ofits social obligations.

On the basis of these characteristics, management may be definedas a continuous social process involving the coordination of humanand material resources in order to accomplish desired objectives. Itinvolves both the determination and the accomplishment of organisa-tional goals.


Objectives Of Management

The objectives of management are narrated as under.

(i) Organisational objectives: Management is expected to work for theachievement of the objectives of the particular organisation inwhich it exists. Organisational objectives include:(a) Reasonable profits so as to give a fair return on the capital

invested in business(b) Survival and solvency of the business, i.e., continuity.(c) Growth and expansion of the enterprise(d) Improving the goodwill or reputation of the enterprise.

(ii) Personal objectives: An organisation consists of several personswho have their own objectives. These objectives are as follows:(a) Fair remuneration for work performed(b) Reasonable working conditions(c) Opportunities for training and development(d) Participation in management and prosperity of the enter-

prise(e) Reasonable security of service.

(iii) Social objectives: Management is not only a representative ofthe owners and workers, but is also responsible to the variousgroups outside the organisation. It is expected to fulfil the objec-tives of the society which are given below:(a) Quality of goods and services at fair price to consumers.(b) Honest and prompt payment of taxes to the Government.(c) Conservation of environment and natural resources.(d) Fair dealings with suppliers, dealers and competitors.(e) Preservation of ethical values of the society.

1.3 ROLE AND IMPORTANCE OF MANAGEMENT

Management is indispensable for the successful functioning ofevery organisation. It is all the more important in business enterprises.No business runs in itself, even on momentum. Every business needsrepeated stimulus which can only be provided by management.According to Peter Drucker,“ management is a dynamic lifegivingelement in an organisation, without it the resources of productionremain mere resources and never become production”.

The importance of management has been highlighted clearly inthe following points:

(i) Achievement of group goals: A human group consists of severalpersons, each specialising in doing a part of the total task. Eachperson may be working efficiently, but the group as a wholecannot realise its objectives unless there is mutual cooperation


and coordination among the members of the group. Manage-ment creates team-work and coordination in the group. Hereconciles the objectives of the group with those of its membersso that each one of them is motivated to make his best contribu-tion towards the accomplishment of group goals. Managersprovide inspiring leadership to keep the members of the groupworking hard.

(ii) Optimum utilisation of resources: Managers forecast the need formaterials, machinery, money and manpower. They ensure thatthe organisation has adequate resources and at the sametimedoes not have idle resources. They create and maintain anenvironment conducive to highest productivity. Managers makesure that workers know their jobs well and use the most effi-cient methods of work. They provide training and guidance toemployeers so that they can make the best use of the availableresources.

(iii) Minimisation of cost: In the modern era of cut-throat competitionno business can succeed unless it is able to supply the requiredgoods and services at the lowest possible cost per unit. Manage-ment directs day-to-day operations in such a manner that allwastage and extravagance are avoided. By reducing costs andimproving efficiency, managers enable an enterprise to be com-petent to face competitors and earn profits.

(iv) Survival and growth: Modern business operates in a rapidlychanging environment. An enterprise has to adapt itself to thechanging demands of the market and society. Management keepsin touch with the existing business environment and draws itspredictions about the trends in future. It takes steps in advanceto meet the challenges of changing environment. Changes in busi-ness environment create risks as well as opportunities. Manag-ers enable the enterprise to minimise the risks and maximise thebenefits of opportunities. In this way, managers facilitate thecontinuity and prosperity of business.

(v) Generation of employment: By setting up and expanding busi-ness enterprises, managers create jobs for the people. Peopleearn their livelihood by working in these organisations. Manag-ers also create such an environment that people working inenterprise can get job satisfaction and happiness. In this waymanagers help to satisfy the economic and social needs of theemployees.

(vi) Development of the nation: Efficient management is equallyimportant at the national level. Management is the most crucialfactor in economic and social development. The developmentof a country largely depends on the quality of the management


of its resources. Capital investment and import of technical know-how cannot lead to economic growth unless wealth producingresources are managed efficiently. By producing wealth, man-agement increases the national income and the living standardsof people. That is why management is regarded as a key to theeconomic growth of a country.

1.4 DISTINCTION BETWEEN MANAGEMENT

AND ADMINISTRATION

There has been a controversy on the use of these two terms-manage-ment and administration. Many experts make no distinction betweenadministration and management and use them as synonyms. SeveralAmerican writers consider them as two distinct functions.

The management experts like Elbourne, Unwick and Mary Follettregarded ‘administration’ and ‘management’ as synonymous and usethem interchangeably in their works. But Schuze and Sheldon founddistinction between these two concepts. According to them thedistinction is important to clearly understand the role of people inadministrative positions versus those in managerial positions.

Oliver Sheldon in his “The Philosophy of Management” defines‘Administration as a function is concerned with the determination ofthe corporate policy, the coordination of finance, production and dis-tribution, the settlement of the compass (i.e., structure) of the organi-sation, under the ultimate control of the executive.’ On the other hand,‘Management is concerned with the execution of the policy, within thelimits setup by administration and the employment of the organisationfor the particular objects before it. Thus Sheldon declares administra-tion as a thinking process and management as doing process. In otherwords, management is a concomitant of administration. The followingfigure depicts this line of thinking

Fig. 1.2 Administration and Management

E.F.L. Breach distinguishes administration and management.Breach considers management as a social process entailing the respon-sibility for effective planning, regulation, coordination and control ofoperations including the responsibility for personnel supervision.


According to him, the administration is that part of management whichis concerned with the installation and carrying out the procedures bywhich the progress of activities is regulated and checked against plans.

Few authors treat administration as part of management. Thesethree points of view are explained below.

(i) Administration is different from management: According to this viewpoint, administration is a higher level activity while manage-ment is a lower level function. Administration is a determina-tive function concerned with the determination of objectives andpolicies while management is an executive function involvingthe implementation of policies and direction of efforts for theachievement of objectives. This view is held largely by Ameri-can experts on management.

American experts such as Florence, Lansburg, Haimann,Milward, McFarland, Spriegel, Schulze and Tead also hold thisview that administration involves decision-making and policy-formulation while management is concerned with the executionof policies and supervision of work.

According to them, administration is superior to managementas the latter has only a peripheral role in determination of objec-tives and policies.

(ii) Administration is a part of management: According to the Euro-pean School of thought, management is a wider term includingadministration and organisation. This viewpoint has beenpropounded by Breach. According to him, “Management is thegeneric term for the total process of executive control involvingresponsibility for effective planning and guidance of operationsof an enterprise. Administration is that part of managementwhich is concerned with the installation and carrying out of theprocedures by which the programme is laid down and commu-nicated and the progress of activities is regulated and checkedagainst plans”. Kimball and Kimball, Richman and Copen alsohold similar views. According to them, administration is onlyan implementing agency while management is determinative.Thus, the European viewpoint is exactly opposite to the Ameri-can opinion.

(iii) Administration and management are one: Many writers like HenriFayol, William Newman, Chester Barnard, George Terry, Louis.A. Allen, Koontz and O’ Donnell make no distinction betweenmanagement and administration. According to Newman, Man-agement or administration is “the guidance, leadership andcontrol of the efforts of a group of individuals towards somecommon goals”. According to Fayol, all undertakings requirethe same functions and all must observe the same principles.


There is one common science which can be applied equally wellto public and private affairs. Therefore, the distinction betweenadministration and management is superfluous or academic. Inactual practice, the two terms are used interchangeably. The termadministration is more popular in Government and other pub-lic organisations while the word management is more commonlyused in the business world, where economic performance is ofprimary importance.

The foregoing description reveals that both management andadministration are based upon the same set of principles and functions.It may be possible to make theoretical or conceptual distinction betweenthe two. But in practice such a distinction is misleading. In order toresolve the terminological conflict between administration and manage-ment, we may classify management into:

(i) Administrative management; and(ii) Operative management.

Administrative management involve determination of objectivesand policies whereas operative management is primarily concernedwith the execution of plans for the achievement of objectives. At everylevel of management, an individual manager performs both types offunctions. Every manager spends a part of his time on administrativemanagement and the remaining time on operative management.

Distinction between Administration and Management

Points of distinction Administration Management

1. Nature It is a determinative It is an executive or doing

or thinking function function

2. Type of work It is concerned with the It is concerned with the

determination of major implementation of policies

objectives and policies

3. Levels of It is mainly a top It is largely a middle and

authority level function lower level function

4. Influence Administrative Managerial decisions are

decisions are influenced influenced by objectives

mainly by public opinion and policies of the

and other outside forces organisation.

5. Direction of It is not directly It is actively concerned with

human efforts concerned with the direction of human efforts

direction of human efforts in the execution of plans

6. Main functions Planning and control are the Directing and organising are

main functions involved in it. the main functions involved

in it.

7. Skills required Conceptual and human skills Technical and human skills


8. Usage Used largely in Government Used mainly in business

and Public sector organisations

9. Illustrations Commissioner, Registrar, Managing Director,

Vice-Chancellor, Governor etc. General Manager,

Sales Manager,

Branch Manager etc.

1.5 LEVELS OF MANAGEMENT

Every business organisation, irrespective of its size, has many mana-gerial positions in its structure. These positions are created throughthe process of delegation of authority from top to lower levels. Eachposition is marked by authority, responsibility, functions, roles and

Fig 1.3 Levels of Organisation


relationships. The contents and nature vary, depending in the level atwhich the position lies. As one moves upward in the organisation, themanagerial position plays an important role, larger the contribution,greater the authority and higher the responsibility. These managerialpositions lying in the chain of command may be classified into variousgroups or levels of management. Broadly speaking, an organisationhas two important levels of management, namely functional andoperative. The functional level is concerned with the process ofdetermining primary objectives, formulating basic policies, makingvital decisions and controlling and coordinating activities of person-nel. The operative level of management is related to implementationof plans and decisions, and pursuit of basic policies for achieving theobjectives of the organisation.

Generally, the levels of management consisting of various mana-gerial positions in the structure of an organisation, differ from oneorganisation to another, depending on the size of business activity,philosophy of management, span of control and other related factors.But, in a joint stock company, for conducting its business efficiently,managerial personnel may be placed in three levels, that is, top, middleand lower or supervisory level.

Top Level Management

The top level management is generally occupied by the ownershipgroup. In a joint stock company, equity shareholders are the real own-ers of the company. Thus, they elect their representatives as directors,form a board, known as board of directors, which constitutes the toplevel of management. Besides the board, other functionaries includingmanaging director, general manager or Chief executive to help direc-tors, are included in this level. It is the highest level in the managerialhierarchy and the ultimate source of authority in the organisation. Thetop level managers are accountable to the owners and responsible foroverall management of the organisation. The major functions of thetop level management are as under:

(i) To make a corporate plan for the entire organisation coveringall areas of operations.

(ii) To decide upon the matters which are vital for the survival, prof-itability and growth of the organisation such as introduction ofnew product, shifting to new technology and opening new plantetc.

(iii) To decide corporate goals.(iv) To decide structure of organisation, creating various positions

there in.


(v) To exercise overall managerial control through the process ofreviewing over all financial and operating results.

(vi) To make decisions regarding disposal and distribution of profits.(vii) To select key officials and executives for the company.

(viii) To coordinate various sub-systems of the organisation.(ix) To maintain liaison with outside parties having a stake in busi-

ness such as government, trade union and trade associations etc.(x) To formulate basic policies and providing direction and leader-

ship to the organisation as a whole.

Middle Level Management

In order to fill up the gap which exists between functional and opera-tive level, some managerial positions are created at the middle level ofmanagement. Middle level management consists of departmental man-agers, deputy managers, foreman and administrative officers etc. Theseexecutives are mainly concerned with the over all functioning of theirrespective departments. They act as a link between top and lower levelmanagers. The activities of middle level managers centres arounddetermining departmental goals and devising ways and means foraccomplishing them.

The main functions performed by these managers are as under:

(i) To prepare departmental plan covering all activities of thedepartment within the basic framework of the corporate plan.

(ii) To establish departmental goals and to decide upon various waysand means for achieving these goals to contribute to organ-isational goals.

(iii) To perform all other managerial functions with regard todepartmental activities for securing smooth functioning of theentire department.

(iv) To issue detailed orders and instructions to lower level manag-ers and coordinate the activities of various work units at lowerlevel.

(v) Middle level managers explain and interpret policy decisionsmade at the top level to lower level managers.

Lower Level or Supervisory Level Management

Lower-level management is known as supervisory management,because it is concerned mainly with personal oversight and directionof operative employees. It consists of factory supervisors, superin-tendents, foremen, sales supervisors, accounts officers etc. They directlyguide and control the performance of rank and file workers. They issueorders and instructions and guide day to-day activities. They also


represent the grievances of the workers to the higher levels ofmanagement.

Supervisory management performs the following functions:

(i) Planning of day to day work(ii) Assignment of jobs and issuing orders and instructions

(iii) Supervising and guiding workers(iv) Maintaining close personal contacts with workers to ensure

discipline and team-work(v) Evaluating operating performance

(vi) Sending reports and statements to higher authorities(vii) Communicating the grievances and suggestions of workers to

higher authorities.

1.6 NATURE OF MANAGEMENT

To understand the basic nature of management, it must be analysed interms of art and science, in relation to administration, and as a profes-sion, in terms of managerial skills and style of managers.

Management is Combination of Art and Science

Management knowledge exhibits characteristics of both art and sci-ence, the two not mutually exclusive but supplementary. Every disci-pline of art is always backed by science which is basic knowledge ofthat art. Similarly, every discipline of science is complete only when itis used in practice for solving various kinds of problems faced byhuman beings in an organisation or in other fields of social life whichis more related to an art. Art basically deals with an application ofknowledge personal skill and know-how in a specific situation for effi-ciently achieving a given objective. It is concerned with the best way ofdoing things and is consequently, personalised in nature.

During the primitive stages of development of management knowl-edge, it was considered as an art. There was a jungle of managerialknowledge. It was not codified and systemised. People used it to getthings done by others, in their own way giving an impression thatwhosoever uses it, knows the art of using it. This kind of loose andinadequate understanding of management supported the view that itwas an art.

Management as a Science

Science means a systematic body of knowledge pertaining to a specificfield of study. It contains general principles and facts which explains aphenomenon. These principles establish cause-and-effect relationship


between two or more factors. These principles and theories help toexplain past events and may be used to predict the outcome of actions.Scientific methods of observations, and experiments are used todevelop principles of science. The principles of science have universalapplication and validity.

Thus, the essential features of science are as follows:

(i) Basic facts or general principles capable of universal application(ii) Developed through scientific enquiry or experiments

(iii) Establish cause and effect relationships between various factors.(iv) Their Validity can be verified and they serve as reliable guide

for predicting future events.

Let us now examine as to what extent management satisfies theabove conditions:

(i) Systematic body of knowledge: Management has a systematic bodyof knowledge consisting of general principles and techniques.These help to explain events and serve as guidelines for manag-ers in different types of organisations.

(ii) Universal principles: Scientific principles represent basic factsabout a particular field enquiry. These are objective and representbest thinking on the subject. These principles may be applied inall situations and at all times. Exceptions, if any, can be logicallyexplained. For example, the Law of Gravitation states that if youthrow an object in the air it will fall on the ground due to thegravitational force of the earth. This law can be applied in allcountries and at all points of time. It is as applicable to a footballas it is to an apple falling from tree. Management contains soundfundamental principles which can be universally applied. Forinstance, the principle of unity of command states that at a timeone employee should be answerable to only one boss. Thisprinciple can be applied in all types of organisation-business ornon business. However, principles of management are notexactly like those of physics or chemistry. They are flexible andneed to be modified in different situations.

(iii) Scientific enquiry and experiments: Scientific principles are derivedthrough scientific investigation and reasoning. It means that thereis an objective or unbiased assessment of the problem situationand the action chosen to solve it can be explained logically. Sci-entific principles do not reflect the opinion of an individual orof a religious guru. Rather these can be scientifically proved atany time. They are critically tested. For example, the principlethat the earth revolves around the sun has been scientificallyproved.


Management principles are also based on scientific enquiryand investigation. These have been developed through experi-ments and practical experience of a large number of managers.For example, it has been observed that wherever one employeehas two or more bosses simultaneously, confusion and indisci-pline are likely to arise, with regard to following the instruc-tions.

(iv) Cause and effect relationship: Principles of science lay downa cause and effect relationship between related factors. Forexample, when water is heated up to 100ºC, it starts boiling andturns into vapour. Similarly, the principles of managementestablish cause and effect relationship between different vari-ables. For instance lack of balance between authority andresponsibility will cause management to become ineffective.

(v) Tests of validity and predictability: Validity of scientific principlescan be tested at any time and any number of times. Every timethe test will give the same result. Moreover, the future eventscan be predicted with reasonable accuracy by using scientificprinciples. For example, the Law of Gravitation can be tested bythrowing various things in the air and every time the object willfall on the ground. Principles of management can also be testedfor their validity. For example, the principle of unity of com-mand can be tested by comparing two persons, one having asingle boss and other having two bosses. The performance ofthe first person will be higher than that of the second.

Thus, management is undoubtedly a science. It contains asystematic body of knowledge in the form of general principles whichenjoy universal applicability. However, management is not as exact ascience—Physics, Chemistry, Biology and other Physical sciences. Thisis because management deals with people and it is very difficult topredict accurately the behaviour of living human beings. Managementprinciples are universal but they cannot be expected to give exactly thesame results in every situation. That is why management is known asa soft science. Management is a social science. It is still growing, withthe growing needs of human organisations.

Management as an Art

Art implies the application of knowledge and skills to bring about thedesired results. The essential elements of arts are:

(i) Practical knowledge(ii) Personal skill

(iii) Result oriented approach


(iv) Creativity(v) Improvement through continuous practice

Let us judge how far management fulfils these requirements:

(i) Practical knowledge: Every art signifies practical knowledge. Anartist not only learn the theory but also its application in practice.For example, a person may have adequate technical knowledgeof painting but he cannot become a good painter unless he knowshow to make use of the brush and colours. Similarly, a personcannot become a successful manager simply by reading thetheory and getting a degree or diploma in management. He mustalso learn to apply his knowledge in solving managerialproblems in practical life. A manager is judged not just by histechnical knowledge but by his efficiency in applying thisknowledge.

(ii) Personal skill: Every artist has his own style and approach to hisjob. The success of different artists differ even when all of thempossess the same technical knowledge or qualifications. This isdue to the level of their personal skills. For example, there areseveral qualified singers but Lata Mangeshkar has achieved thehighest degree of success. Similarly, management is personalised.Every manager has his individual approach and style in solvingmanagerial problems. The success of a manager depends on hispersonality in addition to his technical knowledge.

(iii) Result-oriented approach: Arts seeks to achieve concrete results.The process of management is also directed towards the accom-plishment of desirable goals. Every manager applies certainknowledge and skills to achieve the desired results. He uses men,money, materials and machinery to promote the growth of theorganisation.

(iv) Creativity: Art is basically creative and an artist aims at produc-ing something that had not existed before. Therefore, every pieceof art requires imagination and intelligence to create. Like anyother art, management is creative. A manager effectively com-bines and coordinates the factors of production to create goodsand services. Moulding the attitudes and behaviour of people atwork, towards the achievement of the desired goals is an art ofthe highest order.

(v) Improvement through people: Practice makes one perfect.Every artist become more and more efficient through constantpractice. A dancer, for example, learns to perform better by con-tinuously practicing a dance. Similarly, manager gains experi-ence through regular practice and becomes more effective.


Thus, “management is both a science as well as an art”. It is ascience because it has an organised body of knowledge consisting ofcertain universal facts. It is known as an art because it involves creat-ing results through practical application of knowledge and skills. How-ever, art and science are complementary to each other. They are notmutually exclusive. Science teaches one to know and art to do. Artwithout science has no guide and science without art is knowledgewasted.

For example, a person cannot be a good surgeon unless he hasscientific knowledge of human anatomy and the practical skill ofapplying that knowledge in conducting an operation.

Similarly, a successful manager must know the principles ofmanagement and also acquire the skill of applying those principles forsolving managerial problems in different situations. Knowledge ofprinciples and theory is essential, but practical application is requiredto make this knowledge fruitful. One cannot become an effectivemanager simply by learning management principles by heart. Science(theory) and art (practice) are both essential for the success ofmanagement.

Management as a Profession

A profession is calling that requires specialised knowledge and often,long intensive academic preparation. The essential features of profes-sion are as follows:

(i) Well defined body of knowledge(ii) Restricted entry

(iii) Service motive(iv) Code of Conduct(v) Representative professional association

Let us examine to what extent management fulfils the aboverequirements:

(i) Specialised body of knowledge: Every profession has a well definedbody of knowledge relevant to the area of specialisation. Inorder to practice a profession, a person requires specialisedknowledge of its principles and techniques. Moreover, he mustmake deliberate efforts to gain proficiency unit. There exists asubstantial and rapidly expanding body of knowledge inmanagement. A manager must have intensive devotion andinvolvement to acquire expertise in the science of management.In addition, there should be competent application or judiciousutilisation of this knowledge in solving complex problems. To-day, management is a separate discipline having a specialisedand organised body of knowledge.


(ii) Restricted entry: There exists institutions and universities toimpart education and training for a profession. No one can entera profession without going through the prescribed course oflearning. For example one must pass the Chartered Accountancyexamination to practice accountancy profession. Many institutesof management have been set up in India and abroad which offercourses for specialised training in management. Severalmanagement consultancy firms have also come into existence tooffer advise for solving managerial problems. Formal educationand training has become very helpful in getting jobs as managers.But no minimum qualification or course of study has beenprescribed for managers by law.

(iii) Service motive: A profession is a source of livelihood but profes-sionals are primarily motivated by the desire to serve the com-munity. For example, a doctor earns his living from his medicalpractice. But he does not treat his patients only for the sake ofmoney. He has a concern for the suffering of others and a desireto help the community. Therefore, a profession enjoys high com-munity sanction or respect. Similar is the case with managers. Amanager of a factory is responsible not only to its owners, but heis also expected to produce quality goods at a reasonable costand to contribute to the well-being of the community.

(iv) Representative association: In every profession there is a statutoryassociation or institution which regulates that profession. Forexample, the Institute of the Chartered Accountants of Indiaestablishes and administers standards of competence for theauditors. In management also associations have been establishedboth in India and abroad. Managers have formed associationsfor the regular exchange of knowledge and experience. In India,there is the All India Management Association. However, thisassociation does not have the statutory power to regulate theactivities of managers. No university accepted criteria orstandard exists for their evaluation. Membership of thisassociation is not compulsory in order to become a manager.

(v) Code of conduct: Members of one profession have to abide by acode of conduct which contains rules and regulations providingthe norms of honesty, integrity and professional ethics. Forexample a chartered accountant is not expected to commerciallyadvertise his firm. The code of conduct is by the representativeassociation to ensure self-discipline among its members. Anymember violating the code can be punished and his membershipcan be cancelled. The All India Management Association hasframed code of conduct for managers. The code requires themanagers to fulfil their social and moral obligations. Members


of the association are expected not to disclose the trade secretsof their employers and to make personal gain from theknowledge of internal working of the organisation. But this codedoes not have legal sanctions. However, observing businessethics is always helpful in becoming a more effective manager.

The above discussion reveals that management fulfils severalessentials of profession. But like other professions, management doesnot restrict the entry into managerial jobs to people with a specialacademic degree. No minimum qualifications have been prescribedfor managerial personnel. No management association has the authorityto grant certificates of practice or to regulate entry into managementcareers. Few managers have uniform background in terms of educationand experience. The management associations have no legal right toenforce their code of conduct. There is no single group to which themajority of the managers belong and whose authority is recognised bylaw as a sanction. Moreover, there is no single client group to whichmanagers owe complete loyalty. Doctors owe their loyalty to patients.But managers are responsible to the owners as well as to other socialgroups.

Thus, management is, not strictly speaking, a full-fledged profes-sion like medicine, law or chartered accountancy. Some expertsbelieve that there should be no control over entry into managementcareers. According to Peter F. Drucker, “Management is a practice ratherthan a science or profession through containing elements of both. Nogreater damage could be done to economy and society than to attemptto professionalise management by licensing managers or by limitingaccess to management to people with special academic degree”.

1.7 PROFESSIONALISATION OF MANAGEMENT

That management is an art, science and profession is not merely anacademic question but raises certain issues which are concerned withfuture development of this branch of knowledge. Management stillremains a developing field, changes are taking place regularly in itsnature, significance and scope. In a modern society, it is occupying animportant position which has brought in new dimensions.

In the recent past, society has been challenging ethical and moralbasis of management decisions and demanding professionalisation ofmanagement. The following reasons may be given in favour of thegrowing need of professionalisation of management knowledge.

(i) In a popular firm of business organisation, that is, joint stockcompany, ownership has been separated from its managementand control. This situation has really contributed to the devel-opment of management profession. Modern managers have to


promote and protect the interest of many social groups such asconsumers, employers and the society, as a whole, and balanceit with the profit motive. For resolving conflicts, and integratingcontradictory interests, professional outlook may be critical.

(ii) Rapid expansion and growth of universities and other institu-tions for imparting management knowledge and growingsignificance of training programmes in business organisationsare indicative of the trend of professionalisation in the days tocome.

(iii) In a high-tech industrial society, manifold changes have occurredin the role of managers

(iv) In the context of globalisation of economic operations manystrategic areas have been developed which require professionalexpertise and specialised knowledge such as strategic planning,control and research and development activities and informationsystems. Multinational corporations have been attempting toenhance their global market share strictly by adoptingprofessional outlook and approach towards management ofoperations.

(v) Increased utilisation of specialised management services likeconsultancy, human resource development and trainingprogrammes which are linked with scientific attitude require ateam of professional managers.

1.8 SKILLS OF MANAGEMENT

In modern business the job management has become very difficult.Several skills are required to manage successfully a large organisationin a dynamic environment. These skills of managers have been classifiedinto four categories, namely technical, human, diagnostic andconceptual skills.

(i) Technical Skills

Technical skills refer to the ability and knowledge in using the equip-ment, technique and procedures involved in performing specific tasks.These skills require specialised knowledge and proficiency in themechanics of particular job. Ability in programming and operating com-puters is, for instance, a technical skill. There are two things a managershould understand about technical skills. In the first place, he mustknow which skills should be employed in his particular enterprise andbe familiar enough with their potentiality to ask discerning questionsof his technical advisors. Secondly a manager must understand boththe role of each skill employed and interrelations between the skills.


(ii) Human Skills

Human skills consists of the ability to work effectively with other peopleboth as individual and as members of a group. These are required towin cooperation of others and to build effective work teams. Such skillsrequire a sense of feeling for others and capacity to look at things fromothers point of view. Human skills are reflected in the way a managerperceives his superiors, subordinates and peers. An awareness of theimportance of human skills should be part of a managers orientationand such skills should be developed throughout the career. While tech-nical skills involve mastery of ‘things’ human skills are concerned withunderstanding of ‘People’.

(iii) Conceptual Skills

Conceptual skills comprise the ability to see the whole organisationand the interrelationships between its parts. These skills refer to theability to visualise the entire picture or to consider a situation in itstotality. Such skills help the manager to conceptualise the environment,to analyse the forces working in a situation and take a broad and far-sighted view of the organisation. Conceptual skills also include thecompetence to understand a problem in all its aspects and to use origi-nal thinking in solving the problem. Such competence is necessary forrational decision-making.

Thus technical skills deal with jobs, human skills with persons andconceptual skills with ideas. These types of skills are interrelated. Butthe proportion or relative significance of these skills varies with thelevel of management as shown in the figure 1.4.

Fig. 1.4 Managerial Skills of Various Skills

Technical skills are most important at the supervisory or operatinglevel where a close understanding of job techniques is necessary toguide workers. As one moves up the management hierarchy, technicalskills become less important. Higher level managers deal with subor-dinate managers and specialised technical knowledge is comparativelyless important for them. Conceptual skills are very important for topmanagement in formulating long-range plans, making broad policydecisions, and relating the business enterprise to its industry and the


economy. Thus, the relative importance of conceptual skills increasesas we move to higher levels of management. This would be self evi-dent as management is the process of getting things done throughpeople. Human skills are equally important at all levels of manage-ment because every manager has to deal with people.

(iv) Diagnostic Skills

Diagnostic skills include the ability to determine by analysis andexamination the nature and circumstances of particular conditions. Itis not only the ability to specify why something happened but also theability to develop certain possible outcomes. It is the ability to cutthrough unimportant aspects and quickly get to the heart of the prob-lem. Diagnostic skills are probably the most difficult ones to developbecause they require the proper blend of analytic ability with commonsense and intelligence to be effective.

1.9 SCOPE OF MANAGEMENT

The field of management is very wide. The operational areas of busi-ness management may be classified into the following categories:

(i) Production Management: Production management impliesplanning, organising, directing and controlling the productionfunction so as to produce the right goods, in right quantity, atthe right time and at the right cost. It includes the followingactivities:(a) designing the product(b) location and layout of plant and building(c) planning and control of factory operations(d) operation of purchase and storage of materials(e) repairs and maintenance(f) inventory cost and quality control(g) research and development etc.

(ii) Marketing Management: Marketing management refers to theidentification of consumers needs and supplying them the goodsand services which can satisfy these wants. It involves thefollowing activities:(a) marketing research to determine the needs and expectation

of consumers(b) planning and developing suitable products(c) setting appropriate prices(d) selecting the right channel of distribution, and(e) promotional activities like advertising and salesmanship to

communicate with the customers


(iii) Financial Management: Financial management seeks to ensure theright amount and type of funds to business at the right time andat reasonable cost. It comprises the following activities:(a) estimating the volume of funds required for both long-term

and short-term needs of business(b) selecting the appropriate source of funds(c) raising the required funds at the right time(d) ensuring proper utilisation and allocation of raised funds so

as to maintain safety and liquidity of funds and the credit-worthiness and profitability of business, and

(e) administration of earningsThus, financial management involves the planning, organisingand controlling of the financial resources.

Fig. 1.5 Compounds of Business Management

(iv) Personnel Management: Personnel management involves plan-ning, organising and controlling the procurement, development,compensation, maintenance and integration of human resourcesof an organisation. It consists of the following activities:(a) manpower planning(b) recruitments,(c) selection,(d) training(e) appraisal,(f) promotions and transfers,(g) compensation,(h) employee welfare services, and(i) personnel records and research, etc.


Fig. 1.6

UNIT 3 MANAGEMENT SYSTEMS

AND PROCESSES

Objectives

The objectives of this unit are to enable you:

to develop familiarity with various types of systems and processes involved in

managing an organisation

•

•

•

•

to understand the concept of a system and learn what the management

information system is

to develop an understanding about the necessity of each managerial process and

its logical sequencing in relation to the other processes

to identify the major elements of each process

Structure

3.1 The Systems Concept

3.2 Management Information System

3.3 Management Processes

3.4 Planning

3.5 Controlling

3.6 Organising

3.7 Motivating and Leading

3.8 Decision-making

3.9 Summary

3.10 Key Words

3.11 Further Readings

Having read the first two units, you know the various responsibilities and tasks

expected of you as a manager. Now you have to get down to the nitty-gritty of

actually performing all these tasks and discharging your responsibilities. For this you

must understand the various systems and processes involved in managing. It does not

matter whether you manage a private company, a public sector company, or even a

non-commercial organisation. The essentials of managing remain the same.

In this unit we began by introducing the systems concept and see how it can be

applied to organisations. We then move to the all important concept of management

information systems and examine it in detail. Later on we shall take up for discussion

the management processes of planning, controlling, organising, motivating, leading

and decision-making.

3.1 THE SYSTEMS CONCEPT

Every practising manager knows from experience that whatever actions and decisions

he takes, in any particular area of activity, have results which extend well beyond that

specific activity. The impact of decisions in some cases affect the whole organisation

and even external environment. A simple decision to throw out an inefficient, lazy

worker can trigger off union activity which can, in extreme situations, even result in

strike. The situation may become so hot that the union forces the neighbouring units

also to join the strike. Thus when a manager takes a decision he never views its

impact in isolation but tries to understand and anticipate its repercussions on the

entire organisation and the environment. The manager

understands that his organisation is a totality of many, inter-related, inter-dependent

parts, put together for achieving the organisational objectives. This in a nutshell is the

very essence of the systems concept.

A system is defined as a sum total of individuals but inter-related parts (sub-systems),

and are put together according to a specific scheme or plan, to achieve the pre-stated

objectives. 31

32

Role of a Manager

•

•

•

•

A system has the following components:

1 A number of parts of sub-systems which when put together in a specific manner

form a whole system

2 Boundaries within which it exists

3 A specific goal or goals. This goal is expressed in terms of an output which is

achieved by receiving input and processing it to form the output

4 Close inter-relationship and inter-dependency amongst the various sub-systems

The inter-relationship of the sub-systems can be defined in terms of:

The flows which exist among them, such as flow of information, money,

materials, etc. The most important of these is the information flow which we

shall discuss in the next section.

The structure within which they relate to each other. This structure may be

physical, geographic or organisational and shall be dealt with in the section entitled

`organising'.

The procedures by which the sub-systems relate to one another. By procedures

we mean those planned activities which affect the performance of the entire

system. In the context of an organisation, this refers to planning and we shall

discuss these under the heading `planning'.

The feedback and the control process and mechanisms which exist to

ensure that the system is moving towards its desired objectives. In this

unit, we have dealt with this in the section on controlling.

A system can be biological (human body), physical (machine) or social (commercial

organisations, voluntary bodies, etc.). Social systems are man-made systems and the

relationships of the sub-systems is the most critical element. Further, since social

systems involve human beings, their beliefs, values, attitudes and perceptions have an

important bearing on the working of the system. This aspect is dealt with in the section

on motivating and leading.

A system can be closed or open. A closed system is self-sufficient and self-regulatory

and has no interaction with the environment in which it exists (see Figure I). The

feedback from the output triggers off a control mechanism which then regulates the

input to bring back the output to the desired level.

An open system is one which interacts with the environment in which it exists. Figure

II illustrates an open system. All living, biological and social systems are examples of

open systems. An organisation is an open system and its sub-systems are its various

divisions and departments. But at the same time, it is a sub-system of the

environmental system within which it operates. The environment itself consists of

social, economic, political and legal sub-systems (see Figure III).

The importance of the systems concept to the manager is that it helps him to identify

the critical sub-systems in his organisation and their inter-relationships with each other

and the environment.

A system is always seeking an equilibrium state, that is, where all the sub-systems are

at the optimum level, in tune with and at rest with each other, and the desired output

is being achieved. In an open system, this level of equilibrium is never static but is

always dynamic. This is because the environment is never static, it is always changing

and since the open system is all the time interacting with environment, what may

have been an equilibrium level today will not be so tomorrow. It is the concern of the

manager to seek this equilibrium level.

Figure I: A Closed System

Figure II : An Open Systems

33

Management System and Processes

Figure III : A Firm & Its Environment

Activity A

34

Role of a Manager

Visualise your organisation as a system and list the critical sub-systems within it. Note

down the various flows between these sub-systems which interlink them.

Visualise your organisation as a sub-system of the environment and describe the

important interactions between the two.

……………………………………………………………………………………………….

……………………………………………………………………………………………….

……………………………………………………………………………………………….

……………………………………………………………………………………………….

One of the most important interactions between an organisation and the environment

is that of information. A manager who has information about the impending

government legislation which will affect his organisation can suitably modify his

decision and avoid costly mistakes. Similarly, a manager who is well informed about

his employees' activities, expectations, opinions and grievances can take corrective

action much before a crisis develops. We now turn our attention to this information

flow and see how best it can be organised from the manager's viewpoint.

3.2 MANAGEMENT INFORMATION SYSTEM

Management Information System (MIS) refers to that system by which information is

collected, processed and presented to management to help it in making better

decisions. A manager makes decisions all the time and anything which helps improve

his decision-making will obviously lead to better results, and he becomes a better

manager. As we discussed in the previous section, the systems concept implies an

input, a process, and an output. In case of MIS, data is the input which is processed to

provide output in the form of information reports, summaries, etc. To be really useful

the output must aid the manager's decision-making process. If it ' does not do so, it is

not a management information system, but just an information system. An effective

MIS should be:

Timely : A market research report, pointing out the unacceptability of milk

sold in plastic containers in retail stores, presented to the manager after he

has already launched his product in the market is of little use. Information is

useful only when it is within the time limits of the decision.

i)

ii)

iii)

Accurate: If the information presented is inaccurate, the manager who takes

a decision based on this will invariably end up making a mistake. However, it

is not possible to have hundred per cent accurate information. But the way to

overcome this is to indicate the expected range of deviation or the level of

inaccuracy. Thus the manager acting on the basis of this information knows

the risk-he is taking.

Relevant: Volumes of reports (however excellent they may be) on the export

potential of cashew nut to a manufacturer of sports goods are of no value

simply because it is outside his area of interest and activities. The manager

himself can make an important contribution in ensuring that the information

he receives is relevant to his decision-making. To do so he must provide an

answer to the question "What do I need to know"?

A manager's requirement of information depends on the level of management at

which he is operating. In any organisation there are three broad levels of management

i.e., top, middle and operating management. It is the type of decisions made by one

level that distinguishes it from the others.

The top management's concern is the entire organisation or group of organisations. At

the top, the manager needs to have information about changes in the environment

which can affect the very survival of his company. The decisions that the top

manager makes are oriented towards the future. A decision to diversify into paper

manufacturing is not a decision which a printing, company will make every now and

then, but when it does, it totally changes the future of the company.

Top management decisions cannot be taken in a regular, routine manner but only after

a great deal of deliberation and consideration and are known as non-programmable

decisions.

35


The manager at the middle level is mostly concerned with acquiring and controlling the

necessarIy resources to implement the objectives laid down by the top management.

The middle level managers are concerned with decisions which are important both in

the present and future context. However, the future horizon of the operating manager's

decision is much shorter than that of the top management. The middle level manager's

is concerned with managing his own department, or activity rather than the entire

organisation. Information needed by the middle manager relates to utilisation of

resources and measurement of performance.

Managers responsible for production scheduling and customer service who perform

specific tasks, within well-defined rules and procedures, are referred to as operating

managers. The decisions these managers need to make are of a routine nature and are

encountered almost every day. Since the situations are repetitive, it is easy to specify

how the decisions are to be made. Such decisions are known as programmable

decisions. A store-keeper who orders for a new lot of packing cartons when the stock in

the store is down to just the next two days supply is an example of a programmable

decision.While designing the MIS, the different types of information required by

different managers must be kept in mind. The manager at the top needs more

information about the environment. Regarding the internal operations of the company,

the top manager is only concerned with the results as reflected in profits, sales volume,

turnover, etc. Moreover these results should be presented in a summary rather than

detailed format. The middle level manager is interested in finding out why the results

were not as per the expected plan, knowing about the deviations of the critical variables

and taking corrective action. The operating manager's concern is with details, like the

number of hours each machine operated, number of units produced per hour, etc. Most

of the internal organisational information is generated at this 'level but as it moves

upward it is reduced to a summary highlighting only the critical performance variables.

We have so far defined what we mean by the terms system and management, but

have yet to talk about information. Let us understand this with the help of an

illustration. A market research team interested in finding out the daily sales volume of

Beauty Soap in Nagpur, notes down the number of soap cakes sold from each outlet in

the city. The number of soaps sold by M/s Soaps Stores on 18 September, 1986 is a

piece of data. In a similar manner, data on sales made by each store in the city is

collected. All this data when put together is information. Data by itself does not convey

much meaning. However, when all the data is put together we know that 67 outlets in

Nagpur account for a sale of 224 soap cakes. It constitutes a meaningful piece of

information. To make it more meaningful, we may further classify the outlets by the

type of store (general merchant, super bazar, departmental store, etc.), geographical

location or volume of sale. From this same data we may generate a daily sales report

for the marketing department and one for the accounts department showing the

outstanding amount against each store.

Thus we see that only when data is put together in a meaningful form does it

constitute information. Further, the same data can be used for generating multiple

reports for use by different individuals and departments.

In designing an effective MIS, the manager must understand the nature and flow of

information. Information regarding government policy, legislation, competition, etc. is

generated in the environment but is collected and used within the organisation.

Similarly, the firm or organisation may send out information to the environment in the

form of annual reports, company balance sheets, press-releases. Besides this, the

company managers and employees are also information carriers. Within an

organisation, information may flow from operating level towards top management level

(bottom to top) and from top to bottom. Reports, summaries and feedback about impact

of decisions flow from bottom to top and decisions, instructions flow from top to

bottom. Information also flows sideways from one manager to another at the same

managerial level.

Figure IV presents the flows of information amongst different management Ievels.

36

Role of a Manager

Figure IV: Levels of Management & MIS

Ideally a manager would like to collect information on all possible aspects of a

situation before making a decision but that is not always possible due to constraints

of time and money. The costs which act as a constraint on MIS are the costs involved

in data collection, data processing and data access.

Data may be easily available within the organisation but still there is a definite cost

involved in collecting it.

Suppose you want to gather information about the age and educational qualifications

of all the 150 workers in your organisation to determine how many of them would

qualify for the proposed scholarship for the under 35 years matriculate workers. You

may either depute a man to personally go to each employee and note down the data or

you may circulate a small cyclostyled note to the employees asking them to furnish the

relevant data. Anyway you decide to do it, a cost is involved (cost in terms of

mandays of the person collecting the data or the 150 cyclostyled slips of paper).

Having collected all the data, someone will have to sit down and put it in a particular

format (process it) so that it constitutes meaningful information which will serve your

purpose. Again, an element of cost is involved.

Having determined that only 64 workers qualify for the scholarship, the immediate

use of the information is over. You can throw away the remaining information or if

you think you may offer. this scholarship again next year, it would be wiser to store

the information. The peon simply puts all the papers in a file and locks it in the filing

shelf. Next year when you need the information, somebody will have to search for

that particular file and make it available to you (make it accessible). Time is needed

to access the information. Thus every step involves time and money.

With the advent of computers the tasks of processing and storing data have become

easier, and the amount of data that can be processed and stored has increased a

thousand fold. Buying, maintaining and operating a computer also involves cost. The

manager has to determine whether the costs incurred in collecting, processing and

accessing data are commensurate with the improvement it yields to his decision-

making.

Activity B

Make a list of all the daily, weekly, monthly reports which you receive or are

expected to prepare for your boss. Describe how each of these reports help improve

the quality of your decision-making process.

……………………………………………………………………………….…………

…………………………………………………………………….……………………

………………………………………………………….………………………………

……………………………………………….…………………………………………

3.3 MANAGEMENT PROCESSES

37


We now turn to the management processes of planning, controlling, organising and

leading. A particular manager may be more concerned with say, controlling and

organising, while another may be more concerned with planning. The degree of

involvement with each of these processes may vary from manager to manager, but

essentially all managers have to be concerned with these processes.

We shall first take up the planning process because only when there is planning can

the other processes follow in logical sequence.

3.4 PLANNING

Planning is the most basic and pervasive process involved in managing. It means

deciding in advance what actions to take and when and how to take them.

Planning is needed, firstly for committing and allocating the organisation's limited

resources towards achieving its objectives in the best possible manner and, secondly

for anticipating the future opportunities and problems.

Planning is putting down in black and white the actions which a manager intends to

take. Each manager is involved in planning though the scope and character may vary

with the level of the manager. At the top, the managing director is involved in

planning for the company's diversification over the next five years. The middle level

marketing manager undertakes planning to increase the sale of his products. The field

sales supervisor plans the day's activities of his team of sales officers.

Planning implies:

Making choices: There can be any number of diversification opportunities to

choose from. It is up to the management to choose the alternative which

offers maximum potential for growth and profitability.

i)

ii)

iii)

Committing resources: The marketing manager who increases the amount

earmarked for television promotion, and adds four more salesmen in each

territory with the objective of achieving higher sales, is committing scarce

resources (money, people, etc.) which then are not available for any other

use.

A time horizon: Planning always refers to a specific time limit within which

it must be completed. The field supervisor plans movements of each of his

salesmen on a daily basis. The marketing manager plans promotion effort for

the next three months, six months or twelve months. The top management

may have a time perspective which may extend anywhere between 5 and 15

years.

Irrespective of the activity or level at which plans may be drawn, the critical, factor is

that they focus on objectives and are directed towards their achievement. They serve

to channelise the energies of the company in the desired direction. The future is

always uncertain and therefore risky. Stepping out of home on a cloudy day with an

umbrella in hand is the way I cover my risk (of getting wet) against the anticipated

but uncertain future rain. It may or may not rain but I am prepared. The umbrella is

representative of the plan which a company draws up in anticipation and preparation

of the future opportunities and problems. Planning implies not simply reacting to

events but anticipating and preparing for them.

Planning ensures the most efficient use of scarce resources. Planning implies

coordinated, inter-related effort towards achievement of the common objective rather

than uncoordinated haphazard, arbitrary, overlapping action towards individual

objectives. Joint, coordinated effort implies pooling of resources and their optimum

allocation without any wastage.

Planning is the only way by which an organisation can exercise control to check that

it is on the desired course of action. Only when there are objectives to work for, and

plans to achieve these objectives, can the manager exercise his control to measure the

performance of his organisation, department or subordinates. An organisation without

plans and controls is like a raft marooned on high seas with no maps and

compass to show the direction and no steering to manoeuvre with. Planning is needed

at every level of management and in every activity and department of the company.

Annual sales targets, cash-flow statements, budgets of each branch, individual career

development blueprint, assembly line operations, scheduling of production over a

number of machines in the factory are examples of plans.

38

Role of a Manager

To ensure that a plan is effective and succeeds in achieving its objectives, it must have

the following components:

• Planning must start from the top. Objectives for the entire company are

defined by the top management and then they percolate down throughout the

organisation. Thus, logically, planning too must start at the top. For instance,

one of the objectives of the top management of Beautiful Books Ltd. (a

company specialising in publishing books on Indian culture and history) is to

increase its turnover from Rs.1.15 crore to Rs. 5 crore in 1987-88. The

marketing director accordingly draws up a plan for increasing sale in existing

markets and the new markets to be penetrated. From this overall plan, each

area marketing manager will make his own annual, quarterly and monthly

plans. And in turn each area sales supervisor will draw the plan for his entire

sales team.

• Planning must be flexible. Planning is needed to anticipate and prepare for

the unknown events of the future. To the extent that the future is uncertain

and events may or may not occur, planning must be flexible. Flexibility

implies ability to keep moving towards objectives despite unexpected

occurrences. Flexibility is especially needed when there is high degree of

uncertainty and risk, the lead time involved in implementing the plan is long,

and cost of making mistakes is high. The R & D cell of a television

manufacturing company designed a completely indigenous circuit for black

and white television after 18 months of experimentation and used 100% more

funds than were allocated to it. The success of the circuit is critical to the

company as its entire marketing strategy for the coming 2-3 years is based on

this. If the circuit is successful, the company will be able to establish its

strong position in the market. However, if the circuit shows signs of failure

the company is ready with its plans to airlift the circuits at a day's notice from

its Japanese collaborator. Thus one way to allow for flexibility is by

developing alternate or contingency plans.

• In the short-run, careful detailed planning without allowing for much flexibility

will improve operational efficiency. But undue emphasis on inflexibility or

rigidity may do more harm than good. Every manager has to find his own level

of balance in allowing for flexibility.

• Short-term planning must be integrated with long range planning. The long

range plans, must be broken down into short-term plans on the basis of which

the managers can take action. There can always be a difference of opinion on

what constitutes the long and short-term. Some define five years as the long-

term and anything up to one years as the short-term. In reality the definition

will vary according to the nature and scope of organisational activity for which

planning is being undertaken. However, you may define the long and short-

term, the point to remember is that the short-term plans must be derived from,

and contribute to the long-term plans.

• Plans are good only if they are properly implemented by the people down the

line. An effective way to ensure this is to involve the people responsible for

implementation in the entire process of planning.

However, despite all the above precautions, plans sometimes fail because of

environmental and internal limitations. Government policies, regulations,

laws, statutory obligations, and rapid social and technological changes pose

external limitations on the company's planning effort. Within the company,

cumbersome procedures, capital inflexibilities in terms of investments

already made, inadequate or inaccurate information are the possible barriers

which a company may face.

Activity C

39


List the various activities for which your organisation undertakes the formal planning

process. Evaluate these plans on the basis of what you have learnt about planning.

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3.5 CONTROLLING

Planning and controlling go hand in hand. There can be no control without a plan and

plans cannot be successfully implemented in the absence of controls. Controls

provide a means of checking the progress of the plans and correcting any deviations

that may occur along the way.

As each worker enters the factory premises in the morning, his time of arrival is

electronically (or manually) punched on his card and every evening his departure

time is similarly recorded. This simple control process is effective in checking the

time spent by each worker in the factory and at the end of the month for calculating

his wages and overtime. The mere act of recording makes each worker conscious of

his late arrival and acts as a self-check on his timing. In contrast to this simple

control, the annual budget for the subsidiary of a multi-location company requires a

far more sophisticated process for controlling its many diverse activities.

The type of control required will vary according to the factors that are to be

controlled, and the critical importance of the factors to the organisation's success. The

more critical the factor the more complex is the control mechanisms needed to check

its progress. Finance is a very critical area of management and most companies

devise elaborate and sophisticated financial controls.

A control is meaningful only when there is clear cut responsibility for activities and

results. It is meaningless to have a control process which simply points out deviations

but cannot pinpoint the area in which they occurred and who is responsible for taking

the corrective measures.

Controls maybe used to measure physical quantities (such as volume of output,

number of man hours, number of units of raw material consumed per machine, etc.),

monetary results (value of sale, capital expenditure, return on investment, earnings

per share, etc.) or to evaluate intangibles such as employee loyalty, morale, and

commitment to work. Obviously; the third kind of controls are the most difficult to

40

Role of a Manager

ii)

iii)

design and implement: No quantitative measure can be used, but only a qualitative,

descriptive evaluation is possible.

There are three basic steps involved in designing a control process.

i) Establishment of standards: Controls are established on the basis of plans

and so the first step. is to have clear plans which in turn become the standards for

controlling. The sales forecast plan which sets sales targets itself becomes the

standard against which actual sale is measured. However, an effective control

process focusses only on the critical variables rather than controlling all the .

variables. It also indicates the permissible range of deviation from the expected

target. Only when the actual performance, is outside this range, does it become a

. matter of concern for the manager to find out why this has happened and take

corrective action. Similarly, the marketing manager at the head office is

interested in the sales figures achieved by each branch and not in the

performance of individual salesman.

Measurement of performance: Having set standards it is necessary to devise a

system for measuring the performance of individuals, departments or the

company against these standards. In some cases quantitative goals can be set,

such as number of units to be sold by each salesman, number of units to be

produced per machine, or the profit to be generated by each branch office.

However, evaluating performance in case of managers at the top level or those

operating in areas such as personnel, public relations, and administration is far

more difficult. The work output cannot be translated into quantifiable terms.

Only a qualitative appraisal is possible.

Correcting deviations: The ultimate objective of the control process is to

pinpoint the occurrence outside the permissible range of action to allow

management to take corrective action. The maximum number of rejects per

machine per day is fixed. When the number of rejects increases beyond this

acceptable level, it is time for the production supervisor to investigate and take

suitable steps to correct the situation.

The successful control process hinges on the all important concept of feedback. This

refers to the information on the critical control variable of the operation or activity

which when fed back to the manager triggers off corrective action.

Except in a self-regulated, closed mechanical system where the corrective action is

taken instantaneously and automatically, most activities within an organisation

require human intervention.. The finance manager must find out why profits have

'fallen below the established level and take suitable steps to remedy this. In some

ases, only a minor corrective action is needed. But sometimes the situation requires

drastic action, even scrapping a department or plant whose operation has become

totally unprofitable.

Within the organisation, feedback usually implies a lag between the time when the

event actually occurs and the time by which information about the event reaches the

concerned manager. Sales figures for the preceding month may not be available to

the manager before the 7th of the current month. The manager can only take note of

what happened in the past and take measures to prevent its occurrence in the future.

Too long a time lag prevents any meaningful control or corrective action. To

overcome this problem of time lag, most companies generate daily reports of critical

variables which provide early warning signals to the manager. But even daily reports

may reach two days later when they have to travel a long distance from say Jaipur to

Delhi. With the introduction of computers and real time information systems

(instantaneous transmission of information) this problem can largely be overcome.

All control processes should reflect the plans that they are supposed to follow.

However, to be truly effective the controls must highlight the critical variables in an

objective manner, and be worth their cost in installing and operating.

Budget is a traditional and widely used control process. Apart from this a company

may use historical statistical data, or break-even analysis to control its operations. By

the use of mathematics, many sophisticated control techniques are also possible.

These pertain to implementing control for inventory management, distribution

logistics and project or programme management. Some of these such as Programme

Evaluation and Review Technique (PERT), Critical Path Method (CPM) will be

dealt with in detail in the subsequent units.

Activity D

41


What are the various control processes used in your organisation, and specifically in

your department? Assess the effectiveness of these controls from the viewpoint of

their ability to measure performance and highlight critical deviations.

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3.6 ORGANISING

Organising refers to the formal grouping of people and activities to facilitate

achievement of the firm's objectives. Issues for discussion here are the types of

organisation structure, degree of centralisation, levels of management, span of

control, delegation of authority, unity of command, line and staff relationship, and

staffing.

Structure refers to the specific manner in which people are grouped. An organisation

can group its people on the basis of the various functions (such as production,

personnel, finance, marketing), geographical territories or around specific products or

product lines (such as detergents, toiletries, basic chemicals, agro-products, as in case

of Hindustan Lever Limited). The concept of matrix organisation is a recent

evolution and combines the functional and product organisation. This type of

organisation is especially useful in case of projects which require both specialists as

well as functional experts to execute a project within a specified time frame. Another

type of organisation is by the type of customers served. A company manufacturing

and marketing computers has organised its sales department in two groups. One

group sells to institutions such as offices, banks, schools, colleges, etc., while the

other group sells to individuals. Many companies selling office equipment have

organised separate marketing teams to cater to the private sector and the public sector

because of the different cultures prevailing in them.

Centralisation refers to the point or level where all decision-making authority is

concentrated. One-man enterprises; such as a small bread and butter stores, vegetable

vendor, a self-employed car mechanic, are examples of complete centralisation. As

the enterprise grows, it becomes increasingly difficult for one person to manage alone

and he has to necessarily line up other. people and give them authority to make some

decisions. These decisions may be routine, programmable decisions but complete

centralisation is no longer possible. The decision-making authority is now vested in

more than one individual. This is decentralisation.

You require information to make a decision. It is possible that information may be

generated at one place but the decision is taken at another. A Bombay based

multinational involved in making and selling ball bearings has its manufacturing

facility at Pun. Every evening all information regarding the day's production,

machine down time, inventory position is sent to the head office via the linked

computer facility and all decisions regarding change in production scheduling are

made at the head office. The introduction of real time information with the help of

computers enables information generated at one place to be instantaneously

transmitted thousands of miles away for making a decision. However, the real

criterion for an organisation having a centralised or decentralised structure is a

reflection of the top Management's thinking and philosophy.

Closely related to the concept of centralisation are the concepts of levels of

management and span of control. Levels of management refers to the number of

hierarchical levels under the control of a particular manager. Machine operator,

foreman, floor manager and production manager represent the levels of management

in a typical production department under the director. The machine operators report

to the foreman, the foreman reports to the floor manager who in turn reports to the

production manager who is accountable to the director. The number of machine

operators who directly report to the foreman represents his span of control. There is a

great deal of controversy regarding the ideal number of people that a manager can

effectively control or the ideal span of control. Many management thinkers are of the

view that three to seven is the ideal range. In practice, this may actually vary from

one individual manager to another.

42

Role of a Manager

At each level of management, there is a reporting relationship between the manager

and the workers. The fewer the number of people that a worker has to report to, the less

will be the problem of conflict in instructions, and greater the feeling of

responsibility for results. Similarly, the clearer the line of authority from the manager

to the workers, the better the decision-making and communication.

The staff functionary reports directly to the top management and is not a part of the

chain of command.

A company may draw up any number of ambitious plans, but if it does not have the

right kind of people, it can never succeed in implementing these plans. One of the

biggest challenges which a manager faces is matching the right people with the right

jobs. The process of staffing starts with defining the job to be done and the necessary

qualifications, skills and experience required to do it. The next step is to search for

the persons with the desired background. The search may involve a number of

complex steps such as advertising the job through newspapers and specialised

magazines, screening the applications received in response to the advertisement,

conducting a selection process which may include a variety of techniques such as

written test, group discussion, personal interview, etc. Before making the final

selection, it is important to be sure that the candidate fits in well with the other people

and the culture of the organisation.

Having found the right candidate, it is equally important that you are able to retain

him. Among other things, motivation and leadership provided by the top management

of organisation also plays an important role.

Activity E

What is the basis for organising the various departments in your company?

Can you identify the various levels of management and the span of control at each

level as well as the reporting relationships?

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3.7 MOTIVATING AND LEADING

43


Having established plans, controls, and an appropriate structure to achieve the

organisational objectives, the manager now has to get his people to work. Motivation

is that desire or feeling within an individual which prompts him to action. Every

individual has needs, desires and drives, which we collectively call motives and

which channelise all his or her behaviour and action towards achievement of some

objectives. The manager's role is to influence each individual's behaviour and action

towards achievement of common organisational objectives.

A great deal of research has been conducted in this area and there are many theories

of motivation. It is not possible to explain all these theories here and we shall only

briefly explain the various factors that can act as motivation.

Money is the most commonly used motivating factor in the form of salary, bonus,

incentives, commissions and rewards. Salary or wage is of course the primary

motivation, and the poorer the economic background of an individual the greater the

motivational value of money. However, once a basic salary or wage is assured, to

motivate people to work that little bit extra, achieve that ten per cent higher sales

figure, incentives and commissions come in handy. Most sales organisations pay

salary plus incentives to their sales people. The incentives may be calculated on the

basis of individual or team results, and may be linked to a sales target. Similar

incentives can be offered to the production department. However, performance linked

rewards are difficult to compute in areas such as finance, personnel, and

administration where work output cannot be easily measured. A percentage of total

profits can be distributed to these departments as incentive.

Man does not live by bread alone is an old saying. Man is a social animal and seeks

recognition and status in society through his work. The status or position which an

individual enjoys in the organisation, the number of people who work for him, the

non-monetary benefits and perks which he enjoys are important motivational factors.

In fact sometimes these are more important than the actual take-home pay packet.

Gupta started his career as a salesman in a medium sized company manufacturing

and marketing stereo systems. Because of his analytical ability, capacity to work hard

and achieve results, Gupta soon rose to be the area sales manager of North India. The

owner of the company relied a great deal on Gupta's judgement and always consulted

him on every important matter. Gupta was making good money, performing well and

enjoyed the great confidence of the owner, yet he felt that there was no power or

position in his job which could give him a better status in society. Therefore, when

the opportunity arose, Gupta joined an American multinational as Divisional

Manager, selling scientific laboratory glassware. It was the glamour, the power, and

the status which the job conferred on him that motivated Gupta to join. However, two

years with the multinational were enough for Gupta to realise that he had no authority

to take any independent decisions and he was not deriving any satisfaction from his

job. Gupta quit his job and went hack to his previous employer. Thus satisfaction at

work is an important motivating factor.

The lesson from Gupta's story is that the same individual will be motivated by

different factors at different stages of his career. Generally as you move up the

organisation to more important positions, the importance of money and monetary

benefits as motivating factors decreases and intangible factors such as job

satisfaction, confidence of the boss, good relationship with the boss, the status and

respect commanded in the organisation, etc. become more important.

The physical working environment in which a person works also has tremendous

motivational force. A pleasant, noise-free, well-lit room with comfortable

temperature, and proper facilities of telecommunication, secretarial assistance,

canteen, transport, etc. is always conducive to work.

Different individuals are motivated by different factors. This is because each

individual in the organisation comes from a different socio-economic, cultural,

religious, educational and family background, and each of these has a role in

determining the degree to which he can be motivated by different factors.

In most Western countries, a great deal of emphasis is laid on leisure and individuals

may be motivated to take up that job which affords greatest opportunity for leisure.

Similarly religious background and personal values are important influences on the

effectiveness of motivating factors. No matter how attractive the salary, not many

Hindus would like to work in a beef packing factory.

44

Role of a Manager

The manager's concern is to find a set of common factors which can motivate all his

people coming from diverse and different backgrounds and working at different

levels of management. The manager's task will be greatly simplified when he

understands that motivational factors are present in, and can be used, in design of

work, rewards, work environment, work relationships and work content. All

monetary benefits and non-monetary advantages such as free medical cover,

company car and driver, club membership, etc. are part of the work reward and are

important motivators.

Work environment as a motivating factor, first and foremost, refers to the status of

the organisation for which a person works and the mere fact of his working in that

organisation gives him that status. Harvard University has the reputation of being

amongst the best in the world and anyone who has graduated from Harvard is

generally perceived to be at least above average, is not excellent. The actual physical

factors present in the work environment also act as motivators.

Relationships developed at work, with the boss, colleagues and subordinates have an

important motivating influence. The more congenial, friendly and supportive are

these relationships, the greater their positive motivational value. In contrast, strained

relationships which create tension and unhappiness are serious enough reasons for

people to leave jobs which in all other respects seem very comfortable and attractive.

The design and content of the actual work to be done is in itself an important

motivational factor. An element of freedom to experiment with new ideas within the

parameters of the job fulfils the creative urge in every individual. Freedom to take

decisions and assume responsibility for the results are factors which enhance an

individual's self-confidence and feeling of self-esteem. The more such factors can be

built into the job, the greater would be the job satisfaction of the individual

performing the job. A happy, satisfied worker is a productive worker and a great

asset to any organisation. If an individual is himself associated with designing the

content and objectives of his job, there are greater chances. that he will work his

utmost to fulfil these objectives. This is the approach known as Management by

Objectives (MBO) and has tremendous motivational potential.

The manager has not only to motivate his people but also provide them with

leadership. To that extent every manager is a leader. A manager has to inspire and

influence his people to willingly work towards achieving the organisational

objectives.

Much research has been conducted in this field and different studies have emphasised

different aspects in attempting to answer the question `What makes an effective

leader'? When put in a situation of leading, you must remember it is a role that your are

performing, but that your personality has an important influence on your performance

as does the situation in which you are expected to perform.

To be an effective leader, a manager must have a pleasing physical personality,

ability to get along with people, qualities of honesty and integrity and be an excellent

speaker. To command respect of others he must excel at his basic job whether it is

operating a lathe machine or managing the finances of a large company. The leader

must first set an example by his own actions rather than by just making speeches. His

actions must communicate to the people that he belongs to them. Only when he is

able to generate this feeling of oneness will he be able to inspire confidence in his

people.

Secondly, a manager-must remember that he is only playing a role. However, to be

able to perform effectively, the role demands that the manager be perfectly objective in

all his judgements and decisions, and be guided only by the organisational objectives

and have no other considerations. For a leader the interests of his people are of

paramount importance and come first while personal benefits, take second place.

Thirdly, the role must be moulded according to the unique situation in which the

manager is placed. In our society, great emphasis is laid on personal relationships and

contacts and managers are perceived to be father figures and are expected to have a

paternalistic attitude towards their workers. In contrast, in the West, especially in

countries with a British colonial past, the relationships between manager and worker

is only confined to the work. There, if a manager were to adopt a paternalistic

approach, he would be totally ineffective. A manager who usually follows a

consultative, participative approach, seeking the opinions and consensus of his

subordinates before implementing any decision, in a crisis situation may adopt a very

authoritarian approach and effectively manage the situation.

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When Lee Iaccoca, took over the management of Chrysler Corporation, USA, it was

an ailing automobile giant. To bring it out of the loss making situation, Iaccoca inspired

tremendous confidence and loyalty in his workers by setting personal example of

great hard work and accepting only a token wage. Under his leadership the company

was soon able to turn its losses into profits.

Political leaders such as Gandhi who commanded the respect of millions of people

are a model for managers to learn from. Gandhi's leadership style was so finely

turned to the moods of the people and the situation that his every word was law for

the common man. His actions and life-style made the people feel he belonged to

them.

Activity F

How do you evaluate your boss as a leader on account of his personality, role play,

and tuning to the requirements of the situation?

Briefly describe a situation in which you excelled as a leader. What do you think

were the contributing factors to this performance?

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3.8 DECISION MAKING

Underlying the processes of planning, controlling, organising, leading and motivating

is the all important process of decision-making. Every manager makes decisions, no

matter what his area of management responsibility may be.

Decision-making implies making a choice between alternatives. The choice is made

rationally after due consideration of all the pros and cons. The rational approach

implies that it is a carefully thought out, deliberate and well-weighed choice, guided

only by the consideration of the organisational objectives to be achieved.

In making a decision, the manager first of all define the issue on which the decision

needs to be made. Then he should generate all the possible alternatives available to

tackle the issue at hand. The third step involves a careful evaluation of each

alternative to choose that which offers the best chance of achieving the objectives.

Making a choice is making the decision. Follow up of the decision to ensure that it is

properly carried out is very important. A decision which does not get implemented

remains a decision only on paper and not in reality. The final step is to gather

feedback on the impact generated by the decision.

46

Role of a Manager

Decision-making is so important because it implies. commitment of resources, the

desired outcome of which is never certain. Decisions are made under conditions of

uncertainty and risk. Decisions made today have implications reaching into the

future. The risk arises out of the fact that the manager never has complete facts and

knowledge about the implications of his decision and there is always the chance that

the wrong decision maybe taken.

Many mathematical tools and theories have been developed to improve the

quality of decisions which managers have to make under risky and uncertain

conditions. Linear programming, queuing theory, probability and game

theory, risk analysis, and decision trees are some of these tools. These will be

discussed at length at a later stage.

Activity G

Think of any decision which you may have made in the recent past. Write down the

various alternatives which you considered, and the manner in which you evaluated

them to arrive at the best choice.

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3.9 SUMMARY

In this unit we introduced the systems concept. This is a useful concept for

understanding the operations of a firm by identifying the critical sub-systems, their

inter-linkages and inter-dependence in the achievement of a common goal or sets of

goals. There can be a number of sub-systems within the system of a firm and the

most important of these is the Management Information System. The objective of a

MIS is to improve the quality of decision-making by providing the relevant

information at the right time. The starting point for designing an effective MIS is

spelling out the objectives of the MIS, understanding the various kinds of decisions to

be made at each level and the nature of information flows.

The basic processes common to every management situation are those of planning,

controlling, organising, motivating and leading, and decision-making. Planning helps

the manager allocate his scarce resources in the most efficient manner to achieve the

organisational objectives. Controlling is the process by which the manager checks the

implementation of his plans against certain pre-determined measures of performance.

Organising refers to the formal grouping of people and activities for doing work.

Leading and motivating are the behavioural aspects of the manager's role. The

manager is expected to provide leadership by way of personal example and inspire

confidence, and bring into play all those factors by which he can persuade, convince

and motivate his subordinates to turn in their best performance. Pervading all these

management processes is the process of decision-making. Every

47


manager has to make decisions. Decision-making implies making a choice, and

because there is never complete information and certainty, there is always a risk that

the choice made may be wrong. It is the task of the manager to minimise this risk.

3.10 KEY WORDS

Break-even Analysis: Comparison between sales and expenses to determine that

volume of production where there is no profit and no loss.

Budget: Statement of plans expressed in quantitative and financial terms for the

allocation and use of resources.

Environment: The universe in which the firm operates is known as its environment

and includes all those economic, political, socio-cultural, legal, demographic and

other factors which have a critical bearing on its operations.

Organisation, Firm or Company: These terms have been used interchangeably and

refer to all types of formal bodies created for a specific purpose. These include all

types of business organisations and non-commercial organisations such as hospitals,

schools, charitable trusts, voluntary bodies, etc.

Organisational Objective(s): The specific purposes, results and achievements

sought by the organisation. In this lesson we have used this term in a broad sense to

include both mission and objectives.

3.11 FURTHER READINGS

Schein, Edgar, H., 1973. Organisational Psychology, Prentice Hall of India: New

Delhi.

Hersey, Paul and Kenneth H., Blanchard, 1980. Management of Organisational

Behaviour: Utilizing Human Resources, Prentice Hall of India: New Delhi.

Kanter, Jerome, 1984. Management-Oriented Management Information Systems,

Prentice Hall Incorporated: Englewood-Cliffs.

Koontz, Harold and Cyril O'Donnell, 1976. Management: A System and Contingency

Analysis of Managerial Functions, McGraw-Hill Kogakusha: Tokyo.

Newman, William H. Summer, Charles E. and Warren, E. Kirby, 1974. . T h e

Process of Management Concepts, Behaviour and Practice, Prentice Hall of

India: New Delhi.

Richards, Max D. and William A. Nielander, (ed.), 1967. Readings in Management,

D.B. Taraporevala Sons and Company: Bombay.

Tasks of a Professional Manager

UNIT 1 TASKS OF A PROFESSIONAL

MANAGER

Objectives

The objectives of this unit are to enable you:

• to know who is a professional manager

• to develop familiarity with various tasks of a professional manager

• to know what exactly are the tasks which a manager has to undertake in the course

of managing his organisation

Structure

1.1 Providing Purposeful Direction to the Firm

1.2 Managing Survival and Growth

1.3 Maintaining Firm's Efficiency in Terms of Profit Generation

1.4 Meeting the Challenge of Increasing Competition

1.5 Managing for Innovation

1.6 Building Human Organisation

1.7 Retaining Talent and Inculcating Sense of Loyalty

1.8 Sustaining Leadership Effectiveness

1.9 Maintaining Balance Between Creativity and Conformity

1.10 Postponing Managerial Obsolescence

1.11 Meeting the Challenge of Change

1.12 Coping with Growing Technological Sophistication

1.13 Coping with Growing Public Criticism and Political Opposition-both

Objective and Irrational

1.14 Coping with Increasing Levels of Aspiration

1.15 Maintaining Relations with Various Society Segments

1.16 Summary

1.17 Key Words


TASKS OF A PROFESSIONAL MANAGER

As a participant in this programme you are either a practising manager or are aspiring

to be one. Your, first concern, therefore, is to know the tasks which you are expected

to fulfill as a professional manager. These various tasks are discussed in this unit.

There is a lot of confusion over the much widely used terms-professional

management and professional managers. Some researchers contend there is nothing

like professional management. Management is a discipline. There are practitioners of

this discipline who practise management as a profession and 'thus are, professional

managers. Just as there are doctors and lawyers by profession similarly there are

professional managers. As doctors practise medicine, managers practise management.

The only difference between professional managers and other professionals is that,

while the latter must possess a formal degree in their discipline, a professional

manager need not have a formal degree or education in management. He may have

learnt the necessary skills and gained competence from his experience. The second

characteristic of a professional manager is that his primary concern is the

organisation or the company with which he works. This is true whether the manager

works for a private or public sector or a multinational company; whether he is the

executive director or the personnel manager reporting to the executive director. The

professional manager always has his company's overall perspective in his mind and

all his actions are guided by the company's objectives.

The third and the most important characteristic of a professional manager is that he is

responsible for performance. Managing involves collecting and utilising resources

(money, men, materials and machines) in. the most optimal manner for achievement 5

6

Role of a Manager

of some pre-determined objectives or results. It is the professional manager's

responsibility to utilise resources to produce the required results. Responsibility and

performance are really the key words in defining a manager's role. Performance implies

action, and action necessitates taking specific steps and doing certain tasks. Let us first

take up the various tasks which a manager is expected to do to produce results.

1.1 PROVIDING PURPOSEFUL DIRECTION TO THE

FIRM

A manager can be compared to the captain of a ship who has first to set the course to

reach the destination and then steer the ship along the course. Similarly, a manager has

to, first of all, set objectives which the firm must achieve. Objectives provide the

direction in which the firm must move. Having decided upon the objectives, the

manager must constantly monitor the progress and activities of the firm to ensure that it

is moving in the desired direction. This is the first and foremost task of every manager.

If you are a part of the top management team then you will be very actively involved in

this task through the process of defining the mission and objectives for the entire

organisation. If you are a manager reporting to the top manager, it is your task to see

that the actions of the people who work for you in your department or division are in

the desired direction. It is your task as a manager to prevent all such actions which take

your company away from the direction set by the top management.

A large American multinational company has its subsidiary in India which

manufactures and markets a popular line of cosmetics and cough and cold medication.

It maintains a large farm in Uttar Pradesh for production of a medicinal plant which is

used as an active ingredient in all its medication. Control over this essential raw

material gives the company a substantial cost advantage. To derive further cost

advantage it was proposed that the company set up its own printing press for printing

the packaging labels. The proposal was in the final stage of approval till the top

management team realised that printing was not their business. Diversification into

printing would only .take the company farther away from, and not closer to, the desired

direction. Production and marketing of medication was their main line of business and

the farm made an essential contribution. However., printing was not such a critical

activity that it required the company to have full control over it.

This illustration highlights the fact that all actions and decisions must be evaluated on

the basis of their contribution towards achievement of the company's objectives.

However, this illustration should not give you the idea that objectives or direction once

set will hold good for all times to come or that any movement away from the current

line of production or activity is always undesirable. The key point is that all movements

and actions must be consistent with achievement of the objectives. To ensure

consistency it is important that the manager carefully thinks through each alternative

course of action, to evaluate its potential to contribute towards attainment of objectives.

1.2 MANAGING SURVIVAL AND GROWTH

"Survival of the fittest" is the law of the jungle which is equally applicable to the

competitive market place where firms struggle and fight for survival. Ensuring survival

of the firm is a critical task of the manager. But that alone is not enough. The manager

has also to actively seek growth. No matter how big or powerful a firm may be today, it

is sure to be left behind in the race by newer, healthier and more efficient firms if it

does not pursue growth.

Two sets of factors impinge upon the firm's survival and growth. The first is the set

of factors which are internal to the firm and are largely controllable. These internal

factors are choice of technology, efficiency of labour, competence of managerial

staff, company image, financial resources, etc.

7


Most of the old traditional textile mills were setup in India around the late 19th or

early 20th century based on the then prevalent technology. These mills continued to

flourish till the late 1960s. The early and mid-seventies witnessed a dramatic

revolution in textile technology all over the world. Ignorant of this changing trend,

the Indian mills continued with the old technology. But some new companies

(notable among them Reliance Textiles with its `Vimal' brand of textiles) entered this

field with the latest technology, offering superior quality textiles in a wide range of

polyester and cotton blends. The traditional mills could not match these new entrants

in terms of either product or price. And one of the oldest and the most prosperous

industry was. faced with unprecedented levels of sickness. Most of the old mills

became unprofitable and had to be bailed out or taken over by the government, or

finally shut down. Failure of managing technological change sounded the death knell

of the textile mills.

The second set of factors influencing the firm's ability to ensure survival and growth

are those which are external to the firm and over which it has little or no control.

These external, environmental factors refer to government policy, laws and

regulations, changing customer tastes, attitudes and values, increasing competition

etc. Hindustan Lever Limited (HLL) is a subsidiary of a multinational company

which, till some years ago, was manufacturing and marketing detergents (Surf, Rin),

soaps (Lux, Liril, Lifebuoy, etc.) and Dalda Vanaspati, groundnut oil, and agro-

products. Most of these are low-technology lines. Being a foreign company in low-

technology areas, further growth opportunities were restricted under the Foreign

Exchange Regulations Act (FERA) unless HLL diluted its foreign equity to 40 per

cent. Not willing to dilute the equity holding to 40 per cent level HLL had to find a

way to manage its survival and growth. HLL sold off its line of vanaspati and

cooking oil to Lipton India and diversified into the production of basic chemicals-a

high-technology area where foreign companies are allowed to invest and grow as per

FERA. Thus by changeover from low-tech to hi-tech area HLL has ensured its future

in India

Activity A

Identify the managers whose prime task is to plan and steer the future of your

company. What are the various survival and growth options which your company has

adopted in the recent past?

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1.3 MAINTAINING FIRM'S EFFICIENCY IN TERMS OF

PROFIT GENERATION

Efficiency is the ratio of output to the input. A manager has not only to perform and

produce results, but to do so in the most efficient manner possible. To produce results

a manager requires inputs in the form of money, men, materials and machines. The

more output that the manager can produce with the same input, the greater will be the

profit generated. Profit is the surplus or difference the manager can generate between

the value of inputs and outputs.

Profit is essential for the survival and growth of a business. A manager may decide to

forego some profit today for the profits which he is seeking tomorrow but in the long

run he must understand that no business can survive if it does not make profits

Business activity is undertaken to satisfy a need of the society in a manner which yields

profits. A business is not a philanthropic or charitable activity which is run merely to

provide some goods and services irrespective of whether it is making a profit.

Profit generated can be used for expansion, upgrading of technology, growth or paying

dividends. Profits are one of the cheapest sources of financing growth, as they involve

no interest liability nor putting the freedom at stake by having representatives of

financial institutions sit on your board of directors. Profit gives you the cushion to take

risk, think big and venture into relatively unknown areas.

8

Role of a Manager

A profitable firm can turn unprofitable because of obsolete technology, inability to

meet high fixed cost structures, high levels of wastage, or simply because the product is

no longer in demand by customers. We have illustrated how the traditional textile mills

became unprofitable and the fate they eventually met. A similar fate awaits all

unprofitable businesses. The consistent failure of, Engineering Projects India, a public

sector company, to generate profits and. execute international projects within the time

limits has threatened the very existence of this company.

In contrast, companies such as Colgate-Palmolive, Tata Engineering and Locomotive

Company (TELCO), Century Enka, Richardson Hindustan Limited, etc. have been

showing consistently good profits.

Activity B

What is your company's ranking in terms of profit generation within the industry?

Which is the most efficient company in your industry?

List three specific ideas which you think can improve your company's efficiency.

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1.4 MEETING THE CHALLENGE OF INCREASING

COMPETITION

In today's fast changing world one of the very critical tasks of every manager is to

anticipate and prepare for the increasing competition. Competition is increasing in

terms of more competitors, more products, wider variety of products, better quality of

products and a customer who is, today, better informed and more aware than ever

before. The increasing reach and popularity of TV as a means of information has also

contributed to the increasing competition. The manager today has more potential

customers to sell to and easy access to these customers yet the market is crowded with

many competitors wooing the same customers.

Till a decade ago, the Times of India group of newspapers and magazines reigned

supreme in the magazine market with its Ìllustrated Weekly of India' being the only

Indian family magazine and `Filmfare' the only notable film magazine. The former

could be found in most homes which had a minimum level of literacy and affluence.

And `Filmfare' was the only magazine for people interested in films. The introduction

of Ìndia Today' and `Stardust' brought about a radical change. Starting in a modest

fashion. Ìndia Today' is probably the most widely read general interest magazine while

`Stardust' has blazed its own unique trend-setting trail of popularity. In the wake of the

success of these two magazines, many other magazines followed, such as general

interest magazines, film magazines, women's magazines, children's magazines, special

interest magazines, etc. All these new magazines have better reading content, more

colour, better layout and are very glossy and attractive to look at. Unable to match

these new magazines the circulation of the Ìllustrated. Weekly of India' and `Filmfare'

slumped. However, in the last years these two magazines h a v e b e e n attempting to

regain the lost ground and have succeeded to some measure. But they can certainly

never again enjoy the leading position which

9


they once did. In developed countries the concept of competition is very closely

linked to that of obsolescence. Companies keep introducing successively new models

of cars, washing machines, refrigerators, etc., with minor variations, and persuading

the customers to discard their older models for the newer ones.

Activity C

List the firms whose products compete with your firm's products. Write down specific

options you would adopt to fight this competition.

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1.5 MANAGING FOR INNOVATION

Innovation is finding new, different and better ways of doing existing tasks. In the

context of business, innovation has to be defined in terms of the additional value it

imparts to the existing products or services. Value is not expressed in terms of

increased cost or price but in terms of the difference it makes to the customer.

A television manufacturing company, after years of painstaking effort, introduced a

circuit with a neat and clean layout which was extremely easy to service. The

company spent large amounts of money promoting this new circuit and its improved

servicing but the customers were not impressed and sales did not pick up as per

expectations. Customers were not convinced because they could not really perceive

the difference and importance of the circuit since its impact on performance was very

marginal. The marketing consultant to the company recommended that instead of

using plywood the company should use transparent plastic back-covers for the

chassis. This would allow the customers to see the circuit and decide for himself the

truth of the company's claim. This is an innovation because it makes a vital

difference to the customer, since he can see and understand for himself the

improvement.

Very often it is the customer himself who provides the source of innovation. Digital

Equipment Corporation, a U.S. company manufacturing and marketing

minicomputers, does not spend its own time and money in finding new business

applications for its mini-computers. Instead, it maintains close contact with its

customers and relies on them to find uses for their mini-computers. A study

conducted by Eric Von Hippel and James Utterback on the source of innovation in

the scientific instruments business revealed that more than 75 per cent of ideas for

innovations came from users.

To plan and manage for innovation as an on-going task, the first thing the manager

must do is to maintain close contact and relation with customers. The firm's salesmen

provide the most direct link for the company with its customers. The task of the

manager is to train these salesmen to keep their eyes and ears open for any type of

information, ideas, suggestions, complaints, criticisms, and feed it back to the

company. An extensive innovation study conducted by Christopher Freeman has

concluded that successful companies pay a great deal of attention to the market.

Successful firms innovate in response to market needs, involve potential users in the

development of the innovation, and understand users' needs.

The manager can also maintain a direct link between customers and the

company. Proctor and Gamble, one of America's largest consumer goods

company, put on its

packaging a telephone number at which the customers could call at company's

expense and give any information regarding the product. In 1979 this

company received 20,000 telephone calls, each of which was followed through,

and was a major source of ideas for innovation and improvements.

10

Role of a Manager

Keeping track of competitor's activities and moves can also be a source of innovation

as can improvements in technology. To qualify as innovative, the technology must be

market and customer-oriented rather than research-oriented. In most cases,

innovation as finally introduced in the market was never originally intended to be so.

You can appreciate the truth of this statement better when you know that xerography

was originally aimed at a small segment of the lithography (a special type of printing

process) market, it was never intended to be used in making mass copies. Transistors,

which, prior to the development of integrated circuits, were used in manufacture of

television, radio, etc., were originally developed for military use. As a manager you

should keep a close watch on the technology improvements taking place and try to

find a customer-oriented application for it.

The manager who has his finger on the pulse of the market can quickly find out

under-the-surface changes and shifts taking place and accordingly modify his product

to match the customer requirement. It is not the absolute amount of money and effort

which a firm invests in research and development but its ability to quickly adapt and

place in the market the improved product which accounts for its innovativeness. This

calls for flexibility in organisational structure to accommodate the necessary changes.

In the final analysis, it is the manager who inculcates and nurtures curiosity and an

open mind, and combines it with market feedback, who will emerge as winner in the

race in which innovation is at a premium.

1.6 BUILDING HUMAN ORGANISATION

Man is by far the most critical resource of an organisation. No amount of money,

materials and machines can produce results by themselves. Men are needed to

manage them. Machines can be programmed to take over routine, repetitive jobs, but

only a human brain can design the machines.

Surround yourself with the best people you can find, delegate authority, and don't

interfere", is the advice given by U.S. President, Ronald Reagan to practising

managers (FORTUNE, September 15, 1986). Certainly useful advice except for the

drawback that good people, leave alone the best, are so difficult to find. `I just can't

seem to find the right people' is an oft heard lament from many a manager. It is

indeed a paradoxical situation that we have so much unemployment on the one hand

and on the other it is genuinely difficult to find the right sort of people.

A small consulting firm's experience is that an advertisement for sales representatives

in a national newspaper fetches anything upto four hundred applications and you are

lucky if you are able to pick up even two or three good people.

This only reinforces the fact that a good worker is a valuable asset to any company.

And, every manager must constantly be on the look out for people with potential and

attract them to join his company. A manager with a competent team has already won

half the battle. Note that we use the word team, and not individuals. However,

competent or brilliant individuals may be, if they cannot work together with each

other they are of not much use to a company. It is up to the manager to mesh

individuals into a well-knit team. The manager who cannot build his team cannot

succeed. Teams should be built on the principles of division of labour, specialisation of

work and mutual give and take.

Pearl Polymers Private Limited is engaged in manufacturing and marketing a

wide range of consumer and industrial thermoplastics under the brand name

of PEARL PET. In addition, the group is involved in garment exports,

computer manufacturing and retailing and trading in basic chemicals. The top

management team consists of four brothers each having a special area of

activity. The eldest brother is the overall group in-charge who coordinates and

looks after the interests of the entire group besides being responsible for

marketing and trading. The second brother, a chemical engineer by training, is

responsible for production. The third brother is a chartered accountant and

manages the finances and accounts. The fourth brother has a

11


business management degree and is responsible for garment exports. Having clear

cut areas of functioning and responsibility these brothers have been able to create the

right team spirit and are very successful.

Realising the importance of creating a team spirit and teamwork for achieving the

organisational objectives, progressive companies are trying to build this up in every possible

way. Quad Graphics, a very successful print company in USA, calls its workers `partners'.

W.L. Gore Associates, an American high-tech manufacturer refers to its 4000 people on its

payrolls as `associates". Over 8,000 American companies share part of their ownership with

more than 10 million employees through Employee Stock Ownership Plans.

1.7 RETAINING TALENT AND INCULCATING SENSE

OF LOYALTY

Hiring good people is still a relatively simple task as compared to the task of retaining them,

people may join a company because of its favourable image but will stay on only if they find

appreciation for, and satisfaction from, their work.

To retain talented people the manager should provide a comfortable working environment

which is conducive to work. More important than the physical environment is the degree of

freedom which a worker enjoys in making decisions within the defined parameters of his job.

When a worker knows that it is his responsibility to produce results and he is accountable for

them, he will put in his best effort. On the other hand, if the worker is always ordered to do

every single act, and nothing is left for him to decide, whatever little potential exists in him

will be killed. A worker should be able to take pride in his work, derive satisfaction from

saying `This is my achievement'. To ensure that work does not degenerate into a boring and

meaningless affair, repetitive, dull tasks should be interspersed with tasks which call for some

element of creativity. In practice this may be difficult, but the manager must at least give some

thought to how best he can make work meaningful. Rotating jobs within the same department

at the same level may be one way of making work more interesting and provide opportunity

to the worker to demonstrate his professional and technical skill.

The manager must also understand that each individual is unique and his degree of expertise

at handling various aspects of works varies from that of another. As an effective manager

your attempt should be to pinpoint your subordinates' strengths and give them work in which

their skill can be utilised to the maximum. In areas where they feel inadequate, provide them

support. A talented, competent man is definitely worth that bit of extra support.

Recognising, appreciating and nurturing your subordinates' talents will bring you rewards in

terms of improved results and loyalty. However, to really earn the loyalty of his people the

manager must remember two other key concepts, communication and motivation. A manager

who encourages open, direct and frank communication is always able to tackle issues much

before they become problems and also take advantage of the creative ideas of his employees.

Opportunity to communicate directly with the top manager enhances the sense of self-esteem

of workers and helps create in them a sense of belonging, a feeling that what they think and

feel is important to their organisation. Such a feeling goes a long way in building loyal

employees.

Every individual's behaviour is initiated because of some needs, drives, and desires and is

directed towards achievement of goals. These needs and drives motivate a man to action. The

manager's attempt should be to influence these needs, desires or motives towards the achievement

of the organisational goals. The more such motivational factors a manager can incorporate in the

work content, environment of work and rewards of work, the more willingly will people put in

hard work. Money, power, status, recognition, etc. are all powerful motivators which a manager

can use. Under the Employees Stock Ownership Plans in use in many U.S. companies,

employees can buy shares and become part owners of the companies for which they work. Recent

research reveals that these plans encourage employees to remain loyal. to their organisations and

stay on with them.

Activity D

12

Role of a Manager

List all such key personnel who you think are loyal to the company. What do you think are

the reasons for their loyalty?

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1.8 SUSTAINING LEADERSHIP EFFECTIVENESS

Every manager is a leader in the sense that he has to influence his subordinates to work

willingly for achieving the organisational objectives and inspire them to put in their best

effort. The only way a manager can be acknowledged as a leader is by continually

demonstrating his leadership abilities. If the manager always gives due importance to the

welfare and interests of his employees, makes objective decisions that benefit everyone, he

will be rewarded by the confidence and trust of his people.

J.R.D. Tata is an excellent example of an effective leader. Appointed Chairman of Tata

Steel in 1939 he held this position, performing with distinction and providing admirable

leadership, right up to 1985. Even today he is the Chairman of the Tata group of companies,

whose name is synonymous with the highest standards of quality and integrity. That all Tata

products right from salt to trucks enjoy, the trust of lakhs of customers speaks volumes for

the highest kind of leadership provided by J.R.D. Tata. There are equally big industrial

houses but how many of them enjoy the kind of customer confidence or have the clean and

impeccable record of the Tatas? The beginning is always made from the top-the beginning

of rot or excellence, that is up to you to choose. Whichever you choose remember that it is. a

very important choice, because once the momentum builds up it is difficult to stop and

reverse the process.

An effective leader must be a man with vision who can think and plan ahead, and also have

persuasion to carry along all the people.

1.9 MAINTAINING BALANCE BETWEEN CREATIVITY

AND CONFORMITY

Developing a new idea, concept or product can be very creative, challenging and exciting.

But, that is only one part of the story. The other part of the story, and usually the more

difficult part, is to translate this idea into a successful business. This requires detailed

planning and organising of finance, marketing, administration, etc. While new product

development involves a high degree of creativity, its transformation into a successful

business reality involves carrying out relatively more routine and repetitive tasks.

Designing a new high-fashion garment can be very challenging and satisfying work but

selling it to boutiques all over the country, and chasing them for outstanding dues hardly

offers that kind of excitement, but certainly offers the satisfaction of a routine job well

done.

13


A manager is lucky if he can find elements of both creativity and conformity

in the same individual. Usually this is not the case, and most organisations

have separate; product Development Groups or Research and Development

Division. Creativity can flourish best when allowed full freedom with

minimum rules and regulations. Thin most firms allow the product

development groups to function in a relatively freer atmosphere. An

advertising agency known for the excellent advertisements it produces, allows

its creative people, the copy-writers and art-director, the freedom to come into

office and leave whenever they please. As long as the work is completed within

the deadline, management allows its creative people a great degree of freedom.

In contrast to creative success for which definite output or results cannot be pre-

determined, business success requires achievement of specific, usually quantifiable

targets. In business the best results are usually obtained within the conformity of

company policies and rules. However, this is not to say that managing for business

results is boring and requires no creativity. On the contrary, succeeding in today's

cut-throat competitive world calls for creativity in all the functional aspects of

managing, be it finance, marketing, advertising, public relations or human relations.

To succeed, an organisation needs both creative people and people who can produce

business results. The manager must encourage both kinds of persons in his

organisation. A new product idea gives a company a rare opportunity to emerge out of

the humdrum of competition to the top, but the transformation of opportunity into

reality depends on the people performing for business results.

Activity E

How does your company encourage and promote creativity in its employees?

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1.10 POSTPONING MANAGERIAL OBSOLESCENCE

Managers and executives, after 20 to 25 years of work experience, often find

themselves having reached a plateau where, on the one hand, the prospect of

enhanced status, increased pay and perks are no longer motivators enough to work

hard; and on the other, they find they are unable to relate to the latest managerial

knowledge and skills and feel totally lost. In both cases, these managers cease to be

productive and become a drag on the organisation in terms of their heavy cost and

inability to make meaningful contribution. This is the problem of managerial

obsolescence, that is when managers become unproductive, or out of date, or both. In

the situation where lack of motivation seems to be the cause, the solution lies in

redesigning their job content to make it more meaningful. An aerospace company

designates its senior engineering managers as consultants to its groups of young

engineers, thus providing the right outlet for their rich experience.

Training programmes aim to provide or improve knowledge and skills which can

help the manager improve his performance on the job. Many companies regularly

sponsor their senior managers to attend such training programmes. Other companies

invite experts to their own company premises to conduct these programmes and

workshops. Training programmes, refresher courses, and basic courses in functional

areas are the solution for managers facing knowledge obsolescence.

These training programmes are not restricted to senior managers alone. In fact,

younger managers can also benefit from these programmes, especially those which

provide knowledge of other functional areas such as production for non-production

managers. Also beneficial for the young managers are workshops aimed at training

them for the top level management posts.

Activity F

14

Role of a Manager

Does your company have an explicit policy for training personnel? How many

training programmes have you attended in the last five years? Describe how these

programmes have helped you in updating your knowledge and skills.

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1.11 MEETING THE CHALLENGE OF CHANGE

One of the important tasks which every manager has to perform is that of a change-

agent. The social, political, economic, technical and cultural environment in which the

firm operates is always changing. The company must keep pace and change

accordingly. Similarly, within the organisation, new types of production technology

may be introduced, the existing product lines may be phased out, formal procedures

and techniques for planning, resource allocation, job appraisal, etc. may be

introduced. All these imply a change. And man by his very nature resists any change.

Used to the old system or method of doing a particular job, people perceive change as a

threat to their security. Moreover, change implies learning afresh the new methods or

processes and most people resist making this extra effort.

The marketing department of a television company always complained of the low

quality circuit in the black and white TV and held it responsible for its poor sales

performance. However, when an improved circuit was introduced, the marketing

department tried its best to convince the top management against this change saying

that the old circuit was now performing in a satisfactory manner. The real reason

however, was that the marketing department would now be under pressure to show

results as it would have no scapegoat to blame for its lack of results. The engineers

responsible for providing after sales service opposed the new circuit since it meant

putting in an effort to learn the new way of servicing it.

There will always be change. It is the manager's task to ensure that the change is

introduced and incorporated in a smooth manner with the least disturbance and

resistance. Sharing information about the impending change, educating the people

about the benefits resulting from changes, and building favourable opinion of the key

people in the organisation by involving them with the change process itself, go a long

way in making the manager's task easy. The ideal way of introducing change is that

you, as a manager, simply sow the idea of the proposed change in the minds of a, few

people, and then let the idea grow and build till the people themselves come round to

asking for the change. This is the way the Japanese make decisions-by consensus.

However, it is not always possible to introduce change by having consensus. There

may be limitation of time or money, or pressure of competition which may make the

consensus method impractical.

1.12 COPING WITH GROWING TECHNOLOGICAL

SOPHISTICATION

The two areas which are witnessing dramatic changes in technology are production and

information handling.

In the area of production, technological sophistication has reached the level where the

entire production plants are fully automated and programmed to run with the

minimum human intervention. For instance, at Nissan's Zama plant, where Nissan cars

are manufactured, the final assembly line operations are fully automated and

controlled by robots. These robots have totally replaced men in such jobs in which

15


the former can be programmed to perform round the clock without any fatigue or loss

of efficiency. Robots are also being used in manufacturing which requires handling

of bulky and dangerous materials. All these changes in production techniques have

forced managers to find ways and means of relocating the workers rendered

redundant. Simply laying off is not always the best solution as it can involve a very

high compensation cost. Moreover, in many countries because of the government's

political ideology or cultural values (as in Japan where the concept of employment

with a company is life-long), laying off workers is not permissible.

The use of computers in business has totally changed the way that managers make

decisions. Managers today not only have access to more updated information but also

better information which can improve quality of their decisions. Moreover, with

electronic data processing managers can use complex statistical and mathematical

models and tools to study the possible impacts of their decision. All this helps lessen

the degree of risk by reducing the level of uncertainty. However, access to more

information places the onus on the manager to define what is the relevant information

that he needs and also ensure that the benefit derived from the information which he

receives is greater than the cost incurred in collecting and processing it.

1.13 COPING WITH GROWING PUBLIC CRI TICIS

AND POLITICAL OPPOSITION-BOTH OBJECTIVE

AND IRRATIONAL

Large business groups are often the target of political and public criticism because of

their apparent power and clout arising out of concentration of economic power. By

Indian standards this economic power may seem great but is very small by

international standards. The criticism is not always evoked by facts but because of

ideological, political or personal reasons. But sometimes the criticism may be

founded (fl facts as in the recent case of the Reliance Textiles, attempts to corner

large : amounts of loans from various nationalised banks. Similarly, Peerless General

Finance Limited was the subject of controversy and criticism on account of amassing

large amounts of funds without following proper procedures.

The best way to avoid political criticism is to keep all activities absolutely

legal and above board. Secondly, the manager should keep a low profile of his

company to avoid drawing unnecessary attention to his firm's activities. And

finally, the manager should feed correct information to the media and political

parties to ensure that they view his firm in the right perspective.

1.14 COPING WITH INCREASING LEVELS OF

ASPIRATION

Improvement in information technology is resulting in an increasing trend towards

democratisation of the society. People in one part of the world know more about

peoples and events in other parts of the world. Similarly, people belonging to one

socio-economic segment of society know more than ever before the life styles of

people in higher socio-economic segments. Exposed to a better quality of life and a

better life style, people from the lower economic segments, especially the younger

people, aspire to the same kind of life style.

A manager must bear this fact in mind while dealing with blue-collar workers

because these is bound to be a vast gap between their levels of aspiration and reality.

If the manager is ignorant and insensitive to this gap, the workers' resentment and

frustration is bound to spill over in ways which can prove disruptive and destructive

to the firm's working.

You, as the manager, must understand the nature of aspiration of your workers and

try to fulfil them, as far as possible, within the framework of the company and the

worker's job. Giving more autonomy, responsibility, money, status and enhancing the

worker's sense of self-esteem through participation in management decisions can

channelise his latent or potential resentment towards more productive ends.

1.15 MAINTAINING RELATIONS WITH VARIOUS

SOCIETY SEGMENTS

16

Role of a Manager

A firm fulfils a need or needs of the society. It exists within the society and has a two-

way interaction with it. It seeks inputs in the form of money, men, materials, machines,

technology from the society and processes them to produce goods and services for

consumption by the society. In course of this interaction the manager has to deal with

various society segments, such as the labour market from which it recruits its people,

suppliers of machines and technology, banks and financial institutions who supply

money, the government which defines the scope and parameters within which the

company has to operate, the retail outlets or agencies which stock and sell the products

and the customers who buy the product. This is by no means an exhaustive list, but just

an indicative listing of the various types of society segments with which you have to

maintain relations.

In fulfilling the needs of the society and interacting with various society segments a

firm creates impacts. Some of these impacts are intended while others are not. When a

firm advertises through newspapers and magazines it is creating an awareness for its

products. This awareness is an intended impact. However, when the magazines and

newspapers carry editorial articles about the company and its products, it creates an

impact which was never intended by the firm. Since some of these unintended impacts

may be unfavourable to the company's image or spread information which is incorrect

or inaccurate, the manager's attempt should always be to minimise these impacts.

Interactions with various society segments and their intended and unintended impacts

are taken up for discussion in the next unit.

Activity G

Identify various areas (e.g. computerising personnel office) in your company which

you think require a technological change.

In respect of each, how would you handle the change?

To what extent would you find consistency between the change and aspiration levels of

the people?

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1.16 SUMMARY

The specific tasks which a manager has to perform flow out of his job description. The

tasks may vary depending upon the managerial level, function and industry to which

the manager belongs. In this unit we have discussed an exhaustive list of tasks which

every manager has to perform. It is possible that you may not be performing all the

tasks described here but confining yourself to only a few. Also, some tasks may be of

greater importance than others.

Given the wide range of diverse tasks which a manager is called upon to perform

it is essential that the manager be a thinker, a doer and a people-oriented man-

all rolled into one. However, it is rare that you find a manager who has the

ideal combination of all three dimensions in equa parts. To be effective you

must recognise your strong dimension and look for an opening where your

strength can be best utilised.

UNIT 31 LEADERSHIP

Structure

3 1.0 Objectives 3 1.1 Introduction 3 1.2 Meaning of Leadership 31.3 Leadership Theories 31.4 Leadership Qualities 3 1.5 Functions of Leaders

31.5.1 Leaders as Executive 3 1 S.2 Leaders as Teacher

3 1.6 Techniques of Leadership 31.7 Styles of Leadership 3 1.8 Hazards of Leadership 31.9 Let Us Sum Up 31.10 Key Words 3 1.1 1 Some Useful Books 3 1.12 Answers to Check Your Progress Exercises

After studying this unit you should be able to:

@ define leadership * explain theories of leadership and styles of leaders @ describe the functions and qualificaiions of leaders Q discuss the techniques of Ieadership; and @ explain the problems and hazards of leadership.

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31.1 INTRODUCTION

The most irnpo~-rant task in the public service is to guide and direct work of the group as a whole cowards desired objectives. Leadership assumes much more importance in the modem government since the size and the number of organisations continue to grow. Further, there is a need for effective participation of hundreds and thousands of individuals who are continually joining the organisation with little prior knowledge of what the organisations are striving to do. They involve in more and more complex functions of individual duties. /

1

A combination of several factors separates the individual members more and more from a personal connection with the organisation he joins. The tie becomes impersonal cold and un-inspiring. Generally, in many Government organisations work is divided departmentally. Each will work independently. To provide link there is a need for a leader. Again, the division of labour tends to separate and isolate individual members from the central purpose. In every organisation the tendency is both for the departmental heads and for the rank and file members to see the organisation's problems in terms of primarily of their functional effort. Only competent leaders can correct the tendencies which functionalism and division of labour create. The leader alone can keep tiie entire group committed to the goals whiclr could produce the best results.

Thus, the multiplication of organisations, functions, departmnents, and subordinate geographic units lead to [he increased importance of leadership. In this connection it is necessary to mention that formerly it was thought born leaders were enough to handle the situation. Now the scene underwent a change. The demand is for effective leaders in many fields, on many fronts and at successive levels of authority. There are not enough born leaders to go round. We have to develop them.

In view of our need the idea of leadership should also change. We do not look towards a unique individual set apart with umsual personal qualities. Organisations requires people who can adminisler it.

In this connection it is necessary to clarify certain doubts. Generally, leadership tends to be expressed in terns of power to command or ability to dominate. Commanding by itself is not adequate as a basis for getting things done. Command is an exercise of power over people. But leadership is interested in how people can be brought to work together for a common end effectively and happily. It implieb the use and crearion of power with people. It is conce~ned about the process by which result is auained. Thus, we rnay cor~clude that in every organisation the whole man has to be appealed to and persuaded to do the job. There is n need for total involvement in the organisation. This will be ensured only by a good leader.

Let us try to define leadership. Evcry executive whether he deals with the people directly or indirectly is potentially in a position to lead people. He has the task of bringing them into an effective working harmony. To achieve this, there is a faclor known as leadership. Leadership is defined as the activity of influencing people to cooperate towards some goal which they come to find desirable. This definition may bc elaborated further. There are at least four distinct fiictors in the definition. First, it is usefuI to explain the way by which people rise to leadership. Second, the process of influencing requires study. Thirtl, the nature of goals which people will find desirable has to be analysed. And fouith, the qualities exhibited by leaders in action can be considered.

Some details, though brief, are required to explain the above mentioned factors. The executive who is also the leader, sometimes gets his chance to lead because the situation in which he finds himself' is one where the best results come in terms of leading than i11 terms of commanding. I t is the situation and not the person alone which allows the leader to function. Thus every leader is as rnuch a product of the setting of his life and times as of his own will to power. Sometimes we find self constituted leaders who will push his way up by a combination of a strong personality with a vigorous, assertive ego and a steady detem~ination to accomplish certain results.

The wcond process, is through a democratic political process where a leader is selected from the group. In this there is a understanding between the leader and the led. In this situation rhe leader chosen by the group has the most advantageous conditions for success. Yet in another way he is in conlparativcly greater difficulty because he is always being tested. However, the leader selected by a group has the best chance of winning and holding his following.

Finally, people get the chance to be leaders through a method commonly found in many organisations where boards of directors or trustees appoint top executives who in turn select the lower executives. Here the group has vested interest which brought all of them to a common platforn~. The problem of the leader is to show them that in serving the corporate group they itre serving themselves; that in being loyal to the organisation as a whole they are also loyal to themselves.

31.3 LEADERSHIP THEORIES

Leadership is one of the most important topics which was widely researched both by the individuals and institutions. Studies by Ronald Lippitt and Ralf K. White, at the University of Iowa, Bureau of Business Research of the Ohio State University and University of Michigan have undertaken pioneering studies on leadership. The important theories of leadership are trait theory, situational theory, group theory, etc. We will now discuss some of these theories to gain a broad understanding of leadership.

Trait Theory

Leadership

Studies on leadership in the beginning concentrated on the qualities of leaders. The major

Concepts in Organisation - 111 question that was always asked was what qualities or traits analte a person a leader. S o m e believed that leaders we bo& and are not made. This is what is popularly called the 'Greatman Theory' of Leadership. These born leaders possess certain traits and characteristics, certain natiaral abilities which allow them to become leaders. The trait approach is particularly concerned with identifying the personality' Waits of leaders, Later, behavio~ral studies have revealed that the leadership qualities lare rlot totally inhorn a n d they can be acquired through learning, traini~~g and experience. Several studies tried trp identify the important traits and there was wide variation in the traits identified by the scholars. Keith Devis for example, identifies four important traits for a successfial leader viz., intelligence, social maturity and breadtl~, inner motivation and achievement, d r ive and human relations attitude. We will study some of these characteristics later in this unit.

Group Theory

Grvup theory was also developed by social psychologisis. This theony ernphasises that the leader provides benefits to his followers. According to this theory, the followers depend upon those leaders who satisfy their needs. B e y extend support ar~d cooperation as l o n g as the leaders satisfy their needs and motivate them to achieve the objectives and goitls of the organisation. Halander and Julion have ernphasised this point when they said.

" ... the person in the role of leader who fi~lfills expectations and achieves group goals provides rewards for others which are reciprocated in the form of status, esteem, and heightened influence. Because leadership embodies a two-way influence relationship, recipients of influence assertions may respond by asserting influence in turn ..... The very sustenance of the relationship depends upon some yieldirlg to influence on both sides.

Situational Theory.

Both trait and group theories were found inadequate to provide an overall theory of leadership. Therefore, the scholars turned their attention to the situational aspect of leadership. They begun a search for situational variables which influence leadership roles, skills and behaviour. This tkieory believes that leadership emerges from the situatiori a n d is influenced by the situation. As a result leadership differs from situation to situation. F.E. Fielder, who is important proponent of this theory, feels that people welcome leaders because of situational factors. He ernphasises that it is not meaningful to speak of an effective Ieader or an ineffective leader. We can only speak of a leader'who tends to fx effective in one situation and ineffective in another situation'.

31.4 LEADERSHIP QUALITIES

Certain qualities are essential in any leader because they are vital to take the individual towards success. Deficiencies can be eliminated by conscious effort. Good qualities can be strengthened. But it is not possible to cultivate all the attributes since some are rliore innate than others. An exhaustive list is not possible. However, certain specific and easily identifiable traits are enlisted here on the basis of practical experience although ,several of them fall under psychological terns.

A11 the,qualities listed however, do not necessarily appear in every leadership situation nor are the? all equally required of every leader. The aim is to present a comprehensive picture of all desirable qualifications.

i) It is generally agreed that possession of a generous and unusual endowment of physical and nervous energy is the secret of the most successful leaders. Those who rise in any marked way above the general public have more drive, more endurance, greater vipour of body md mind than the average person. Robust health and basic strength is an usrct for the effectiveness of the leader. Everyone of us realise how important is the phyhiciil and nervous conditions in our working. Sluggishness, apathy, fatigue are generally considered to be the stumbling elements of good leader. The leader also must recognibe that his job is more demanding than the average worker. Therefore, the leader should be careful about his health and vitality.

ii) The second quality which is clearly predominant in every good leader is a strong sentr

of a dominant purpose and direction. The leader is one who k~iaws much better what he wants to get it done and where he wants to go. It means he possesses clarity and precision as to the objectives, purpose or aims he want to achieve.

iii) The next quality pertains to enthusiasm. The mere presence of a sound purpose is not enough. It must be felt to be sound by all. A sound purpose must be supported by dynamic emotion, hope, will to win and a robust sense of joy in the job. Thus enthusiasm is essential. It is important because it is self sustaining. If the leader has real vigour on the physical side and definite objective on the mar~ual horizon, then enthusiasm is an automatic offspring. Enthusiasm can be deliberately increased but it requires great energy, and deep intellectual conviction. A good leader is always conscious of this fact. He should be a known enthusiast.

iv) Affection and friendliness are essential in a good leader. Infact, affection and friendliness are positive motivating forces over the conduct of those upon whom it is expressed. This will work in more than one direction. The tendency is for friendliness and affection to evoke a reciprocal response. However, the leader has to guard against sycopi~ancy-andother-evils associated with it in the name of friendli~iess and affection.

The followers must be able to trust their leaders. The followers want to feel a sense of solidarity, of honesty and reliability towards the leader. The people should gain the trust or confidence. In shdrt they want the leader to possess integrity. It is not necessary being a paragon of virtue because it is not possible. But what is required is acting appropriately to the expectations of the group we may hasten to'add here that where there is a divergence of views relating to the major objectives of the organisation then the leader should maintain his integrity and convince the followers. If he fails, he should quit after giving a reasonable time, making clear to the group the grounds on which he has acted. But these are extraordinary illustrations.

Integrity is demanded for another reason also. In a complex society like ours there are conflicting demands. It becomes impossible to have a competer~t opinion about many issues. Yet the opir~ion is sought and a decision is expected. In this situation, people expect the leader to possess co~nplete integrity. This is a major problem of entire life philosophy of the individual.

To these above general qualities, Chester Barnard adds four other qualities of leader. They are (i) vitality and endurance; (ii) decisiveness; (iii) persuasiveness, and (iv) responsibility and intellectual capacity, in that order of priority. Millet identifies eight qualities which a leadership should possess. They are (i) good health; (ii) a sense of mission; (iii)'interest in other people; (iv) intelligence; (v) integrity; (vi) persuasiveness; (vii) judgment and; (**:;i) loyalty.

-,reek Your Progress 1

Note: i) Use the space below for your answers. ii) Check your answers with those given at the end of the unit.

I ) Explain the significallce of leadership.

2) What is Trait Theory?

Leadership

Concepts in Organisation - 11

3) Explain. Siiuutiorial Theory of leac!crship.

4) What qualities are irnporraint for a leader'?

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- -- -- 31.g FUNCTIONS OF LEADERS

Leader has a significant role in the organisational Ilfc. The success or tailurc of organisations are greatly dependent upon how well the leaders perfonns his functions. It is necessary, therefore, to know as to what fimctionl: ; leader perfonnu. Hick!, and Ciullett have identified eight important functions of a leader. 'Uiey are (i) arbitrCL;;iig, (ii) suggesting; (iii) supplying objectives; Ilv) catalysing; (v) providing security; (vi) representing; (vii) inspiring; and (viii) praising. Chester Banlard identifies three main functions of thc executives. They are to 111aintai11 communications in the organisation, to secure essential services from individuals, and to formulate purposcj and objectives.

The work of a leader is restricted neither to the eight functions identified by Hicks and Gullett nor to the three functions identified by Barnard. Broadly, the work of a leader, who will be an executive, includes the following:

i) planning and defining policies and procedures.

ii) organising the activities of all the individuals. iii) delegating authority and responsibility

iv) controlling them towards the desired results

v) supervising Lhe work of the group

vi) giving general orders and guidelines vii) interpreting and transmitting policies

viii)training the key subordinates to carry executive load

ix) coordination and

x) stimulating and vitalising all the individuals who are contributing their efforts.

A leader should support definite objectives in the organisation so that it becomes easier for the people to understand thc goals of the organisation. If the objectives are sound then it is possible for the lead~r lo become sound. The leader must be certain that he has a sound and therefore an appealing purpose before he tries to win followers. In this exercise the leader shoulcl try to interpret the experiences of his followers occasionally so that the finer points could be explained to them. It could be convincing since the experience would benefit the followers. In sum it means the leader should take the followers into confidence while .

rhe objectives of the organisation.

The process of drawing out support from the followers for any aim is often a crucial one for the leader. It is possible only when the followers are convinced that the interest's and the desires of them are being talcen adequate care. Leadership is not a matter of hypnosis or salesmanship. It is a matter of bringing out from within the individuals, positive impulses, motives and efforts. In fwt leadership is known by the personalities it enriches and not by those it dominates or captivates.

i 36.5.11 Leader as Executive ' The most important aspect of the leaders with which we are really interested is that of I ' executives whose primary duty is to direct some departments or its units or some , enterprise. 111 this respect they lnust first be able to do the executive job. It means they I should see that it is done. This requires a detailed analysis.

In every organisation there are many tasks and activities to be carried out. There is always

, a need for sub-division and fi~nctioniil distribution of duties. It requires coordination. Further, the executive at the top cannot possibly know all thc details. This situation is confronted by all the top executives corporations, Government departments etc. As the size of the organisation increases the technical command of the top executive who is the leader of the organisation seems to decrease considerably. It is true that in every leadership situation the leader has to possess enough grasp of the ways and nlearls to give wise guidance to the staff as a whole. Due to [he complexities, the job of leading has its own special techniques and these are different in kind from thc special techniques of directing or operating line or staff departments. In a large organisation thc top executive posts require primarily a coordinative responsibility. The executive leader in such a situation should be more than a goad technician. The conductor of an orchestra is the best example of coordinator. Thus, the coordinative technique means ability to formulate, transmit, interpret and supervise the working of people from top to .bottom. There may be some variations in the organisations. But there are certain broad aspects which are comtnon in many leadership positions.

The effectiveness with which the purpose is being realised depends mostly on the t'echnical grasp of the leader. It means he should be farniliar with standards of sound performance and related matters of technical irnportancc. The leader should be in a position to make use of the available expertise shrewdly. The expert should be on tap and not on top. Now it is for the leader to take advantage of this situation, hl addition, there is more and more to leadership in other directions. It is the ability to make a team out of a group of individual workers, to foster a team spirit, to bring their efforts together into a unified lotal action. It is in this broader sense that the real skill of leaders is being increasingly viewed. Ultimately the leader has to get results. There must be action and accomplishment. The group objectives should be realised. This is very important and also vital. It is essential that the leader should take human experience in hand and make it the way he believes it should take.

Decision-making is, psychologically, one of weighing evidence, sorting out alternatives, and making n choice by which one is willing to stand. Exercising sound judgment is essential. The leader has to understand certain very well known elements. If these are carefully followed, the results of judgments are sure to bc better than if no conscious attempt is made. L.et us list out those eiemenls.

In the first instance, the leader should recognise the problem he faces. Secondly he has to gather all the facts and data relevant to the problem. The next step is its classification '

Concepts in Organisntion-11 and arrangement into related groupings. The fourth step is the formulation oT possible solution. The fifth step will be checking of this possible solution and finding out whether it is the good solution. Thus testing is necessary to get sound results. Finally, adoption or acceptance of the trial solution as valid and useful. This kind of procedure is called inducting thinking or sometimes called scientific method. Decision made as a result of a careful adherence to these steps will be far more sound than the random selection. The procedure has certain difficulties but under the circun~stances it is the best method.

The leader must be careful about announcing the decisions. We most impress upon his followers with the fact that a decision has been reached and there is no scope for functions in opinion, hesitation; delay etc. He must act and support his decision. It is his responsibility and cannot escape it. Sometimes it is at this point that many leaders reveal their weaknesses.

The capacity and the willingness to rnake decisions can be cultivated. Prior planning and : standard routine will be useful in several decisions. There is a need for taking counsel,

eliminate confusion from the followers. It is necessary to state that there is no place for stubbornness, obstinacy or inflexibility on the part of the leader. Finally, the real leader will stand ready courageously to pay the price of seeing his decision through without blaming others for his own errors.

The next important function of leader, particularly in public orgariisations, is the capacity to delegate authority to subordinates, to carryout their essential duties. Leadership becomes effective when others are persuaded to accept the assignments given to them and proceed to carryout their duties. In effect, leadership is dependence upon the faithful performance of one's associates and subordinates.

Some people try to do everything by themselves. They do not trust others. They dislike inter-dependence. But in every organised effort in large groups dependence upon one another becomes essential. The leader has no choice except to delegate authority to others. The essence of delegation is to confer discretion upon others to use their judgement in meeting specific problems within the framework of their duties. Management leadership must then accept the responsibility for how this discretion is exercised.

Intelligence in a personality is colnpletely in-built than most others. In the context of organisation, the intelligence of a person is see11 as the capacity to see the problem. It is also the ability to appraise situation readily and tackle it. This capacity differs from perso11 to person. It is difficult to develop the intelligence by conscious effort. But it can be safely stated that there are many leaders who have made up the deficiency through dete~mination, integrity and friendliness. In this connection, mention may be made regarding two other qualities as special evidences of intelligence-namely imagination and a sense of humour. The capacity for imagination can be improved by deliberate effort. Imagination is essential in more than one way. A sense of humour is important as a lubricant. It will facilitate smooth flow of communication without hurting anybody.

31.5.2 Leader as Teacher

The next important aspect of leadership is that of staff development. In this connection it is important to mention that a good leader is a good teacher. A good teacher is never a boss. He is a &ide who will set up a goal, pose some problems, guide the activities afid hold a person to a new way of mind and conduct. This is true of evkry executive in the organisation. Let us examine some of the tested principles of a good teacher which will ultimately be of immense use to the leader.

In the first place, the good teacher tries to build up a feeling in the learner that he is engaged in an activity which is very inlportant for him. Thus a good leader like teacher has to generate a desire to learn and willingness among the learners. In the second place, learning' should begin at the point of the learner's-Present total outlook and equipment. The new objectives should be related to what he now knows and feels. The third aspect is that learning involves the whole organism. One has to think, feel and act appropriately for the process to go on successfully. Briefly, it is said that the leader has to be sure that his followers are given a chance to go through much the same experiences as have led him to , believe in his objectives. The fourth aspect in this analysis is in regard to the duty of the executive to guide the foliower and provide him a chance to think and supply the I

I I

1

infommation which constitute the immediate sub.iect matter of the learning. The leader should help to arouse interest in the objectives of the group. A good leader may sometimes win temporary support for his objectives by verbal advocacy but the real support has to come from an experience which is deeper than learning to exhortation. One can say with a sense of conviction and cmotion.

One final aspect of the teaching process needs a mention here. Learning takes time. Beyond a point we cannot hurry up. The teacher and the leader alike should be aware of the capacity and competence of the learners and direct their experiences and thus lead them on to the desired changes in attitude.

In conclusion, it is clear that the learning process requires an active experience of for a favourable result by those being led. The leader cannot afford to be in a

haste. It is a slow proces? But it is essential.

31.6 TECHNIQUES OF LEADERSHIP

111 any art there are definite techniques. This is true of leadership. There are certain techniques which deserves mention. Conscious cultivation of them can bring about improvement in general and leade~.ship value in particular. Giving orders occupy the first position. Order is a functional fact. It is in~plicit in the tasks or duty to be performed. Every individual is expected to know, as a result of good training, what is expected of him and what are the standards of good performance. This is what scientific management teaches us, and which every execlltive is expected to adopt. Thus on the basis of this definite and sound method, order giving can be reduced to a minimum. But it cannot be entirely dispensed with.

There are certain exceptions to this. Emergencies and other contingencies must be attended to by the leader because the followers always look towards the leaders for the line to follow. Under these circumstances the leader must step in and take command of the situation. Problems of working method will arise. The relationships among the individual ,

workers, or the inter-relationships of groups or of depaftments require special adjustments which may entail giving orders.

The leader must be clear while giving orders, remove all possible doubts and confusion. The words used must be carefully chosen and should convey the same meaning to the speaker and the listener. The order should be explicit. If the order is oral then the leader should impart the order in a natural, vigorous and firm tone of voice. It should not lead to anger or annoyance. If warranted, the order may be repeated. Any superficial behaviour is not a healthy sign of a good leader. Thc leader should phrase the orders courteously. Avoid terms like 'Do this' or 'Do thatY. Courteous phrase may seen1 weak but it is the most effective method. In conclusion, good leadership implies good manners, from top to bottom in any organisation. It is veky essential in every democratic society. The leader has to avoid giving too many orders at one time. This creates confusion, slowness of assimilation and hewildem~ent. Keep orders simple, keep them in time sequence, space them according to priorities. The orders should be positive in contact. It means one has to avoid negative oornmands. Finally, makc sure not to issue contradictory orders.

Let us look at the problem of handling followers who do not attend to their duties seriously. The process of reprimand, punishment or criticism should be bslsed on clear facts and figures. Penalties should be definite and administered even-1.1anded without partiality or animosity. Failures on the part of individuals have to be dealt with carefully because there may be reasons beyond their grasp. Hence, careful consideration of various factors is essential.

Another factor of tremendaus importance is the assurance that good performance is being appreciated by the leader. The leader should not hesitate while giving praise for good work. The executive, however, has to follow some standard procedure. Whenever, a standard proccdure and method is followed, the leader has a definite piece of informatiorl for a conclusion. Commendation can be given in public where the group will know that the merit has been recognisecl. The total hearing and appearance of the leader is another important factor. The leader should be straightforward in personal dealings. There is need for r\ proper balance between friendliness, cordiality, and undue familiarity.

I Leadership

I, Concepts in Organisation -11 A good leader has to encourage the followers to evolve new ideas. It is possible thraugh

organised group deliberations. Fostering a sense of group identity among the followers is another important element the leader is expected to develop in the organisation. This improves the morale of the group. Self disciplines in the group is another item which deserves attention by the leader. Finally the leader has a clear duty to see to it that on all important issues the followers are informed of all relevant facts about new policies as quickly and fully as practicable.

Now let us look at the factors affecting leader's influence over others? There are a number of processes through which the leader influences others. The most important of these are:

(i) suggestion; (ii) imitation; (iii) persuasive argument; (iv) publicity; (v) reliance upon the lagic of events (vi) a show of affectionate devotion;(vii) the creating of a typical problem situation. It is not possible to generalise in advance as to when the leader should wisely uke one method or another. Often several of them are in operation at the same time. But a conscious knowledge about how each influence works will help the leader.

Suggestion may be either direct or indirect. It is used normally to build up or maintain the prestige of the leader. It is also adopted to avoid the danger of offending the pride or disturbing the self confidence of the followers. Suggestion is also useful in getting supporters.

I Imitation is not an active process for the leader. It is rather a support upon which he can ' frequently rely upon. It is said that nothing succeeds like success. It is because people will 1

imitate; c'opy and kllow along as soon as success, status and esteem are present. 1

Persuasive argument is important and also very essential to influence individuals for an 1 agreement on specific issues. It is an art in which the leader has to gather all the evidences and opinions and convince the follower to adopt a desired course. !

I

Publicity is another technique, of which all of us are fi~lly aware in the modern times. It 1 will build prestige, interpret facts, attitudes and co~iclusions to all concerned. The I

I leader has to choose the niedia and methods of publicity depending on the size and character of the followers. It is necessary to differentiate between publicity and propaganda.

The leader has to be watchful to sense the trends, and tendencies at work and find out the logic of events and direct the followers accordingly.

Devotion to the leader, perhaps sometimes blind, is always a powerful weapon.

Lastly, let us consider the most efficient method of influencing others. This is explained in . terms of helping to create in and around the group of followers a definite set of conditions and circumstances which the followers feel problematic or difficult. In this situation a leader recognises a dificulty and helps to give it a sharper focus and then offers a solution. '

A further fact not to bbe ignored is that people are influenced by a leader because he becomes a symbol of some higher cause.

31.7 STYLES OF LEADERSHIP

The style an executive selects greatly influences his effectiveness as a leader. Leadership style provides motivation for the achievement of organisational goals. Improper styles may cause irreparable damage as the employees may fed dissatisfied and resentful. Broadly three leadership styles are identified viz., autocratic, participative and laissez-faire. Each ,

of the styles has both advantages and disadvantages. The leaders adopt different styles at .

different points of times depending upon the station. We shall now briefly discuss each of these styles.

Autocratic Style 'I

In this, policy and decisional authority is concentrated in the licands of the leader. It is the leader who decides policies and modifies them according to his own wishes. This type of leaders expect unquestioned acceptance of the leadership by their subordinates. I1 is very ~

difficult to anticipate the behaviour of the leaders because of their autocratic style. Leader tends to be personal and remains aloof from the group. He considers himself superior and all his colleagues inferior, inexperienced and ignorant. This type of leadership has the advantage of quick decision-making. But it causes pain to the employees and results in dissatisfaction. In the process employees may become passive towards organisational goals.

Participative Style

This style is also called the democratic style of leadership. In this, leaders obtain the cooperation of the employees in achieving organisational goals. They allow the employees to participate in decision-making process. All policies and decisions are arrived at through group discussions. Leader encourages and assists his colleagues and only provides alternatives instead of dictating the final decisions or policies. The members of the group enjoy greater freedom. Leader is generally objective both in praise and criticism. Leader recognises the work of subordinates. He believes that the subordinates are capable of making decisions. Participative style leads to improved employee-employer relations, higher morale and greater job satisfaction. It also seduces the burden on the leader. A major problem in this type of leadership is dilution in the quality of decisions as every view point has to be taken into.consideration in fom~ulating policies and taking decisions. It is also time consuming because of consultative process.

Laissez-faire Style

In this type of leadership, the organisation does not depend on the leader to provide external motivation. The employees motivate themselves. They enjoy greater freedom and the leader's participation in decision-making is minimal. No attempts are made to regulate the course of events in the functioning of the organisation. Leader only assumes the role of one of the members of the organisation. This style of leadership has advantage of giving freedom and independence to the employees. But unfortunately in the absence of a strong leader the employees may not have proper direction and control. This may lead the employees to become frustrated and may even result in organisational chaos.

311.8 HAZARDS OF LEADERSHIP

There are certain-constraints on good leadership. In the first place, leaders should properly regard other pe'r;ple as ends in themselves, not as mere instruments to realise ends imposed by a leader. Secondly, any normal, healthy minded person will exercise power by persuasive influence rather than by coercion.

I The manifestation of various causes and occasions of mental disturbance show themselves under the following:

Every leader gets an opportunity to satisfy an inner urge for enhancement of his ego. Bul this love of self aggrandisement can easily get out of hand. This is a dangerous tendency. This excess may take several farms. It may lead to a feeling of superiority and aloofness, vanity, pride etc. ,He m8y demand too much. flattery and personal loyalty and therefore gather a set of 'yesmen' or sycophants. There are several ways through which the leader will have set right his behaviour.

In the next instance, a leader should guard himself against emotional instability. This will take the form of chronic irritability and quick temper. Another hazard in the leadership style pertains to obsessive few complex. The leader in some cases entertains the feeling that he is not good enough for his task or is on the verge of failure. All such feelings undermine self confidence. They curb enthusiasm. They are inhibiting factors and tend to destroy the sources of personal power. The leader has to avoid such self defeating propositions,

'In certain other instances, good workers just below the level of top executives,seern to be well qualified to lead but are afraid to try when a chance is given. This inferiority feeling also becomes one of the powerful hazards of leadership. Another aspect which is equally dangerous is the tendency to legitimise irregular activity. Legitimisation means that whatever we do we try to defend it and support it as a correct decision. This is no1 a healthy symptom. This will generate an attitude of self-righteousness in the leader.

Concepts in Organisation - 11 This tendency will create a feeling among the fol'loweis that their leader is a hypocrite.

Finally, the leader must be vigilant about the sadism. It means any form of behnviour from which the individual derives satisfaction, which imposes suffering pain or cruelty upon others. This is the most unfortunate trait for a leader to have. One manifestation, not always thought of as sadistic, is the use of sarcasm. This is also not desirable.

In conclusion, the corrective line to be followed, is re-ducation in the light of full knowledge of the causes of the maladjustments. Discover and confront the realities. That is the general dictate which must be followed wherever any of the several kinds of potential 9nzards of leadership listed abQve are found to be present.

Check Your Progress 2

Note: i) Use the space below for your answers. ii) Check your answers with those given at the end of the unit.

1) Explain the functions of the leader as an 'executive'.

2) Is leader a teacher? How?

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3) How does a leader influence others?

UNIT 1 MEANING, NATURE, SCOPE AND SIGNIFICANCE OF HUMAN RESOURCE MANAGEMENT

Structure 1.0 Learning Outcome

1.1 Introduction

1.2 Understanding HRM

1.3 Role of the HR Manager

1.4 Future Challenges to HRM

1.5 Conclusion

1.6 Key Concepts

1.7 References and Further Reading

1.8 Activities

1.0 LEARNING OUTCOME After studying this Unit, you should be able to:

• Discuss human resource management particularly highlighting its significance to public and private management;

• Bring out its implications; and

• Distinguish related concepts like human resource development, personnel management and industrial relations.

1.1 INTRODUCTION Organisations in their functional aspect are treated comprehensively under the wide, architectonic rubric / discipline of Human Resource Management. Simply put, human resource management is a ‘management function’ that focuses on the ‘people’ dimension to/ of organisations.

As organisations get larger and sophisticated and processes more complex, it gets increasingly difficult to coordinate specialisations at various policy and operating levels. The HR department performs the vital task of weaving sectional and individual interests and practices into the matrix of group functioning, that is the ‘organisation’. Organisations had hitherto looked at the "Personnel Department," for management of paperwork involving hiring and paying people. More recently, organisations consider the human resource department better suited for the task. HRM plays a significant part in both regulatory and policy planning functions.

Though in-charge, theoretically, of the traditional POSDCORB functions, HRM today ventures beyond theoretical postulates. The coverage of HRM has expanded to more enveloping domains in the discipline and profession, throwing open possibilities in the art, science and craft of management theory and practice respectively.

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HRM covers myriad functions such as the specific and defined areas of planning and control, resource allocation, conflict resolution and settlement of legal claims, to recount a few. HRM function has evolved so much so that the HRM tag could eve be held misleading (Mahoney, 1994), as HRM is not limited anymore to securing 'person power'. Human resource management entails advising, implementing and organising change, which are identified as the three important requisites of sound HRM practice.

HRM is at the forefront of management strategy in the contemporary times. It is expected to be proactive rather than a reactive management function. It plays a vanguard role and imparts direction to an organisation. The personnel department does not merely "hand out gift certificates for thanksgiving turkeys" (Mazarres, 1994). It’s a pervasive management function actively involved in managing and administering organisation wide processes, initiating policy with regard to HR specifically, and also other sections, collaterally involving the human resource management function. It is more than a cosmetic or a fringe activity or function.

HR management today involves more than just the management of the HR function. It extends into areas such as compensation benefits, staffing, HR forecasting, succession planning, management and executive development, performance management, employee relations, organisation development, total quality management, needs analysis, instructional design and development training programme evaluation, return on investment (ROI), impact studies to name a few”(Mazarrese, 1994).

Human resource management is therefore understood as the all significant art and science of managing people in an organisation. It’s significance lies in the fact that physical and monetary resources cannot and do not sustain increased rates of return on investments, unless complemented and supplemented effectively by good human resource practices which reflect in best standards of productivity and service delivery. Increasing research output in behavioral sciences, new trends in managing ‘knowledge workers’ and advances in training methodology and practices have led to substantial expansion of the scope of human resource management function in recent years, besides adding to its understanding as a theoretical area of enquiry.

Use of the word ‘management’ is significant here. It is new public management informing management ethic today. Consequently, ‘administration’ is used to denote more routine coordination functions while ‘management’ is perceived as the active or the potent functional aspect of an enterprise; more pertinently, the art and science of “getting things done” (Simon, 1957). Significantly, management function is universal in public and private organisations (Fayol, 1959).

HRM is not just an arena of personnel administration anymore but rather a central and pervasive general management function involving specialised staff as assistants to main line managers.

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Evolution of HRM

Historically, the beginning of HRM is traced to Robert Owen and his large spinning mills in Scotland. Charles Babbage and Henry Towde are the other two names associated with HRM’s early beginnings. Its growth was particularly marked in the inter-war era which was also the heyday of the human relations and its subsequent branching into the diagnostic, behavioural movement. The latter being more applied and scientific in nature, has since then developed along highly specialised lines. It has branched out specifically along the domains of applied psychology and sociology. The latter in turn has evolved around the concept of the ‘welfare state’ while the former has proceeded as the behavioural science movement. The art and science of personnel management is inclusive and incorporates the two trends. The diagram beneath illustrates the development or evolution of personnel management through recorded time (the figure is self-illustrative).

The theory and practice of human resource management is based primarily in sociology and economics. For Keeney (1990), human resource management is the conceptual euphemism to describe all the apparently transformative changes in the management of employee relations in the 1980s. Blunt (1990) suggests that in the late 1970s and even into the early 1980s, the discipline concerned with the human side of the enterprise was largely regarded as covering moribund housekeeping operational activities. Consequently, there was no status and influence of the discipline. Guest (1990) attributes the concern with status to the origins of personnel management “as an extension of scientific management or a form of welfare management. Hegg (1995) points it out as the contrast between the high aspirations of the normative model and of the failure to deliver as reflected in the behaviourist model.” It later developed in stages through consistent research in the area so much so that at present; it is a pioneering area in management. New dimensions continue to be added to it, lending it a unique

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dynamic character. It now covers diverse areas, as, mutual understanding at the work place between employers and employees and the socio technical school of thought emphasising restructuring of work to match social and technical systems (Schein 1988). Organisation Development (OD), Human Resources Accounting (HRA) and Quality of work life (QWL) are the most recent precursors of HRM. HRA was popularised by Flamholitz (1985) which represented the ultimate quest for legitimacy through quantification. HRM’s financial implications are studied under ‘organisational imperatives’ (Kamoche, 1994).

1.2 UNDERSTANDING HRM We may now attempt to elucidate the subject under study. Before attempting the same, let us explain the essentials that require finding place in any definition. The core issues are pointed out as:

- Human resource strategies are derived from the overall business strategy in the same way as investment or marketing strategies. Decisions relating to employees need to be integrated and made consistent with other decisions.

- Organisations are not mere structural entities but ‘social units’ comprising not just bricks, mortars, machineries or inventories, but, people. It has been observed by scholars that an organisation is not a complex of matter but rather a complex of humanity. Personnel management deals with the effective control and use of manpower as distinguished from other sources of power.

HRM differs from Personnel Management in treating people as ‘resource’. People are human capital and are treated as resource, in that tangible and intangible benefits flow from their utilisation. Organisations have to effectively harness this resource in order to be productive.

- An organisation must make appropriate use of ‘human capital’ for achievement of both collective organisational and individual goals, mutually as well as in tandem. Coincidence and compatibility of the two is specially stressed for the sake of ‘organisational equilibrium’ in that the individual and the organisation represent two ‘opposing poles’ of organisational effort. Though their interests come across as competing forces, they are not always mutually contradictory and can be reconciled in the interest of ‘organisational purpose.’ The aim of human resource management is to balance the equation and bring about required synergy to reinforce mutuality of effort towards the ‘common purpose.’ Organisational Equilibrium is achieved by matching ‘inducements’ (positive balance’) to ‘contributions’ (negative balance on the part of workers (Barnard, 1938).

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- The final ‘value’ or ‘end’ in this case is ‘organisational effectiveness’ understood as increasing ‘organisational capacity’ in the face of environmental dynamics with attendant impacts on organisational and ‘structuring’ and ‘functioning’ (Simon, 1957). There is an unmistakable reference here to the ‘contingency paradigm’ of administrative theory. Specific environmental variables could be identified as technology, available knowledge, physical and material resource, government policy, etc. Maintaining ‘relevance’ of organisational functioning in the context of shifting ecological variables is always a challenge and has to be addressed for the sake of ‘efficiency,’ understood as favourable cost- benefit ratio (Simon, 1957).Together the two make for ‘effectiveness’ of the organisation.

Defining HRM The following four definitions encompass the aforesaid core issues in human resource management. HRM could thus be referred to as;

1. …..a series of integrated decisions that govern employer-employee relations. Their quality contributes to the ability of organisations and employees to achieve their objectives (Milkovich & Boudreau, 1997).

2. … Concerned with the people dimension to management. Since every organisation comprises people, acquiring their services, developing their skills, motivating them to higher levels of performance and ensuring that they continue at the same level of commitment to the organisation are essential to achieving organisational goal. This is true, regardless of the type of organisation: viz. government, business, education, health, recreation, or social action. (Decenzo & Robbins, 1989).

3. … the planning, organising directing and controlling of the procurement, development, compensation, integration, and maintenance of human resource to the end those individual, organisational, and social objectives are accomplished. (Flippo, 1984).

4. “….. The organisation function that focuses on the effective management, direction, and utilisation of people; both the people who manage produce and market and sell the products and services of an organisation and those who support organisational activities. It deals with the human element in the organisation, people as individuals and groups, their recruitment, selection, assignment, motivation, empowerment, compensation, utilisation, services, training, development, promotion, termination and retirement.”(Tracey,1994 )

From the above definitions, certain new and some of the most important ones HRM aspects emerge could be stated as:

1. There is an explicit link between managing human resource and success of administrative or management strategy. Competition forces management to alter the latter with implications for the former.

2. Sector strategies cannot be appreciated in isolation (mean in Simon’s terms) but only as parts of the integral whole.

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3. Senior line managers are required to assume more responsibility with regard to managing human resource. There is a stress on inter-personal relations as a determinant of performance.

Versions of HRM Hard Version “Human resource management reflects a long-standing capitalist tradition in which workers are regarded as commodity.” (Guest: 1999). Hard approach to human resource management is a pragmatic perspective to human resource management which looks upon people as ‘resource’ and measures the tangible benefits accruing from their deployment. Human resources have to be acquired, developed and deployed in ways that maximise their utility. The focus is on calculative and strategic aspect of managing human resource and the approach is “rational” (fact- based) with regard to factors of production. The objective is ‘efficiency’ (maximising benefit and minimising cost) and the philosophy is business-orientation (specifically human resource accounting) with emphasis on tangible and quantifiable value addition to the organisation. It has been stated that the drive to adopt human resource management is based on the business need to respond to the external threat arising from increasing competition. It is a philosophy that appeals to management’s striving hard at achieving and sustaining competitive edge and appreciate that to do it they must invest in human resource as well as they do for other practices or for other areas (for example, procuring technology).

The emphasis is on:

• drive for economy and efficiency;

• interest of management as opposed to workers;

• adoption of a strategic approach that is in line with business strategy;

• obtaining value-adding services from people through targeted human resource development practices;

• emphasis on strong people centric organisational culture, expressed or articulated in the mission or value statement and reinforced by communications, training and performance management processes; and ;

• the need to obtain agreed commitment of employees towards goals and purpose (s) of the organisation.

Soft Version The ‘soft’ model of human resource management traces its origin to the human relations school of administrative thought and emphasises development of healthy organisational culture by use of effective communication, motivation and leadership as primary sources of maximising performance. It looks upon employees as ‘co-contributors’ rather than adjuncts in organisational culture, ‘objects’ or pieces of automation. It stresses on the need to gain sustained commitment of employees through democratic means such as participative

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management, meaningful involvement in policy formulation and other methods of developing ‘high-commitment-high-trust’ culture in the organisation. Attention is therefore drawn to the key role of organisational behaviour.

Employees are treated as valued assets and a source of competitive advantage which needs to be optimised by evincing ethical virtues such as commitment, adaptability and high quality performance in consonance with the ‘collective will’ of the organisation articulated as organisational purpose. Ethics lies in reciprocity between individual member and the management.

The emphasis is on the belief that the interests of management and employees are congruent. This approach is also termed as the ‘unitary’ approach’ to human resource management.

Reconciling the Two It has been observed that even if the rhetoric of human resource management is soft the reality is often harsh, with the interests of the organisation prevailing, more often than not, over that of the individuals’. Practically, we find a mix of hard and soft versions informing organisational practice. This implies that the distinction between hard and soft HRM is not as specific or obvious as it is tacit and implied.

Features of HRM By now we have been able to understand the meaning of HRM. Some of the main features of HRM include (Keith sis son):

1. There is stress on the integration of HR polices with overall planning and underpinning latter with the former;

2. Responsibility for personnel management no longer resides with specialist managers but is increasingly assumed by the senior line management;

3. The focus consequently shifts from management-trade union relations to management-employee relations; from collectivizing to individuation; macro to micro; and;

4. To reiterate, with the manager donning the role of “enabler”, or ‘facilitator’, there is stress on commitment and initiative on the part of the employees.

HRM is based on the following four fundamental principles (Armstrong, 1988:90).

a. Human Resource is the organisation’s most important asset;

b. Personnel policies should be directed towards achievement of corporate goals and strategic plans;

c. Corporate culture exerts a major influence on achievement of excellence and must therefore be tempered with consideration of employee welfare.

d. Whilst integration of corporate resources is an important aim of HRM, it must also be recognised that all organisations are ‘pluralist societies’ in which people have differing interests and

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concerns, which they defend and at the same time function collectively as a cohesive group.

Besides the features mentioned earlier, certain more characteristics of HRM could be summarised as follows:

1. HRM is a pervasive function. It permeates all levels of decision making in an organisation. All sections perform human resource management in some way. Academically, the nature of the subject is inter-disciplinary. It draws inputs from other social sciences, particularly, sociology, psychology, political science, anthropology, economics, etc. HRM has a suggestion of the contingency paradigm here. Chief among contingent variables is pressure from the government articulated through policy interventions through directives or orders. The three main areas of potential pressure are identified as: affirmative action in pursuance of social justice objectives; concern for occupational safety and health in a welfare state; and pension regulation for well being of workers

2. HRM is also a comprehensive function, in that it is concerned directly or indirectly with every decision that in any way relates, even collaterally to human resource management, irrespective of the section it emanates from or the level at which it is made.

3. Cost effectiveness is a must to attract, induce and mobilise resources for its policies, draw the attention of main line management to its policies and proposals.

4. There is a need to spot trends and tailor personnel requirements accordingly towards perceived direction or end, to make optimum utilisation of available human capital.

5. Human resource management department provides for an integrating mechanism. It attempts to build and maintain coordination between all operative levels in an organisation. It is indispensable as a clearing house. Its added significance is due to its being an auxiliary service which is an indispensable maintenance activity. HR department aids ‘line’ officials perform their respective allotted tasks, with direct or incidental bearing on human resource. Policy- making does not proceed piecemeal and organisational functioning is imparted a coherence that might otherwise be hard to achieve. Human resource manager is therefore a specialist advisor and performs vital staff function.

6. HRM is an imperative function for all complex organisations where inter section interests are inextricably linked. It is action oriented as in it the focus is on action, rather than record keeping, written procedures or rules. The problems of employees at work are solved through rational, standard policies.

7. HRM seeks to maximise employee motivation to make them contribute to their maximum potential. The same is done through a systematic process of recruitment, selection, training and development together with worker-friendly policies like fair wage, bonus and reward system, effective grievance redressal, etc.

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8. HRM is people oriented. Peoples’ existence is defined or perceived in two ways, that is, as individuals working for personal satisfaction and members of a group or collectivity, contributing towards a common objective. Together they constitute the pillars of organisation or organisation wide effort. ‘Organisational equilibrium’ is contingent on matching or balancing personal need satisfaction (inducements offered) with organisational goal fulfillment (contributions elicited/negative balance). Right man in the right place at the right time maximises benefit of collective endeavour both in the interest of the organisation and the individual employee. HRM is development oriented; it aids institution of employee-friendly activities like career planning and development which help develop their full potential. Job enlargement and job rotation practices are facilitated; employees are assigned a variety of tasks, which helps them to gain maturity, experience and exposure.

9. Tangible quantifiable benefits result to the organisation as also externalities, intangibles or unquantifiable gains (improved organisational culture, management-worker relations, etc.) which optimise organisational performance. Enhanced productivity is then used to reward employees monetarily and motivate them further towards better and improved performance.

10. HRM is continuous activity, consistent function and not a short-term measure. It requires constant alertness and awareness of human relations on the part of managers to maintain healthy organisational climate. Sustenance of ‘organisational ‘rationality’ (with respect to decision making) and securing ‘organisational effectiveness’ are other pressing concerns. Organisational survival is the prime concern. Concerns of efficiency arise only later. Organisations face the challenge or imperative of arriving at an L.C.M. (least common denominator) of opposing pulls or conflicting interests within as well outside to ensure and secure compliance with exogenous directives and compatibility between internal (in-house) and external (laws, guidelines, implementation regulations) policies. External pressures need to be adapted to or co-opted for the sake of ‘relevance’ and ‘efficiency’ (Simon, 1957) of organisational functioning.

11. Human resource management function is of importance to Public as well as private organisations. Fayol’s advocacy of management as a universal science endorses this idea.

Objectives of HRM The primary objective of human resource management is to ensure a continuous flow of competent workforce to an organisation. But this is only a broad view. Exploring further, we can categorise objectives into four, which are analysed as follows for a better understanding:

Societal Objectives

The society may constrain rationality with regard to human resource decisions through laws for example, reservation and other laws that address social

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discrimination, health and safety of workers, morale, ideological bias and other such issues of societal concern.

Organisational Objectives

The organisational objective is at the forefront of organisational strategy, coordinating and harmonising organisation wide efforts and stressing on the role of human resource management in contributing towards organisational effectiveness.

Human resource management is not an end in itself. It is a means to the end of increasing organisational capability. It assists the organisation in attaining its primary objectives. Simply stated, the department serves the rest of the organisation.

Functional Objectives On the functional side it sets the department’s contribution at the level most apt suited in the organisational setting.

Resources are wasted when human resource is either in excess or too scarce. The department function is to gain ‘organisational fit’ with respect to human resource requirements.

Empowerment is a core concept of the new management model. In an adaptive organisation, empowerment is preferred to delegation; ownership to responsibility. It is contended that authority and responsibility are formal aspects of organising. They are based on organisational properties and not individual capabilities. Empowerment and ownership are social aspects of organising. They are based on efficacy and initiative, and not just on roles and requirements. (Business E. Coach, 2005)

Clear articulation of policy following wider philosophy is imminent for success of any organisational and that success of the free market. Philosophy binds an organisation internally, provides a focus to collective effort and helps competitors anticipate future moves of a company. According to theorists, two main concerns regarding competitive philosophy are (a) people- centered philosophy, and (b) unity and focus.

Sound human resource management determines the level of innovation or creativity in organisational processes. Organisational capability is a dynamic concept. To what extent it is promoted depends on the premium attached to the HR function by the management. Bob Garratt (1990) proposes a theory of organisations as "learning systems" in which success depends on the ability of managers to become "direction-givers" and on the organisation's capacity for learning continuously.

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http://www.1000ventures.com/business_guide/mgmt_new-model.html

Personal Objectives

It implies assistance rendered to employees in achieving their personal goals in so far as these goals enhance individuals’ contribution to the organisation.

Personal objectives of employees must be met if workers are to be retained and motivated towards better performance. If otherwise be the case, employee performance and satisfaction are likely to decline and employees could even contemplate leaving the organisation. Managing approach to employee benefits and compensation, employee records and personnel policies is an important aspect of human resource management (McNamara, 2005)

There has to be a correlation between objectives and functions. William Werther Jr. and Keith Davis (1972) have attempted to link the two. This is summarised in the following table:

HRM Objectives Supporting Functions

Societal Objectives

1. Legal compliance

2. Benefits

3. Union-management relations

Organisational Objectives

1. Human resource planning

2. Employee relations

3. Selection

4. Training and development

5. Appraisal

6. Placement

7. Assessment

Functional Objectives

1. Appraisal

2. Placement

3. Assessment

Personal Objectives

1. Training and development

2. Appraisal

3. Placement

4. Compensation

5. Assessment

Like other issues in public administration, objectives of human resource management attract divergent views. In fact, due to changing environment and

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dynamics of relationship among management, employees and trade unions, human resource management objectives have had new vistas added to its defining purpose. V.S.P. Rao (2000) recognises some of these changes and places forth a set of emerging objectives:

1. Research and development is a new facet to human resource management. HR practices need constant updating in view of changing legal, political, and social environment. Forethought and fore planning are vital to keep strategy targeted;

2. The primary purpose of HRM is to realise people’s strengths, turn them into productive assets and benefit customers, stockholders and employees at the same time, in an equally effectively manner;

3. HRM requires that employees be motivated to make them exert their maximum efforts, that their performance be evaluated/ preferably measured properly and that they be remunerated on the basis of their contributions to the organisation;

4. HRM helps employees grow to their fullest potential, with reference to job satisfaction and self-actualisation. To this end, suitable programmes have to be designed aiming at improving the quality of work life (QWL);

5. To develop and maintain quality of work life, good working conditions and good standard of life for the worker makes employment in the organisation a desirable personal and social condition. Without improvement in the quality of work life, it might be difficult to elicit desired level of motivation;

6. It is the responsibility of HRM to establish and maintain communication well, to tap ideas, opinions and feelings of customers, non-customers, regulators and other external public as well as in understanding the views of internal human resources; and

7. HR function helps maintain ethical policies and behaviour in the organisation. The chief personnel officer of a large American corporation puts it thus: “personnel’s purpose is to practice morality in management by preparing people for change, dealing with dissent and conflict, holding high standards of productivity, building acceptance of standards that determine progression and adhering to the spirit and letter of high professional conduct”.

Scope of HRM The Indian Institute of Personnel Management encapsulates the scope of HRM in the following three aspects: -

1. Personnel aspect: concerned with manpower planning, recruitment, selection, placement, transfer, promotion, training and development, lay off and retrenchment, remuneration, incentives, productivity, etc.;

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2. Welfare aspect; dealing with working conditions and provision of amenities such as canteens, crèches, rest and lunch rooms, housing, transport, medical assistance, education, health, safety, recreation facilities, etc.; and

3. Industrial Relations aspect: the legal part which covers union-management relations, joint consultation, collective bargaining, grievance redress and disciplinary procedures, settlement of disputes, etc.

HR function may be categorised into the following sub- sections:

• Employee Hiring

• Employee and Executive Remuneration

• Employee Motivation

• Employee Maintenance

• Industrial Relations

• Prospects of Human Resource Management

Carter McNamara (2005) has outlined the following activities of the HR section:

-deciding what staffing needs an organisation has, and, whether it should use independent contractors or hire its own employees. Cost considerations matter in these decisions. Also, in-house promotions and placements are encouraged as part of organisational policy. Present environment demands more flexibility in policy formulation and implementation processes for which the HR department is most suited; and;

- recruiting and training the best employees, ensuring they are high performers through apprenticeship and training programmes dealing with performance issues and ensuring personnel and management practices conform to all formal regulations, managing approach to employee benefit and motivation and group morale.

Functions of the personnel section encompass the following activity areas: (Tracey, 1994)

- Total quality management (TQM) applying system’s model or perspective to organisation theory. For enhancing overall productivity, output levels and standards. Investing more time in value- adding activities as opposed to non- value adding is emphasised;

- Organisational structuring and design; suggesting mergers, overseeing diversification/ expansion schemes, managing implications of globalisation, cost cutting measures such as downsizing, contract employment, restructuring, controlling implications thereof, etc.;

- Productivity control, R&D, improved service delivery, customer focus, quality control, organisational effectiveness;

- Financial control and budgeting;

-- Human Resource Planning and specifics thereof HR; department plays a vital role in integrating the strategic plan or business plan and also take the lead in devising and implementing it.

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- Personnel processes viz. recruitment, selection, training, management development;

- Strategising or planning for overall organisational growth;

- Managing informal work group;

-- Organisational culture ramifications of managing knowledge workers; articulation of culture in terms of objectified, practicable targets; ensure meeting of specific targets and objectives; imparting direction to organisational functioning;

- Managing Diversity; (organisational culture reference and internal sociology implication);

- Dissemination/internalisation of organisational philosophy among inmates, controlling culture thereby. Phenomenon of ‘organisational identification’… (Simon, 1957)

- People management’ referring to policy initiatives regarding, employee benefit and welfare schemes, retrenchment policy, executive succession, etc; and

- Spreading awareness and mobilising support to ensure minimum resistance to change processes and policies; marketing to recover or amortize the costs of producing products, programs and services.

Functional obligations of personnel department outlined above could be catalogued under the following general headings: (Tracey, 1994)

- Managing house keeping for its own section-performing all customary management functions (POSDCoRB) with regard to internal administration;

- Organisational Development understood as planned, educative effort towards organisation wide change reflecting concept of organisations as constantly evolving and developing entities (Keith Davis, 1992) and

- Performance Development, problem sensing, solving, and trouble- shooting as and when need arises.

Specific functional activities and responsibilities of HR department as outlined by Tracey include:

• Recruitment, selection, and task assignment;

• Orientation and induction programmes imparting relevant information;

• Compensation; including all compensable factors;

• Employee benefits; monetary and non- monetary; and

• Succession planning (upward mobility of personnel via promotions);

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Addressing Semantics: Related Concepts

Since 1980 the term personnel management has been gradually replaced by a more suitable term, that is, human resource management to delineate the whole gamut of activities undertaken towards or with the purpose of maximising human capital utilisation in an enterprise. Problem of semantics is apparent. It would serve our purpose to clarify the two related concepts.

Similarities between Personnel Management (PM) & HRM Similarities between personnel management and human resource management are recounted as follows:

• Personnel management strategies, like HRM evolves from business strategy.

• Personnel management, like HRM, recognises that line managers are primarily or in the first measure, responsible for managing people. The personnel section provides necessary advice/ support service to line managers aiding them carry out their responsibilities in a better/ more effective manner;

• Values of personnel management and the ‘soft’ version of HRM are identical. Both stress on self-development of workers, helping them achieve maximum level of competence both for realisation of individual and collective will and thereby, achievement of individual and organisational aspirations and objectives;

• Both personnel management and HRM recognise the need for placing and developing right people for the right jobs;

• The same range of selection, competence analysis, performance management, training management development and reward management techniques are applied in both human resource and personnel management; and

• The ‘soft’ version of HRM, like personnel management, attaches importance to the process of communication and participative spirit informing employer- employee or management- worker relations.

Differences between PM and HRM

Differences could be articulated and recounted as:

i) Personnel management is more bureaucratic and directive than participative and team. It is administered by managers rather than ‘developed’ by management and workers or ‘co-contributors’ in joint organisational endeavour. Apparently, it may be a set of rules and procedures that might even constrain senior echelons in managing their subordinates as they deem fit as per the requirements of the situation. On the other hand, HRM not only pays attention to employee development, but focuses on the dynamism of the entire management function. This shift of emphasis appears related to three specific differences;

a) While both personnel management and human resource management highlight the role of line management, the focus in each case is different. In human resource management, HR function is vested in the line

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management and business managers are considered responsible for coordinating and directing all resources towards achievement of organisational objectives;

b) Objectives are specified more precisely and co-relation drawn more clearly and objectively, between results and strategy for proactive use of human resources for their furtherance and achievement. Personnel policies are not passively integrated with business strategy but perceived as integral to and active components thereof in the pursuit of the desired value or end; and

c) Most human resource management models emphasise organisational culture as an important variable. Although ‘organisation development’ models of the 1970s proclaimed a similar aim, they were not fully integrated with normative personnel management models. Organisational development’ was always seen as a distinct and separate activity standing apart from mainstream personnel management. Internal structuring also exhibited this separateness in that it was generally assigned a separate role in a formal institutional sense in that separate OD consultants were located within the personnel department, not always with a back ground in the subject. It was considered/ treated as, only a fringe activity, an initiative that was nice to have but could be dispensed with at the first indication of financial stringency. Aswathappa (2002) draws a table and recounts the differences between personnel management and human resource management along twenty-three dimensions. The same are outlined below:

Differences between PM and HRM

Dimension Personnel Management

Human Resource

Management

Employment contract Careful delineation of written Contracts

Aim to go beyond contract

Rules Importance of devising clear rules

Can do outlook, impatience with rule

Guide to management

Action

Procedures

Business need

Behaviour referent Norms/customs and practices

Values/mission

Managerial task

vis-à-vis labour

Monitoring

Nurturing

Key relations Labour Management Customer

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Initiatives Piecemeal Integrated

Speed of decision Slow Fast

Management role Transactional Transformational

Communication Indirect Direct

Prized management skills

Negotiation Facilitation

Selection Separate, marginal task Integrated, key task

Pay Job evaluation (fixed grades)

Performance related

Conditions Separately negotiated Harmonisation

Labour Management Collective-bargaining contracts

Individual contracts

Job categories and grades

Many Few

Job design Division of Labour Team work

Conflict handling Reach temporary truce Manage climate and culture

Training and development

Controlled access to courses

Learning Companies

Focus of attention for Interventions

Personnel procedures

Wide-ranging cultural, structural

and Personnel strategies

Respect for employees Labour is treated as a tool which is expendable and replaceable

People are treated as assets to be used for the benefit of an organisation, its employees and the society as a whole

Shared interests Interests of the organisation are

Uppermost

Mutuality of interests

Evolution Precedes HRM Latest in the evolution of the subject

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For a better understanding of HRM, it shall be worthwhile to know of two more related terms, that is, Human Resource Development and Industrial Relations.

Industrial Relations (IR) & HRM Industrial Relations (IR) is a term adding to the problem of semantics. “Industrial Relations” as the term implies, deals with sociological and legal issues concerning organisational climate, interpersonal relations, physical and social working conditions, settlement of disputes, unionisation and other issues dealing with grievances and their resolution. Use of term industrial relations or human resource management has more to do with the historical context within which they arose than with the scope of the two. Human resource management is used more in the modern context of globalisation and multiculturalism where HR is at the forefront of management strategy. IR rose in the specific context of the industrial revolution and the socialist ideology where just and humane conditions of work were emphasised. Hence, Industrial relations is not different from human relations or other major school of administrative theory. With many different labels in use, industrial relations is now used to refer to the legal aspect of organisations governing employee employer relationship viz. trade unions, collective bargaining, etc.

The legal aspect has now emerged as a significant facet of HRM which organisations neglect only to their peril. Organisations get sued for alleged discrimination in their recruitment, selection, hiring, training and development, promotion, pay and compensation procedures by outside players as also their own employees, present and prospective. Posers about administrative procedure have to be addressed unequivocally to obviate conflicts or possible impediments in organisational functioning. Technically, it falls within the domain of Industrial Relations though responsibility for the function is aggregated under the HR label, which today is an enveloping and architectonic field or area of enquiry, practice and specialisation. Small businesses (for-profit or nonprofit) usually have to carry out these activities themselves as they can't afford part- or full-time assistance. Even they need to ensure that employees are aware of personnel policies conforming to current regulations. These policies are often in the form of employee manuals, which all employees possess. Procedural simplicity is an important requirement. Non-compliance can generate unnecessary confusions, which could easily be dispensed with.

Industrial Relations’ implications for organisational structure would differ. While some structure it as a specialisation others prefer merging or grouping more practicable. (Collective bargaining involves administration of formal contract governing union management relations, laying down of grievance procedure, third party arbitration, labour unions, etc.) Some companies have separate industrial relations department responsible for negotiating and administering collective bargaining agreements with unions. Most often size and complexity of an organisation are the deciding factors. What is important however is that legal

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aspect of human resource management is a specific and distinct function, structural differentiation or specification notwithstanding.

HRM and HRD

Some people distinguish between HRM (a major management activity) and HRD (Human Resource Development, a profession). However, it should not lead to any confusion.

Distinction between HRD and other human resource practices is necessary to avoid undervaluing of the concept both theoretically and in the workplace. HRD has come to be used in many different contexts. Hence, it is important to clear the maze and highlight the unique contribution it makes to organisations

ABOUT HRD

HRD is: -A profession; a specialised activity. HRD vendors are employed by organisations to plan and administer training programs though now HRD has ventured into other broader, more significant areas of organisational practice viz. organisational design, change, planning and development. Latter function has gained increasing prominence of late,

- HRD vendors are external consultants, though HRD manager is preferably an insider; and

- Its scope has progressed and moved from micro to macro concerns. In the present times, it is an important field within the area of human relations or organisational behaviour.

HRD has now been developed in universities as a postgraduate discipline. Washington University took the lead in this regard in 1965. However, some universities have introduced courses in specific HRD methodology such as communications or human services and labeled them as human resource development. Confusion can be cleared by looking at the form rather than the label.

HRD incorporates applied behavioural science. Works of Gordon Lippit, Warren Schmidt and Robert Blake are noted particularly in the development of the paradigm .There is increased emphasis on a systems approach to HRD notably through the work of Leonard Silven and Hughes and contribution of Robert Mager particularly in pushing for adoption of specific behavioural objectives in framing objective HRD modules.

It is specialised and technical field with is increasing use of modern technology. Inventory control is an important feature as there is need for recording and safe maintaining data. Its working is essentially centralised. There is stress on individualised instruction. The learning specialist guides trainee like a coach or a resource person. In it the definitions and understanding of selection, training, performance evaluation are likely to be revised. They are being seen as continuously evolving and developing processes that aid individuals and organisations reach the summit of their potential. In HRD there is shared

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responsibility between management and individual employees for organisational effectiveness-diffused rather than focused, permeates through the organisation and is not restricted to the individual manager or specific levels.

Characteristics of HRD Characteristics of HRD could be recounted as follows. It is:

- idealistic;

- utilitarian in purpose;

- evolutionary;

The wider objective is integration with the school system through educational administration and training institutes. HRD cannot make up for lack of basic skills. It would be highly impractical if it were suggested so.

Gerratt defines learning organisations as “a group of people continually enhancing their capacity to create what they want to create”. The idea sums up the essence of human resource development.

Implications of HRM

a. With respect to Organisation Design

There is a long-standing argument on whether HR-related functions should be organised in the Organisation Development department or elsewhere or independently?

Reference may be made here to Simon’s concept of ‘mean’, ‘end’ and ’fact’ and ‘value’ as giving the chain of causation of “purposive behaviour”. Decisions are taken at all levels within an organisation and are ‘mean’ to the extent that they comprise of ‘fact’ more than the value component and end conversely. Each decision, in fact, is both mean (more fact) and end (more value) in that every ‘mean’ is an intermediate ‘end’ which is ‘mean’ to a further end and so on. The chain culminates in pure ‘end’ or final ‘value’ (hypothetical idea since ‘pure value’ does not exist in practice), which is often the ‘organisational goal’ (could be social or national goal depending on the level of integration)

The ‘mean’- ‘end’ chain or formulation has implications for organisational structure. If human resource management is ‘means’ to the ‘end’ of ‘organisational development’, it functions as a section under organisation development. The question of location is pertinent in the interest of coherence of organisational functioning.

b. With respect to Personnel Administration

The HR section articulates organisational philosophy and underpins it to practical strategy. Organisational culture is both a dependent and an independent variable. It is both impacted upon and in turn impacts organisational functioning and practice.

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At the enterprise level, good human resource practices help attract and retain the best people in the organisation. Planning alerts management to manpower needs in the short run ahead.

At the level of the individual, effective management of human resources helps employees, work with ‘esprit-de corps’ and experience personal growth.

Society, as a whole, is the beneficiary of good human resource policy. Employment opportunities multiply and scarce talents are employed to the best use/uses.

Extending the same argument, sound HRM is imperative for nation building. Human resource planning is integral to socio-economic planning of the State. It is a vital and an imperative component thereof, more so for developing countries where human capital waste accrues due to underutilisation of capacity and other wasteful HR practices.

c. With respect to Policy

The HR section or department is actively involved in business strategy and wider policy formation so much so that there is not a question of should it or should it not anymore. Its involvement is accepted as a fact or a ‘given’ of organisational life. The focus is directed instead to utilising it to the maximum. The objective of HR thought and practice is geared to this end. This is expected to be more so as the office evolves towards a more dynamic future role with expansion and or diversification of business and increasing knowledge resource.

1.3. ROLE OF THE HR MANAGER

Designations of HR Managers are found differently in different organisations. To quote Frank Lloyd Wright, “form follows function”. HR function therefore draws content from and follows the strategic plan. The HR manager functions as a catalyst and a change agent to the extent that he helps the line achieve its objectives. Job description of the office differs from organisation to organisation. Form or content of human resource functions have been found to be determined by the organisation’s history, work culture and the level of differentiation attained in processes and product. (Tracey, 1994)

The HR manager has to be both a process and a policy specialist. The job descriptions and specifications entail and demand both policy advice and implementation specialties.

She / he hyphenates the relationship between the organisation on the one hand and external players and stimulators of policy (primarily government, strategic partners) on the other. She / he has to ensure compliance of internal policy and practice with external regulations via legislations (for example, government directives) as also attempt to preempt the field in the organisation’s favour by minimising instances of unnecessary interface.

Academically, the HR person needs to be proficient in related specialties or disciplines in that HR is a growing interdisciplinary academic field and a vocation, with cross currents from management science, humanities and even physical

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sciences. HR manager functions as a consultant to all sections and is a prime mover or initiator of policy inputs and recommendations.

HR officers can be both generalist (with wide experience in personnel matters to recommend them) and specialist with technical training or educational background; either from inside/outside the organisation. Actual practice in this regard differs from organisation to organisation.

1.4 FUTURE CHALLENGES TO HRM The question how HRM would change in the post- modern globalised world needs to be understood in the light of challenges to HRM.

Emphasis on human resource management will be still greater in the coming years. Companies/organisations are expected to invest more in health/welfare of workers.

Emergence of transnational/multinational corporations is bringing cross-cultural work force and the consequent need to ‘manage diversity’ (cultural, ethnic linguistic, religious, etc.) properly.

Cost constraint and the resultant emphasis on the necessity of output maximising strategies viz. total quality management, flexible management systems, etc.

Participative management for ‘knowledge workers’; need an active policy to retain good workers is expected to be increasingly felt in the coming years.

Flexible structuring in organisational design in response to changing requirements would be needed. Warren Bennis’s futuristic observation (prediction) about linear organisations giving way to diverse and unconventional matrix is almost a truism today. Organisations now are less linear, more complex, environment more uncertain than predictable, traditional Weberian construct more a utopia than a reality, more cross functional/ networked than vertical/linear; providing more scope for freewheeling for its knowledge workers rather than insisting and stressing on a commanding or directive work pattern and culture. Precisely, its participative management, innovation and self managed work teams that are desired for a total quality management with emphasise on productive process, particularly technology. Organisational fluidity and dynamism may no longer be an exception or feature to be chafed at and resisted but an enduring quality to be desired which is almost a necessity for organisations’ survival in this environment of constant change. Organisations are perceived as organic entities constantly and continuously vitalized and growing, meeting new/emerging challenges and answering critics in their attempt to avoid being moribund/ redundant in their operations.

Tackling demographic changes in the work force will be a challenge as more old/young/women/backward castes are expected to force changes in HR policies.

Vigorous interest articulation will be suggested for business at the policy stage to minimise incident and / or unsavoury pressures during implementation.

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In the face of increasing cost constraints, training is expected to get more targeted than generalised. It would need to be tailored according to changing requirements viz. customer preferences, specific need of a strategic plan in a given time frame, etc. Training is only one of the options to learning and development.

1.5 CONCLUSION The focus in the Unit has been on HRM’s meaning, nature, scope, versions, clarifications regarding semantics, differences and similarities between HRM and PM, and its significance. Rather briefly, it could be summed up as;

• HRM is at the forefront of management function;

• HR manager plays a vanguard role in policy making and implementation functions;

• Semantic differences between HRM and PM and IR and HRD are not of much practical consequence. Content matters more than form; and

• Scope of HRM differs from organisation to organisation.

1.6 KEY CONCEPTS Human Resource Development: Human Resource Development is a term

employed for education and training activities undertaken at micro (in a department or an organisation) and macro levels( national, state) for development of ‘human capital’. It involves both short term and long term planning and has significance for development administration in that it is the ‘people resource’ that puts plans into actions. Refurbishing of education and training at regular intervals is a must for replenishing capabilities for planned development of human resource capability.

Human Resource Management: Human Resource Management differs from

personnel management, in treating people as ‘resource,’ whose effective utilisation leads to tangible value addition to organisational productivity. Distinguished from human resource development, human resource management is more an administrative activity while the latter involves more planning, built integrally into nation- wide, socio economic planning.

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Organisational Culture: The culture of an organisation could be directive, authoritarian, feudal or democratic. Among determining factors are; principles of organisational functioning, involving structuring of an organisation, specialisation and work division, span of control, unity of command, leadership, work orientation of the manager, organisational culture, “legal rational authority” system, as against, “traditional” or “charismatic authority” systems.

Organisation Design: Organisation Design is a primary

management activity involving work division among constituent units and structuring an organisation into sections and sub sections. It is the first step in specialisation of tasks and responsibilities in organisations leading to further sophisticated specifications. On proper design depends the coherence of organisational functioning. Organisation Design is also a determinant of organisational culture in that an organisation could be structured in a hierarchic bureaucratic way or imparted a team ethos by means of lateral coordination and team work orientation.

Social Capital: The term social capital is an economic

analogy, to determine the economic potential of social ties. Just as there are physical capital and human capital, there is social capital which denotes the advantage or the utility derived out of filial and other human ties. Such social ties have ‘utilitarian value’ in that they result in tangible and intangible value addition to societal development. Meaningful peoples’ participation in administration is an attempt at utilising positive social capital inherent in ‘communities’ for furtherance of developmental tasks by way of better policy formulation and cost- effective implementation processes. Departmentalism and ‘empire building’ tendency on the part of bureaucrats is an example of negative social capital.

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UNIT-10 TRAINING AND DEVELOPMENT Structure

10.0 Learning Outcome

10.1 Introduction

10.2 Meaning of Training

10.3 Training, Development and Education

10.4 Importance of Training

10.5 Assessment of Training Needs

10.6 Learning & Teaching

10.7 Steps in Training Programme

10.8 Training Methods

10.9 Causes for Failure of Training

10.10 Evaluation of Training

10.11 Conclusion

10.12 Key Concepts


10.14 Activities

10.0 LEARNING OUTCOME

After reading this Unit, the learner will come to know:

• The meaning and importance of Training and Development;

• The significance of assessment of Training needs;

• The relevance of Training Methods; and

• The causes of failure of Training.

10.1 INTRODUCTION

Every organisation needs to have well trained and experienced people to perform the activities required to be undertaken. It is necessary to raise the skill levels and increase the versatilities and adaptability of employees to the requirements of an organisation in the changing world. Inadequate job performance results in a decline in productivity of changes. Job redesigning or a technological break-through require some type of training and development effort. In a rapidly changing society,

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training and development is not only an activity that is desirable but also an activity that an organisation must commit resources for maintaining a viable and knowledgeable workforce.

All types of jobs require some sort of training for efficient performance. Therefore, all the employees, new and old, should be trained or retained. Every new employee regardless of his previous training and experience needs to be introduced to the work-environment of his new Job and taught how to perform specific tasks. Moreover, specific occasions for retraining arise when an employee is transferred or promoted or when jobs change. Training is valuable to the new comer in terms of better job security and greater opportunity for advancement. A skill thus, acquired by the new entrant through training is an asset to the organisation.

10.2 MEANING OF TRAINING

Training is the process through which employees are made capable of doing the jobs prescribed to them. According to Flippo, “Training is the act of increasing the knowledge and skills of an employer for doing a particular job”.

According to Dale Yoder, “Training is the process by which man-power is filled for the particular jobs it is to perform”. Beach says, “Training is the organised procedure by which people learn knowledge and skills for a definite purpose”.

The trainee will acquire new manipulative skills, technical knowledge, problem-solving ability and or attitudes, etc. Training is not one-step process but it is a continuous or never-ending process. Training makes newly recruited workers fully productive in the minimum of time. Even for old workers training is necessary to refresh them and to be conversant with required techniques. In short, training is the act of improving or updating the knowledge and skills of an employee for performing a particular job.

10.3 TRAINING, DEVELOPMENT AND EDUCATION

“Training”, “education”, and “development” are the three terms frequently used. On the face of it, there might not be much difference between them, but when a deep thought is given, there appear some differences between them. In all “training” there is some “education” and in all “education” there is some “training”. And the two processes cannot be separated from “development”. Precise definition is not possible and can be misleading but different persons have used these activities in different ways.

Training: It is a process of training, a sequence of programmed behaviour. It is application of knowledge. It gives people an awareness of the rules and procedures to guide their behaviour. It attempts to improve their performance on the current job or prepare them for an intended job.

Development: It is a related process. It covers not only those activities which improve job performance but also those that bring about growth of the personality, help individuals in the

2

progress towards maturity and actualisation of their potential capacities so that they become not only good employees but better men or women.

In organisational terms, it is intended to equip persons to earn promotions and hold greater responsibility. Training a person for a higher job is development. It may well not only include imparting specific skills and knowledge but also inculcating certain personality and mental attitudes. In this sense, development is not much different from “education”.

Education: It is the understanding and interpretation of knowledge. It does not provide definite answers, but rather, it develops a logical and rational mind that can determine relationships among pertinent variables and thereby understand phenomena. Education must impart qualities of mind and character, understanding of basic principles, synthesis and objectivity. Usually, education involves a range of skills and expertise, which can be provided only by educational institutions. An organisation can and does make use of such institutions in order to support and supplement its internal training and development efforts.

Distinction between Training and Development

Training It is a short-term process utilising a systematic and organised procedure by which non-managerial personnel have technical knowledge and skills for a definite purpose.

Development It is a long-term educational process utilising a systematic and organised procedure by which managerial personnel learn conceptual and the theoretical knowledge for general purpose.

Training refers only to instruction in technical and mechanical operations while development refers to philosophical and theoretical educational concepts. It designed for non-managers, while development involves managerial personnel. Campbell has observed that training courses are typically designed for a short-term, while development involves a broader education for long-term purposes.

Training and development differ on account of “what”, “who”, “why”, and “when”.

Learning Training Development

Dimensions

Who? Non-Managerial Personnel Managerial Personnel

What ? Technical and mechanical operations Theoretical Concepts or ideas

Why? Specific job-related purpose General Knowledge

When? Short-term Long-term

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Training and Development Employee training is distinct from management development or executive development. While the former refers to training given to employees in the areas of operations, technical and allied, the latter refers to developing an employee in the areas of principles and techniques of management, administration, organisation and allied areas. It could be more appropriately understood through the following:

- Training is meant for all individuals, that meant for operators or non-managers is often called learning: Training and all other developmental activities meant for executive are considered as executive development activities;

- The aim of training is to develop specific abilities in an individual. The aim of development is to enhance the total personality of the individual;

- Training is a specific activity or one-shot affair aimed to imparting specific job-related information and skills. Development is a continuous process;

- Training is mostly a preparation to meet an individual’s present needs. It can thus, be seen as a reactive process. Development is a preparation to meet his future process having long-run objectives; and

- the initiative for training largely comes from management, the initiative for development comes from the individual himself, and it is a result of internal motivation. Various activities, planned and unplanned, formal and informal, initiated and carried out by individual and the organisation, come under development.

10.4 IMPORTANCE OF TRAINING

Training enables the employees to get acquainted with jobs and increase their aptitudes, skills and knowledge. It helps the newly recruited to be productive in minimum amount of time. Even for the experienced workers, it is necessary to refresh them an enable them to keep up with new methods, techniques, new machines and equipments for doing the work. According to Dale S. Beach “Training is vital and necessary to activity in all organisational and of plays a large part in determining the effectiveness and efficiency of the establishment”. Training is advantageous not only to the organisation but also the employees.

Advantages to the Organisation The major advantages of training to organisation could be referred to as:

1) Follow up of selection procedure: Training is a follow up of selection procedure. It helps in choosing the most appropriate individuals for different jobs. Training can be used in spotting out promising persons and in removing defects in selection process;

2) Better Performance: Training is about improvement of the quality of output by increasing the skill of the employee. This makes the fresh and old employee acquire more skills and thus, be accurate in performance of their work;

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3) Reduction in Cost Production: Training personnel is to make better and economical use of materials and equipments besides decreasing wastage. In addition, the rate of accidents and damage to machinery and equipment is at the minimum by the well trained employees amounting to lesser cost of production per unit,

4) Reduced Supervision: If the employees are given proper training, the need of supervision gets lessened. A well trained employee is self-reliant in his work as he comes to know what is to be and how. Under such situations, close supervision is not much required. Leaving the scope for the management focus its attention on other basic and important functions;

5) Increased morale: The morale of the employee gets boosted, if they are given proper training. As a common objective of the organisation, training programme moulds its employees’ attitude to achieve support for organisational activities and obtain better cooperation and greater loyalty. With the help of tiny dissatisfaction, complaints, absenteeism and turnover can also be reduced among the executives. Thus, training helps in building an efficient and cooperative work force; and

6) Organisational Stability and Flexibility: Training increases the stability and flexibility of the organisation. Creation of a reservoir of trained replacements increases the stability of the organisation that is; the organisation is able to sustain its effectiveness despite the loss of key personnel.

Advantages to the Executive The incumbents on executive position have advantages to their credit through training. It could be reflected as follows:

1) Increase in wage earning capacity: Training helps the executive in acquiring new knowledge and job skills. In this way, it increases their market value and wage earning power leading to increase in their pay and status.

2) Job Security: Training can help an executive to develop his ability to earn make the official adaptive to new work methods, besides learning to use new kinds of equipment and adjusting to major changes in job contents as well a work relationship; and

3) Chances of Promotion: Training also qualifies the executives for promotion to more responsible jobs.

Limitations of Training

Every coin has two sides. The other side of training, that is, its limitations are as such:

1. Training is a costly affair and expensive process making organisations to spend substantive amount, taken out of other organisational commitments.

2. Training may result in dislocation of work and loss of output because regular office work is likely to be interrupted or delayed because of the time of trainees spent in training;

3. Sometimes, it is difficult to obtain good training instructors and leaders; and

4. Self-reliance and capacity for new ideas might be stiffed.

10.5 ASSESSMENT OF TRAINING NEEDS

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Training needs are identified on the basis of organisational analysis, job analysis and man-power analysis. Training programmes, training methods and course contents have to be planned in keeping with the training needs. Training needs are those aspects necessary to perform the job in an organisation in which executive is lacking attitude/aptitude of knowledge and skills.

The following methods are used to assess the training needs:

1) Organisational requirements and weaknesses;

2) Departmental requirements/weaknesses;

3) Job specifications and employee specifications;

4) Identifying specific problems;

5) Anticipating future problems;

6) Management’s request;

7) Observation;

8) Interviews;

9) Group conferences;

10) Questionnaire Surveys;

11) Tests or examinations;

12) Check lists; and

13) Performance appraisal

10.6 LEARNING AND TEACHING

The training programme will not be effective if the trainer is not properly equipped with the technical aspects of the content or if he lacks aptitude for teaching and teaching skills. Training comprises of mainly learning and teaching. Training principles can be studied through the principles of learning and teaching.

Some of the significant principles and assumptions of learning include:

1) All human beings can learn

2) An individual must be motivated to learn

3) Learning is active and not passive

4) Learners may acquire knowledge more rapidly with guidance. Feedback ensures improvement in speed and accuracy of learning

5) Appropriate material (like case studies, tools, problems, readings, etc) should be provided

6) Time must be provided to practice learning

7) Learning methods should be varied. Variety of methods should be introduced to off-set fatigue and boredom

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8) Learners need reinforcement of correct behaviour

9) Standards of performance should be set for the learner

10) Different levels of learning exists

11) Learning is an adjustment on the part of an individual

12) Individual differences play a large part in effectiveness of the learning process

13) Learning is a cumulative process

14) Ego factor is widely regarded as a major factor in learning

15) The rate of learning decreases when complex skills are involved.

16) Learning is closely related to attention and concentration

17) Learning involves long-run retention and immediate acquisition of knowledge

18) Accuracy deserves generally more emphasis than speed.

19) Learning should be relatively based

20) Learning should be a goal-oriented

Learning Patterns

Trainees need some understanding of the patterns in which new skills are adopted. The executive is likely to find himself unusually clumsy during the early stages of learning. This can be called discouraging stage. After the executive adjusts himself to the environment, he learns at a faster rate. A “fatigue” develops after the lapse of more training time due to loss of motivation and lack of break in training schedule. The trainee reaches the next stage when he is motivated by the trainer and the training process restarts after some break. The trainee at this stage learns at a fast rate. Special repetition of the course leads the trainee to reach the stage of over-learning.

Learning Curve -Learners Job Proficiency

-Discouraging first stage

-Increasing Returns

-Fast fatigue

-Peak Proficiency

-Over-learning period

Thus, it is clear that learning partly takes place at a constant rate. It varies according to the difficulty of the task, ability of the individual and physical factors. However, the rate of learning varies from one individual to another.

Characteristics of Learning Process Learning Process has the following characteristics

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1) Learning is a continuous process

2) People learn through their actual personal experience, simulated experience and from others’ experience

3) People learn step by step, from known to unknown and simple to complex

4) There is a need for repetition in teaching to inculcate skill and to learn perfectly

5) Practice makes man perfect. Hence, opportunity should be erected to use and transfer skills, knowledge and abilities acquired through learning. It gives satisfaction to the learner

6) Conflict in learning arises when the trainer knows or has developed some habits which are incorrect in terms of the method being learned.

Learning Problems The trainer has to be familiar with the subject and its applied area. He should have the knowledge of the possible learning problems like:

1) Lack of knowledge, skill and favourable attitude

2) Knowledge and skill not being applied

3) Existence of anti-learning factors: Most operational situations contain a number of elements which will restrict the development of elements regardless the methods employed of learning

4) Psychological problems like fear end shyness

5) Durability to transfer of learning to operational situation

6) Heavy dependence on repetition, demonstration and practice

7) Unwilling to change

8) Lack of interest about the knowledge of results

9) Absence of self-motivation

Teaching Principles In addition to learning principles, teaching principles should also be taken care for effective training.

1) The executive must be taught to practice only the correct method of work

2) Job analysis and motion study techniques should be used

3) Job training under actual working conditions should be preferred to class room training

4) Emphasis should be given more on accuracy than speed

5) Teaching should be at different time intervals

6) It should be recognised that it is easier to train young workers than old workers due to their decreasing adaptability with the increase in age.

Principles of Training A sound training programme should be based on the following principles

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1) Designed to achieve pre-determined objectives

2) Less-expensive

3) Developed for all

4) Pre-planned and well organised

5) According to size, nature and financial position of the concern

6) Flexible

7) Conducted by an experienced supervisor

8) Coverage of theoretical as well as practical aspects

9) Interests of executives and employees

10) More than one method

11) Training followed by reward

12) Sufficient time for practice

Area of Training Organisations provide training to their personnel in the following areas:

- Company policies and procedures

- Specific skills

- Human relations

- Problem solving

- Managerial and supervisory skills and

- Apprentice training

10.7 STEPS IN TRAINING PROGRAMME

Training programmes are costly affair, and time consuming process. Therefore, they need to be drafted very carefully. Usually, in the organisation of training programmes, the following steps are considered necessary:

1) Discovering (or) Identifying the training needs

2) Getting ready for the job

3) Preparation of the learner

4) Presentation of operation and knowledge

5) Performance try-out

6) Follow-up and evaluation of the programme

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10.8 TRAINING METHODS

There are a number of methods through which the trainees are trained. The methods normally used for training of operative and supervisory personnel are classified into “on the job” and “off-the-job” training methods.

A. On the Job Training Methods

The worker by these methods learns to master the operations involved, on the actual job situation, under the supervision of his immediate boss who undertakes the responsibility of conducting training. On-the-job training has the advantage of giving first hand knowledge and experience under the actual working conditions. The emphasis is placed on rendering services in the most effective manner rather than learning how to perform the job.

1) On Specific Job: The most common or formal on-the-job training programme is training for a specific job. Current practice in job training was first designed to improve the job performance through job instruction. On-the-job training is conducted through:

a) Experience: This is the oldest method of on-the-job training. But as an exclusive approach, it is wasteful, time consuming and inefficient. It has been observed that it should be followed by other training methods to make it more effective. On-the-job problem-solving and colleague interactions were prompted as most important for professional growth.

b) Coaching: On-the-job coaching by a superior is an important and potentially effective approach, if superior is properly trained and oriented. The supervisor provides feed-back to the trainee on his performance and offers him some suggestions for improvement. Often the trainee shares his thoughts, views and apprehensions about the duties and responsibilities with the boss and thus gets relief and relieves him of his burden. A limitation of this method of training is that the trainee may not have the freedom of opportunity to express his own ideas because the trainer happens to be his immediate boss.

c) Understudy: The understudy method is considered a somewhat different approach from those described above, that a certain person is specifically designated as the heir-apparent. The understudy method makes the trainee an assistant to the current job holder. The trainee learns by experience, observation and imitation of the style of the person he asked to work with. The trainee is informed about the policies, methods, techniques etc. The advantage of this method is that training is conducted in a practical and realistic situation.

2) Position Rotation: The major objective of job rotation is the broadening of the background of trainee in the organisations. This type of training involves the movement of the trainee from one job to another. The trainee receives the job knowledge and gains experience from

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his supervisor or trainer in each of the different job assignments. This method gives an opportunity to the trainee to understand the operational dynamics of a variety of jobs. There are certain disadvantages of this method. The productive work can suffer because of the obvious disruption caused by such changes. Rotations become less useful as specialisation proceeds, for few people have the breadth of technical knowledge and skills to move from one functional area to another.

3) Special Projects: This is a very flexible training device. Such special project assignments

grow ordinarily out of an individual analysis of weaknesses. The trainee may be asked to perform special assignment; thereby he learns the work procedure. Trainees not only acquire knowledge about the assignment activities, but also learn how to work with others.

4) Selective Readings: Individuals in the organisation can gather and advance their knowledge

and background through selective reading. The readings may include professional journals and books. Various business organisations maintain libraries for their staff. Many executives become members of professional associations and they exchange their ideas with others. This is a good method of assimilating knowledge. However, some executives claim that it is very difficult to find time to do much reading other than absolutely required in the performance of their jobs.

5) Apprenticeship: Apprentice training can be traced back to medieval times when those

intended of learning trade skill bound themselves to a master craftsman to learn by doing the work under his guidance. In earlier periods, apprenticeship was not restricted to ascertains, but was used in training for the professions including medicine, law, dentistry, teaching, etc. Today’s industrial organisations require large number of skilled craftsmen who can be trained by this system. Such training is either provided by the organisation or it is imparted by governmental agencies. Most states now have apprenticeship laws with supervised plans. Such training arrangements usually provide a mixed programme of classroom and job experience.

6) Vestibule Schools: Large organisations are frequently provided with what is described as

vestibule schools, a preliminary to actual shop experience. As far as possible, shop conditions are duplicated, under the close watch of the instructors. Vestibule schools are widely used in training for clerical and office jobs as well as for factory production jobs. Such training is through shorter and less complex but is relatively expensive. However, the costs are justified if the volume of training is large and high-standard results are achieved.

B. Off-the-job Training Methods

In these methods, trainees have to leave their work-place and devote their entire time to the development objective. In these methods development of trainees is primarily and any usable work produced during training is secondary. Since the trainee is not instructed by job requirements, he can place his entire concentration on learning the job rather than spending his time in performing it. There is an opportunity for freedom of expression for the trainees. Off-the-job training methods are as follows:

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1) Special Course and Lectures: Lecturing is the most traditional form of formal training method. Special courses and lecturers can be organised by organisations in numerous ways as part of their development programmes. First, there are courses which the organisations themselves establish to be taught by members of the organisations. Some organisations have regular instructors assigned to their training and development departments. A second approach to special courses and lecturers is for organisations to work with universities or institutes in establishing a course or series of courses to be taught by instructors of these institutions. A third approach is for the organisations to send personnel to programmes organised by the universities, institutes and other bodies. Such courses are organised for a short period ranging from 2-3 days to a few weeks.

2) Conferences: This is an old but still a favourite training method. In order to escape the limitations of straight lecturing many organisations have adopted guided-discussion type of conferences in their training programmes. In this method, the participants pool their ideas and experiences in attempting to arrive at improved methods of dealing with the problems, which are common subject of discussion. Conferences may include buzz sessions that divide conferences into small groups of four or five for intensive discussion. These small groups then report back to the whole conference with their conclusions or questions.

3) Case Studies: This technique, which has been developed and popularised by the Harvard Business School, USA is one of the most common forms of training. A case is written account of trained reporter or analyst seeking to describe an actual situation. Cases are widely used in a variety of programmes. This method increases the trainee’s power of observation, helping him to ask better questions and to look for a broader range of problems. A well chosen case may promote objective discussion, but the lack of emotional involvement may make it difficult to effect any basic change in the behaviour and attitude of trainees.

4) Brainstorming: This is the method of stimulating trainees to creative thinking: this approach developed by Alex Osborn seeks to reduce inhibiting forces by providing for a maximum of group participation and a minimum of criticism. A problem is posed and ideas are sought. Quantity rather than quality is the primary objective. Ideas are encouraged and criticism of any idea is discouraged. Chain reaction from idea to idea is often developed. Later, these ideas are critically examined. There is no trainer in brainstorming. Brainstorming frankly favours divergence, and this fact may be sufficient to explain why brainstorming is so little used yet in developing countries where new solutions ought to carry the highest premium. It is virtually untried even though its immediate use is limited to new ideas only, not change in behaviour.

5) Laboratory Training: Laboratory training adds to conventional training by providing situations, which the trainees themselves experience through their own interaction. In this way, they more or less experiment the conditions on themselves. Laboratory training is more concerned about changing individual behaviour and attitude. It is generally more successful in changing job performance than conventional training methods. There are two methods of laboratory training namely simulation and sensitivity training as explained under:

a) Simulation: An increasingly popular technique of management development is

simulation of performance. In this method, instead of taking participants into the field there can be simulated in the training session itself. Simulation is the presentation of real situation of organisations in the training session. It covers situations of varying complexities and roles for the participants. It creates a whole field organisation,

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relates participants through key roles in it, and asks them deal with specific situations of a kind they encounter in real life. There are two common simulation methods of training: role-playing is one and business game is the other.

i) Role-playing: Role-playing is a laboratory method, which can be used rather

easily as a supplement to conventional training methods. Its purpose is to increase the trainees’ skill in dealing with other people. One of its greatest uses is in connection with human relations training but it is also used in sales training as well. It is spontaneous acting of realistic situation involving two or more persons under classroom situations. Dialogue spontaneously grows out of the situation, as it is developed by the trainees as singed to it. Other trainees in the group serve as observers or critics. Since people take role everyday, they are somewhat experienced in the art, and with a certain amount of imagination, they can project themselves into roles other than their own. By this method, a trainee can broaden his experience by trying different approaches. Role-playing also has weaknesses which partly offset its values. It is time consuming and expensive. It requires experienced trainers because it can easily turn sour without effective direction. Nevertheless, these weaknesses do not undermine the strengths of this method.

ii) Gaming: Gaming has been devised to simulate the problems of running a company or even a particular department. It has been used for a variety of training objectives, from investment strategy, collective bargaining techniques, to the morale of clerical personnel. It has been used at all levels from the top executives to the production supervisors. Gaming is a laboratory method in which role-playing exists but its difference is that it forces attention on administrative problems, while role-playing tends to emphasise mostly on interaction. Gaming involves several teams each of which is given a firm to operate for a specified period. Usually, the period is a short one, say one year or so. In each period, each team makes decisions on various matters such as fixation of price, level of production, inventory level, and so forth. Since each team is competing with others, each firm’s decisions will affect the results of all others. All the firm decisions are fed into a computer, which is programmed to behave somewhat like a real market. The computer provides the results and the winner is the team which has accumulated largest profit. In the light of such results, strengths and weaknesses of decisions are analysed.

b) Sensitivity Training: It is the most controversial laboratory training method. Many

of its advocates have an almost religious zeal in their enhancement with the training group experience. Some of its critics match this fervour in their attacks on the technique. As a result of criticism and experience, a somewhat revised approach, often described as “team development” training, has appeared. It was first used by National Training Laboratories at Bethal, USA. The training groups are called T-Group. Sensitivity training is a small-group interaction under stress in an unstructured encounter group which requires people to become sensitive to one another’s feeling in order to develop reasonable group activity. T-Group has several characteristic features: (i) T-group is generally, small, from ten to twenty members; (ii) the group begins its activity with no formal agenda; (iii) the role of trainer is primarily to call attention from time to time to the on-going process within the group; and (iv) the procedure tends to develop introspection and self-examination, with emotional levels of involvement. The objectives of such training are concern for

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others, increased tolerance for individual differences, less ethnic prejudice, understanding of a group process, enhanced listening skills, increased trust and support.

10.9 CAUSES FOR FAILURE OF TRAINING

Training effort in most cases in many organisations becomes a failure due to weaknesses in policies, procedures, practices concerning training activities. Some such important causes for the failure of training, in general, are:

1) Top management does not have complete faith basically in HRD philosophy and has little confidence in training as an important method for ensuring development of human resources.

2) The training objectives or not clear, specific and not understood by all.

3) Training policy is not clear, lacks comprehensiveness and does not have proper linkage with other HRD policies.

4) Organisational arrangements, budgetary allocations, staff resources, aids, etc. are not adequate and properly placed

5) Training staff lacks coordination with other staff and personnel

6) In various aspects relating to training, such as identification of needs, selection of trainees, sponsoring candidates for training, using trainees on the job etc., there is not adequate seriousness to ensure effectiveness of training. It is felt that procedures are adopted as a mere formality

7) In conducting training activity, absence seriousness to involve the trainees in learning affects the training outcome. Besides, lack of expertise in using the methods, aids, resources, etc. hampers the expected results.

8) Lack of efforts to make better utilisation of the trainees and unfavourable environment to the trainees in applying their enhanced abilities and in rewarding their improved performance.

9) Lack of evaluation of training at various stages. The outcomes of training programmes are not monitored.

Efforts to overcome the weaknesses mentioned may help the organisation in improving the effectiveness of training.

10.10 EVALUATION OF TRAINING

A desirable characteristic of all training programmes is built-in-provision for its evaluation to find out whether the objectives of training activity or programmes are achieved or not.

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Notable dimensions of training evaluation are:

1) Evaluation of Contextual factors: Training effectiveness depends on not only what happens during the training, but also on what happens before the actual training and what happens after the training has formally ended. Thus, there is need for both pre-training and post-training evaluation of contextual factors.

2) Evaluation of training inputs: This involves the evaluation of training curriculum, its sequencing, trainers abilities, facilities, aids and resources used.

3) Evaluation of training process: The climate of training organisation, the relationship and interaction between participants and trainees, attitudes and approaches of the trainers, training methods used, and involvement of the trainers in learning are some of the important elements of the training process, which need to be evaluated.

4) Evolution of training outcomes: It involves measuring the results of the training in terms of what has been achieved on account of training programme. Pay-offs from training is intangible, slow and not clearly identifiable with the specific activity.

In evaluation of outcomes, four categories of outcomes can be measured:

i) Reaction: Evaluation of trainee’s reaction to the programme

ii) Learning: Evaluation of what trainees have learnt

iii) Behaviour: Evaluation of change in the behaviour of trainee due to training

iv) Results: Evaluation of results achieved due to training in various areas such as production, human resource utilisation, performance tests, general job and organisation environment and cost-value relationship.

Principles of Training Evaluation

If evaluation in any form is to be effective, it must be done in accordance with some of the following principles:

1) Evaluation must be planned, which is to be evaluated, when, why, by what means and by whom must be determined in advance

2) Evaluation must be objective. It should not be a mere formality or eyewash or for name-sake

3) Evaluation must be verifiable. Results can be compared by the same or different means

4) Evaluation must be cooperative. It must involve all those part of or affected by the training programme. It is not a contest between the evaluator and the subject of evaluation.

5) Evaluation must be continuous to ensure effectiveness at every step.

6) Evaluation must be specific. It should specify the strengths and weaknesses for further improvement but should not make out vague statements or generalisations

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7) Evaluation must be quantitative. All measurements should aim at quantifying the changes in different performance variables.

8) Evaluation must be feasible. It must be administratively manageable

9) Evaluation must be cost effective. The results must be commensurate with the costs incurred.

10.11 CONCLUSION

Every organisation needs to have well-trained and experienced people to perform the activities that have to be done. Training is the process through which employees are made capable of doing the job prescribed to them. In a rapidly changing society, employee training and development is a desirable activity. All types of jobs require some type of training for their efficient performance and therefore all employees new and old should be trained or retrained.

The basic needs and objective of training programme for a particular level differ from that of other level. Thus, a particular training programme would be more suitable to a particular group of people. Moreover, within a particular group, an individual may use a particular training while others may need some other programme. The determining factor would then be the level of individual in organisation and his personality characteristics.

10.12 KEY CONCEPTS Education: Knowledge attainment which develops or progresses, both as an inadvertent virtue and as part of deliberate policy is understood as education. Education is more than information sharing and imparting. It implies approximation to truth in the specific area of learning. Learning: Learning is the process of knowledge attainment or the tool with which knowledge is attained. Learning and development proceed in tandem and as complementary processes as each refurbishes the other. Learning leads to development of cognitive processes. Peak Proficiency: Proficiency is understood as the ability, talent, aptitude, adeptness, or expertise in a given subject area. Peak proficiency implies operating at optimum capacity. Maximum capacity may not be possible due to physical and cognitive limitations to human capacity.

10.13 REFERENCES AND FURTHER READING

Flippo, Edwin B, 1984, Principles of Personnel Management, McGraw-Hill, New York.

Luthans, Fred, 1985, Organisational Behaviour, McGraw-Hill, New York.

Memoria, C.B, 1999, Personnel Management, Himalaya Publishing Hosue, Bombay.

Verma, M.M. and R.K.Agarwal, 2000, Personnel Management and Industrial Relations, King’s Books.

Yoder, Dale, 1969, Personnel Management and Industrial Relations, Prentice Hall. 16

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Potential Appraisal,Assessment Centres

and Career andSuccession Planning

UNIT 10 POTENTIAL APPRAISAL,ASSESSMENT CENTRES ANDCAREER AND SUCCESSIONPLANNING

Objectives

After going through this unit, you should be able to :

l explain the concept of potential appraisal and its importance;

l understand what ‘assessment centre’ is and how it functions;

l differentiate between assessment centres and development centres;

l discuss the process of career planning and its importance; and

l define ‘succession planning’ and differentiate it from career planning.

Structure

10.1 Introduction

10.2 Potential Appraisal

10.3 Assessment Centres

10.4 Career Planning

10.5 Succession Planning

10.6 Summary

10.7 Self Assessment Questions


10.1 INTRODUCTION

Employees aspire to grow and expect this growth to take place at frequent intervals.Achievement of organisational goal, increased productivity and fulfilment of corporateobjectives can be possible only if the employees are feeling satisfaction andachievement. To achieve this there is a requirement for a well thought out system ofcareer and succession planning in an organisation. In this backdrop, this unit dealswith mechanisms of potential appraisals and ways and means employed byorganizations such as assessment centres to provide growth opportunities to employees.

10.2 POTENTIAL APPRAISAL

Many companies, which carry out performance appraisal, also keep records on thepotential of their employees for future promotion opportunities. The task of identifyingpotential for promotion cannot be easy for the appraising manager, since competenceof a member of staff to perform well in the current job is not an automatic indicator ofpotential for promotion. Very often the first class salesman is promoted to become amediocre sales manager, the excellent chief engineer is promoted to become a verypoor engineering director, and the star football player struggles to be a footballmanager.

Potential can be defined as ‘a latent but unrealised ability’. There are many peoplewho have the desire and potential to advance through the job they are in, wanting the

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Performance Managementand Potential Assessment

opportunity to operate at a higher level of competence in the same type of work. Thepotential is the one that the appraiser should be able to identity and develop because ofthe knowledge of the job. This requires an in-depth study of the positions which maybecome vacant, looking carefully at the specific skills that the new position maydemand and also taking into consideration the more subjective areas like ‘qualities’required. These may be areas where the employee has not had a real opportunity todemonstrate the potential ability and there may be areas with which you, as theappraisers are not familiar. There are few indicators of potential (Box 1) which maybe considered.

Box 1: Indicators of Potential

l A sense of reality: This is the extent to which a person thinks and actsobjectively, resisting purely emotional pressures but pursuing realistic projectswith enthusiasm.

l Imagination: The ability to let the mind range over a wide variety of possiblecauses of action, going beyond conventional approaches to situations and notbeing confined to ‘This is the way it is always being done!’

l Power of analysis: The capacity to break down, reformulate or transform acomplicated situation into manageable terms.

l Breadth of vision: The ability to examine a problem in the context of a muchbroader framework of reference; being able to detect, within a specificsituation, relationships with those aspects which could be affecting thesituation.

l Persuasiveness: The ability to sell ideas to other people and gain a continuingcommitment, particularly when the individual is using personal influence ratherthan ‘management authority’.

Source: Adopted from Philip, Tom (1983). Making Performance Appraisal Work, McGraw Hill Ltd., U.K.

Like the Performance Appraisal, potential appraisal is also done by the employees’supervisor who has had the opportunity to observe the employee for some time.Potential appraisal may be done either regularly or as and when required. Generallylast part of appraisal deals with potential appraisal, as this is seen in case of MarutiUdyog Ltd. (Illustration 1).

Illustration 1. Potential Appraisal at Maruti Udyog Ltd.

Part III of the Performance Appraisal form of Maruti Udyog Ltd. solicits informationto assess the future potential and ability of its L

8 and above categories of workers to

assume a position of higher responsibility (L13

) in the following format.

1) Group effectiveness (Maintaining and improving morale of group and helpingits identification with organisational objectives; optimal utilisation of availablemanpower resources; directing and co-ordinating efforts and effective follow upaction to ensure accomplishment of planned objectives).

Outstanding Very Good Good Satisfactory Unsatisfactory

2) Ability to develop subordinates (Sensitivity to develop subordinate’s mentalskills; ability to provide professional guidance to produce group results)


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3) Potential Capability (Overall rating for managerial capability to head adepartment based on your assessment related to the above two points).


Source: Adapted from Tripathi, P.C. (2003). Human Resource Development, SultanChand & Sons, New Delhi.

Career Path

One of the important objectives of appraisal, particularly potential appraisal is to helpemployees to move upwards in the organization. People do not like to work on dead-end jobs. Hence, a career ladder with clearly defined steps becomes an integralcomponent of human resources management. Most HRM practitioners favourrestructuring of a job to provide reasonably long and orderly career growth. Careerpath basically refers to opportunities for growth in the organization. Availability ofsuch opportunities has tremendous motivational value. It also helps in designing salarystructures, identifying training needs and developing second line in command. Careerpaths can be of two kinds:

a) Those where designations changes to a higher level position, job remaining moreor less the same. A good example of this is found in teaching institutions, wherean assistant professor may grow to become associate professor and a professor,but the nature of job (teaching and research) remains the same. Career path insuch situtions means a change in status, better salary and benefits and perhapsless load and better working conditions.

b) Those where changes in position bring about changes in job along with increasedsalary, status and better benefits and working conditions. In many engineeringorganisations, an employee may grow in the same line with increasedresponsibilities or may move to other projects with different job demands.

10.3 ASSESSMENT CENTRES

Employees are not contended by just having a job. They want growth and individualdevelopment in the organization. An “assessment centre” is a multiple assessment ofseveral individuals performed simultaneously by a group of trained evaluators using avariety of group and individual exercises.

Assessment centers are a more elaborate set of performance simulation tests,specifically designed to evaluate a candidate’s managerial potential. Line executives,supervisors, and/or trained psychologists evaluate candidates as they go through oneto several days of exercises that simulate real problems that they would confront onthe job. Based on a list of descriptive dimensions that the actual job incumbent has tomeet, activities might include interviews, in-basket problem-solving exercises,leaderless group discussions, and business decision games. For instance, a candidatemight be required to play the role of a manager who must decide how to respond to tenmemos in his/her in-basket within a two-hour period. Assessment centers haveconsistently demonstrated results that predict later job performance in managerialpositions.

The American Telephone and Telegraph Company (AT&T) began experiments withAssessment Centre approach in the 1950’s as a part of a wide programme ofmanagement development. The AT&T Company designated a particular buildingwhere the Assessments were carried out. This building became known as Assessmentcentre and the name has stuck as a way of referring to the method. The methodbecame established in the industry in the USA during the 1960’s and 1970’s and wasintroduced in UK during this period.

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This method is now regarded as one of the most accurate and valid assessmentprocedures and is widely used for selection and development.

According to IPMA (The International Personnel Management Association), anassessment center consists of a standardized evaluation of behavior based on multipleinputs. They are used to assess the strengths, weaknesses and potential of employees.The specific objective is to reinforce strengths, overcome weaknesses and exploitpotential of the employees through training and developmental efforts. Several trainedobservers and techniques are used. Judgments about behavior are made, in major part,from specifically developed assessment simulations. These judgments are pooled in ameeting among the assessors or by a statistical integration process. In an integrationdiscussion, comprehensive accounts of behavior, and often ratings of it, are pooled.The discussion results in evaluations of the performance of the assessees on thedimensions/ competencies or other variables that the assessment center is designed tomeasure. There is a difference between an assessment center and assessment centermethodology. Various features of the assessment center methodology are used inprocedures that do not meet all of the guidelines set forth here, such as when apsychologist or human resource professional, acting alone, uses a simulation as a partof the evaluation of an individual. Such personnel assessment procedures are notcovered by these guidelines; each should be judged on its own merits. Procedures thatdo not conform to all the guidelines here should not be represented as assessmentcenters or imply that they are assessment centers by using the term “assessmentcenter” as part of the title. The following are the essential elements for a process to beconsidered an assessment center:

a) Job Analysis

A job analysis of relevant behaviors must be conducted to determine the dimensions,competencies, attributes, and job performance indices important to job success inorder to identify what should be evaluated by the assessment center. The type andextent of the job analysis depend on the purpose of assessment, the complexity of thejob, the adequacy and appropriateness of prior information about the job, and thesimilarity of the new job to jobs that have been studied previously. If past job analysesand research are used to select dimensions and exercises for a new job, evidence of thecomparability or generalizability of the jobs must be provided. If job does notcurrently exist, analyses can be done of actual or projected tasks or roles that willcomprise the new job, position, job level, or job family. Target dimensions can also beidentified from an analysis of the vision, values, strategies, or key objectives of theorganization. Competency-modeling procedures may be used to determine thedimensions/competencies to be assessed by the assessment center, if such proceduresare conducted with the same rigor as traditional job analysis methods. Rigor in thisregard is defined as the involvement of subject matter experts who are knowledgeableabout job requirements, the collection and quantitative evaluation of essential jobelements, and the production of evidence of reliable results. Any job analysis orcompetency modeling must result in clearly specified categories of behavior that canbe observed in assessment procedures.

A “competency” may or may not be amenable to behavioral assessment as definedherein. A competency, as used in various contemporary sources, refers to anorganizational strength, an organizational goal, a valued objective, a construct, or agrouping of related behaviors or attributes. A competency may beconsidered a behavioral dimension for the purposes of assessment in an assessmentcenter if

i) it can be defined precisely

ii) expressed in terms of behaviors observable on the job or in a job family and insimulation exercises.

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iii) a competency also must be shown to be related to success in the target job orposition or job family.

b) Behavioural Classification

Assessment centre requires that Behaviors displayed by participants must be classifiedinto meaningful and relevant categories such as dimensions, attributes, characteristics,aptitudes, qualities, skills, abilities, competencies, and knowledge.

c) Assessment Techniques

The techniques used in the assessment center must be designed to provide informationfor evaluating the dimensions previously determined by the job analysis. Assessmentcenter developers should establish a link from behaviors to competencies to exercises/assessment techniques. This linkage should be documented in a competency-byexercise/ assessment technique matrix.

d) Multiple Assessments

Multiple assessment techniques must be used. These can include tests, interviews,questionnaires, sociometric devices, and simulations. The assessment techniques aredeveloped or chosen to elicit a variety of behaviors and information relevant to theselected competencies/ dimensions. Self-assessment and 360 degree assessment datamay be gathered as assessment information. The assessment techniques will be pre-tested to ensure that the techniques provide reliable, objective and relevant behavioralinformation. Pre-testing might entail trial administration with participants similar toassessment center candidates, thorough review by subject matter experts as to theaccuracy and representativeness of behavioral sampling and/or evidence from the useof these techniques for similar jobs in similar organizations.

e) Simulations

The assessment techniques must include a sufficient number of job related simulationsto allow opportunities to observe the candidate’s behavior related to each competency/dimension being assessed. At least one—and usually several—job related simulationsmust be included in each assessment center. A simulation is an exercise or techniquedesigned to elicit behaviors related to dimensions of performance on the job requiringthe participants to respond behaviorally to situational stimuli. Examples ofsimulations include, but are not limited to, group exercises, in-basket exercises,interaction (interview) simulations, presentations, and fact-finding exercises. Stimulimay also be presented through video based or virtual simulations delivered viacomputer, video, the Internet, or an intranet. Assessment center designers also shouldbe careful to design exercises that reliably elicit a large number of competency-relatedbehaviors. In turn, this should provide assessors with sufficient opportunities toobserve competency-related behavior.

f) Assessors

Multiple assessors must be used to observe and evaluate each assessee. Whenselecting a group of assessors, consider characteristics such as diversity of age, sex,organizational level, and functional work area. Computer technology may be used toassess in those situations in which it can be shown that a computer program evaluatesbehaviors at least as well as a human assessor. The ratio of assessees to assessors is afunction of several variables, including the type of exercises used, the dimensions tobe evaluated, the roles of the assessors, the type of integration carried out, the amountof assessor training, the experience of the assessors, and the purpose of the assessmentcenter. A typical ratio of assessees to assessors is two to one. A participant’s currentsupervisor should not be involved in the assessment of a direct subordinate when theresulting data will be used for selection or promotional purposes.

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g) Assessor Training

Assessors must receive thorough training and demonstrate performance that meetsrequirements prior to participating in an assessment center. The training should focuson processing of information, drawing conclusions, interview techniques andunderstanding behaviour.

h) Recording Behaviour

A systematic procedure must be used by assessors to record specific behavioralobservations accurately at the time of observation. This procedure might includetechniques such as handwritten notes, behavioral observation scales, or behavioralchecklists. Audio and video recordings of behavior may be made and analyzed at alater date.

i) Reports

Assessors must prepare a report of the observations made during each exercise beforethe integration discussion. It is suggested that assessors must prepare the reportimmediately after the assessment is over otherwise they are likely to forget the details.Not only this, these reports must be independently made.

j) Data Integration

The integration of behaviors must be based on a pooling of information fromassessors or through a statistical integration process validated in accordance withprofessionally accepted standards. During the integration discussion of eachdimension, assessors should report information derived from the assessmenttechniques but should not report information irrelevant to the purpose of theassessment process. The integration of information may be accomplished byconsensus or by some other method of arriving at a joint decision. Methods ofcombining assessors’ evaluations of information must be supported by the reliabilityof the assessors’ discussions. Computer technology may also be used to support thedata integration process provided the conditions of this section are met.

Uses of Assessment Centres

Data generated during the process of Assessment can become extremely useful inidentifying employee potential for growth. This data can be used for:

a) Recruitment and Promotion: Where particular positions which need to befilled exist, both internal and external can be assessed for suitability to thosespecific posts.

b) Early Identification of Personnel: The underlying rationale here is the need forthe organization to optimise talent as soon as possible. High potential people also needto be motivated so that they remain with the organization.

c) Diagnosis of Training and Development Needs: It offers a chance to establishindividual training and development needs while providing candidates with a greaterappreciation of their needs.

d) Organizational Planning: Assessment centers can be used to identify area wherewidespread skill deficiencies exist within organizations, so that training can bedeveloped in these areas. Results can also be integrated with human resource planningdata to provide additional information concerning number of people with particularskills needed to meet future needs.

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Assessment Centres and Development Centres

Traditionally an assessment centre consisted of a suite of exercises designed to assessa set of personal characteristics. It was seen as a rather formal process where theindividuals being assessed had the results fed back to them in the context of a simpleyes/no selection decision. However, recently we have seen a definite shift in thinkingaway from this traditional view of an assessment centre to one which stresses thedevelopmental aspect of assessment. A consequence of this is that today it is very rareto come across an assessment centre which does not have at least some developmentalaspect to it. Increasingly assessment centres are stressing a collaborative approachwhich involves the individual actively participating in the process rather than being apassive recipient of it. In some cases we can even find assessment centres that are sodevelopmental in their approach that most of the assessment work done is carried outby the participants themselves and the major function of the centre is to provide theparticipants with feedback that is as much developmental as judgmental in nature.

Assessment centres typically involve the participants completing a range of exerciseswhich simulate the activities carried out in the target job. Various combinations ofthese exercises and sometimes other assessment methods like psychometric testing andinterviews are used to assess particular competencies in individuals. The theory behindthis is that if one wishes to predict future job performance then the best way of doingthis is to get the individual to carry out a set of tasks which accurately sample thoserequired in the job. The particular competencies used will depend upon the target jobbut one should also learn such competencies such as relating to people; resistance tostress; planning and organising; motivation; adaptability and flexibility; problemsolving; leadership; communication; decision making and initiative. The fact that a setof exercises is used demonstrates one crucial characteristic of an assessment centre,namely; that it is behaviour that is being observed and measured. This represents asignificant departure from many traditional selection approaches which rely on theobserver or selector attempting to infer personal characteristics from behaviour basedupon subjective judgment and usually precious little evidence. This approach isrendered unfair and inaccurate by the subjective whims and biases of the selector andin many cases produces a selection decision based on a freewheeling social interactionafter which a decision was made as whether the individual’s ‘face fit’ with theorganisation.

Differences between Assessment and Development Centres

The type of centre can vary between the traditional assessment centre used purely forselection to the more modern development centre which involves self-assessment andwhose primary purpose is development. One might ask the question ‘Why groupassessment and development centres together if they have different purposes?’ Theanswer to that question is threefold.

a) they both involve assessment and it is only the end use of the informationobtained which is different i.e. one for selection and one for development.

b) it is impossible to draw a line between assessment and development centresbecause all centres, be they for assessment or development naturally liesomewhere on a continuum somewhere between the two extremes.

c) Most assessment centres involve at least some development and mostdevelopment centres involve at least some assessment. This means that it is veryrare to find a centre devoted to pure assessment or pure development. It is easierto think about assessment centres as being equally to do with selection anddevelopment because a degree of assessment goes on in both.

d) Development Centres grew out of a liberalization of thinking about assessmentcentres. While assessment centres were once used purely for selection and have

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evolved to have a more developmental flavour, the language used to describethem has not. Another problem with using the assessment - developmentdichotomy is that at the very least it causes us to infer that little or no assessmentgoes in development centres. While one hears centres being called assessment ordevelopment centres assessment goes on in both and to that extent they are bothassessment centres. The end result of this is that it is not possible to talk aboutassessment or development centres in any but the most general terms. A numberof differences between assessment and development centres exist are presentedbelow:

a) Assessment centres have a pass/fail criteria while Development centres donot have a pass/fail criteria

b) Assessment centres are geared towards filing a job vacancy whileDevelopment centres are geared towards developing the individual

c) Assessment Centres address an immediate organisational need whileDevelopment Centres address a longer term need

d) Assessment Centres have fewer assessors and more participants whileDevelopment Centres have a 1:1 ratio of assessor to participant

e) Assessment Centres involve line managers as assessors while DevelopmentCentres do not have line managers as assessors

f) Assessment Centres have less emphasis placed on self-assessment whileDevelopment Centres have a greater emphasis placed on self-assessment

g) Assessment Centres focus on what the candidate can do now whileDevelopment Centres focus on potential

h) Assessment Centres are geared to meet the needs of the organisation whileDevelopment Centres are geared to meet needs of the individual as well asthe organization.

i) Assessment Centres assign the role of judge to assessors whileDevelopment Centres assign the role of facilitator to assessors.

j) Assessment Centres place emphasis on selection with little or nodevelopmental while Development Centres place emphasis ondevelopmental feedback and follow up with little or no selection function.

k) Assessment Centres feedback and follow up while Development Centresgive feedback immediately.

l) Assessment Centres give feedback at a later date while DevelopmentCentres involve the individual having control over the informationobtained.

m) Assessment Centres have very little pre-centre briefing while DevelopmentCentres have a substantial pre-centre briefing.

n) Assessment Centres tend to be used with external candidates whileDevelopment Centres tend to be used with internal candidates.

10.4 CAREER PLANNINGCareer is viewed as a sequence of position occupied by a person during the course ofhis lifetime. Career may also be viewed as amalgam of changes in value, attitude andmotivation that occur, as a person grows older. The implicit assumption is that aninvididual can make a different in his destiny over time and can adjust in ways thatwould help him to enhance and optimize the potential for his own career development.Career planning is important because it would help the individual to explore, chooseand strive to derive satisfaction with one’s career object.

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The process by which individuals plan their life’s work is referred to as careerplanning. Through career planning, a person evaluates his or her own abilities andinterests, considers alternative career opportunities, establishes career goals, and planspractical developmental activities.

Career planning seeks to achieve the following objectives:

a) It attracts and retains the right persons in the organisation

b) It maps out careers of employees suitable to their ability, and their willingness tobe trained and developed for higher positions

c) It ensures better use of human resources through more satisfied and productiveemployees

d) It ensures more stable workforce by reducing labour turnover and absenteeism

e) It utilizes the managerial talent available at all levels within the organisation

f) It improves employee morale and motivation by matching skills to jobrequirements and by providing job opportunities for promotion

g) It ensures that promising persons get experience that will equip them to reachresponsibility for which they are capable

h) It provides guidance and encouragement to employees to fulfill their potential

i) It helps in achieving higher productivity and organizational development

The essence of a progressive career development programme is built on providingsupport for employees to continually add to their skills, abilities and knowledge. Thissupport from organisation includes:

a) Clearly communicating the organisation’s goals and future strategies.

b) Creating growth opportunities

c) Offering financial assistance

d) Providing the time for employees to learn.

On the part of employees, they should manage their own careers like entrepreneursmanaging a small business. They should think of themselves as self-employed. Theyshould freely participate in career planning activities and must try to get as much aspossible out of the opportunities provided. The successful career will be built onmaintaining flexibility and keeping skills and knowledge up to date.

Career anchors

Some recent evidence suggests that six different factors account for the way peopleselect and prepare for a career. They are called career anchors because they becomethe basis for making career choices. They are particularly found to play a significantrole amongst younger generation choosing professions. They are briefly presentedbelow:

a) Managerial Competence: The career goal of managers is to develop qualities ofinterpersonal, analytical, and emotional competence. People using this anchorwant to manage people.

b) Functional Competence: The anchor for technicians is the continuousdevelopment of technical talent. These individuals do not seek managerialpositions.

c) Security: The anchor for security-conscious individuals is to stabilize theircareer situations. They often see themselves tied to a particular organization orgeographical location.

d) Creativity: Creative individuals are somewhat entrepreneurial in their attitude.They want to create or build something that is entirely their own.

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e) Autonomy and independence: The career anchor for independent people is adesire to be free from organizational constraints. They value autonomy and wantto be their own boss and work at their own pace. This also includes anentrepreneurial spirit.

f) Technological competence: There is a natural affinity for technology and adesire to work with technology whenever possible. These individuals oftenreadily accept change and therefore are very adaptable.

Career Planning Process

It is obvious from the foregoing analysis that individuals differ a great deal in term oftheir career orientation .The career orientation is influenced by the preference for aparticular career anchor, the life cycle stage, individual difference in values, goals,priorities, and aspiration. Organization also on the other hand differ in term of careerpath and opportunities that they can provide given the reality of their internal andexternal environments .The career system available in organizational depend on theirgrowth potential, goals and priorities. The difference between what the employees lookfor in their career progression and what career growth opportunities the organizationis able to provide, gives rise to situation of potential conflict. If the conflict is allowedto persist, the employee will experience dissatisfaction and withdraw from beingactively engaged in the productive pursuit .They might even choose the option ofleaving the organization. In either case, the organization is not able to optimally utilizethe potential contribution of its employee towards the achievement of its goal.

The possibility of conflict between the individual-organization objective calls forcareer planning efforts which can help identify areas of conflict and initiate suchaction as necessary to resolve the conflict . Career planning thus involves matching ofrewards and incentives offered by the career path and career structure with hope andaspiration of employees regarding their own concept of progression. A generalapproach to career planning would involve the following steps:

a) Analysis of the characteristic of the reward and incentives offered by theprevailing career system needs to be done and made know to employee .Manyindividuals may not be aware of their own career progression path as suchinformation may be confined to only select group of managers.

b) Analyse the characteristic of the hopes and aspirations of different categoriesof employee including the identification of their career anchor must be donethrough the objective assignment. Most organization assume the career aspirationof individual employee which need not be in tune with the reality .The individualmay not have a clear idea of their short and long term career and life goals , andmay not be aware of the aspiration and career anchor .

c) Mechanism for identifying congruence between individual career aspirationand organizational career system must develop so as to enable the organization todiscuss cases of mismatch or incongruence. On the basis of analysis, it will benecessary to compare and identify specific area of match and mismatch fordifferent categories of employee.

d) Alternative strategies for dealing with mismatch will have to be formulated.Some of the strategies adopted by several organization include the following :

l change in the career system by creating new career path , new incentives,new rewards, by providing challenge through job redesign opportunities forlateral movement and the like.

l change in the employees hopes and aspirations by creating new needs, newgoals, new aspiration or by helping the employees to scale down goal andaspiration that are unrealistic or unattainable for one reason or the other.

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l Seek new basis of integration, compromise or other form of mutual changeon the part of employee and organizational through problem solving,negotiation or other devices.

l A framework of career planning process aimed at integrating individual andorganizational needs is presented.

e) Reviewing Career Plans a periodic review of career plans is necessary to knowwhether the plans are contributing to the effective utilization of human resourcesby matching employee objectives to job needs. Review will also indicate toemployee in which direction the organizations is moving, what changes are likelyto take place and what skills are needed to adapt to the changing needs of theorganization.

10.5 SUCCESSION PLANNING

Succession planning is an ongoing process that identifies necessary competencies, thenworks to assess, develop, and retain a talent pool of employees, in order to ensure acontinuity of leadership for all critical positions. Succession planning is a specificstrategy, which spells out the particular steps to be followed to achieve the mission,goals, and initiatives identified in workforce planning. It is a plan that managers canfollow, implement, and customize to meet the needs of their organisation, division,and/or department.

The continued existence of an organization over time require a succession of personsto fill key position .The purpose of succession planning is to identify and developpeople to replace current incumbents in key position for a variety of reasons.Some of these reasons are given below:

l Superannuation: Employees retiring because they reach a certain age.

l Resignation: Employees leaving their current job to join a new job

l Promotion: Employees moving upward in the hierarchy of the organization.

l Diversification: Employees being redeployed to new activities.

l Creation of New Position: Employees getting placed in new positions at thesame level.

Succession can be from within or from outside the organization. Succession by peoplefrom within gives a shared feeling among employee that they can grow as theorganization grows. Therefore organization needs to encourage the growth anddevelopment with its employee. They should look inward to identify potential andmake effort to groom people to higher and varied responsibilities. In someprofessionally run large organizations, managers and supervisor in every departmentare usually asked to identify three or four best candidate to replace them in their jobsshould the need arise. However, the organization may find it necessary to search fortalent from outside in certain circumstance. For example, when qualified andcompetent people are not available internally, when it is planning to launch a majorexpansion or diversification programmes requiring new ideas etc.. Completedependence on internal source may cause stagnation for the organization. Similarlycomplete dependence on outside talent may cause stagnation in the career prospects ofthe individual within the organization which may in turn generate a sense offrustration.

Succession planning provides managers and supervisors a step-by-step methodologyto utilize after workforce planning initiatives have identified the critical required jobneeds in their organization. Succession planning is pro-active and future focused, andenables managers and supervisors to assess, evaluate, and develop a talent pool of

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individuals who are willing and able to fill positions when needed. It is a tool to meetthe necessary staffing needs of an organization/department, taking not only quantity ofavailable candidates into consideration, but also focusing on the quality of thecandidates, through addressing competencies and skill gaps.

10.6 SUMMARY

Continuous self and staff development are essential to continuous performanceimprovement. One’s own self-development needs to be related to your personalstrengths and weaknesses and to the career aspirations. This requires planning ofcareer progression and setting career goals. This can be achieved by identifyingpotentialities of employees with the help of potential appraisal and various methodsinvolved in it viz. assessment centre.

10.7 SELF ASSESSMENT QUESTIONS

1) Explain the concept of ‘potential appraisal’ with illustrations.

2) What is career planning? Discuss its needs, purpose and objectives.

3) Is assessment centre same with development centre? If not, what are thedifferences?

4) Write a comprehensive note on succession planning citing suitable examples.


Aswathappa, K.: “Human Resource and Personnel Management”, (1999) HimalayaPublishing House, New Delhi.

Davar, Rustom: “The Human Side of Management”, (1994) Progressive Corporation.

Ghosh, P.: Personnel Administration in India, (1990).

Gupta, C.B., “Human Resource Management” (1997), Sultan Chand & Sons, NewDelhi.

Jucius Micheal, J.: “Personnel Management”,(1995) Richard Irwin.

Micheal, V.P.: “Human Resource Management and Human Relations” (1998),Himalaya Publishing house, New Delhi.

Monappa, Arun and Saiyadain, Mirza S.: “Personnel Management” (1996), TataMcGraw-Hill, New Delhi.

Saiyadain, Mirza S.: “Human Resource Management”(3rd Ed.),2003, Tata McGraw-Hill, New Delhi.

Tripathi, P.C.: “Human Resource Development”, 2003, Sultan Chand, New Delhi.

Philip, Tom: “Making Performance Appraisal Work”, 1983, McGraw Hill, U.K.

UNIT - 6 PERFORMANCE APPRAISAL

Structure


6.1 Introduction

6.1.1 Requirements of Performance Appraisal

6.1.2 Objectives of Performance Appraisal

6.1.3 Approaches of Performance Appraisal

6.1.4 Need for Performance Appraisal

6.1.5 New Imperatives

6.2 Related Ideas

6.2.1 Performance Measurement

6.2.2 Performance Management

6.3 Methods of Performance Appraisal

6.3.1 Traditional Methods

6.3.2 Modern Methods

6.4 Performance Appraisal of Public Services in India

6.5 Proposed Improvements

6.6 Conclusion

6.7 Key Concepts


6.9 Activities

6.0 LEARNING OUTCOME

After studying this Unit, you should be able to:

• Understand the meaning, need and significance of performance appraisal;

• Define methods of performance appraisal;

• Explain related ideas of performance appraisal; and

• Analyse performance appraisal of public services in India.

6.1 INTRODUCTION

Performance appraisal entails assessment of an employee’s performance on the job. It involves measuring quantitatively and qualitatively, an employee’s past and present performance, with reference to his specified role and the potential he imparts to an organisation. What is important is the human factor under judgment. Criteria for adjudging performance have to be carefully devised and employed prudently to ensure a just assessment of employee performance. Needless to assert, there is a difference between checking a machine for repairs and assessing human capacity for work. Performance appraisal is recognised as an important aspect of human resource management.

Scholars use different terminologies to denote it. Meggioson (1967) prefers to use the term “employee appraisal” while Cunning (1972) uses the term, “staff assessment”. Pertinent questions put in the aforesaid context are: Can performance parameters be objectively laid down or specifically delineated and measured? Can performance be limited to the strict construct of job design? To what extent do workers redefine their roles as per subjective role preferences, imparting their own unique understanding to it the sense of emphasising certain aspects and deemphasising certain others?; To what extent are jobs ‘mean’ or ‘end’ with respect to purposive behaviour in an organisational situation?

Does role constitute ‘fact’ to the exclusion of value? How can value be articulated and assessed for better study of organisational behaviour? To what extent do workers impart ‘value’ to ‘fact’? It is an accepted fact of organisational life that workers do impart personal values to job performance as per their perception of issues. Also, is value imparted by an employee to an organisation measurable? Fact and value are inextricable in real life situations (purposive behaviour). In the same vein, can ‘behaviour’ be catalogued along specifically crafted indices? Is it at all possible to have ‘scientific’ performance appraisal?

Aforesaid questions are some of the challenges for human resource management today. Ideally, performance should be appraised by indices. All aspects of a job should be articulated clearly, as; interpersonal relations punctuality, quality of work etc should be used to allot marks or grade with a view to measuring them. A one shot statement may not make for objective performance appraisal though, disquietingly, forms organisational practice at lower levels in many government organisations.

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6.1.1 Requirements of Performance Appraisal

Requirements of performance appraisal could be specifically stated thus:

1. Employees should be apprised of expected standards and level of performance articulated specifically, both quantitatively and qualitatively, in terms of goals, targets, behaviour, etc., expected at their particular levels. This helps them match personal contributions to expected output;

2. Personal equation of trust and compatibility is important for good informal interface between the employer and the employee. There should also be broad agreement over criteria to be adopted for appraisal;

3. Employees should be encouraged to express themselves freely about performance reports;

4. The organisation should ensure that the appraisal system is job-related, performance-based, uniform, consistent, fair, just and equitable and that appraisers are honest, rational and objective in their approach and judgment and have the desirable behavioural orientation for ethical judgment.

5. Supervisors responsible for performance appraisal should be well trained in the art and science of performance appraisal to ensure uniformity, consistency and reliability of the process. Success of the evaluation ultimately depends on the evaluator and not on any system however perfect a support it may provide;

6. Performance appraisal reports should be examined meticulously, before any action, positive or negative, is proposed to be initiated;

7. To promote consistency and uniformity regarding performance standards, line and staff co-ordination is vital;

8. There should be provision for appeals against appraisals to ensure confidence of the employees and their associations and unions; and

9. Performance appraisal is a continuous activity which also evolves over time. Continuous study and review are therefore a must.

10. If an appraisal system is to achieve objectives academically delineated ‘ideal,’ the content should include both work- related and trait- related components. It should highlight significant achievements or any special traits exhibited at work with due emphasis on ethical behaviour; spirit of humanism and enquiry, demonstrated learning capability and enthusiasm for work shown by the employee. There should be an equal emphasis on the process of performance appraisal. Procedural justice is a recognised factor in job satisfaction at the work place. The process should stimulate two way communication of appraisal content between superiors and subordinates;

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emphasise on institution of feedback and follow-up action, ensure that appraisal results are taken into account in administrative decision-making relating to placements, career planning and development and finally, appraisal systems should be evaluated from time to time to ensure desired stipulations (both theoretical and practical) are duly properly followed in practice every time.

6.1.2 Objectives of Performance Appraisal

Performance appraisal serves the threefold purpose of monitoring, evaluation, and

control. It is an imperative exercise to achieve the many objectives of personnel

administration. Performance appraisal is more than mere work assessment. It is a

management development activity, and is understood as a process, which facilitates

development of an organisational climate of mutuality, openness and collaboration

towards achievement of individual as well as organisational goals. To quote Heigel

(1973), “Performance appraisal is the process of evaluating the performance and

qualifications of the employees in terms of the requirements of the job for which he

is employed; for purposes of administration; including placement, selection for

promotion, providing financial rewards and other actions which require differential

treatment among the members of a group as distinguished from actions affecting all

members equally.” The primary purpose of performance appraisal is to help each

man handle his current job better.. (Rowland, 1970). It is the principal medium

through which human talent in organisations is most effectively utilised. Performance

appraisal’s multifarious objectives need to be clearly classified under the following

heads:

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Objective of Performance

Appraisal

Control Efficiency Assignment Job Evaluation

Work Related

Career Development

Communication

Control

Efficiency

Assignment

Job Evaluation

Control

Efficiency

Assignment

Administrative

Efficiency Job Evaluation

AssignmentControl

Job Evaluation

(a) Work -related objectives:

(i) Provision of control over work;

(ii) Improvement of work efficiency;

(iii) Assignment of work scientifically, as per specialisations and expressed proclivity of personnel and planning further organisational expansion and diversification as per internal manpower planning; and

(iv) Job evaluation for compensation administration.

(b) Career development objectives:

(i) Identifying strong and weak points of personnel and aiding remedial measures for perceived weaknesses through need based training;

(ii) Encouraging, motivating, controlling, organisational behaviour, identifying training and development needs, and rewarding, correcting or punishing employees;

(iii) Determining career potential of an employee with respect to his area of specialisation and aptitude and chart future course accordingly.

(iv) Planning performance development activities for total improved organisational performance; and

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(c) Communication objectives:

(i) Provide timely feedback on performance, and facilitate informal communication

(ii) Clearly establish goals in terms of what is expected of a staff member, possible job enrichment for the future; mutual setting of goals for better interaction through hierarchic tiers;

(iii) Provide counseling and job satisfaction, through open and free discussion regarding performance; and

(iv) Aiding self-assessment of employees in terms of where they stand in the organisation, by comparing expected and actual performance.

(d) Administrative objectives:

(i) Serve as a basis for promotions, rewards and penalties

(ii) Serve as a basis for incentive administration. Performance is not a unidirectional but a two way interactional process, whereby organisational equilibrium is secured by the management balancing inducements and contribution on the part of employees. Offering an economic analogy, Barnard has stated that ‘equilibrium’ as attained at a level where negative (contributions through effort put in organisational work) and positive balance (inducements received) with respect to an individual employees equalises. Organisation has to strategise effectively to ‘doctor’ such balance. To that end, organisation has to reinforce positive behaviour on the part of employees by way of rewards, welfare measures and employee benefit schemes to secure sustained and willing cooperation towards organisational purpose and restore internal equilibrium in case of any divergence;

(iii) Serve as a basis for transfer and placement policy with regard to suitability of each employee as discovered through the performance appraisal; and

(iv) Serve as a basis for termination in case of imminent staff reduction due to cost considerations.

Key elements of performance appraisal could be summarised as follows:

• Linking individual goals with organisational goals;

• Regular review of job descriptions to keep jobs in tune with changing requirements;

• Organisational Development (OD)

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• Performance development plan;

• Continuous monitoring and review

• Establishing causal link between performance and reward;

6.1.3. Approaches of Performance Appraisal

Performance appraisal has been significant activity since ancient times. Earlier, performance appraisal was perceived primarily in the negative sense of punishing employees and was restricted to formal remarks used for promotions. Today, performance appraisal is viewed as a positive management development tool intended to help employees develop to their full potential. The trend has changed significantly so much so that almost a paradigm shift is discernable. The main purpose of performance appraisal, as per modern understanding of the concept, is to promote individual excellence in order that employees function better as a collectivity and elevate the general level of organisational performance, while in the process re-energising them and manifesting and rediscovering their latent potentials as partners in collective endeavour. Establishment of conducive climate of mutual trust between the two ‘opposing poles’ of organisational effort, employees and employer, is absolutely imperative for the efficacy of the process.

There are both formal and informal aspects to the process of performance appraisal in the sense that formal observations and mutual discussions are involved in developing parameters through positive deployment of social capital and de-emphasis of hierarchy. The main purpose is to develop and refine human capital with more emphasis on intent and less on process.

6. 1.4 Need for Performance Appraisal

Need for performance appraisal arises out of sub-optimal performance evidenced, particularly among government employees. The Supreme Court has recently upheld the right of the government to deny two year’s extension in service to a civil judge in Orissa on grounds of ‘poor performance’. Masses are fed up with the attitude and the work culture of the government and “if things don’t improve the public might take the law into its own hands or there could be a mass movement of civil disobedience”. (Malhotra, 2000). Even the minister of state for labour, Government of India, publicly alleged that forty to forty five per cent of central government employees are virtual ‘non-performers’. There is imminent need for a reliable system of performance appraisal either to weed out under performing and erring officials or improve their work orientation, both work and trait related. (Munni Lal, 2005)

Motivating employees to involve their heart and soul in work is absolutely essential for securing quality output. In government, though the skeleton of performance appraisal system oriented to said end is available, actual practice remains largely farther from the objective. There are prescribed criteria but application differs considerably between departments and superiors. Target articulation and the process of pursuing achievements are often left to the officials for detailing. (Ramaswamy, 2000)

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To motivate employees to put in their best effort, performance appraisal system has to be non-discriminatory and objective to the extent possible. Targets and goals to be achieved should not be left to officials for subjective articulation. Instead, they have to be related to the actual work content and all quantitative and qualitative aspects and measurements thereof should be included and worked out in consultation with workers prior to the commencement of the schedule for the year.

6.1.5 New Imperatives

There is the impact of the New Public Management paradigm to administrative theory and practice on performance appraisal. In the entrepreneurial era, the emphasis is on end- orientation, client- orientation, goal- orientation, innovation and customer satisfaction. There is a growing body of evidence suggesting a shift from ‘government’ to ‘governance’, in that the emphasis is on the relevance of multi-agency working, public-private partnerships and policy networks. The shift from ‘government’ to ‘governance’ referred above, raises new challenges both for democracy as a macro concern and effectiveness and efficiency (govern ability) of individual enterprises (at different levels along the macro-micro scale). The public sector primarily refers to 'the state' (that is, the national, local government). It also includes a large variety of ‘other organisations’ (Article 12 of the Indian constitution, for example, the health care sector, schools, housing corporations and public utilities), which, although private or non government, perform work of a ‘public nature’ or are involved in public tasks in varying degrees. The organisational and managerial problems faced by the public sector are a matter of concern in the political arena. The general complaint is that effectiveness, and responsiveness are lacking. The concern is how can public tasks be managed more effectively and efficiently? Since HR is strategically most important in securing organisational effectiveness, these issues are at the heart of the new public management. Civil servants have been accused of lackadaisical performance and evasion of accountability. In the new paradigm, there is an emphasis on ‘means’ adopted in pursuance of ‘ends’ in that there is emphasis on ethics in strategy.

New management orientation is encapsulated in the following chief paradigms:

• There is increasing emphasis on the economic dimension; better provision of choice, minimising ‘rent seeking’ in government operations, measuring by EVA or economic value added in that higher EVA means a better level of resource unitisation, assessing training, selection procedures by public choice paradigm, employing decentralised decision making techniques. Result based management (RBM) is the latest paradigm. Instead of result measurement and management by objectives (MBO), emphasis is placed on quality and flexible work processes for achieving desired quality of output. Comparison across jobs or units allows less for comparable standards

• There is encouraging inventiveness in work culture; a realisation that success is a journey not a destination and the realisation that “there is no failure only feedback” in performance appraisal;

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• There is increase in scope of public management. There are new techniques being employed. Contrastive analysis involves contrasting similarities and differences between one situation and another to find “what difference makes the difference” Benchmarking is the approach of continuously measuring products, services and practices against standards set by competitors or leaders in the field;

• There is attention to detail to maximise efficiency. Method study is involved in performance measurement; and

6.2 RELATED IDEAS

Some of the significant ideas, which are related to performance appraisal, need to be understood for better appreciation of it as a tool for achieving desired organisational effectiveness. These are:

6.2.1. Performance Measurement

Performance measurement is based on the belief that performance can be measured by objective indices. Stress is not so much on ‘behaviour’ and ‘activities’ as ‘ends’ of behaviour and activities. Behaviour or activities are seen rather as ‘mean’ to the important ‘end;’ results. Emphasis is on tangible value- added measured in terms of tangible contribution to the organisation that can be expressed in numbers. This is known as performance measurement. The chief factor in performance measurement is development of objective measures for quantifying performance.

Performance measurement is necessary to enforce accountability to results. In government, accountability means the responsibility of a civil servant or unit for achieving a mission and the functions to support that mission. They have to be accountable to the tax player for prudence in expenditure. In other words the civil servants are to be responsible for their results, not just for their efforts.

Osborne and Gaebler (1992) have referred to the following as reasons for measuring performance:

1. What gets measured gets done.

2. If you don’t measure results, you can’t tell success from failure

3. If you can’t see success, you can’t reward it

4. If you can’t reward success, you are probably rewarding failure

5. If you can’t see success, you can’t learn from it

6. If you can’t recognise failure, you can’t correct it

7. If you can demonstrate results, you can win public support.

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Limitations of Performance Measurement

Stated below are some of the major problems in performance measurement:

• It may be difficult to measure phenomena as complex as performance. Results could be unreliable;

• Today's organisations are rapidly changing. Results and measures consequently get quickly obsolete;

• Translating human desires and interactions to measurements is impersonal and even heavy handed (Mc Namara, 2005).

• There may be employee resistance on the ground that the

1. Job is either too creative to be measured; or

2. Too professional; or

3. Too diffused;

• As far as comparative performance evaluation of sections inside an organisation is concerned, it should be remembered that inadequate performance does not always indicate a problem on the part of the work unit. Performance standards may be unrealistic or a section showing sub optimal performance may have insufficient resources at its command or there may be other constraints. Similarly, strategies of the organisation or its means may be unrealistic or without the backing of sufficient resources (McNamara, 2005).

• Academics, today, do not avoid about using subjective and descriptive measures in performance evaluation. The guideline seems to create descriptive measures; do not stick to numbers; verifiability and reliability of measures instead of quantification is more important. Instead of avoiding subjective measures, innovative yardsticks could be employed. This is especially relevant in case of service-oriented organisations (such as in government bureaucracy) where measurement by numbers might seem far- fetched. (ibid)

6.2.2 Performance Management

Performance management is a result oriented exercise. It brings into focus all organisational and sectional results, links them, brings them into perspective, relates them in terms of the larger picture, measures them, set up monitoring and feedback mechanisms, and finally, institutes development plans to improve upon results procured thus.

The result of the exercise depends on the focus of performance effort articulated through the mission statement and communicated as ‘work- related objectives’ to employees, the focus differing with the section involved and also with the differing perception of the authority in charge of carrying it out. For example, an economist would identify financial results, such as return on investment, profit rate, etc. as the

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focus. An industrial psychologist might identify more human centric results, such as employee productivity and implications for industrial relations, and the like (Mc Namara, 2005)

Result measurement is not an end in itself. Setting up an ongoing feedback mechanism with stress on informal work relations and use of positive social capital in performance management and periodic adjustments providing for flexibility of processes are more important than result measurement in numbers. Continuous review of performance, therefore, is understood as performance management. Performance managements is an ongoing activity, more in the nature of a learning exercise, whereas performance review or appraisal involve post-committal assessment of an activity or of the performance at a given task as a whole.

Performance management works by the systemic perspective. Besides focusing on performance of employees, it should also ideally cover:

1. The Organisation 2. Departments (computer support, administration, sales, etc.) 3. Processes (billing, budgeting, product development, financial management, etc.) 4. Programs (implementing new policies and procedures to ensure a safe workplace; or, for a nonprofit, ongoing delivery of services to a community) 5. Products or services to internal or external customers 6. Projects (automating the billing process, moving to a new building, etc.) 7. Teams or groups organised to accomplish a result for internal or external Hence systems paradigm is considered most suitable for performance management. customers (McNamara, 2005).

(a) Basic Steps in Performance Management

Performance management activities proceed in a logical continuum. Observing sequential steps may be critical for successful implementation of the process. The focus of performance management function could be the entire organisation, a single process, a sub-system or an employee. Subsystems could be a department, a program, a team or a group organised to accomplish a particular task. Performance is a complex whole which involves integrated effort of all units in a direction, that is, the organisational purpose.

Performance management activities are somewhat similar to several other major approaches in organisations, for example, strategic planning, management by objectives, total quality management, training as mentioned earlier etc. Steps in performance management are similar to those in a well-designed training programme. Trainers today focus much more on results of performance. This has given rise to a new genre of training consultants. Many trainers with this orientation now call themselves performance consultants (Mc Namara, 2005). The steps in performance management include:

1. “To set up the process successfully, steps should be followed as; articulate results objectively in terms of discrete units of performance; as, quantity, quality, cost or timeliness ( result itself is a measure);

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2. The performance management process often includes translating organisational goals in terms of results, which themselves are described in terms of quantity, quality, timeliness or cost. Therefore, the results of all parts of the organisation should be aligned with the overall preferred results of the organisation;

4. Prioritise desired results; break down results into component units and activities to the extent possible. Weighting results refers to prioritising, often expressed in terms of a ranking (such as 1, 2, 3, etc.) percentage; time-spent, etc;

4. Establish direct causal relationship between immediate ends leading to broader organisational purpose variously understood as ‘end’ or ‘value’;

5. Conduct ongoing observation and measurement to track performance;

8. Exchange ongoing feedback on performance;” (McNamara, 2005)

(b) Key Benefits of Performance Management

Some of the key benefits of performance management are:

1 Performance measurement focuses on results rather than behaviors and activities of employees. Value added to organisational performance is important. Accountability is enforced through performance management.

2. Alignment of organisational activities and processes in furtherance of the goal of the organisation imparts coherence to an organisation;

3. Cultivates a system-wide, long-term view of the organisation. These measurements have a wide variety of applications. …in benchmarking, or setting standards for comparison with best practices in other organisations

4. It is a basis for Organisation Change and Development. Performance management provides a consistent basis for comparisons between temporal situations during internal change conflicts;

5. It cultivates a systems perspective in that the focus is on the relationships and exchanges between subsystems, e.g., departments, processes, teams and employees. Accordingly, personnel focus on patterns and themes in the organisation, rather than specific events;

6. It produces specificity in resource commitment and allocation;

7. It provides specificity for comparisons, direction and planning;

8. It improves coordination;

9. It encourages responsible behaviour on the part of employees and facilitates decentralised functioning;

10. Delegation is resorted to more often; and

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11 Ethics of participation and teamwork are facilitated;

Performance Development Plan

A performance Development Plan is aimed at plugging the performance gap. It indicates specifically the problems behind below par result accomplishment such as, in what areas what correctives need to be administered, at what level; when performance is to be reviewed again and in what manner, by what methodology and such other relevant information.

(a) Key Features of Performance Development Plan

Performance development plan entails:

• Strategic alignment which communicates strategic direction, goals and objectives;

• Learning oriented mechanism for reviewing and learning from the information provided by the measures adopted;

• Action oriented mechanism that stimulates action from the results of the ‘measures’; and

• Environmental impact assessment, considering value impingement from the environment; specifically government policy or directives emanating there- from. (Mc Namara, 2005)

6.3 METHODS OF PERFORMANCE APPRAISAL

There are two methods of performance appraisal. They are classified broadly, as traditional and modern methods.

6.3.1. Traditional Methods

This classification contains a number of techniques:

1. Graphic Scale

2. Ranking

3. Forced Distribution Method

4. Critical Incident Method

5. Forced Choice Rating Method

6. Group Appraisal

7. Nomination

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8. Work Sample Tests

9. Result-Oriented Performance Appraisal System

10. Confidential Reports.

Graphic Scale

It is the most widely used technique of performance appraisal. In this method, articulated traits such as quality of work, quantity of work, dependability, attitudes and so forth are laid down. The rater places a check-mark on a form next to the word or phrase describing the degree of merit for each factor. Many scales designed by different technicians are available which can be modified to suit different situations. For example, J.B. Probst, former chief examiner of the St. Paul Civil Service Bureau adopted a comprehensive list which has been used in a modified form by different organisations. A major problem with graphic rating scales is that words like “excellent”, “poor” and the like are general and do not convey the degree of merit relating to each specific factor with respect to an employee. The following should be kept in mind for selecting traits for merit rating regardless of the method that is adopted:

1. Traits should be observable, that is, can the rater actually observe this trait in action?

2. Universality of the trait under consideration is important, meaning, is it a relevant characteristic in relation to the job under study?

3. The trait under question should clearly be distinguishable as something different from another trait with a different name.

Advantages

(i) It is less subjective as it considers a number of different traits rather than a subjective whole.

(ii) Traits are defined and uncertainty is minimised.

(iii) It also shows the degree to which each desired trait is present; is therefore precise.

Disadvantages

It is difficult to:

(i) Decide on relative weights of different traits;

(ii) Validate the opinions arrived at; and

(iii) Ensure uniformity in trait articulation and consistency in rating, as they are likely to differ with raters.

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Ranking

Persons of similar cadre are ranked in the order of merit, for example, if there are eight lecturers in a college, they could be ranked, 1, 2, 3… It entails simple ordering which gets difficult when twenty or more cases are involved. One of the techniques of ranking used is paired comparison. In this method, the rater compares each employee with every other in the group. Final ranking is based on the number of times the employee is judged better than the others. The rater must make n (n-1)/2 judgments where n is the number of men to be ranked. The method is not suitable where the group is large because number of judgments required, become unmanageable.

Forced Distribution Method

In this system, a five-point scale of job performance is used. On one end of the scale are the best job performance and the other, poor job performance. Fixed percentage of employees is allocated to the best, middle bracket and worst ends of the scale. The supervisor is asked to allocate approximately ten percent of his men to the best end of the scale, twenty percent to the next category, forty percent to the middle category, twenty per cent to the bracket next to the low end and ten per cent to the low bracket.

The supervisor’s opinion is taken as the final word. Despite subjectivity the method is relied upon for assessment of employee performance. This could be illustrated with the help of a table.

Job Performance Scale

___________________________________________________________________

10 per cent 20 per cent 40 per cent 20 percent 10 percent

Poorest Poorer Average Better Best

Critical Incident Method

This method involves keeping a record of exceptionally good or bad incidents in the employee’s work life with respect to the period under review. Such good or bad incidents can be examined to rate the fortitude and practical skills of employees. Bad incidents do not mean low ranking. It is how the particular employee rises up to the challenge and works his way through difficulty that is considered.

Forced Choice Rating Method

The rater is asked to select one statement out of two or four which in his opinion is most characteristic of the employee and another which is least, or both. In effect, the forced choice system is an attempt to devise an objective method of arriving at the same answers that the top management would reach after a protracted and complicated process. To serve a practical example; the subordinate

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A. Commands respect by his most characteristic

actions

B. Is cool headed

C. Is indifferent least characteristic (optional rating?)

D. Is overbearing

Two of these are favourable and the other two, unfavourable. One of the two favourable terms checked as most characteristic gives plus credit whereas the other gives no or negative credit. However, articulation of these characteristics and the determination of the scoring key (most, least) are crucial in a just rating by this method.

Group Appraisal

The appraiser group consists of three to four persons including the immediate supervisor who give their opinions collectively. Assistance from others also could be taken to cover aspects of employee performance and personality which may not have been noted by the immediate supervisors. For just assessment, members approached for appraisal must be people who have some contact with the subject. These members can be managers at high levels or colleagues or subordinates. It is apprehended that colleagues, if associated can work as either rivals or personal friends, which would create ‘biases’ in judgment. There can also be cliques of informal groups based on mutual benefit ties! As far as subordinates are concerned, they might not perceive the issue correctly and judge the person from their own narrow standpoints. They might also avoid airing views against the supervisor for fear of reprisals. Group appraisals therefore are advised to be used with caution. As practical concern it is better to involve superiors rather than colleagues or subordinates in group appraisals.

Nomination

By this method, appraisers are asked to identify exceptionally good and exceptionally poor performers in the organisation. The latter group is singled out for correctives. Both groups are studied for academic knowledge about ‘organisational climate’ and specific ‘drivers’ of efficiency. Academic inquiry into poor performance is also necessary.

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Work Sample Tests

In this method, workers are administered work sample tests which form the basis of their assessment which they are evaluated. It provides important practical inputs for training and employee development programmes.

Result-Oriented Performance Appraisal System

This technique evaluates the extent of attainment of targets in the context of overall objectives to ascertain the merit of personnel. Value addition on the part of an individual employee is considered which is attempted to be quantified.

Annual Confidential Reports (ACR)

In most government departments and public enterprises in India, performance appraisal is done through Annual Confidential Reports (ACRs). Format of these reports differs from organisation to organisation and also with levels as per specific requirement(s) articulated. Casual attitude is alleged on the part of superiors writing remarks for subordinates. There is strong opinion in favour of confidential reports incorporating modern techniques of rating.

Confidential report is written for a year and relates to performance, ability and character of the person, for that specific period. The essential features of confidential reports of officers under the administrative control of the government are as follows:

(i) Annual confidential remarks are recorded to judge the performance and efficiency of officers in public services.

(ii) The objective of maintenance of character reports is to put an officer on the desired path by pointing out defects.

(iii) Adverse entries should be communicated in time to enable him to rectify the defect.

(iv) From December 4, 1946 until April 20, 1966, the practice of communicating both remediable and irremediable defects was followed. Since 1966, irremediable defects concerning integrity and morality are not being communicated as per express governmental directive to that effect.

(v) Confidential character roll recorded by reporting officers is to be countersigned by the superior authority.

(vi) Countersigning authority may take a view different from that of the reporting officer in which case the view of the former shall prevail.

(vii) Until the countersigning authority gives his remarks, the character roll is not considered complete and is not to be acted on.

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(viii) Time schedules have been prescribed for recording remarks at different levels and their submission to the government for maintenance of confidential character roll.

(ix) Representations against adverse remarks are not ordinarily entertained as the very purpose of such communication is to apprise the officer of his failings in order that he rectifies them for his own benefit. Such communication should not be regarded as a matter of argument or controversy.

(x) In rare cases, however, where the remark is concerning specific acts or is the result of an error on the part of the reporting officer, representation lies (Ventat Rao vs. State of Orissa; 1974 Lab. IC 1192:1975 SLS 267(1974) 2 SLR 899 (Ori)).

Evaluation of Traditional Methods:

Perceived faults of traditional methods are as follows:

Performance is not evaluated in terms of its impact on organisational objectives, goals and targets. It focuses attention on the personality of the subject rather than organisational results or the purpose of his joining the organisation. Appraisal goals are found to lack in reliability, verifiability, validity, and are most often, subjective. Besides, raters also (allegedly) display biases. Both the appraiser and the subject consider it an unpleasant exercise as no performance appraisal system can be claimed to be perfectly free of biases or prejudices. Annual performance review “leaves people bitter, dejected, depressed and in despair for months” (Deming)

Most administrators do not possess knowledge of the art and science of performance appraisal which results in adoption of different criteria of assessment for one employee by different administrators.

Appraisals are not always utilised to educate employees with regard to expected behaviour. Counseling the employee to influence his behaviour in the desired way should be the prime objective of performance appraisal.

Traditional performance appraisal techniques do not stress effective communication between the appraiser and subject as a necessary and desirable condition or even as a prerequisite. Information flow, top to bottom, is crucial as personnel are desired to know the criteria by which their performance is being assessed.

V.R. Buzzotta (1989) raises the following other criticisms of performance appraisal:

(a) Appraisal process often gets confrontational as employees and supervisors work as two opposing poles of organisational effort; reconciliation may not always be possible. The appraisal process gets emotional in case participants sense adverse entries or anticipate confrontation. There may be outbursts of temper or even sarcasm which leaves parties hurt and resentful.

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(b) Appraisal process is often judgmental. This causes conflict because the manager is required to act in a dual capacity, as ‘judge’ and ‘counselor’ which he may not be trained or experienced to be just to.

(c) The appraisal process gets ambiguous as managers do not fully appreciate their responsibility and also lack the psychological insight and interactive skills needed to appraise successfully.

6.3.2. Modern Methods: Management by Objectives

Management by objectives (MBO) is a systematic and organised approach that allows management to focus on achievable goals to attain best possible results from available resources. It aims to increase organisational performance by aligning goals and subordinate objectives throughout the organisation. (business e- coach, 2005)

According to Odiorne (1965), result-oriented appraisals or MBO is “a system wherein the superior and the subordinate managers of an organisation jointly determine their common goals, define each individual’s major areas of responsibility in terms of results expected of him and use these measures as guides for operating the unit and assessing the contribution of each of its members.”

Steps in the Process

The main steps in the process are as follows:

(a) Determination of Results

The first step is to identify key areas in which positive results are desired. The general purpose of the organisation should be articulated in terms of meaningful objectives for each unit within the organisation. Once identified, the objectives should be delineated and should not normally be changed during the year. Objectives should be specific and achievable as short- term manageable targets. They should distinctly characterise the subject’s job; in other words be directly related to his job description. These should be tasks for which the subject is held accountable. They should be realistic and achievable, at the same time; challenging enough to make the employee stretch his potential for the organisation’s good.

Job design helps in goal setting for each level. It enables setting out targets quantitatively, for better performance measurement. The basic ideas behind written requirements for each position is, specification of duties, responsibilities, reporting relationships and qualifications (attributes or specifications) desired for achievement.

Each subordinate is required to establish short-term performance goals or targets. It is necessary that subordinates’ targets are discussed with superiors for better co-ordination and avoiding of role conflict and ambiguity. According to O.A. Ohmann (1957) this procedure gives subordinates an opportunity to make their own evaluation of target accomplishments and assess further scope for improvement. While discussing results, the subordinate actually appraises himself and gains further insight

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for improved performance regarding his methods, attitudes and behaviour. MBO is hence, first a diagnostic tool for self appraisal, then an action programme for change and improvement, next, a tool for implementation.

The second step is to clearly lay down the requirements and expectations at every level regarding expected volume of output, quality stipulations, time and money investment required etc. The idea behind the exercise is that performance appraisal system has its genesis in the broad purposes of the organisation.

Recording Observations

The appraiser records the performance of his staff members against norms articulated in well-designed appraisal forms. There is a formal provision for self-appraisal by the incumbent. Self-appraisal process enables self- assessment on the part of the employee. He analyses his present performance and identifies his strengths, weaknesses and potential for future growth, as well as craft plans for improvement.

Performance Progress Review Conference

Once performance appraisal is completed, the next step is performance progress review conference for exchange of information between the appraiser and appraisee. The subject matter is progress review as per specified parameters. Should parameters be changed or retained in their original form? Does format of appraisal chart need reviewing? What section should be added to orient it towards desired end such as career planning or performance improvement or enhancing productivity etc.?

Individual Development Programme

Based upon performance-appraisal reports, a plan can be developed jointly by the appraiser and appraise identifying specific performance targets for development period under review and formulating a description of specific approaches under consideration for improving the performance of the subordinate.

Post-development Programme Review Conference

Post-development review is designed to evaluate the results of the individual development programme and to establish new or modified targets for the ensuing review period.

MBO approach has limitations. The procedure may be impracticable in cases where the top personnel are simply not interested in involving subordinates in decision making. Besides, the approach stresses on tangible goals and not intangibles, like honesty, commitment of employees which actually determines performance.

Feedback to Employees

One of the important aspects of performance appraisals is the provision of clear performance based feedback to employees (Rearce and Portee, 1986). Raters tend to inflate performance ratings when they know their reviews will be fed back to the raters(Antononi, 1994). Inflated feedback gives distorted information. The question

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arises; is performance appraisal feedback necessary? Many Korean organisations are known to offer no performance appraisal feedback to raters. Performance appraisal is viewed in Korean organisations as bureaucratic red tape which no body really cares about. However, they do take performance appraisals into account for promotions. The application of the concept is culture specific (Lee and Shin, 2000).

It is also to be kept in mind that benefits of appraisals are not primarily regarding procedure. Benefits result only when procedure is supported by consistent and fair judgment and managerial acumen. W.B. Oastetter has rightly said that although “there is a considerable amount of knowledge and understanding required to plan, organise, implement and operate a performance appraisal system, the application of the process need not be complicated”. There is generally an inverse relationship between the amount of paper work involved in the appraisal process and its effectiveness. Consequently, the emphasis of the appraisal process should not be on an elaborate system of forms, procedures and reports. The focus of this approach is the self-development and ‘self actualisation’ of personnel. The basic focus is on employee development. Performance evaluation therefore is something of an executive art and science in itself.

6.4 PERFORMANCE APPRAISAL OF PUBLIC SERVICES IN INDIA

The performance of the civil servants is commented upon by the controlling authority, which normally is the head of the department. He rates the incumbents on several parameters, such as competence, punctuality, efficiency, capability, ability to work with the team, leadership qualities, etc. Often efficiency rating is a matter of subjective assessment. Level of efficiency is rated; outstanding, very good, good or fair. Promotions give special weight to a consistent ‘outstanding’ grade. Assessing authority rates integrity as “totally beyond reproach”, “of unquestionable integrity”, “beyond doubt”, or as, “nothing adverse has come to notice”.

Performance appraisal system followed in public services in India is based on the limiting idea of efficiency. Unless ‘integrity’ is rated negative, this parameter does not matter in the process of promotion. In the prevalent climate, it has to be recognised that integrity is as much, if not more, relevant to public service efficiency. If we consider probity and integrity in public service as national assets, an integrity rating like “of unquestionable integrity” has to be given due weight for promotion. By doing so, we would place equal emphasis on both efficiency and integrity. (Reddy, 1990). Mere absence of negative rating does not imply ethical behaviour. In the prevailing climate, integrity is as tangible a value added as ‘efficiency’ and should be given due count. It need not be asserted that the present crisis in public personnel administration is due to lack of integrity. Integrity is built into the idea of effectiveness. Integrity needs to be studied academically; all its dimensions need to be brought out and the same incorporated as a positive virtue in performance appraisal charts. Responsibility and responsiveness may be tangible suggestions. Hence, the first priority of public personnel administration is to improve ethical standards with a view to rooting out corruption.

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Weaknesses

Despite all the efforts to make performance appraisal objective and useful, loopholes remain in the system as is practiced today. Some could be discussed as follows:

(a) There is high degree of subjectivity in performance appraisal reports for employees at all levels. Performance appraisal is used more as an instrument of ‘subservience’.

(b) Employees, especially if they are due for promotion have to “chase” the concerned reporting, reviewing and accepting authorities to ensure that their appraisal report is written on time.

(c) It is a common complaint that appraisal reports are never written on time. Time lag means that reporting and reviewing authorities do not remember all benchmarks of performance for the period under assessment.

(d) For employees who are transferred frequently in a year, proper assessment of performance is difficult. It becomes more an official directive complied with, than an activity aimed at management development.

(e) It is difficult for secretariat employees, especially assistant level upwards to under-secretary, to write anything meaningful in their annual confidential reports against targets and achievements. It is also not possible to prescribe any targets for officials who are entrusted with only deskwork. Even for others, specific targets are not fixed by the superiors.

(f) Assessment of employee made in terms of ‘satisfactory’, ‘good’, ‘outstanding’, differs from officer to officer and also department to department. Where output of work can be measured easily objectivity is facilitated, but in government departments which deal mostly with policy matters, quantification is difficult.

(g) Only adverse remarks are communicated to the employees. Even this is not done on time in many departments.

(h) Number of ACRs being reported or reviewed should be limited to the span of control lest it become a meaningless, routine activity.

(i) In most states, the formats are uniform for all the employees regardless of the nature of functions. There are wide variations in the grading of civil servants between states and the linking of empanelment of civil servants to ACRs has led to politicisation of the processs. Effort should be made to revise and update the ACR format and incorporate more department-specific and objective feedback

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Recommendations for Better Objectivity of Appraisal

The Karnataka Administrative Reforms Commission in its interim report in 2001 examined the problem of performance appraisal and made suggestions for improvement. In order to improve performance appraisal, following changes have been recommended to be adopted;

• All information about the annual confidential reports of the employees must be computerised. The management should guard against missing reports or ‘level jumping’ in the process;

• There should be different formats for ACRs for secretariat, field, and public sector employees;

• Apart from adverse comments a copy of each year’s completely written ACR must be given to the employee. This will help the employee know how his or her performance is being evaluated. He might make necessary improvements for the next year. The ACR need not be ‘confidential’ in a liberal environment;

• As is done for the armed forces and central police organisations, a grading system on a 10 point or a 7-point scale to assess the individual traits and attributes could be introduced as a necessary facet of the ACR exercise;

• All levels of officers who have to write ACRs must be given proper training in writing ACRs objectively;

• Counseling may be introduced for employees who get repeated adverse remarks; and

• Action should be taken against officers who delay writing ACRs whether they are reporting, reviewing or accepting authorities.

• Time frame should be fixed for approval of ACRs by ministers. ACRs are delayed at this stage for several months.

• The comments in the ACR should be utilised as inputs for training, job assignments and career development planning.

Confidential reports have far-reaching influence on the career of an employee. These should therefore be handled prudently. It need not be emphasised that the remarks such as “good”, “very good”, “satisfactory”, “fair”, etc., are not made with precision. Each one of these has different implications and leads to unintended consequences for the employee’s career.

Suryanarayana and G. Prageetha Raju (1998) rightly state, that if training is provided meticulously at regular intervals for both appraises and appraisers conceptual clarity will improve and appraisal process would become more acceptable to the organisation. Through training there is exchange of ideas and experiences. Stimulated role plays ensure better interaction in the hierarchy.

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In this context, the recommendations of the Fifth Pay Commission are worth noting:

• A ten point grading scale should be used instead of the broad categories of good, very good, to consider finer and subtler distinctions among personnel. Benchmarks should be prescribed for performance.

• Transparency should be ensured through partial opening of the process by provision for communication of the final grading to the employees. In case of low grading, such communication would afford the employee an opportunity to represent against an assessment that may adversely affect his career advancement.

• Assessment and appraisal of employees’ performance should be a continuous process. Officers responsible for reporting on their subordinates should maintain a weekly or monthly record of their impressions about the performance and contribution of subordinates, including, important achievements, shortcomings, adherence to schedules for completion of specified tasks, etc.

• Assessment of an employee should be in the context of the team and department as a whole since he does not operate in isolation but as member of a group. Appropriate weight for group work should be assigned in grading. Constraints should be clearly stated.

• The employee can opt to work under a different reporting officer in case of inconsistency or unfairness in review.

• Five years review should be taken into account for career advancement schemes.

• There should be quinquenial review of performance for Group A officers.

• Counseling of employees should form an integral part of performance appraisal.

• Delays should be minimised by adhering scrupulously to schedule prescribed and computerisation of data.

6.5 PROPOSED IMPROVEMENTS

Improvements can also be made without much difficulty to improve the consultative nature of the ACR process and the feedback managers provide to staff. A Performance Appraisal Model will be of great use in reforming Annual Confidential reports.

Promotions should be merit based and the respective authorities have to benchmark the best practices and evaluate the performance of the civil servants both qualitatively and quantitatively along a variety of parameters. The performance appraisal of civil servants has to be according to these benchmarks and the necessary placement reward and punishments can be taken up by the authorities. (Misra, 1997)

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The recent reform in Hong Kong Civil Services wherein it was mandated that the civil servants would be recruited on a permanent basis but their continuation in the job would be subject to verifying the performance indicators from time to time. This model can be replicated in India also. There may be periodic performance reviews or audits for civil servants, especially when they become 50 or complete a certain number of years in service. (Satish, 2005)

The Indian system fails to measure technical competence and their capability to carry out neutrally and impartially the policy directives of political decision-makers though this should be the spirit which guides their functioning. It is said that each profession should develop its own code of conduct and performance appraisal system. By this reckoning, the civil service system in India should also respond to the need for developing its own system of performance appraisal and code of conduct. No law can offer an all-time solution in these regards. Most of the Indian acts in their present form are adopted versions of their British editions. A perusal of such Acts clearly reveals that they were never intended to prescribe a code of conduct or a performance appraisal system. They only contained the powers and privileges, the service benefits, and the accountability mechanism which had to be followed by the civil servants (Morgan and Heady, 1997).

The Indian civil service allegedly lacks professionalism. As noted earlier, they act more as generalists and much less as specialists. The induction training has been designed in such a way that hardly any scope is left for giving a non-generalist orientation. Once they join the service, they are shuffled for short trainings from one to the other department, so much so that they hardly get an opportunity to develop an understanding of technical aspects of a problem or acquire a technical expertise. The inputs coming from civil servants can lead to a much higher value addition in certain areas if they could have an understanding of practical aspects related to them. For instance, professionalism of a high degree is required to handle complex tasks at the Ministry of Finance, Petroleum, Commerce, Power, Transport, Food and Agriculture, Irrigation, Communications, Atomic Energy, etc.

A study of the overall perception of the officers of the IAS by members of the Indian Police Service, politicians, technocrats, and academicians points out that they project themselves as experts on everything. Their concern for, and focus on their own career is very high. They are self-opinionated, power-hungry, shrewd and manipulative, procedure and rule-focused, arrogant, inaccessible, judgmental and critical, and having concern for minor details. They have been rated very low on positive traits such as commitment to organisation, trustworthiness, risk-taking, conscientiousness, innovativeness, and creativity. Most of the studies have rated them lowest as visionaries and transformational leaders. They are considered to be no-change agents. The self-perception of these officers (officers of the IAS) is exactly opposite. The thrust of the criticism of the Indian civil service system is on overstaffing, wastefulness, cautiousness, unfairness, and non-responsiveness, the last one being the most important of all, which could be seen from the fact that as per a recent decision of the government, discussions are being conducted on effectiveness and responsiveness of the Indian administration in the different parts of the country.

There is also an underlying Government concern about leadership skills in the Civil Service and elsewhere in the public sector. Largely in response to this, the Civil Service now has in place a six-pronged reform programme whose elements of

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particular relevance to the Senior Civil Service include: (a) stronger leadership with clear sense of purpose; (b) sharper performance management; (c) a dramatic improvement in the diversity of staff; and (d) a service more open to people and ideas.

There has to be a regular appraisal of performance of public service providers at every level. As is done for the armed forces, a grading system on a ten-point scale to assess the individual traits and attributes could be introduced as a part of the annual confidential reports. Counseling may be introduced for those employees who repeatedly get adverse remarks. A time-frame should be fixed for writing the annual confidential reports as well as for their acceptance. It may be a good idea to provide a copy of each years completely written annual confidential report to the employee concerned, to enable him to know how his/her performance had been judged and what improvements are required for better performance (Meenakshi Sundaram, 2005).

In the absence of standards, public service organisations get away with poor performance. The absence of an effective Performance Monitoring and Evaluation System makes it difficult to identify effective public service organisations from those which are unable to provide services. It is, therefore, necessary to set standards of public services and to ensure that the standards are adhered to by putting in place an effective performance monitoring and evaluation systems. (Administrative Staff College, 2005). However, with regard to specifying service quality standards, the following issues need to be considered:

• How can one take into account the diversity of circumstances across the country while developing service delivery standards;

• What should be the mechanism for enforcing standards of service ;

• Can financial allocations or payments be linked to service quality standards? How can one ensure equity in this regard, given that states start from different levels of competence and infrastructure ?; and

• Is there a meaningful way of establishing objectively verifiable service standards for achieving universal and quality primary education, reduction in infant mortality rate, and effective access to primary health care?

Since a large number of India’s citizens live in rural areas, posing inherent difficulties in service delivery, special attention has to be paid to the improvement of service delivery in rural areas. Some of the problems associated with rural areas are the lack of credible institutions, poor resource base, and unwillingness on the part of public service workers to serve in rural areas, lack of accountability due to distance from the controlling unit, issues of local capture and information asymmetries. Following are some issues related to improvement of service delivery in rural areas:

• How can existing service delivery mechanisms in rural areas be reinvigorated to deliver services effectively;

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• Can non-public sector delivery mechanisms backed by voucher payments offer an alternative to improving service delivery in rural areas;

• Can effective decentralisation lead to improvement in the delivery of services in rural areas;

• How can the tools of e-government be effectively used to improve service delivery in rural areas;

• Can performance evaluation systems based on citizen inputs help in improving the delivery of services;

• What level of local government should be the unit of service in rural areas, taking into consideration issues of economies of scale and accountability ?; and

• Will local economic growth help in improving the quality of public services in rural areas?

6.6 CONCLUSION

An effective performance appraisal system is a continuous activity beginning with goal setting, progressing through periodic reviews and culminating in traditional year end evaluation. It is designed to improve overall functioning of an organisation. However, performance appraisal is still perceived as a fault-finding exercise which encourages favouritism and timidity and servitude on the part of employees. The final grading of an employee depends much more on personal loyalty than performance. Final grading is made a personalised decision. Besides, appraisal is arguably not taken seriously enough. Confidential reports are completed rather lackadaisically barely a few minutes before final submission indicating that supervisors take this actively casually.

Though meant to serve the three fold purpose of monitoring, evaluation, and control, the appraisal system has been reduced just to a control mechanism to secure submission and compliance of the employee rather than an instrument for improving the capability of the organisation and individuals. The proclivity is suggested by the term ‘annual confidential report’ or ‘confidential character role’ that is used to name performance appraisal chart in government. The two obvious characteristics of performance appraisal in government are secrecy and fairness. Whereas secrecy is maintained by strict hierarchical structures of the government and its impersonal character, the fairness of the system has also been called into question. Subjective attitudes, personal biases and outdated value systems have been pointed out as the faults plaguing the system. Finally, it is necessary to discuss how responsibility for performance appraisal can be made more meaningful (Sharma, Harinder and Dey).

• The employee should be made aware of the organisation’s expectations and norms used for evaluation

• The employee should have the right to raise his voice against unfair practices in rating. Such provision for hearing should be built into the

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appraisal. Systemic evaluation and potential evaluation should be clearly distinguished for the benefit of the employee.

• Performance appraisal should ultimately become a development-oriented evaluation approach.

The focus of analysis in this Unit has been on appreciating all aspects of Performance appraisal. In order to get thoroughly, sensitised to it, the discussion has been on performance measurement, performance management, etc., besides highlighting the performance appraisal in public systems.

6.7 KEY CONCEPTS Indicators: Indicators are framed as per nature of a specific job. For

example, indicators for a teacher and a civil servant would be different. Indicators enable progress (lack of) at a specific level.

Measures: Measures provide specific information as to the extent of

accomplishment of targets. Measures are both subjective and objective, as human performance cannot be judged by objective standards alone. The only condition is that measures should be amenable to a result- oriented assessment. Examples of measures include, time spent on specific activity, work hours, quantity of output etc.

Performance Gap: Perceived difference between actual and desired

performance is understood as performance gap. Human Resource Development activities are undertaken as per analysis or diagnosis of causes of performance gap. Performance gap is human and only indicates the needs for improvement and how the same should be affected for desired performance at that level.

Performance Plan: Performance Plan integrates parts into the whole of

organisational effort, including articulation of performance standards at each level, integration of performance and total measurement. The idea behind a performance plan is that each activity in an organisation is tied to the whole and should not be assessed in isolation. Missing links, casing sub optimal performance at a level should be discovered and taken care of to rectify whatever is creating shortfall at that level.

Results: Desired final or specific outputs in terms of quality,

quantity or money and time cost, and human resource indicators as stipulated for effective work performance. Due to cost constraint, measurement by results is needed to derive maximum benefit with minimum cost. Human Resource audit and performance management and

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UNIT-8 REWARDS AND INCENTIVES MANAGEMENT

Structure 8.0 Learning Outcome

8.1 Introduction 8.1.1 Motivation and Incentives

8.1.2 Justification of Incentives

8.2 Incentive Plans

8.3 Social Security

8.4 Shortcomings of Incentive Plans

8.5 Conclusion

8.6 Key Concepts


8.8 Activities

8.0 LEARNING OUTCOME On studying this Unit, the learners will be in position to:

• Understand the significance of incentives in achievement of motivation and group morale;

• Distinguish between material and non- material incentives and emphasise their significance to organisation in general and management in particular; and

• Refer to types of incentive plans.

8.1 INTRODUCTION

The term ‘incentive’ is used to describe material and non-material benefits given to employees in addition to their normal salaries to induce them to go that extra mile towards promoting productivity and efficiency of the enterprise. It is generally felt that performance of personnel, either as individuals or as members of a group is below par when compared to their capabilities, skills and capacities. Finer, states that demonstrated performance generally never exceeds more than fifty percent of an individual’s innate ability. Most individuals tend to halt efforts around an estimation of costs expended (time and energy) and relative benefits procured from work. This is where incentive administration assumes significance. According to Wendell French (1997), the purpose of incentive plans is to increase the morale and motivation of employees to contribute to further the goals of the organisation.

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Incentive systems are meant both to motivate an employee to earn more by working hard and also reinforce positive behaviour on his part by rewarding good performance for healthier organisational climate. Hence incentive is to be understood both in the tangible and intangible senses, as aimed both at encouraging and sustaining better performance from employees. Material incentives may take the form of wage payments related to employees’ performance in addition to the normal salaries given for standard work assigned, welfare related benefit programs, fringe benefits, rewards and recognition certificates.

Incentive administration must have a "base line" standard so that performance over and above the specified standard can be rewarded. These incentive plans are linked directly or indirectly to the standards of productivity or the profitability of the organisation or to both criteria. The study group of the National Commission on Labor, (1968) has recommended that, "under our conditions, a wage incentive is concerned with effective utilisation of manpower which is the cheapest quickest and surest means of increasing productivity. The only practicable and self-sustaining means of improving manpower utilisation is to introduce incentive schemes and stimulate human efforts to provide a positive motivation to greater output."

Megginson (1967) defines incentive wages as the extra-compensation paid to an individual for production over a specified magnitude which stems from exercise of more than the normal skill, effort or concentration when accomplished in a pre-determined way involving standard tools, facilities and' materials.

Currently, the emphasis in payment by results schemes is on team work more than individual effort.

Schematic diagram below depicts the process of incentive, offering financial inducements above and beyond basic wages and salaries.

Incentive Plan

Determination of basic pay and fringe

benefits

Performance evaluation

Determination of extra work done asCompared to the

base

Job Evaluation

Payment of salary for minimum

standards prescribed

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8.1.1 Motivation and Incentives

Reiterating the importance of motivation, E.F.L. Brech states, “the problem of motivation is the key to management action; and in its executive form it is among the chief tasks of the General Manager. We may safely say that the working of an organisation is a reflection of motivation from the top”.

On the basis of above definitions, it can be said that motivation is a tendency, which keeps a person attentively and purposefully engaged in achieving goals. Motivation arises from obvious and tacit factors that form employee psychology. It involves interactions and relationships in employee personal and work life referring to his existence as an individual, a member of society and a member of both the formal and the informal group of the organisation he works for. From a management perspective, motivation constitutes the base for management activities covering POSDCoRB functions. One of the biggest challenges to modern organisations is how to sustain productivity or efficiency standards while maintaining competitive advantage in the market place with emphasis on cost competitiveness. There is a danger of workers losing interest in work if they realise that extra interest or labour could not make any difference to them. Paul Rigors (1973) has rightly posed this challenge when he states, "a continuing challenge for management is how to share the gains from higher productivity in ways that will stimulate the interest of employees in improving their performance on-the-job and the productivity of the organisation as a whole.” One of the challenges of motivation theory is investigation into pathological phenomenon.

Questions like, why some employees feel alienated in an organisation? Why some resist their own skills and capabilities? Do they encounter emotional blockages? What can the management do?; Is retrenchment the only solution? Or; is the best? Why is there inertia in hierarchy?; Why employees of one organisation work more efficiently than others’?; and what makes certain employees achievement oriented and disciplined arise?;

These and such other questions have to be inquired into, if we have to grasp fully the meaning, nature and scope of motivation for both social and utilitarian purposes. It is obvious that mere possession of knowledge, skill and ability do not ensure best results as performance also depends on intangibles like human relations at work, motivation or will to perform. Empirical investigation into behavioural phenomenon is required to answer many of the questions addressed above to solve the perennial dilemma of motivation in management theory and practice. The most important task of the personnel department is to put across the point most emphatically and continually that personnel in an organisation are most important and also the key to development.

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8.1.2 Justification of Incentives

The economic theory of motivation is based upon the argument that people feel motivated when rewarded with money. This gives a utilitarian orientation to incentive management. There is an assumption of direct correlation between monetary reward and performance. Dale Yoder, (1969) rightly remarks, “However, fascinating the individual's job assignment in a public agency or private firm, the employee expects to be paid. His wage may (and it is generally assumed that it does) affect the way he works how much and how well." Guellerman (1963) too regards money as an important motivator when .he states, "money may well turn out to be the costliest motivator of them all, but money may also prove to be the most potent motivator of all, at least in certain circumstances, and when used on a sufficient scale." Executives in organisations must look after material welfare of employees because despite human relations and behavioural assumptions, money is regarded as a potent motivator.

However to assume that financial rewards are the only sources of motivation would be an exercise in oversimplification. A positive incentive can be either financial or non-financial. Financial incentives satisfy primarily, employees' lower order needs viz., physiological, security, as per Abraham Maslow’s (1954) theory and wins his calculative involvement, that is, the person feels committed only to the extent of doing a fair day’s work for a fair day’s pay. On the other hand, non-financial incentives for example, praise, competitions, participation, etc., provide higher order need satisfaction, catering to social and psychological needs of a person, which make him more committed to organisational goals. As a result, a person realises his full potential. To quote Barnard,(1938) "material rewards are ineffective beyond the subsistence level excepting to a very limited proportion of men; that most men neither work harder for material things, nor can be induced thereby to devote more than a fraction of their possible contribution to organised efforts. The opportunity for distinction, prestige, personal power, and the attainment of dominating position are much more important than material rewards in the development of organisations, including commercial organisations."

It has, therefore, been conceded that economic gain may not be sufficient incentive. In this vein Allport (1943) observes, “Employees in an organisation are 'not economic men' so much as they are 'ego- men'. What they want, above all else, is credit for work done, interesting tasks, appreciation, approval and congenial relations with their employers and fellow workers. These satisfactions they want even more than high wages or job security.

Non-material incentives take the form of recognition of good work through appreciation letters, merit certificates, medals, more meaningful involvement in decision making, opportunity for self growth(‘associational attractiveness’ and ‘ideal benefactions’ by Barnard’s terminology). Such awards benefit employees indirectly that is, aiding promotion or nomination to higher posts. However, this comparison is rather meaningless because management needs both types of incentives. The real question, therefore, is not what type of incentives is required, but rather how to integrate the two types of incentives successfully. What is needed is a contingency approach that considers needs of workers, type of jobs, and requirements in the organisational environment. Only then can an

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optimum balance between financial and non-financial incentives be attained. (Tripathi, 2003)

R.K. Misra (1973) favours the judicious use of both monetary and non-monetary incentives to achieve productivity. While budgetary restrictions and temporary improvements in performance place a limit on the potency of financial incentives as motivators, non- financial incentives demand only human ingenuity as investment and also ensure relatively stable acceleration in output. Both are important and judicious mix of the two enriches organisational practice. The Administrative Reforms Commission (1968) has advocated the use of incentives to promote efficiency in organisation. Recommendation number 64 states:

1. Incentives for timely completion of a specific project may be provided through suitable awards such as a rolling cup or a shield. In individual cases, commendatory certificates may be issued;

2. Cash awards or one or two advance increments may be given to those who give valuable suggestions for simplifications of work leading to economy in expenditure or otherwise increase efficiency; and

3. Any exemplary or special achievement may be recognised by grant of medals as is practiced at present in the police department. It may now be in order to discuss incentive plans separately.

8.2 INCENTIVE PLANS The incentive plans are discussed under two types, that is, material incentives and non-material incentives.

A. Material Incentives: Individual Incentive Plans

These plans award individuals or group of individuals, extra payment for the extra work performed. In order to encourage employees, different incentive plans have been designed. Same are recounted as; Taylor's Differential Piece Rate Plan, Gantt Bonus Plan, Halsey Plan, Emerson Efficiency Plan, Rowan Plan, etc. In these schemes minimum, daily or weekly rates of pay are guaranteed and personal effort and efficiency are linked with rewards.

Modern innovation metrics such as Return on Innovation Investment (ROI) aid in evaluating and rewarding new product teams and establishing a credible link between new product performance and corporate incentives

According to Louden, "the purpose of individual incentive plans is to offer financial incentive for a worker or group of workers to produce work of an acceptable quality over and above a specified quantity." According to Wolfe, "their primary purpose is to aid in obtaining minimum unit costs thereby contributing to enterprise profits." These

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individual incentive plans can be categorised into piece rate plans and production bonus plans. There are, however, problems in instituting individual incentive plans. The most pressing is the criteria by which work performance standards are to be set. It has also to be kept in mind that differential payment schemes might adversely affect social capital and lower group morale. It can also potentially affect the quality of work. Differential annual payout may be determined by a subjective evaluation of each person's performance.

Advantage is that differential criteria is adopted to reward performance which is just to more meritorious employees and individual performance is given recognition apart from group. There may also be a significant one-time payout if an employee has an extraordinary accomplishment for a year.

Disadvantages are that the payout may be subjective. It can be divisive and adversely affect the working of the informal organisation. Suggestion proffered to get around the problem is to encourage employees to make suggestions through a suggestion box for promotion of productivity and reduction of costs. This would also encourage employee participation in decision making in an organisation. Suggestions given by employees would be effective as they are expected to understand the functioning of the organisation better than supervisory personnel. However, care should be taken that suggestion plans do not lead to unsavory interference or role dilution with respect to the management function specifically policy making. Supervisory and professional employees are excluded from such plans as this forms part of their job profile.

Merit Pay The merit increase program is implemented when funds are designated for that purpose by the institution's administration, dependent upon the availability of funds and other constraints. Its major advantages are that it allows administration of differential pay to high performers, allows estimation of individual and company performance separately with a view to judge impact fairly, and allows compensation for outstanding achievements. Main disadvantage is that assessment criteria employed may be subjective. Robert and Masvin (1966) observe that there are several specific common-sense considerations in establishing any such plan:

1. Ensure that effort and rewards are directly related. The incentive plan should compensate employees in direct proportion to their increased productivity. Employees must also perceive that they can actually do the tasks required. Thus, the standards have to be attainable, and the employer has to provide the necessary tools equipment and training;

2. Make the plan understandable and easily calculable by the employees. Employee should be able to calculate easily the rewards they will receive for various levels of efforts;

3. Set effective standards: This requires several things. The standards should be viewed as fair by subordinates. They should be set high but reasonable and there should be about a 50/50 chance of success. And the goal should be specific – this is much more effective than telling someone to “do your best”;

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4. Guarantee standards: View the standards as a contract with your employees. Once the plan is operational, great caution is to be used before decreasing the size of the incentive in any way. Rate cuts have long been the nemesis of incentive plan;

5. Guarantee an hourly base rate: Particularly for plant personnel, it is usually advisable to guarantee employees base rate. Therefore, they will know that no matter what happens they can at least earn a minimum guaranteed base rate; and

6. Get support for the plan: Group restrictions can undermine the plan; get the work group’s support for the plan before starting it.

Group Incentive Plans Because of the pressure of unions, these incentive plans often become unpopular.

Group incentive plans are increasingly put into use, for example, bonus schemes, profit sharing, etc. The purpose of group-incentive plans is the same as that of individual incentive plans except that incentives are paid to a group rather than individuals engaged in a particular plan or aspect of organisational work.

Profit-sharing Plans

Profit-sharing plans are the most widely used incentive-pay programs. The purpose of profit-sharing is to distribute additional profit among employees as incentives in the form of bonus, which may be paid in cash or transferred to their account. The company contributes a portion of its pre-tax profits to a pool that is to be distributed among eligible employees. The amount distributed to each employee may be weighted by the employee's base salary so that employees with higher base salaries receive a slightly higher amount of the shared pool of profits. This is done generally on an annual basis. The amount credited to their account can be withdrawn only if the employees have worked for a minimum period of time. Profit plans work best at more established firms with relatively steady earnings. Large corporations widely employ profit sharing.

Advantages of a profit-sharing plan include, fostering team work, focus on profitability and sustainability to the enterprise. For smaller companies with erratic earnings, profit-sharing plans can frustrate and irritate employees by creating expectations that are not fulfilled. Criteria adopted for administering profit plans differs from organisation to organisation and need to be carefully defined in advance.

Wages received by employees are supplemented by payment of an annual lump sum called bonus, which is a type of profit sharing. Over the years, the concept of bonus has changed from one of profit sharing to one of deferred wages so that a minimum amount is payable irrespective of the profits. Bonus is regulated in India by the Payment of Bonus Act 1965, which is applicable to every factory and other establishments employing twenty (20) or more persons on any day during an accounting year. Newly set up establishments are not required to pay a bonus until they derive profits or for five accounting years following the year when they start selling their products on a regular basis, whichever is earlier.

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The Payment of Bonus Act specifies a detailed method for computation of the bonus. Only employees drawing up to Rs 3,500 per month are entitled to a bonus under the act, but the bonus is calculated on the maximum salary of Rs 2,500 per month for a salary between Rs 2,500 and Rs 3,500. The amount payable varies from 8 percent (minimum) to 20 percent (maximum) of annual salary. However, the normal practice is to pay, ex gratia, some amount to employees drawing above Rs 3,500 per month also.

In addition to profit sharing and bonuses, some other incentive options are:

• Salary-at-risk plans; where employees receive their full base pay only if performance meets minimum goals, but a larger payout is possible; and

• Gain sharing, popular at some manufacturing firms, provides for a portion of increases in efficiency to be shared with employees. Gains are measured and distributions are made through predetermined formula. For example difference between actual and expected hours of work put in give hours gained. Since this pay comes into act only when gains are achieved, gain sharing plans do not entail extra cost burden.

• Stock Options entail the ‘right’ to purchase stock at a given price at some time in the future. An option is created that specifies that the owner of the option may 'exercise' the 'right' to purchase a company’s stock at a certain price (the 'grant' price) by a certain (expiration) date in the future. Usually, the price of the option (the 'grant' price) is set to the market price of the stock at the time the option was sold. If the underlying stock increases in value, the option becomes more valuable. If the underlying stock decreases below the 'grant' price or stays the same in value as the 'grant' price, then the option becomes worthless.

Stock options provide employees the right, but not the obligation, to purchase shares of their employer's stock at a certain price for a certain period of time. Options are usually granted at the current market price of the stock and last for up to 10 years. To encourage employees to stick around and help the company grow, options typically carry a four to five year vesting period, but each company sets its own parameters.

Stock Options are of two types: 1. Incentive stock options; (ISOs) in which the employee is able to defer taxation

until the shares bought with the option are sold. The company does not receive a tax deduction for this type of option.

2. Nonqualified stock options; (NSOs) in which the employee must pay income tax on the 'spread' between the value of the stock and the amount paid for the option. The company may receive a tax deduction on the 'spread'.

The advantages of stock options are that they allow a company to share ownership with employees. Employees consequently feel more involved in organisational functioning. The disadvantage is that stocks are speculative with attendant risks, employee interference increases in the name of participation and their attention diverts to pecuniary matters rather than performance at work

Stock options are considered most suitable for small companies where future growth is expected and for publicly owned companies that want to diversify ownership.

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Besides aforementioned schemes, other forms of incentives could be recounted as (HR Guide, 2005):

• Paid holidays

• Paid vacation

• Medical care

• Paid sick leave

• Life insurance

• Retirement plans

• Educational assistance

• Accident insurance

• Family benefits

• Paid personal leave

• Paid maternity leave

In addition to monthly salary or wages, various fringe benefits are also available to employees. Fringe benefits contribute significantly to the cost of hiring an employee. In general, it may be said that they represent approximately 50 percent of the monthly salary. The compulsory fringe benefits are as follows.

1 Annual bonus

2 Monthly contribution to a provident fund

3 Terminal gratuity

4. Contribution toward the employees' state insurance scheme.

5. House rent allowance to workmen.

(B) Non-material Incentive Plans Non material incentive plans may take the form of appreciation letters, award of medals, certificates, etc. These incentive plans can be of great use in organisations where the service aspect is stressed more than the business or commercial aspect. In organisations, with welfare activities or law and order or defense functions, it may be difficult to compensate the hard work of employees with money. Here, one can make use of non-financial incentives, which sustain the morale of particularly hard-working employees.

8.3 SOCIAL SECURITY

According to P.C. Tripathi (2003), the connotation of the term ‘social security’ varies from country to country along with changing political ideologies. In socialist countries, the avowed goal is complete protection of every citizen from the cradle to the grave. In

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other nations, with less controlled economies, a measure of protection is afforded to all citizens with schemes evolved through the democratic process consistent with the resources of the state. According to the social security (minimum standards) convention number 102, adopted by the International Labour Organisation in 1952, following are the nine identified components of social security:

(i) Medical care

(ii) Sickness benefit

(iii) Unemployment benefit

(iv) Old-age benefit

(v) Employment injury benefit

(vi) Family benefit

(vii) Maternity benefit

(viii) Invalidity benefit

(ix) Survivor’s benefit

8.4 SHORTCOMINGS OF INCENTIVE SCHEMES Incentive schemes, if not properly implemented can create problems, for example, (i) there is a tendency amongst employees to improve quantity at the cost of quality; (ii) there is a danger that safety regulations might be disregarded by workers which result in higher accident rates; and (iii) there is a danger that workers undermine their health under strain of work; finally such schemes potentially generate misunderstandings and jealousy among workers because of differential earnings. Therefore:

(1) Employees must be taken into confidence in design the rewards and incentive

plans so that they are aware of all parameters by which to avail of benefits.

(2) The plan should be simple and intelligible to all

(3) The plan should be equitable and flexible.

(4) The amount of rewards and incentives should be substantial so as to suit the stature of the person concerned.

(5) A feedback of incentive audit must be obtained to assess the benefits of the scheme.

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8.5 CONCLUSION The crux of the discussion is;

1. Rewards and Incentives are important to motivate employees towards excellence.

2. Rewards can be both material and non-material.

3. Non-material awards are easy to administer.

4. Awards and incentives must be based on well- defined principles.

5. Awards and incentives may be given only to deserving employees.

8.6 KEY CONCEPTS Incentive: Incentives are offered to motivate employees towards better

work performance and improved commitment towards the organisational purpose. Incentives are both material and non material incentives. Examples of non material incentives include meaningful participation in work, recognition, team work and identification with the purpose of the organisation etc.

Motivation: “Goal directed behavior” is motivated behaviour. Motivation

study analyses human needs, motives and drives which create an achievement orientation in an employee. As part of management strategy it implies positive reinforcement of desired organisational behaviour. The Classical School of administrative thought took a limited perspective to motivation in that it understood and appreciated it, in monetary terms only. The Human Relations and Behavioral Schools inquire into cognitive processes of human beings with a view to studying tangible and intangible motivators that determine employee psychology and shape up to organisational behaviour.

8.7 REFERENCES AND FURTHER READING

Allport, 1943, “The Ego in Contemporary Psychology”, Journal of Psychological Review, Volume 5.

Barnard, Chester I, 1938, The Functions of the Executive, Harvard University Press, Cambridge.

Chadha, Narendra K, 2000, Human Resource Management Issues, Case Studies and Exercise, Shri Sai Printographers, Delhi.

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UNIT-16 EMPLOYEE HEALTH AND SAFETY Structure 16.0. Learning Outcome

16.1 Introduction

16.2 Health 16.2.1 Job Stress and Burnout

16.2.2 Computer Related Health Problems

16.2.3 Noise Control

16.2.4 Acquired Immune Deficiency Syndrome (AIDS)

16.2.5 Alcoholism and Drug Abuse

16.2.6 Violence in Workplace

16.2.7 Health Promotion

16.3 Safety 16.3.1 What Causes Unsafe Acts

16.3.2 Management Commitment and Safety

16.3.3 Safety Policies and Discipline

16.4 Responsibilities 16.4.1 Awareness

16.5 Conclusion

16.6 Key Concepts


16.8 Activities

16.0 LEARNING OUTCOME After reading this unit, you should be able to:

• Know the importance of employee health and safety;

• Define Health and Safety;

• Analyse the remedial measures for occupational diseases; and

• Bring out the remedial measures for Industrial Accidents.

16.1 INTRODUCTION Today employees expect their employers to provide work environments that are safe and healthy. However, many employers once viewed accidents and occupational diseases as unfavorable byproducts of work. This idea may still be prevalent in many industrial settings in underdeveloped countries like India, the idea must be replaced with the concept of using prevention and control to minimise or eliminate risks in

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workplace. Employers in variety of industries have found that placing emphasis on health and safety pays off in a number of ways.

Good companies maintain safe working environments by making health and safety a top priority throughout the organisation. Health and safety are important aspects of an organisation’s smooth and effective function. Good health and safety performance ensures an accident - free industrial environment.

Companies seek to create common health and safety philosophies, strategies and processes. To ensure health and safety consistency and promote an overall health and safety culture, leading benchmark companies coordinate key strategies and activities through a centralised oversight department, such as corporate health and safety.

Awareness of Occupational Health and Safety (OH & S) has improved in India considerably. Organisations have started attaching the same importance to achieve high (OH & S) performance as they do to other key aspects of their business activities. This demands adoption of a structured approach for the identification of hazards, their evaluation and control of risks.

Government of India believes that without safe and healthy working conditions, social justice cannot be achieved and the attainment of safety and health at work is fundamental to economic growth.

Under the constitution of India the Directive Principles of the State policy provides,

1. For securing the health and strength of workers, men and women and providing

2. Just and humane conditions of work and maternity relief (Article 42)

On the basis of these Directive Principles, the Government of India declares its policy, priorities and strategies, purposes through the exercise of its power. The formulation of policy, priorities and strategies in occupational safety, health and environment at work places is not undertaken by national authorities alone but in some form of consultation with the social partners i.e. employees organisations, autonomous & voluntary organisations public etc for agreement and involvement for ensuring set goals and objectives.

The changing job patterns and working relationships, the rise in self employment greater sub-contracting, out sourcing of work and the increasing number of employees working away from their establishment and home work pose the problem of management of occupational safety and health risks. New safety hazards and health risks will be appearing along with the transfer and adoption of new technologies. In addition, many of the well known conventional hazards will continue to be present at the workplace many years ahead till the risks arising from exposure to these hazards are brought under adequate control.

16.2 HEALTH Health refers to general state of physical, mental and emotional well-being. A healthy person is free of illness and injury. Health management practices in organisations strive to maintain the overall well-being of individuals.

Employees’ health problems are varied and inevitable. They can range from minor illnesses such as colds to serious illnesses related to the jobs performed. Some employees have emotional health problems; others have alcohol or drug problems. Some problems are chronic; others are transitory, but all may affect organisational operations and individual employee productivity.

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The well-being of the employee in an industrial establishment is affected by accidents and by ill-health; physical as well as mental. Ill health of employees results in reduced productivity, higher unsafe acts, and increased absenteeism. A healthy worker, on the other hand, produces results opposite to these. In other words, healthy employees are more productive, more safety conscious, and are more regular to work. The worker who is healthy is always cheerful, confident looking, and is an invaluable asset to the organisation.

A realisation of the advantage, which flow from a healthy workforce, has impelled much management to provide health services to their employees, which vary from the simple provision of first-aid equipment to complete medical care. Many progressive organisations maintain well-equipped dispensaries with full-time or part-time doctors and full-time compounder/nurses. Unlike his/her counterpart of yester-years, who would take every precaution to protect his horses against diseases but felt that the health of the human worker was his own business. The manager of today is fully aware of the advantages of having a healthy workforce.

The protection of the health of the workers is a legal requirement too. Sections 11 to 20 of the Factories Act, 1948 deal with the health of workers.

Provisions of the Act:

• Factory to be kept clean and free from effluviant and dirt (S.11).

• Arrangements to be made for disposal of wastes and effluents (S.12).

• Adequate ventilation and temperature to be provided (S.13).

• Measures to be taken for prevention of inhilation or accumulation of dust and fumes (S.14).

• Standards for artificial humidification to be fixed (S.15).

• Overcrowding related injuries to health of workers to be avoided. 9.9/14.2 cubic metres of space must be provided for each worker (S.16).

• Sufficient and suitable lighting must be provided in every part of the factory (S.17).

• Glazed windows to be kept clean. Measures need to be taken for prevention of glare and formation of shadows (S.17).

• Suitable points for wholesome drinking water must be provided. Drinking points to be legibly marked and located away from urinals. Water needs to be cooled if the number of workers is 250 or more (S.18).

• Latrines and urinals to be separately provided for male and female workers. They should be well lighted and ventilated (S.19).

• Sufficient number of spittoons must be provided. Whoever spits outside the spittoons shall be punishable (S.20).

16.2.1 Job Stress and Burnout Problems such as alcoholism and drug abuse sometimes result from stress, especially job stress. Here job-related factors such as overwork, relocation, and processing with customers eventually put the person under such stress that a pathological reaction such as drug abuse occurs.

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A variety of external environmental factors can lead to job stress. These include work schedule, pace of work, job security, route to and from work, and the number and nature of customers or clients. Even noise including people talking and telephones ringing, contribute to stress.

However, no two people react to the job in the same way, because personal factors also influence stress. For example type a personalities – people who are workaholics and who feel driven to always be on time and met deadlines – normally place themselves under greater stress than do others. Job stress has serious consequences for both employer and employee. The human consequences include anxiety, depression, anger and various physical consequences, such as cardiovascular disease, headaches, and accidents. For the organisation, consequences include reductions in the quantity and quality of job performance, increased absenteeism and increased grievances and health care costs.

Reducing Job Stress: There are number of ways to alleviate stress. In his book “Stress and the Manager” Karl Albrecht suggests the following ways to reduce job stress:

1. Build rewarding, pleasant, cooperative relationships with colleagues and employees

2. Don’t bite off more than you can chew

3. Build an especially effective and supportive relationship with your boss

4. Negotiate with your boss for realistic deadlines on important projects.

5. Learn as mush as you can about upcoming events and get as much lead time as you can to prepare for them.

6. Find time everyday for detachment and relaxation.

7. Take a walk around the office to keep your body refreshed and alert.

8. Find ways to reduce unnecessary noise.

9. Reduce the amount of trivia in your job; delegate routine work whenever possible.

10. Limit interruptions.

11. Don’t put off dealing with distasteful problems.

12. Make a constructive “worry list” that includes solutions for each problem.

The employer and its human resource specialist and supervisors can also play a role in identifying and reducing job stress. Supportive supervisors and fair treatment are two obvious steps. Other steps include:

i. Reduce personal conflicts on the job.

ii. Have open communication between management and employees.

iii. Support employees’ efforts for instance, by regularly asking how they are doing.

iv. Ensure effective job-person fit, since a mistake can trigger stress.

v. Give employees more control over their jobs.

vi. Provide employee assistance programmes including professional counseling.

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vii. Reassess your goals in terms of their intrinsic worth. Are the goals you have set for your self attainable? Are they really worth the sacrifices you’ll have make?

viii. Think about your work. Could you do as good as a job without being so intense or by also pursing outside interests?

16.2.2 Computer Related Health Problems

The fact that many workers today must spend hours each day working with computers is creating health problems at work. Short – term eye problem like burning, itching, and tearing as well as eyestrain and eye soreness are common complaints among video display users.

Backaches, and neck aches are widespread among display users. These often occur because employees try to compensate for awkward body positions. Researchers also found that employees who used video displays and had heavy workloads were prone to psychological distress like anxiety, irritability and fatigue.

The following measures have been further recommended:

1. Give employees rest breaks. The institute recommends a 15 minute rest break after two hours of continuous work for operators under moderate work loads and 15 minute breaks every hour for those with heavy work loads.

2. Design maximum flexibility into the work station so it can be adapted to the individual operator. For example, use adjustable chairs with mid back supports and a video display in which screen height and position are independently adjustable.

3. Reduce glare with devise such as shades over windows, terminal screen hoods properly positioned, and recessed or indirect lighting.

4. Give workers a complete pre-placement vision exam to ensure properly corrected vision for reduced visual strain.

5. Place the keyboard in front of the employee, titled away with the rear portion lower than the front.

6. Place the computer mouse and mouse pad as close to the user as possible and ensure there are no obstructions on the desk that impede mouse movement.

7. Allow the user to position his or her wrists at the same level as the elbow.

8. Put the monitor at or just below eye level at a distance of 18 to 30 inches from the eyes.

9. Let the wrist rest lightly on the pad for support.

10. Put the feel flat on the floor, or on the footrest.

Workplace Smoking

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Smoking is a serious problem for both employees and employers. Studies even shown that for some reason, smokers have a significantly greater risk of occupational accidents than do non smokers, as well as much higher absenteeism rates. In general, “sometimes employee are less healthy than non-smokers, are absent more, make more

and more expensive claims for health and disability benefits and endangers co-workers who breathe smoking air.

16.2.3 Noise Control An age-old problem, and not effectively tackled till now, is the noise in industrial establishments. Noise made its appearance in organisations when human started working on metal. As civilisation advanced, human discovered more and more ways of having machines to do his/her work, and each new machine added to the problem. For quite a number of years, noise was endured by all. But, in the recent past, the increasing use of machines of great speed is telling upon the health of the workers.

Long exposure to excessive noise impairs the hearing of employees. The level and duration of noise and the exposure that is likely to cause deafness varies from person to person. It is agreed that long exposure to noise in excess of the prescribed limits makes one deaf.

Hearing loss is not only effect of noise. Constant exposure to high noise levels can cause hormonal imbalances, changes in blood circulation, dizziness, increase in respiratory rate, heartburn, sleep disturbances and fatigue.

Noise Control Methods It is impossible to eliminate noise from industrial establishments, as long as machinery is used in manufacturing operations. However, noise control can help minimise harmful effects on employees. Noise control can be achieved (i) at the source (ii) through enclosure, (iii) by absorption, or (iv) by ear protection.

Controlling noise at its origin is the best method of reducing its harmful effects. Noise can be controlled at its source by questioning the noise-producing elements by repairing or redesigning the machines: mounting machines to reduce vibration; or substituting noise – producing elements with quieter ones.

Considerable reduction in the level of noise may be achieved by providing enclosures for machines with specially made covers or housing them in separate rooms. But a small opening is enough to produce heavy leakage of noise. Care should, therefore be taken to make the enclosure as full proof as possible. Where machines cannot be enclosed, places which need quieter surroundings may themselves be enclosed, for example a works office. Similarly, a machine transmitting vibration on a large scale may be isolated from the rest of the operations.

The harmful effects of noise may be reduced by absorbing it. Ceilings and walls may be constructed with acoustic materials to absorb sound. Empty space around the high noise-producing machine may be provided to absorb the noise. High ceilings dissipate noise considerably.

Where nose is excessive and other methods of noise control are likely to be ineffective, employees working close to the source of noise may be given ear protection to prevent any impairment of their hearing capacity. They may be provided with muffs, helmets, cotton and soft rubber, to be worn by them while on work. They should be educated to wear the protection equipment, because the tendency with most workers is to ignore.

16.2.4 Acquired Immune Deficiency Syndrome (AIDS)

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AIDS is likely to cause considerable confusion and disruption in the workforce. When employees realise that they are working with an infected worker, they demand that the hapless employee should be dismissed. If the management discharges the employee, the law is violated, particularly in the US where individuals who have AIDS are protected by federal, state and local laws. This protection generally comes

in the form of protection against discrimination and is based on the fact the virus cannot be spread by casual contact.

Organisations are hard hit by additional costs – direct and indirect – when their employees contact the disease. Direct costs are in the form of increased medical burden. Indirect costs result from loss of productivity when employees refuse to work with an AIDS-infected worker. It is responsibility of the government, and business and non-governmental organisations to create better awareness about the disease in the minds of the people.

Credit should go to central government undertakings, particularly HMT and BHEL, for initiating measure to prevent AIDS. Teams of doctors from in-house Occupational Health Services visit plants and give lectures to employees on AIDS prevention. Lecturers are held once or twice every year.

What is needed most for the employers is to educate workers about AIDS. The following guidelines need to be followed to make the educational programme effective:

1. Employees must be made to understand how AIDS is contacted. Understanding about the ways to contacting AIDS will ensure that the activities do not occur at the workplace.

2. Presentations to employees must be handled by professionals, preferably from experts. This is necessary as the message presented is going to include sexual references which, if not handled properly, are likely to have a negative impact on employees.

3. All employees must attend the sessions.

16.2.5 Alcoholism and Drug Abuse

Alcoholism is a serious and widespread disease. It does not strike any particular group – alcoholism can strike employees from the junior to the general manager.

The effects of alcoholism on the worker and on the work are serious. Both the quality and quantity of work decline sharply. A form of “on-the-job absenteeism” occurs as efficiency declines. An alcoholic worker is more unlikely to observe safety precautions while on the job or off the job. Morale of the other workers is likely to suffer as they are required to do the work of their alcoholic peer.

Organisations employ three techniques to tackle alcoholism in workplaces. First is disciplining alcoholics. Where disciplining fails, the alcoholic is discharged. Second is in-house counseling by the HR department, the company doctor or by immediate supervisor. Finally, companies use outside agencies, psychiatrists and clinics to deal with the problem of alcoholism.

Drug abuse is a recent phenomenon and is a serious one. Drug abuse is more evident among young employees and is found across all job levels. Employees who are drug addicts are often much more difficult to detect than alcoholics-liquor is easy to smell but not drugs. Drug abuse affects job performance. The problem of a drug addict indicates his or her on-the-job behaviour.

As a result of the increased use of drugs in the workplace, more and more companies have begun to use some form of drug testing for both job applicants and existing employees.

Drug testing is risky. An employer can be exposed to substantial liability for defamation for making a false accusation of drug use. The following guidelines can help avoid the risk:

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1. Testing only applicants or employees whose jobs are considered safety specific or critical.

2. Using only valid measures of drug use.

3. Obtaining valid consent of the applicant or employee and then provide the examinee with the results of the tests.

4. Maintaining strict confidentiality of test results.

Organisations can use the same techniques (recommended to cure alcoholism) to be problem of drug abuse.

16.2.6 Violence in the Work Place Violence in the work place, once an exception to daily work life, has become common these days. Those who are at high risk are taxi drivers, police officers, retail workers, cashiers at petrol bunks, and people who work alone or at night. Violent incidents include fist fights, shooting, stabbing and sexual assault.

Violence disrupts productivity; causes untold damage to those exposed, and costs employers millions of rupees. Obviously, organisations should initiate measures to protect employees and physical resources. It is important that companies concentrate on avoiding violence rather than simply dealing with it after it occurs.

The following will help companies avoid falling victims of violence:

1. Hiring with caution. Pre-hire drug testing, detailed questions about previous employment, and criminal record checks can go a long way towards violence-prone individuals.

2. Develop a plan for preventing violence and for dealing with it when it occurs. Reporting requirements for both violence and threats of violence should be an integral part of the plan. The plan should also be drawn by employee participation and professionals who are experts in areas of violence assessment, counseling and law enforcement.

3. Establish a crisis-management team with the authority to decide and act quickly. This group will evaluate problems, select intervention techniques, and co-ordinate follow-up activities.

4. Train supervisors and managers in how to recognise aggressive behaviour, identity the warning signs of violence, and resolve conflicts. Orient all employees towards assuring a violence free work environment.

16.2.7 Health Promotion Employers concerned about maintaining a healthy workforce must move beyond simply providing healthy working conditions and begin promoting employee health and wellness in other ways. Health promotion is a supportive approach to facilitate and encourage employees to enhance healthy actions and life styles. Health promotion efforts can range from providing information and enhancing employee awareness of health issues to creating an organisational culture supportive of employee health enhancements. Going beyond just compliance with workplace safety and health regulations. Organisations engage in health promotion by encouraging employees to make physiological, mental, and social choice that improve their health.

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Health Promotion Levels

Level 1 Level 2 Level 3

Information & Awareness

• Brochures & materials

• Health risk screenings

• Health tests and measurements

• Special events and classes.

Lifestyle Wellness

• Wellness education programme

• Regular health classes.

• Employee assistance programmes.

• Support groups

• Health incentives.

Organisational Health

• Benefits integrated with programmes.

• Dedicated resources and facilities.

• Continuous health promotion.

• Health education curriculum.

The first level is useful and may have some impact on individuals, but much is left to individual initiatives to follow behaviors. Employers provide information on such topics as weight control; stress management indicator that many employers have limited their efforts to the first level is that 93% of promotion program and 72% of them offer health education and training programs. However, only 27% of the firms conducted health risk screenings and appraisals. Even through such efforts may be beneficial for some employees. Employers who wish to impact employees’ health must offer second level efforts through more comprehensive programmes and efforts that focus on the life style “wellness” of employees.

Wellness Programmes Employers desire to improve productivity, decrease absenteeism. Wellness programmes are designed to maintain or improve employee lifestyle changes. Early wellness programmes were aimed primarily at reducing the cost and risk of disease. Newer programmes emphasise healthy lifestyles and environment, including reducing cholesterol and heart disease risks and individualised exercise programmes and follow-up. Employer sponsored support groups have been established for individuals dealing with health issues such as weight loss, nutrition, or smoking cessations.

Employee Assistance Programmes (EAP) Organisations use as a broad based response to health issues. It provides counseling and other help to employees having emotional, physical or other personal problems. In such a programme employer contracts with a counseling agency contact the agency, either voluntarily or by employer referral, for assistance with a broad range of problems.

EAPs help employees with variety of problems. One survey of EAP counselors found that the most common employee issues dealt with were: (1) Depression and anxiety (2) Marital and relationship problems (3) Legal Difficulties and (4) Family and children concerns other areas.

Commonly addressed as part of an EAP include substance abuse, financial counseling and career advice. Critical to employee usage of an EAP is preserving confidentiality. For that reason, employers outsource EAPs to trained professionals, who usually report only the number of employees and services provided, rather than details on individuals using an EAP.

Organisational Health and Culture

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Employers both large and small may recognise that an organisational culture that emphasises and supports health efforts is beneficial. Common to these employers is

an integrative, broad-based effort supported both financially and managerially. Development of policies and procedures supporting health efforts, establishing on-site exercise facilities, and consistently promoting health programmes all contribute to creating a health promotion environment throughout the organisation.

16.3 SAFETY

An accident-free plant enjoys certain benefits. Major ones are substantial savings in cost, increased productivity, and moral and legal grounds. Safety refers to protecting the physical well-being of people. The main purpose of effective safety programmes is to prevent work-related injuries and accidents.

Types of Accidents

Accidents

Internal External

Major Minor

Fatal Disability

Temporary Permanent

Partial Total Partial Total

Causes of Accidents There are three basic causes of workplace accidents: (a) chance occurrences, (b) unsafe conditions, and (c) unsafe acts on the part of employees. Change occurrences contribute to accidents but are more or less beyond management’s control (such as walking past a plate-glass window just as some one hits a ball through it). We will therefore focus on unsafe conditions and unsafe acts.

Unsafe Conditions and other Work Related Factors Unsafe conditions are one main cause of accidents. The mechanical and physical conditions that cause accidents. They include such as:

• Improperly guarded equipment.

• Defective equipment

• Hazardous procedures in, on or around machines or equipment.

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• Unsafe storage: congestion, overloading.

• Improper illumination: Glare, insufficient light.

• Improper ventilation: Insufficient air change impure air source.

In addition to unsafe conditions three other work related factors contribute to accidents: the job itself, the work schedule, and the psychological climate of the workplace.

Certain jobs are inherently more dangerous. For example, the job of crane operator results in about three times more accident related hospital visits than does the job of supervisors. Similarly some departments’ work is inherently safer. A book keeping department usually has fewer accidents than a shipping department.

Work schedule and fatigue also affect accident rates. Accident rates usually don’t increase too noticeably during the first five or six hours of the work day. But after that, the accident rates increases faster than the increase in the number of hours worked. This is due partly to fatigue and partly to the fact that accidents occur more often during night shifts.

Unfortunately some of the most important working conditions – related causes of accidents are not as obvious because they involve workplace psychology. A strong pressure within the organisation to complete the work as quickly as possible, employees who are under a great deal of stress and a poor safety climate. Accidents occur more frequently in plants with a high seasonal layoff rate and where there is hostility among employees many garnished wages and blighted living conditions. Temporary stress factors like high work place temperature, poor illumination and a congested workplace also correlate with accident rates.

How to Prevent Accidents? In practice, accident prevention boils down to two basic activities:

1. Reducing unsafe conditions.

2. Reducing unsafe acts.

Reducing unsafe conditions is always an employer’s first issue of defense. Safety engineers should design jobs to remove or reduce physical hazards. In addition supervisors and managers play a role in reducing unsafe conditions. A checklist or the self – inspection check can help identify and remove potential hazards.

Sometimes the solution for eliminating an unsafe condition is obvious, and sometimes it is more subtle. For example, slips and falls at work are often the result of debris or slippery floor. Relatively obvious remedies for problems like these include slip-reducing floor coatings floor more off spills. But perhaps less obviously, special safety gear can also reduce the problems associated with otherwise unsafe conditions. For example, slip-resistant foot wear with grooved roles can reduce slips and falls. Cut resistant gloves reduce the hazards of working with sharp objects.

Getting employees to wear personal protective equipment can be a famously difficult chore. Including the employees in planning the program, reinforcing appropriate behaviors, and addressing comfort issues can smooth the way for more widespread use of protective equipment. Wearability is important in addition to providing reliable barrier protection and durability protective clothing should fit properly; be easy to care for maintain, and repair; be flexible and light weight; provide comfort and reduce heat stress; have rugged constructed; be relatively easy to put on and take off and be easy to clean dispose of and recycle.

Again, reducing unsafe conditions – by designing the job properly and having managers watch for hazards – should always be the first choice. Then come

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administrative controls, such as job rotation to reduce long – term exposure to the hazard. Only then turn to personal protective equipment.

Reducing unsafe acts – through screening training or incentive programs, for example, is the second basic way to reduce accidents. Let’s look at how to do this.

16.3.1 Causes of Unsafe Acts Most safety experts and managers know it is impossible to eliminate accidents just by reducing unsafe conditions. People cause accidents with unsafe acts such as throwing materials using unsafe producers in loading, placing or mixing by lifting improperly.

While safe acts can undo even the best attempts to minimise unsafe conditions. For years psychologists assumed that some employees were simply more accident prone than others, and the accident prone people generally caused more accidents.

Therefore, while some believe that most accident-prone people are impulsive, most experts today doubt that accident proneness is universal that some people will have more accidents no matter what the situation. Instead, the consensus is that the person who is accident prone on one job may not be so on a different job.

Various human traits do relate to accident proneness in specific situations. For example, accident prone drivers performed worse in a test of motor skills than did drivers with fewer accidents and older adults with impaired vision were at a higher risk for falls and motor vehicle crashes. People who were more fatalistic, negative and cynical were more likely to exhibit violent behaviour in the job.

Reducing Unsafe Acts by Emphasising Safety: It is the responsibility to set the tone so subordinates want to work safely. It is necessary to show by both word and deed that safety is crucial. For example, supervisors should:

1. Praise employees when they choose safe behaviors.

2. Listen when employees after suggestions, concerns or complaints.

3. Be a good example, for instance by following every safety rule procedure.

4. Visit plant areas regularly.

5. Maintain open safety communications – for instance, by telling employees as much as possible about safety activities such as testing alarms and changing safety equipment or procedures.

6. Link manager’s bonuses to safety improvement.

Reducing Unsafe Acts through Selection and Placement: Screening is another way to reduce unsafe acts. Here, the aim is to isolate the trait (such as visual skill) that might predict accidents on the job in question, and then screen the conditions for this trait. Tests have distinguished between those who do and do not have more car accidents, falls, and violent out busts studies suggests that a test like Employee Reliability Inventory (ERI) can help employers reduce unsafe acts at work. The ERI purportedly measures reliability dimensions such as emotional maturity, conscientiousness, safe job performance and courteous job performance. While the findings of one study were not definitive, using the ERI in the selection process did seem to be associated with reductions in work related accidents.

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Reducing Unsafe Acts through Training Safety training is another way to reduce unsafe acts. This is especially appropriate for new employees. They should be instructed safe practices and procedures, warn them of potential hazards, and work on developing safety – conscious attitude.

Reducing Unsafe Acts through Motivation Posters, Incentive Programs and Positive Reinforcement:

Safety posters also help reduce unsafe acts. However, posters are not substitute for comprehensive safety programme; instead employers should combine them with other techniques (like screening and training) to reduce unsafe conditions and acts and also change them often.

Others use positive reinforcement programs to improve safety at work. Researchers introduced one program in a whole sale bakery that takes wraps, and transports pastry products to retail outsets nation wide.

At the conclusion of training phase the employees were motivated to consider increasing their performance to the new safety goal. For the following reasons: for their own protection, to decrease costs of the company and to help the plant get out of last place in the safety ranking of the parent company.

16.3.2 Management Committee and Safety Telling supervisors to watch for spills and telling employees to work safely is futile if everyone in the firm believes management isn’t serious about safety. Safety starts with top management commitment.

Everyone should see convincing evidence of top management commitment. This includes top management being personally involved in safety activities; giving safety matters high priority in meetings and production scheduling; giving the company safety officer high rank and status; and including safety training in new workers training ideally “safety is an integral part of the system, woven into each management competency and a part of everyone’s day to day responsibilities” In addition:

i. Institutionalise management’s commitment with a safety policy and publicise it. This should emphasise that the firm will do everything practical to eliminate or reduce accidents and injuries. Emphasise that accidents and injury prevention are not just important but of the utmost importance.

ii. Analyse the number of accidents and safety incidents and then set specific achievable safety goals.

Safety Committees Employees frequently participate in safety planning through safety committees, often composed of workers from a variety of levels and departments. A safety committee generally meets at regularly scheduled times has specific responsibilities for conducting safety reviews, and makes recommendations for changes necessary to avoid future accidents. Usually at least one member of the committee comes from the HR departments.

16.3.3 Safety Policies and Discipline Designing safety policies and rules and disciplining violators are important components of safety efforts. Frequently reinforcing the need for safe behaviour and 13

supplying feedback on positive safety practices also are effective in improving worker safety. Such efforts must involve employees, supervisors, managers, safety specialists, and HR staff members.

Safety Training and Communications One may to encourage employee safety is to involve all employees at various times in safety training. Safety training can be done in various ways. Regular sessions with supervisors managers, and employees often are coordinated by HR staff members. Showing videos, television broadcasts, and internet based resources all are means used to conduct safety training.

To reinforce safety training continuous communication to develop safety consciousness is necessary. Merely sending safety memos is not enough. Producing newsletters, changing safety posters, continually updating bulletin boards, and posting safety information in visible areas also are recommended.

Employees Safety Motivation and Incentive To encourage employees to work safety many organisations have used safety contests work behaviour. Jewelry, clocks, watches, and even vocation trips have been given as rewards for good safety records. Unfortunately some evidence indicates that incentives tend to reinforce under reporting and “Creative” classifying of accidents. This concern about safety incentives, raised by OSHA, is that employees and managers do not report accidents and injuries so that they may collect the incentive rewards.

Inspection, Accident Investigation and Evaluation

It is not necessary to wait for an OSHA inspectors to inspect the work area for safety hazards. Inspections may be done by a safety committee or by a safety coordinator. They should be done on a regular basis, because OSHA may inspect organisations with about – average lost workday rates more frequently.

When accidents occur they should be investigated by the employer’s safety committee or safety coordinator. The phases of accident investigation are four as follows:

1. Review the scene

2. Interview Employees / others

3. Prepare report

4. Identifying Recommendations

Closely related to accident investigation is research to determine ways of preventing accidents. Employing safety engineers are having outside experts evaluate the safety of working conditions is useful. In many similar accidents seem to occur in an organisational unit, a safety education training program may be necessary to emphasise safe working practices. As an example, a publishing company reported a greater – than – average number of back injuries among employees who lifted heavy boxes. Safety training on the proper way to lift heavy objects was initiated to reduce the number of back injuries.

Organisations should monitor and evaluate their safety efforts. Just as organisational accounting records are audited, a firm’s safety efforts should be audited periodically as well. Accidents and injury statistics should be compared with previous accident

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patterns to identify any significant changes. This analysis should be designed to measures progress in safety management.

16.4 RESPONSIBILITIES

The general goal of providing a safe and healthy workplace is reached by operating managers and HR staff members working together. The primary health and safety responsibilities in an oraganisation usually fall on supervisors and managers. An HR manager or safety specialist can help coordinate health safety programmes, investigate accidents, produce safety program materials, and conduct formal safety training. However, department supervisors and managers play key roles in maintaining safe working conditions and a healthy workforce. For example, a supervisor in a warehouse has several health and safety responsibilities: reminding employers to wear safety hats; checking on the cleanliness of the work area; observing employees for any alcohol drug, or emotional problems that may effect, their work behaviour; and recommending equipment changes (such as screens, railing, or other safety devices) to engineering specialists in the organisation.

A position becoming more common in many companies is that of safety/environmental officer. This combination may make sense in situations where danger remits from chemical (or) other sources of pollution that may be hazardous to both employers and the public or the environment. Because both safety and environmental responsibility require working with the government agencies, putting someone in the job with the skills to deal with governmental agencies and ensure compliance with a wide range of regulatory issues is a good choice.

16.4.1 Awareness Awareness can be created among the workforce by following methods:

• By providing forums for consultations with employers’ representatives workers representatives and community on matters of National concern relating to safety, health and environment at work place with the overall objective in creating awareness and enhancing National productivity.

• By encouraging joint – Labour Management efforts to preserve, protect and promote National assets and to reduce injuries and disease arising out of employment.

• By maximising gains from the substantial investment in awareness campaigns by sharing experience and learning.

• By including occupational safety and health at workplace in schools higher technical medical, professional and vocational courses.

• By securing good Liaison arrangements with the International organisations.

• By providing medical criteria which will assure in so far as practicable that no employee will suffer diminished health, functional capacity, or life expectancy as a result of his work experience and that in the event of such occupational diseases having been contracted, suitably compensated.

• By providing for appropriate reporting procedures with respect to occupational safety and health to help achieve the objectives and to accurately describe the nature of the occupational safety and health problem with a view to carry out

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national project study, surveys to identify problem areas and pragmatic strategies.

There are many side affects, if we use even new computers like headaches, sniffles etc., some experts say it is all because of poor ventilation, dust and fumes. It is found recently that new computers emit chemical fumes (which however, diminish after running constantly for a week). And “Safe” office work is actually susceptible to many other health and safety problems including repetitive trauma injuries related to computer use, respiratory illness stemming from indoor air quality and high levels of stress, which are associated with a variety of factors, including task design.

But even facts like these don’t tell the whole story. They don’t reflect the human suffering incurred by the injured workers and their families or the economic costs incurred by employers.

In USA the Congress passed the “Occupational Safety and Health Act” in 1970 to assure so far as possible every working man and woman in the nation safe and healthful working conditions and to preserve our human resources.

The Act created the “Occupational Safety and Health Administration” (OSHA) within the Department of Labour. OSHA’s basic purpose is to administer the Act and to set and enforce the safety and health standards that apply to almost all workers in USA.

An occupational illness is any abnormal condition or disorder caused by exposure to environmental factors associated with employment. This includes acute and chronic illness caused by inhalation, absorption, ingestion or direct contract with toxic substances or harmful agents.

16.5 CONCLUSION

One has to develop special programmers for hazardous occupations and specific sectors; set up training mechanisms; create nation-wide awareness; arrange for the mobilisation of available resources and expertise.

Through dedicated and concerted efforts India will certainly and steadily march towards economic prosperity consistent with the requirements of safety, health and environment at workplace thereby improvising the standard of living of the people.

Particular attention needs to be paid to the hazardous occupations and of workers in precarious conditions such as migrant workers and various vulnerable groups of workers. Work related hazards and occupational diseases in small scale industries and agriculture are likely to increase as the occupational safety and health services are out of reach in these

Thousands of employees die every year in factories due to accidents. An accident-free plant can save on cost, increase productivity, discharge moral commitment towards workers and comply with legal provisions.

Companies have to develop common health and safety philosophies, strategies and processes. To ensure health and safety consistency and promote an overall health and safety culture, leading benchmark companies have to coordinate key strategies and activities through a centralised oversight department, such as corporate health and safety.

16

5

Laws Covering Wages,Welfare and BenefitsUNIT 16 LAWS COVERING WAGES,

WELFARE AND BENEFITS

Objectives

After going through this unit, you should be able to:

l explain the salient features of Payment of Wages Act;

l understand the main provisions of Minimum Wages Act;

l describe the main features of Payment of Bonus Act;

l realise the importance of Equal Remuneration Act for the betterment of femaleemployees; and

l understand different social security benefits granted under social securityenactments.

Structure

16.1 Introduction

16.2 The Payment of Wages Act, 1936

16.3 The Minimum Wages Act, 1948

16.4 The Payment of Bonus Act, 1965

16.5 The Equal Remuneration Act, 1976

16.6 Statutory Social Security Benefits

16.7 Summary

16.8 Self-Assessment Questions


16.1 INTRODUCTION

Wages are among the major factors in the economic and social life of any community.It has ethical, social, economic, political, psychological, and legal ramifications inorganisational life. The International Labour Organisation (ILO) has adopted variousconventions and recommendations laying down the principles and methods of wagepayment and fixation. The Constitution of India enshrines the concept of social justiceas one of the objectives of the State, which it seeks to achieve, among other things,through labour legislation. The legal framework on wages in our country includes:(i) the Payment of Wages Act, 1936; (ii) the Minimum Wages Act, 1948; (iii) thePayment of Bonus Act, 1965; and (iv) the Equal Remuneration Act, 1976; and therules framed there under by the Government. Under different social securityenactments, the employers are also required to provide various benefits to theemployees in cash and kind.

16.2 THE PAYMENT OF WAGES ACT, 1936

The Royal Commission on Labour in its report (1931) recommended, among otherthings, that legislation on timely payment of wages, deductions from wages and fines,was necessary and desirable. In the light of its recommendations, the Government ofIndia introduced a bill in 1936, and the Act came into force from 28th March, 1937.

The Payment of Wages Act is in three parts. Part I deals with the regulation and

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Compensation andReward Management

payment of wages by the employer. Part II specifies the heads under which deductionscan be made from wages. Part III provides machinery for enforcing specific claimsarising out of delayed payments, deduction from wages, appeals, etc. It is a self-contained Act and provides its own machinery for the disposal of the claims. The Actcontains 26 Sections.

Object of the Act

The object of the Act is to regulate the payment of wages to certain classes of personsemployed in industry in a particular form and at regular intervals; and to preventunauthorised deductions from the wages. The Act is concerned merely with thefixation of wage periods and not with the fixation of wages.

Applicability

The Act is applicable to persons employed in any factory, railway, and to such otherestablishments to which the State Government may, by notification, extend theprovisions of the Act after giving three months’ notice to that effect. In the case ofindustrial establishments owned by the Central Government the notification can beissued with the concurrence of the Central Government.

Employees whose average wage is less than rupees 1,600 a month are covered underthe Act. The Payment of Wages (Amendment) Bill, 2002 provides for theenhancement of the wage ceiling to rupees 6,500 per month.

Definitions

“Wages” means all remuneration (whether by way of salary, allowances or otherwise)expressed in terms of money or capable of being so expressed which, if the terms ofemployment express or implied were fulfilled, would be payable to a person employedin respect of his employment or of work done in such employment. It includes:

i) Any remuneration payable under any award or settlement between the parties ororder of a court;

ii) Any remuneration to which the person employed is entitled in respect ofovertime work or holidays or any leave period;

iii) Any sum which by reason of the termination of employment of the personemployed is capable under any law, contract or instrument which providesfor the payment of such sum, whether with or without deduction but doesnot provide for the time within which the payment is to be made.

iv) Any sum to which the person employed is entitled under any scheme framedunder any law for the time being in force.

However, it does not include:

i) Any bonus (whether under a scheme of profit sharing or otherwise) whichdoes not form part of the remuneration payable under the terms of employmentor which is not payable under any award or settlement between the parties ororder of a court;

ii) The value of any house accommodation or of the supply of light, water,medical attendance or other amenity or of any service excluded from thecomputation of wages by a general or special order of the state government;

iii) Any contribution paid by the employer to any pension or provident fundand the interest which may have accrued thereon;

iv) Any travelling concession;

7

Laws Covering Wages,Welfare and Benefits

v) Any sum paid to the employed person to defray special expenses entailed on himby the nature of his employment; or

vi) Any gratuity payable on the termination of employment

The term “establishment” includes:

a) tramway service or motor transport engaged in carrying passengers and goods orboth by road for hire or reward;

b) air transport service other than such service belonging to, or exclusivelyemployed in the military, naval or airforce of the Union, or the Civil AviationDepartment of the Govt. of India;

c) dock, wharf, or jetty;

d) inland vessel mechanically propelled;

e) mine, quarry or oil field;

f) plantation;

g) workshop, or other establishments in which articles are produced, adapted, ormanufactured, with a view to their use, transport or sale;

h) establishment in which any work relating to the construction, development ormaintenance of building, roads, bridges or canals or relating to transmission, ordistribution of electricity, or any other form of power is being carried on;

i) any other establishment, or class of establishments, which the Central or a StateGovernment may notify in the Official Gazette.

Wage Payment

The responsibility for the payment of wages under the Act is that of the employer orhis representative. In the absence of the employer, a person who employs the labourersand with whom they enter into a contract of employment will be regarded as theemployer.

No wage period shall exceed one month in any case. The main purpose of thisprovision is to ensure that inordinate delay is not caused in the payment of wages andthat a long time does not elapse before wages are paid for the period for which anemployee has worked.

Wages may be payable daily, weekly, fortnightly and monthly. But the paymentthereof must not extend over a period longer than one month (month means a solarmonth; a period of four weeks or 30 days).

Where less than 1,000 persons are employed, wages shall be paid before the expiry ofthe 7th day and in other cases before the expiry of the 10th day, after the last day ofthe wage period. If for instance, the wage period fixed is the first day of January to thethirty-first day of January an employed person working in any railway, factoryor industrial establishment in which less than one thousand persons are employedwould be entitled to receive his wages before the seventh day of February and in othercases on the tenth day of February in respect of the wage period of January.

In case the employer terminates the services of an employee, the employee is entitledto receive the wage earned by him before the expiry of the 2nd working day from theday on which his employment has been terminated. The weekly or other recognisedholiday is to be excluded in computing the second working day.

All wages shall be paid in current coin or currency notes or in both. The employermay, after obtaining the written authorisation of the employed person, pay the wageseither by cheque or by crediting the wages into his bank account.

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Deductions from Wages

Wages shall be paid to an employed person without deductions of any kind exceptthose authorised by or under the Act. Withholding of increment or promotion(including the stoppage of increment at an efficiency bar); reduction to a lower post ortime scale or to a lower stage in a time scale and suspension are not deemed to bedeductions from wages.

The term ‘deduction from wages’ has not been defined in the Act. However, the Actspecifies the heads from which deductions from wages may be made.

Deductions may be made by an employer, with the written authorisation of theemployed person, from the wages payable to such an employed person, forpayment of contribution to any welfare fund constituted by the employer for thewelfare of employed persons and the members of their families, and also for thepayment of the fees payable by the employed person for membership of any registeredtrade union.

There are also certain deductions peculiar to railways, such as deductions for recoveryof losses sustained by railway administration on account of certain omissions andcommissions on the part of the employees.

The total amount of deduction which may be made in any wage period from the wagesof an employed person shall not exceed 75 per cent of such wages in cases where suchdeductions were wholly or partly made for payment to co-operative societies; and inany other case, 50 per cent of such wages.

There are certain conditions and limits subject to which fines may be imposed.These are:

i) A fine can be imposed only for such acts or omissions as are specified by theemployer and previously approved by the State Government;

ii) A notice specifying such acts or omissions must be exhibited on the premises inwhich employment is carried on;

iii) A person involved must be informed in writing the reasons forimposing fine;

iv) No fine shall be imposed on an employed person who is under the age of 15years.

v) No fine shall be recovered from an employed person by instalments after the expiryof 60 days from the day on which it was imposed;

vi) The total amount of fine in one wage period shall not exceed an amount equal to3 per cent for that wage period;

vii) All realisations by way of fine have to be recorded in a register and must beapplied only for such purpose as are beneficial to the persons employed in thefactory or establishment as are approved by the prescribed authority.

The Act authorises deductions for actual absence from duty. However, if 10 ormore employed persons acting in concert absent themselves without due notice andwithout reasonable cause, such deductions may be made for a maximum period of8 days.

Deductions from wages for damage or loss caused to the employer by the neglect ordefault of the employed person have been laid down under the Act. Such deductionscan be made only after giving the person concerned an opportunity of showing causeagainst the deductions. All such deductions and realisations are to be recorded in aregister.

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Exhibit 16.1

List of Authorised or Permissible Deductions

1) Deductions for fines.

2) Deductions for absence from duty.

3) Deductions for damage or loss.

4) Deductions for house accommodation.

5) Deductions for amenities and services.

6) Deductions for recovery of advances or for adjustment of over payment of wages.

7) Deductions for recovery of loans made for the welfare of labour.

8) Deductions for recovery of loans granted for house building.

9) Deductions for payment to co-operative societies and insurance schemes.

10) Deductions of income tax.

11) Deductions made under orders of court.

12) Deductions for contributions to provident fund.

13) Deductions for the welfare of the employed persons.

14) Deductions in respect of fees payable for the membership of trade union.

15) Deductions for payment of insurance premia on fidelity guarantee bonds.

16) Deductions for recovery of losses sustained by railway administration.

17) Deductions for contribution to the Prime Minister’s National Relief Fund.

18) Deductions for contributions to any insurance scheme.

Authorities

The Act makes provision for the appointment of inspectors. The Inspector of Factoriesis also the Inspector under this Act.

The Act also provides for the appointment of a person to be the authority to hear anddecide, for any specified area, claims arising out of deductions from wages or delay inpayment of wages.

The authority under the Act can only adjudicate upon claims regarding deductions anddelay in payment of wages and not upon any dispute in respect of wages.

An appeal lies against the decision of the authority to a Court of Small Causes in ametropolitan town and before the District Court elsewhere within a period of onemonth.

The Act prescribes penalties for offences committed under the Act.

Any contract or agreement whereby an employed person relinquishes any rightconferred by this Act shall be null and void.

Obligations of Employers

1) To fix the wage-period not exceeding one month.

2) To pay wages in cash or by cheque after taking written authorisation of theemployed person.

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3) To pay wages on any working day.

4) To make deductions permissible from the wages of the employed person.

7) To ensure that deductions do not exceed 75% where payment to a cooperativesociety is to be made, and in other cases, deductions do not exceed 50%.

6) To seek, before imposing fines approval of list of acts and omissions from theprescribed authority.

7) Not to impose fines exceeding 3% of the wages on the employee.

8) To give show-cause notice to the employed person before imposing fines.

9) To recover fines within 60 days of the date of offence.

10) To afford facilities to Inspectors for entry, inspection, supervision, examinationor inquiry under the Act.

11) To display abstract of the Act and the Rules in English and in a languageunderstood by the majority of workmen.

12) To maintain following register in the prescribed forms:

i) Register of wages;

ii) Register of fines;

iii) Register of deductions for damage or loss;

iv) Register of advances.

Apart from maintaining necessary records and registers, the employer is required todisplay an abstract of the Act at a conspicuous place.

Obligations of Employees

Every employee is entitled:

1) To receive his wages in the prescribed wage period in cash or bycheque or by credit to his bank account.

2) To refuse to agree to any deductions and fines other than those authorised underthe Act.

3) To approach within six months the prescribed authority to claim unpaid ordelayed wages, unauthorised deductions and fines along with compensation.

4) To appeal against the direction made by the authority if the amount of wagesclaimed exceeds rupees one hundred.

16.3 THE MINIMUM WAGES ACT, 1948

The genesis of the Minimum Wages Act is traceable to the Minimum Wage FixingMachinery Convention, 1928 (No. 28) of the International Labour Organisation(ILO). This Convention has become one of the most widely accepted instruments ofthe ILO. The Minimum Wages Bill was introduced in the Central Legislature in 1946and was passed in 1948. The Act contains 31 Sections.

Object of the Act

The Act aims to extend the concept of social justice to the workmen employed incertain scheduled employments by statutorily providing for them minimum rates ofwages. It is a piece of social legislation which provides protection to workers inemployments in which they are vulnerable to exploitation by reason of thelack of organisation and bargaining power and where sweated labour is mostprevalent.

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Applicability

The Act is not applicable to all employments or industries. A schedule appended to theAct gives a list of employments covered by the Act. It covers an establishmentregardless of the number of workers actually employed. Some of the employments arelisted in Part I of the schedule. Part II of the schedule contains employment inagriculture and other allied activities.

The appropriate government may add to the schedule any other employment in respectof which it is of the opinion that minimum rates of wages should be fixed.

The contract labour, falling within the purview of the Contract Labour (Regulationand Abolition) Act, 1970, has to be paid mininum wages under the Minimum WagesAct.

Definitions

The Act contains a number of definitions. Some of the important definitions are thefollowing:

Appropriate Government: In this Act, the term “appropriate government” means:

Central Government– for any scheduled employment carried on under the authorityof Central Government or railway administrations and for a mine, oilfield or majorport or any corporation established by a central act.

State Government– for any other scheduled employment carried on within itsterritory.

Wages: “Wages” means all remuneration capable of being expressed in terms ofmoney, which would, if the terms of the contract of employment, express or implied,were fulfilled, be payable to a person employed in respect of his employment or ofwork done in such employment, and includes house rent allowance but does notinclude:

i) The value of any house accommodation, supply of light, water, medicalattendance; or any other amenity or any service excluded by general or specialorder of the appropriate government;

ii) Any contribution paid by the employer to any pension fund or provident fund orunder any scheme of social insurance;

iii) Any travelling allowance or the value of any travelling concession;

iv) Any sum paid to the person employed to defray special expenses entailed on himby the nature of his employment; or

v) Any gratuity payable on discharge.

Employer: The term ‘employer’ means any person who employs one or moreemployees in any scheduled employment in respect of which minimum rates of wageshave been fixed under the Act. The term ‘employer’ also includes:

l Manager of a factory as defined under the Factories Act, 1948.

l Head of department or any person appointed for the supervision and control ofemployees or Chief Executive Officer of a local authority in case the scheduledemployment is carried on under Central Government or a local authority.

l In any other case the person responsible for supervision, control or payment ofwages.

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Employee: The term ‘employee’ means any person who is employed for hire orreward to do any work, skilled or unskilled, manual or clerical, in a scheduledemployment.

Fixing of Minimum Rates of Wages

When, in respect of an employment, the appropriate government has fixed and notifiedminimum rates of wages, the employer is bound to pay every employee engaged inthat employment at rates not less than the rates notified.

The appropriate government may review wages at such intervals as they think fit butnot exceeding five years, and revise them, if necessary.

The appropriate government may refrain from fixing minimum rates of wages inrespect of any scheduled employment in which less than 1000 employees are employedin the whole State.

The minimum rates of wages may be fixed:

i) For different employments

ii) For different classes in the same employment

iii) For adolescents, children and apprentices

iv) For different localities.

The rates of wages may be:

i) A time rate

ii) A piece rate

iii) A guaranteed time rate

iv) An overtime rate.

The rates may be fixed by the hour, by the day or by the month or by any other longerperiod as may be prescribed. The rate fixed may consist of the basic rate of wages andcost of living allowance and the cash value of concessions in respect of supply ofessential commodities at concessional rates.

In fixing or revising the minimum wages, the appropriate government shall either:

a) Appoint as many committees and sub-committees as it considers necessary tohold enquiries and advise it in respect of such fixation or revision, as the casemay be; or

b) By notification in the Official Gazette, publish its proposals for the informationof persons likely to be affected thereby and specify a date, not less than twomonths from the date of the notification, on which the proposals will be takeninto consideration.

After considering the advice of the said committee or representations received,the appropriate government will, by notification in the gazette, fix or revise theminimum rates of wages. Unless otherwise provided, the decision shall come intoforce on the expiry of three months from the date of notification. When fixation ismade on the basis of representations, the appropriate government shall consult theAdvisory Board also. The government is not bound to accept the committee’srecommendations.

The Act also empowers state governments to constitute Advisory Boards toco-ordinate the work of different committees and sub-committees and advise thegovernment on the fixation of minimum wages. Similarly, the Central Government isempowered to constitute a Central Advisory Board to advise Central and StateGovernment, and to co-ordinate the work of the Advisory Boards. These bodies

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consist of an equal number of employers’ and employees’ representatives, and ofindependent persons not exceeding one-third of their total strength. The non-officialmembers hold office for a period of two years, while others hold office during thepleasure of the government.

The mininum wages payable under the Act are to be paid in cash. But it also providesfor authorisation of payment in kind where the appropriate government considers itnecessary. It may direct the supply of essential commodities at concessional rates bynotifying it in the Official Gazette. Authorised deductions are allowed under the Act.The appropriate government may fix the number of hours of work, rest day, paymentof overtime in respect of scheduled employments.

Registers, Notices, Abstract and Returns

Every employer is required to maintain:

1) Register of wages

2) Register of overtime payment

3) Muster-Roll

4) Register of Fines

5) Register of deduction.

Every employer is required to:

a) Put up a notice containing the minimum rate of wages fixed

b) Exhibit an extract of the Act and Rules

c) Send annual return to the Labour Commissioner as prescribed.

Inspectors

The appropriate government appoints inspectors for the purposes of this Act, anddefines the local limits within which they exercise their functions. The Inspectors arepublic servants. Any person, who is called upon to provide any relevant information,is legally bound to provide information to the inspectors under the provisions of IndianPenal Code.

Authorities under the Act

The appropriate government appoints, by notification in the Official Gazette for anyspecified area, an authority to hear and decide claims arising out of payment of wagesat less than the minimum rates of wages and other incidental matters. The authority soappointed has powers of a civil court.

An employee or any legal practitioner or any other official of a registered trade union,authorised in writing, or any inspector can apply to the authority for settlement ofdisputes with respect to non-payment or payment of less than the minimum wages.The Act prohibits civil courts from entertaining any suits for the recovery of minimumwages payable under the Act.

Enforcement

The Central Government is the appropriate authority for the enforcement of the Act inrelation to any scheduled employment carried on by or under the authority of thecentral government, railway administration, a mine, oilfield, a major port, or anycorporation established by a central act. The Chief Labour Commissioner (Central) isin charge of implementation of the Act in the central sphere. In the state sphere,officers of the industrial relations machinery are entrusted with the enforcement of the

14


Act, in addition to the enforcement of other labour laws. In some states, a smallnumber of whole-time inspectors are appointed exclusively for the enforcement of theAct. In some states, in addition to the officers of the labour department, officials of therevenue department, panchayat departments, and agricultural departments have beenauthorised to work as inspectors for the purposes of the Act.

Offences and Penalties

The Act lays down penalties for violation of the provisions of the Act.

Any contract or agreement whereby an employee relinquishes or reduces his rightunder this Act shall be null and void. However, the Act does not prevent anindividual from entering into an agreement which is more advantageous orbeneficial to him.


1) Once the minimum wages are notified and become effective the employer mustpay to every employee engaged in a scheduled employment under him wages at arate not less than the minimum rate of wages fixed by such notification for thatclass of employees.

2) The employer may make deductions out of wages as may be authorised.

3) The employer shall pay overtime at double the ordinary rate of wages for theperiod of work done beyond 9 hours on any day or 48 hours in any week or forrest day.

4) The employer must pay minimum wages in cash unless the appropriategovernment authorises their payment wholly or partly in kind. The governmentmay direct the supply of essential commodities at concessional rates by notifyingit in the official gazette.

5) Every employer shall issue a wage slip to every employed person in a prescribedform containing prescribed particulars.

6) Every employer shall get the signature or the thumb impression of everyperson employed on the wage group and the wage slips.

7) The employer or his agent should authenticate the entries in the wage books andthe wage slips.

8) The employer shall allow a rest day with wages to the employees everyweek which ordinarily should be Sunday or any other day. No employeeshall be required to work on a day fixed as rest day, unless he is paid wages forthat day at the overtime rate and is also allowed a substituted rest daywith wages.

9) The employer shall not make deductions from wages except those authorisedby or under the rules.

16.4 THE PAYMENT OF BONUS ACT, 1965

In pursuance of the decision taken at the 18th session of the Indian Labour Conference,the Government of India constituted the Bonus Commission on December 6, 1961.The Government accepted the recommendations of the Commission with slightmodifications, and promulgated an ordinance on May 29, 1965. The Act came intoforce from October 25, 1965. Subsequently, there were a number of amendments tothe Act. The Act consists of 40 Sections and four schedules.

15


Object of the Act

The object of the Act is to maintain peace and harmony between labour and capital byallowing the employees to share in the prosperity of the establishment reflected by theprofits earned by the contributions made by capital, management and labour.

Applicability

The Act applies to all factories and establishments employing 20 or more persons onany day during an accounting year. Such an establishment continues to be governedby the Act notwithstanding that the number of persons employed therein falls below20. Establishments also include departments, undertaking and branches.

Definitions

Employee: The definition of “employee” includes any person (other than anapprentice) employed on a salary or wage not exceeding rupees 3,500 per month inany industry doing any skilled or unskilled, manual, supervisory, managerial,administrative, technical, or clerical work for hire or reward. The Payment of Bonus(Amendment) Bill, 2002 provides for omission of the ceiling of rupees 3,500 forapplicability of the Act. If this provision comes into force, then all the employees in anindustry will be entitled to get bonus irrespective of their salaries/wages. The term ofemployment may be expressed or implied. There must, however, be a contract ofservice between the person employed and the employer.

Appropriate Government: The term “appropriate government” means:

i) in relation to an establishment in respect of which appropriate government underthe Industrial Disputes Act, 1947 is the Central Government;

ii) in relation to any other establishment, the Government of the State in which thatestablishment is situated.

Employer: The term “employer” includes:

i) in relation to an establishment which is a factory, the owner or occupier of thefactory, including the agent of such owner or occupier, the legal representative ofa deceased owner or occupier and the manager of the factory;

ii) in relation to any other establishment, the person who, or the authority which,has the ultimate control over the affairs of the establishment. Where the saidaffairs are entrusted to a manager or managing director, such manager ormanaging director is the employer.

Accounting year: The term “accounting year” means:

i) In relation to a corporation, the year ending on the day on which the books andaccounts of corporation are to be closed and balanced;

ii) In relation to a company, the period in respect of which profit and loss account islaid before the annual general meeting (first day of April or 31st of March).

Salary or Wage: The term “salary or wage” includes

i) basic pay and dearness allowance but not any other allowance.

ii) It excludes the value of any house accommodation or of supply of light, water,medical attendance or amenity or any service or of any concessional supply offoodgrains or other articles, any travelling concession, any contribution paid orpayable by the employer to any pension fund or provident fund, retrenchmentcompensation, and gratuity.

16


Calculation of Bonus

If an establishment consists of different departments or undertakings or branches,whether situated in the same place or in different places, unless a separate balancesheet and profit and loss account are prepared and maintained in respect of them, allsuch departments or undertakings or branches should be treated as parts of the sameestablishment for the purpose of computation of bonus, and once they are treated asparts of the same establishment, they should be continued to be treated as such.

The determination of gross profit is the first step towards calculating the amount ofbonus. From the gross profit certain prior charges are to be deducted to arrive at theavailable surplus. However, the bonus is to be paid out of the allocable surplus. Incase of a company, the allocable surplus is 67 per cent of the available surplus, and inother cases it is 60 per cent.

Eligibility for Bonus

Every employee shall be entitled to be paid bonus by his employer in an accountingyear, provided that he has worked in the establishment for not less than 30 workingdays in that year.

An employee will be disqualified from receiving bonus if he is dismissed from servicefor:

a) Fraud;

b) Riotous or violent behaviour while on the premises of the establishment;

c) Theft, misappropriation or sabotage of any property of the establishment.

Amount of Bonus

The Act imposes a statutory obligation on the employer to pay bonus at the minimumrate of 8.33 per cent of the salary earned by an employee or rupees 100, whichever ishigher, in an accounting year. It shall be paid irrespective of profits and loss orwhether there is allocable surplus or not in an accounting year. The maximum is fixedat 20 per cent.

Where the salary or wage of an employee exceeds rupees 3,500 per mensem, thebonus payable to such employee shall be calculated as if his/ her salary or wage wasrupees 2,500. There is also a provision under the Act for proportionate reduction inbonus where the employee has not worked for all the working days in any accountingyear.

The excess of allocable surplus, if any, after distributing the maximum bonus asprovided shall be set-on and taken into account up to the fourth accounting year. Inthe case of any shortage or want of allocable surplus, the amount distributed as bonusshall be carried forward for set-off and adjusted out of the allocable surplus. TheFourth Schedule illustrates the method of distribution and set-off or set-on of theamount available for bonus out of the allocable surplus.

Newly set-up establishments get exemption from payment of bonus for a period of sixyears following the accounting year in which the goods produced or manufactured aresold for the first time and, in the alternative, up to the year when the newestablishment shows profits, whichever is earlier.

Under the Act, adjustment can be made towards payment of customary or puja bonusagainst bonus payable under the Act.

If an employee is found guilty of misconduct causing financial loss to the employer,then the employer can deduct the amount of loss from the amount of bonus payable tothe employee for the year in which he was found guilty of misconduct.

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Time Limit for Payment of Bonus

The bonus shall be paid within a period of 8 months from the close of the accountingyear. If there is a dispute, it shall be paid within one month from the date on which theaward becomes enforceable. The appropriate government may extend the said periodup to a maximum of 2 years.

Claim for Bonus

If any bonus is due to an employee under a settlement, award or agreement, theemployee himself, or any other person authorised by him in writing in this behalf, orin the case of death of the employee, his assignee or heirs, may make an applicationfor its recovery to the appropriate government. The government, if satisfied, may issuea certificate to the collector to recover the same as arrears of land revenue. Theapplication must be made within one year. However, the mode of recovery prescribedshall be available only if the bonus sought to be recovered is “under a settlement or anaward or an agreement”. It will not apply to the recovery of bonus which is payableunder the Act.

A dispute about bonus payable under the Act will have to be raised by the employeesconcerned in accordance with the provisions of the Industrial Disputes Act, 1947, orany corresponding state law applicable to them.

If accounts are audited by duly qualified auditors of a company or by the Comptrollerand Auditor-General of India, then the statements and particulars contained in suchbalance sheets and profit and loss accounts will be presumed to be accurate. It shallnot be necessary for the corporation or the company to prove the accuracy of suchstatements. If the trade unions require any clarification, the court may direct theemployer to furnish necessary clarification.

The Act provides for the appointment of inspectors and for the maintenance ofregisters and records.

The Act provides for different offences and corresponding penalties.

Mode of Payment

Employees can enter into an agreement or a settlement with their employer for grant ofbonus under a formula different from that under the Act, i.e., bonus linked withproduction or productivity; but subject to the provisions of the Act in respect ofpayment of minimum and maximum bonus.

Exemption

The Act does not apply to the following establishments:

i) Newly set up establishments or units or branches of existing establishments forsix years from the date of starting production unless such establishments makeprofit;

ii) Government institutions;

iii) Reserve Bank of India;

iv) Deposit Insurance Corporation;

v) Industrial Development Bank of India;

vi) Agricultural Refinance Corporations;

vii) Unit Trust of India;

viii) Industrial Finance Corporations;

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ix) State Financial Corporations;

x) Employees of insurance companies and the Life Insurance Corporation;

xi) Seamen;

xii) Stevedore labour;

xiii) Universities and other educational institutions;

xiv) Hospitals, chambers of commerce and social welfare institutions;

xv) Inland water transport;

xvi) Employees employed through contractors on building operations;

If the appropriate government, having regard to the financial position and otherrelevant circumstances of any establishment or class of establishments is of theopinion that it will not be in public interest to apply all or any of the provisions of thisAct thereto, it may, by notification in the Official Gazette, exempt for such period asmay be specified therein and subject to such conditions as it may think fit to impose,such establishment or class of establishment, from all or any of the provisions of theAct.


1) Work out and pay annual bonus to the employees as required under the Act.

2) Maintain the following registers:

l Register showing the computation of allocable surplus.

l Register showing set on and set off of the allocable surplus.

l Register showing the details of the amount of bonus due to each employee,deductions there from and the amount disbursed.

3) Submit an annual return of bonus paid during the year.

Activity A

Did your establishment pay bonus according to the Payment of Bonus Act? If so,mention the percentage of bonus paid to employees during the last three years.

......................................................................................................................................

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Activity B

If your establishment is not paying bonus as per the Act, indicate the system ofpayment and the rates of payment made during the last three years?

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Laws Covering Wages,Welfare and Benefits16.5 THE EQUAL REMUNERATION ACT, 1976

To give effect to Article 39 of the Indian Constitution, the Government of India, on the26th of September 1975 promulgated the Equal Remuneration Ordinance.The Ordinance was replaced by the Equal Remuneration Act, 1976, which receivedthe assent of the President of India on 11th February 1976. It came into force from11th March 1976 throughout India in the employments notified for the purpose.In exercise of the powers conferred under Section 13 of the Act, the CentralGovernment framed rules known as the Equal Remuneration Rules, 1976.

Object of the Act

The object of the Act is to provide for the payment of equal remuneration to men andwomen workers and for the prevention of discrimination, on ground of sex, againstwomen in the matter of employment. It also seeks to provide for increasingopportunities for women in the specified employments.

Definition

The term remuneration includes basic wage or salary and any additional emolumentspayable, either in cash or kind, to a person employed in an employment, or work donein such employment, if the terms of the contract of employment, express or implied,were fulfilled.

Equal Remuneration

It is the duty of the employer to pay equal remuneration to men and women workersfor the same work or work of a similar nature.

No discrimination shall be made while making recruitment for the same work or workof a similar nature between men and women workers, except where the employment ofwomen in such work is prohibited or restricted by or under any law for the time beingin force. The Act prohibits discrimination against women not only in recruitment butalso in relation to the conditions of service subsequent to employment, such aspromotions, training, and transfers.

Administration

For the purpose of providing increasing employment opportunities to women, theappropriate government may constitute one or more Advisory Committees.

The appropriate government may appoint an authority, not below the rank of a LabourOfficer, to hear and decide claims and complaints. The authority appointed for thispurpose shall have all the powers of a civil court under the Code of Civil Procedure,1908. The aggrieved employer or worker may prefer appeal to the appellate authoritywithin 30 days from the date of the order.

It is the duty of employers to maintain prescribed registers and other documents inrelation to the workers employed by them.

The appropriate government may appoint inspectors for the purpose of enforcing theprovisions of the Act.

The Act provides for penalties for violation of provisions of the Act.

Exemption

The requirement of equal treatment for men and women will not apply in certainspecial cases in so far as:

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a) The terms and conditions of a workmen’s employment are, in any respect,affected by compliance with the law regulating the employment of women;

b) Any special treatment is accorded to women in connection with the birth, orexpected birth, of a child.

If the appropriate government is satisfied that the differences in regard to theremuneration of men and women workers in any establishment or employment arebased on a factor other than sex, it may, by notification, make a declaration that anyact of the employer attributable to such a difference shall not be deemed to be acontravention of any provision of this Act.

16.6 STATUTORY SOCIAL SECURITY BENEFITS

Social Security legislation in India in industrial field consists of the followingenactments: (1) the Workmen’s Compensation Act, 1923; (2) the Employees’ StateInsurance Act, 1948; (3) the Employees’ Provident Funds and MiscellaneousProvisions Act, 1952; (4) the Maternity Benefit Act, 1961; and (5) the Payment ofGratuity Act, 1972.

Exhibit 16.2: Benefits under Social Security Legislation in India

Laws Objectives Benefits

Workmen’sCompensation Act, 1923

Employees’ State InsuranceAct, 1948

Employees’ ProvidentFund and MiscellaneousProvisions Act, 1952

Maternity Benefit Act,1961

To provide compensation forworkmen in cases of industrialaccidents occupationaldiseases resulting in disable-ment or death

To provide for health care andcash benefits in the case ofsickness, maternity, andemployment injury

To provide compulsoryprovident fund, pension,deposit-linked insurance

To provide for maternityprotection before and afterchild birth

Compensation for death,permanent total disable-ment, permanent partialdisablement, temporarydisablement, and occu-pational disease

Benefit for sickness andextended sickness benefit,maternity benefit, disable-ment benefit, dependants’benefit, medical benefit,funeral benefit, rehabi-litation benefit

Refundable withdrawals,provident fund, pension, anddeposit-linked insurance

Payment for actual absenceupto 12 weeks on averagedaily wages, minimum wageor rupees 10. Additionalbenefit for miscarriage, andillness arising out ofpregnancy

16.7 SUMMARY

The various labour enactments governing wages are the Payment of Wages Act, theMinimum Wages Act, the Payment of Bonus Act, and the Equal Remuneration Act.These statutory provisions cover matters regarding regular and prompt payment ofwages, periodical fixation and revision of minimum wages, payment of bonus,prevention of discrimination against women and equal remuneration to men and

21


women employees for the same work, or work of a similar nature. Legally requiredsocial security benefits include compensation for death, disability, and occupationaldisease under the Workmen’s Compensation Act; benefits for sickness, maternity,disablement, and dependants’ under the ESI Act; provident fund, pension andinsurance under the Employees’ Provident Fund and Miscellaneous Provisions Act;Maternity Benefit under the Maternity Benefit Act; and gratuity under the Payment ofGratuity Act.

16.8 SELF-ASSESSMENT QUESTIONS

1) List out the various deductions under the Payment of Wages Act, 1936.

2) What is the procedure the government has to follow in fixing and revisingminimum wages under the Minimum Wages Act, 1948?

3) The Payment of Bonus Act has no relevance in the present economic situation ofthe industry. Discuss.

4) What are the obligations of an employer under the Equal Remuneration Act,1976?

5) What are the statutory social security benefits available to workmen/employeesin India?


Aswathappa K., Human Resources and Personnel Management, Tata McGraw-HillPublishing Company Ltd., New Delhi, 1997.

Employees’ State Insurance Corporation, ESI Scheme of India –Employers’ Guide,New Delhi, March 2003.

Kumar H.L., Labour Laws, Universal Book Traders, Delhi, 1995.

Mallick P.L., Industrial Law, Eastern Book Company, Lucknow, 1999.

Thakur C.P., Corporate Strategy and Fringe Benefits, Spectrum Publishing House,Delhi.

UNIT 25 MOTIVATION AND MORALE

Structure

Objectives Introduction Meaning of Motivation Objectives of Motivation Types of Motivation Motivators which Promote Efficiency Meaning of Morale Types of Morale Factors Effecting Morale Evaluation of Morale Measures to Improve Morale Let Us Sum U p Key Words Some Useful Books Answers to Check Your Progress Exercises

25.0 OBJECTIVES

After studying this unit you should be able to: understand the importance of human factor in an organisation, which will have a significant impact upon over all organisational out-put outline the findings of the psychologists and behaviouralists from the viewpoint of human relations realise that motivation and morale are caused by management policies and practices explain the meaning of motivation and morale along with the factors effecting them know about the different types of motivation and morale causing the organisational efficiency and analyse some important measures in build~ng morale, through workable motivational methods.

25.1 INTRODUCTION

I There is no truth more evident from human experience and research than the axiom

I that work in the life blood of man's existence. It is as natural for a man to work and to want to work as it is for him to rest. The human beings are not sloths by nature. The. type of internal driving force (motivation) is responsible either for action or inaction in an individual.

! The problem of human behaviour is fundamental and instinctive in any organisational set-up. It is a complicated issue for the organisation to make its members to adjust themselves to the needs of organisation. Because individuals do not divorce themselves from their own norms, attitudes and personal needs, simply because they join an organisation. They necessarily sacrifice their own independence on various types of group and associational membership. Their voluntary behaviour needs to be changed into required behaviour in the general interest of the organisation. Under the influence

I of the required behaviour, the individual assumes the responsibilities and expresses loyalties and commitments towards the organisation as a whole. There are different i methods, to turn the voluntary behaviour into a required behaviour.

Perhaps no area of personnel administration has been more debated than human motivation due to the development of the scientific knowledge about human behaviour. The movement of behavioural a p p ~ u a c i ~ has contributed much for better understanding of human behaviour. During early era of personnel administration as being different from the efficiency experts, they approached the problem of increasing efficiency as a

i - human ~ r o b l e m rather than as a mechanical one. Hence the feelines and behaviour of

employees are considered in personnel system. Normally, the driving force, so pervasive in history and so common among all races and seems to be composed both of an inner need to achieve and a response to external challenges. It is felt that what an individual believes about himself has a profound effect on how he behaves. T~ understand any individua! we need to know what he thinks, what values he holds, what his goals are, as well as how his basic biological and social needs are met and what abilities he has. Therefore, drive and motivation is of utmost importance as it constitutes the base for the administrative function of planning and organising. The personnel department of an organisation must devote considerable time and efforts in

for and achieving high level of morale. Because it is the only solution for the problems arising like employees feeling alienated and organisational goals, underutilisation of their potential skills and capabilities to achieve optimisation and feeling of frustration while discharging their duties. Hence motivation should be the continuous process for effective functioning of the organisation.

Effective management largely depends upon the willingness of employees in carrying out the organisational tasks with zeal and enthusiasm. The successful functioning of the organisation depends upon the techniques used for securing ability and willingness of its employees. Because human performance is determined by the level of morale, interaction, behaviour, motivation and ability. Policies and techniques will improve motivation and morale and make the work experience a more rewarding one.

In view of the importance of motivation and morale of an individual in the organisation we will discuss in this unit the meaning of these aspects which would go a long way in understanding the concepts concerned, the objectives of the motivation and the types of motivation. We also discuss the factors effecting morale, future policies and programmes for building-up morale in the employees and analyse some important measures in building morale, through workable motivational methods.

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25.2 MEANING OF MOTIVATION

The term motivation is derived from the Latin word 'emovere' which means 'to move'. Motivation is the complex of psychological forces. Motivation is something that moves a person into action and inspires him to continue in the course of action already initiated.

There are different definitions of motivation. Stanlay Vanace opines that 'motivation implies any motion or desire which so conditioned one's will that the individual is propelled into action'. Dale and Beach felt motivation as 'a willingness to expend energy to achieve a goal or reward'. Shartte understood motivation as 'a reported urge or tension to move in a given direction or to achieve certain goals'.

According to the above definitions motivation is considered as the art of stimulating people to take desired course of action. It involves arousing needs and desires by impelling individuals towards purposive behaviour. A motive is a need or desire which directs the behaviour. It reflects an urge to move in an expected manner to achieve a specified goal. It results when the needs of an employee are satisfied through proper incentives and rewards. Human behaviour is the result of their desires, needs and wants and motivation involves creation of a will to work for accomplishment of institutional goals. Without needs there can be no motivation and ane of the biggest problems in motivating the employees is that one does not have the same needs. Moreover motivation is influenced by a number of factors both inside and outside the organisation. Motivation requires the identification of personal goals with institutional goals.

25.3 0B.lECTIVES OF MOTIVATION

The objectives of motivation put forth by psychologists and sociologists are the means of answering two basic questions concerning human behaviour i.e., why an individual is impelled to act and what determines the direction of his actions. Let us discuss the views of some 6-minent Psychologists and Sociologists, who attempted to evaluate the

human behaviour in different contexts.

a) According to Skinner motivation objectively exists to make an individual being learn what may regarded as positive behaviour i.e. desirable behaviour.

b) Abraham Maslow observes that the objective of motivation is always to create a need for an individual. It is just like the process of lower needs being satisfied and the higher needs gradually emerging (Hierarchy or Needs).

c) Frederick Herzberg felt that the important objective of motivation is to provide opportunities to become a better expert on one's job, to handle more demanding assignments, to control one's own work rather than be supervised.

d) Mclelland opined that the objective of motivation is to create a strong desire in an individual, where he derives a special kind of joy in successfully attaining an objective in accomplishing a task. in facing up to a challenge rather than monetary or other rewards.

e ) Victor Wroom thinks that motivation should work as a means of communication for increasing positive values in the employees. Obviously the objectives of motivation are to increase efficiency by good performance.

Motives are abundant and divergent. There is no single strategy that will motivate the employees forever and every where. The motives for individuals towork are numerous.

I 25.4 TYPES OF MOTIVATION There are basically two types of motivation: I a) Negative motivation, and b) Positive motivation.

Negative Motivation

The traditional form of motivation emphasises more on authority. This approach consists of forcing people to work by threatening to fire them if they do not. It believes that man is inherently lazy, pleasure seeking, despises work. To prevent him from doing so, there must be close supervision. This approach further assumes that employees' performance would be increased by fear, which causes the people to act in a certain way. Because they are afraid of the consequences like, lay-off, demotions, and dismissals. This approach paid off fairly well in the early days of the industrial revolution when workers and their families were so close to starvation. Imposition of punishment frequently results in frustration among those punished, leading to the development of maladaptive behaviour. The negative motivation also creates a hostile state of mind and unfavourable attitude to the job. The approach of negative motivation had proved to be ineffective as the employees were responding to them perversely. In recent years, however, people have begun to expect more from their jobs than sheer punishment.

Positive Motivation

,The behavioural approach is much sophisticated than traditional approach which /Irecognises the importance of positive aspects of motivation. Positive motivation involves the possibility of increased motive satisfaction. Positive motivation is a process of attempting to influence others to do their best, and thereby adopting good human relations. It seeks to create an environment which will make the individual talent flourish and encourages informal communications positively. Positive motivation is generally based on rewards.

The positive motivation may be extrinsic or intrinsic. The extrinsic motivators can be enjoyed after completion of work. The intrinsic factors are those which occur at the time of performance of work. Since positive motivation appears to be more workable, now let us discuss the role of some positive motivators, which promote efficiency.

25.5 MOTIVATORS WHICH PROMOTE EFFICIENCY

The exact nature and extent of motivator~would depend upon the internal and extehal factors prevailing in a given organisation. Some of the important motivators which can promote efficiency are:

\ . . .

ii) Job enrichment iii) Delegation of authority iv) Job security v) Status and pride vi) Participation

vii) Congenial work environment

Job Enlargement and Job Enrichment

If the additional responsibilities to enhance variety are of a horizontal nature, it is termed job enlargement while if the additional responsibilities are of vertical nature involving delegation and decentralisation the process is termed job enrichment. Job enrichment can be ensured provided the work is meaningful, a worker has knowledge of the work and the worker is entrusted with the responsibility through proper delegation. According to Hippo, job autonomy can be secured if the following are given :

(1) setting one's own work schedule and work breaks; (2) varying work place; (3) changing duties with others; (4) making crisis decisions in problem situations rather than relaying on the boss; and (5) making one's own quality checks, etc. It is obvious that the most important condition for achieving better work performance from employees is to give them interesting worthwhile, challenging, and responsible job, to ensure that the employees are not frustrated by meaningless, disinteresting and purposeless tasks, fundamental rethinking of both the process and purpose of management is necessary.

Koontz and O'Donnell have suggested the following to ensure job enrichment: (a) giving workers more latitude in deciding about such things as work methods,

sequence, and pace or by letting them make decisions about acceptingor rejecting materials;

(b) encouraging participation of subordinates and interaction between workers; (c) giving workers a feeling of personal responsibility for their tasks; (d) taking steps to make sure that people can see how their tasks contribute to a

finished product and the welfare of the enterprise; (e) giving people feedback on their job performance preferably before their

supervisors get it; and (f) involving workers in analysis and change of physical aspects of workgnvironment

such as layout of office or plan, temperature, lighting and cleanliness.

Delegation of Authority

A very common technique being advocated for motivating employees is delegation of authority. Delegation of the rights and obligations to execute a given task very often proves to be a strong motivating force.

Job Security

Job security is one of the good promoters of organisational efficiency and economy. The employees feel responsible and committed to the work as long as their job security is ensured. They would be more attached with the organisation and its day-to-day

/ activities.

stads and Pride

Status and pride are linked with the organisational set-up. Age of the organisation and its reputation in the society will also motivate the employee. Employees working in the well reputed organisatiorl ..will be motivated better than the employees of other institutions. They feel proud of thdr employment in the organisation.

Participation

Participation is an individual's mental and emotional involvement in a group situation that encourages him to contribute to group goals and to share responsibility for them. Employees' participation yields their personal commitment and involvement in accomplishing organisational goals. It also produces flow of communication for informal work force. Self-guidance and monitoring in the employees may be expected. Produce high degree of mutual respect and trust among organisational members. A high degree of confidence is shown in subordinates which facilitates interpersonal nroc~w

Congenial Work Environment

Motivation is some form of exchange between the individpal and his work environment. The congenial work environment gives to the individual sets of preference or values

; which constitute the goals towards which the instinctual drives are expressed. Further, ' the work environment is the source of norms of behaviour which draws the lines

between good and bad, right and wrong, legitimate and illegitimate. )"

Check Your Progress 1 Note: i) Use the space below for your answers.

ii) Check your answers with those given at the end of this unit.

1) What are the various meanings of Motivation?

.......................................................................................................... 2) What are the objectives of Motivation?

.......................................................................................................... 3) What are the factors of Motivation?

! 35.6 MEANING OF MORALE

Though th,e organisation's focus is always on performance, based on wst-benefit approach, it was felt imperative to consider the issue of morale in a wider perspective. From the institutional p i n 1 of view, the problem of employee's morale is that of stimulating a feeiing of togetherness, a sense of identification with the job. I t is more conducive to the achievement of institutional goals. It Is important because performance and efficiency of operation depends upon employee's morale. To attain these high standards of morale it is essential to enlist the feelings of employees and their abilities in the work.

'Morale' is an attitude of satisfaction with desire to continue in and willingess to strive for the goals of a particular organisation. There are two important elements. Firstly, that the individual shares the purpose which gives him -. enthusiasm, energy and

self-discipline. Secondly, the responsibility of the authorities to infuse the feeling of togetherness, a sense of identification and his consideration for other members of the institution.

Further, morale is viewed as 'the capacity of a group to pull together persistently and ' consistently in pursuit of common purpose'. This capacity is subjective and differs from

person to person depending upon the people's interest in a particular work. This capacity is inherent in every individual and is seen in their attitudes towards particular work.

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Em* -bpbyee Relation6 25.7 TYPES OF MORALE

There appear to be two groups of morale i.e., a) Individual and b) Group morale

Individual Morale

The components of morale are still rather elusive, despite growing agreement upon several generalisations. One of these generalisations is that the group climate must provide opportunity for individual self-expression or self-accommodation by the members of the group. Another is that the occupational context must furnish outlets for the individuals pride in his own workmanship. Still another and more important is that members of the group must find it easy to accept the purposes and values of the group as their own so that they have a sense of belonging to the group or identity with it. All these may be described as individualistic bases of morale.

Group Morale

Hawthorne studies pointed out, pride in group is an important component of morale. Employees like to belong to be part of and be accepted by the group even where and employee dislikes the actual work itself. He may have high morale, stemming from his pleasure of group with his group work. Where there is a well integrated group, there would be high group morale, as well as individual morale. Since good supervision correlated.with good group morale, special attention should be paid to the training programme of supervisory staff. Whether it is group or individual morale, it must be evaluated from time to time in the interest of the organisation.

25.8 FACTORS EFFECTING MORALE

There are four factors which effect the morale of the employees in an organisation. They are as follows: i) The organisation itself ii) Nature of work of employee iii) Supervisory techniques iv) Fellow employees

Let us discuss each factor in a detailed manner.

The Organisation

As a practical matter morale is based upon the understanding that an employee's future depends upon thesuccess of the organisation, and that the efficient service leads to high pay, job security, and promotions. Employees morale cannot be exploited by authoritarian attitude of the organisation. Employees morale must be won through, sound personnel policies. Through benevolent paternalism, employees can be made happy, loyal and grateful. To maintain employees morale every organisation is required to ensure the following: a) A proper human relations programme b) Survey of employees attitude should be undertaken to initiate corrective action c) The findings of attitude surveys should be communicated to employees to gain their

faith in the organisation d) Free flow of information to and from the employees and among employees. e) A reward system for good work.

Nature of Work

Employees want jobs that match their needs, values and personalities. Studies have shown that employees who undertake a job that requires the use of skills derive a sense of competence from mastering. Employees will be happy when they believe themselves to be competent in performing meaningful work. Since most employees strive to master important activities of their lives, it is not surprising that mastery of skills performed on the job involved a certain amount of pride. Work, for most people, is the most important activity which influences their self-esteem. Tedious, boring and routine work will not contribute morale building.

Supervisory Techniques

An important step in the morale-building programme is to instill ih supervisors the need for applying human relations in supervision. Supervision must help the employees to enjoy the anticipation of future satisfactions of their drives rather than the whim of the movement. The major failure of poor supervision is the failure of supervisor to understand emotions. To boost up the morale supervisor should be democratic and allow participation of employees in runnillg the departmental affairs. Supervisor should be fair and impartial in dealing with his assistants. He should also build up the pride of the employee in his work by explaining its importance and giving recognition for good work. He should learn to apply positive discipline, which corrects by showing right way and does not restrict the individual employee who is being brought into line.

Fellow-employees' Interaction

In the socialisation process of the institution, co-employees interaction influences employees' morale a lot. Formal training, institutional rules and regulations may not be sufficient for the new entrants in understanding their role expected by the institution. Co-employees' informal assistance, fraternity, cooperation will help the new comers in performing their work assigned by the institution. Fellow-employees' non-cooperation, jealous attitude. carelessness create undesirable work environment. E\ rr- . ~mpetitlve spirit and undertaking of a work of challenge will arouse positive

.~rnrn~. Tnng employees wherl there is irlteraction. It also raises the groupmorale.

25.9 EVALUATION OF MORALE

Whether of an individual or a group, the level of morale must be observed and expressed largely in terms of complex reactions. Most employers who are concerned with employee morale recognise the necessity for careful analysis of all expressions of employee reactions. There are several methods of survey of morale. Some of the methods are as under:

Attitude Survey

These surveys depend upon questionnaires, which are administered orally or in writing from any employees. By answering these questionnaires, employees ~ndicate their attitude towards a wide range of conditions related to their work. Analysis of their replies provides a guide to general levels of morale as well as more specific indications of their likes and dislikes in the prevailing employment situation.

Morale Interviews

By frequent and periodic interviews with employees their morale can be assessed. In these visits, the interviewer encourages the employeeto speak freely and frankly in respect of his job, his supervisors, his fellow employees, and any other conditions affecting his employment without any fear or hazard to his status in the organisation.

Spies and Informers

In earlier times the employers are used to hire spies and placed them in various departments for the specific purpose of finding out what employees thought of their jobs and of working conditions in the organlsation. After formation of employees unions and associations this practrce was almost given up and it became outdated.

Morale survey methods are varied from one organisation to another. However, it all depends upon the nature of the work of employee, organisation, authorities' outlook, and size of the organisation etc.

Indices of Morale

Morale, as it is an attendant condition of an activity rather than an activity itself, can be measured only indirectly. The following are some of the indices of employee's morale.

a) Absenteeism: Where there is high morale, employees make efforts to be on time and avoid absence. A high rate of absenteeism indicates poor morale.

Mdlvntioa nnd Morale

~mpl~ytr-~mplop Relations b) Turnover: Sometimes greater turnover of labour may be included in the indices of poor morale. It may not be true in all cases. Young employees in unskilled jobs have higher turnover rate than older employees in higher positions.

c) Grievances: Some grievances may arise out of poor morale.

d) Output Level: High level of output may indicate high level of morale but the output may be increased even by fear. The employees with higher level of morale may produce low output due to substandard tools or deliberate plan to restrict output. These may not be the proper measuring rods of morale. But the level of output will also exhibit the level of morale.

25.10 MEASURES TO IMPROVE MORALE

Morale is not static. It is subject to daily, o r even to monetary fluctuations. It is also subject to long-term secular trends. It is useful to think of long-term morale trends as responses to pressures and supports. Usually policy on morale seeks to develop and maintain high levels of morale among employees through appropriate means.

The following measures are suggested for morale building.

Job Satisfaction: The personnel policy should make jobs as interesting and satisfying as possible; it tends to encourage a favourable and enthusiastic group action.

Job Training: Job training, orientation, education, apprentice training and a broad variety of general educational efforts will help in building up employees' morale.

Recognition of Aspirations: Recognition of individual aspirations anbgoals, and definite provision of means by which such goals can be achieved will go a long way in boosting morale.

Unrest: A careful study must be made on various indices of employees unrest, with the ultimate objective of constructive guidance and action.

Counselling Interviews: Counselling Interviews help to discover the feelings of employees.

Opportunities: pro&ising opportunities like good promotional avenues, good working conditions, satisfactory remuneration and other benefits for personal development.

Relations: The supervisory staff should ensure, human relations, informal relations, fact finding and adopt participative and employee orientated attitude.

Facilities: Apart from the above measures, the facilities lik'e, transport, housing, health, family welfare, children's education, and other recreational facilities would also help in building up employees morale.

T

i ~ ~ o u r ~ 2 ...

i) Use the space below for your answers. !

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ii) Check your answers with those given at the end of @is unit. 1) What is Morale?

2) What are the factors effecting Morale?

UNIT-12: SOCIO-PSYCHOLOGICAL APPROACH: VIEWS OF ABRAHAM MASLOW AND FREDERICK HERZBERG

Structure


12.1 Introduction

12.2 Views of Abraham Maslow

12.2.1 The Hierarchy of Needs theory

12.2.2 A Critical Evaluation

12.3 Views of Frederick Herzberg

12.3.1 Motivation – Hygiene theory

12.3.2 Propositions in the theory

12.3.3 Job enrichment

12.3.4 Vertical job loading


12.4 Comparison of Herzberg and Maslow Models

12.5 Conclusion

12.6 Key Concepts


12.8 Activities


After studying this unit, you should be able to:

• Understand the views of Abraham Maslow and Frederick Herzberg on human motivation;

1

• Know Maslow’s hierarchy of needs theory;

• Understand Herzberg’s Motivation-Hygiene theory; and

• Discuss the impact of motivational theories of Abraham Maslow and Frederick Herzberg on Organisational Processes.

12.1 Introduction

Employees’ motivation has occupied an important area of enquiry among many

administrative thinkers. Scientific management believed that workers could be

motivated by manipulation of rewards and sanctions, and to this end it devised the

payment system based on piecework. As payment depended upon how much one

produced, it was assumed that a worker would be induced to produce more.

Specialisation was encouraged with the view that if a worker concentrated on a small

piece of work he would produce more, thus increasing his income. The Hawthorne

experiments conducted by Elton Mayo criticised this theory of motivation, but it did not

develop a comprehensive theory of motivation. It was Abraham Maslow who, in 1943,

made a breakthrough in human motivation with the appearance of his paper entitled of

“A theory of Human Motivation” published in the Journal, Psychological Review. In

this article Maslow postulated the idea of a hierarchy of human needs. Human beings

are pleasure-seeking beings and are motivated towards satisfaction of their needs.

Before Maslow, all administrative thinkers belonging to the human relation school

routinely took the instrumental view of man, believing in manipulating him to be a

more productive tool of the organisation. Maslow makes a departure from such

thinking. He contends that the employee is not to be treated as an instrument as an

autonomous hierarchy of needs motivates him. Man, in other words, is a self-

actualising being. Maslow holds the view that the best managers are ones who improve

2

the health of the employees. In this unit an attempt is made to explain the views of

Abraham Maslow and Frederick Herzberg on human motivation and also assess the

impact of their motivational theories on organisational processes.

12.2 Views of Abraham Maslow

Abraham Maslow’s interest and research in understanding human behaviour

was the result of his early career as a psychologist. He tried to understand human

behaviour through psychoanalysis. Maslow develops the concept of holistic

psychology. This, he calls the ‘third force’ the other two being Behaviourism and

Psychoanalysis. Maslow directs his main efforts in the field of personality. He argues

that psychology had hitherto concentrated too much on human frailty and neglected

human strengths. He contends that human nature is essentially good. As human

personality develops through maturation, the creative capacity becomes more sharply

defined. If human beings are miserable, the fault lies with the environment, which

makes them so. Human beings are not basically destructive or violent: they become so

only when they’re inner nature is twisted.

Born in 1908 in New York, Maslow obtained his post-graduation degrees in

Ph.D. in psychology from the University of Wisconsin. He served on the faculties of

Brooklyn College in New York and Brandies University. He was elected President of

the American Humanist Association for 1967-68. Maslow’s major works are :

• Motivation and Personality (1954.

• Toward a Psychology of Being (1962).

• The Psychology of Science: A Reconnaissance (1966).

3

• New Knowledge in Human Values (1970).

• The Farther Reaches of Human Nature (1971).

• Dominance, Self-Esteem, Self-actualisation: Germinal Papers of A.H. Maslow (edited by Richard J. Lowry in 1973).

In addition, he published several research papers in journals and books. Initially,

Initially, Maslow’s writings generated interest among other clinical and personality

psychologists, but hardly had any influence on organisation theories. Managers and

administrators began to read Maslow’s ideas only after McGregor popularised them.

Abraham Maslow put forward three basic propositions based on the concept of need:

• Man is a wanting animal. He always has some need driving him to action.

• There is a hierarchy of needs. They are arranged in an order of priority with the most basic needs to be satisfied first.

• A need satisfied is no longer a motivator.

Man is driven only by unsatisfied needs. If the physiological and the safety

needs are satisfied, there will emerge the love and affection and belongingness needs.

These include desire for achievement, adequacy, reputation, recognition, importance,

appreciation and the like. According to Abraham Maslow, self-actualisation “refers to

man’s desire for self-fulfilment, namely, to the tendency for him to become actualised

in what he is potentially. This tendency might be phrased as the desire to become more

and more what one is, to become everything that one is capable of becoming”.

Human behaviour can be analysed from their actions and the motives behind

them. These assumptions about human motivation have been familiar since the days of

Sigmund Freud. Social Psychology has brought a new path in analysing human needs

and motives through human behaviour. Maslow’s theory of human motivation provides

4

the framework to study and analyse human motivation. As Maslow himself said,

“Motivation theory is not synonymous with behaviour theory. The motivations are only

one class of determinants of behaviour. While behaviour is almost always motivated, it

is also almost always biologically, culturally and situationally determined as well”.

Among the most widely referred motivation theories, Maslow’s hierarchy of needs

theory is quite prominent.

12.2.1 The Hierarchy of needs theory

Maslow sees human needs in the form of a hierarchy, starting in an ascending

order from the lowest to the highest needs and concludes that when one set of needs are

satisfied then the need for other set arises. According to Maslow, human being is an

organism, which drives into action to satisfy its needs. The hunger drive or any other

physiological drive cannot become a cantering point in explaining the theory of

motivation. A sound theory of motivation centres upon the basic goals of human

beings. Human behaviour is a reflection of more than one need. Classification of needs

into specific groups is a requisite in formulating a motivation theory. He says that

classification of motivations must be based upon goals rather than upon instigating

drives or motivated behaviour. He further says that a situation in which a human

organism reacts is a valid point in motivation theory, but the emphasis should always

be on the behaviour of the organism rather than on the situation.

Maslow arranges the human needs in order of hierarchy of prepotency. At the

lowest end are the physiological and security needs. The self-actualisation need is at the

highest end. In between there are social and self-esteem needs. Once the needs at the

5

lower order are satisfied, then the need for needs at the higher order arises. The basic

human needs identified by Maslow in an ascending order of importance are as follows:

• Physiological needs: Physiological needs are the basic needs for sustaining

human life itself. Food, water, clothing, shelter, sleep and sexual satisfaction

are the physiological needs without which the people cannot survive.

Maslow maintains that unless these needs are satisfied to the degree

necessary to maintain life, other needs will not motivate people.

• Security or safety needs: Security or safety needs follow the physiological

needs. These are the needs that enable people to live free from physical

danger and fear of loss of a job, property, food, clothing or shelter.

• Affiliation or acceptance needs: Since people are social beings, they need

affiliation and to be accepted by others. They want to establish relationships

with others and at the same time also want them to establish reciprocal

relationships.

• Esteem needs: Maslow maintains that once people begin to satisfy their

affiliation needs, they want to be held in esteem by others. This kind of need

generates such satisfactions as power, self-confidence, social position, and

prestige.

• Need for self-actualisation: Maslow regards the need for self-actualisation

as the highest in the hierarchy of needs. It is the desire to become what one

is capable of becoming. It is the desire to maximise one’s potential and to

accomplish something.

6

As Maslow maintains that self-actualisation is the highest need in his hierarchy,

who then is a self-actualised person? Self-actualised persons have the following

characteristics. They posses an unusual ability to detect the spurious, the fake, and the

dishonest in the personality; they possess creativeness and originality; they lack

overriding guilt and crippling shame and anxiety; they have a mission and purpose in

life; they like privacy, dignity, autonomy and freedom to pursue their endeavours in life

and work; they derive ecstasy, inspiration and strength from the basic experience of

life; they have a deep feeling of identification, sympathy and affection for mankind;

they maintain interpersonal relations with few people; and, they are democratic and

they can differentiate between ends and means and right and wrong.

After identifying the basic human needs in an ascending order, Maslow

discusses the characteristics of these basis needs. First, the hierarchy is neither rigid nor

a watertight compartment. It means there is no fixity in the hierarchy of needs. For

example, some people prefer physiological to esteem needs. Also the emergence of a

particular need after fulfilment of a need at the lower end is not sudden. Secondly, the

basic human needs are the same and common irrespective of the societies and cultures

in which they live. Thirdly, human behaviour is a reflection of diverse needs and cannot

be influenced by a single variable or need. Moreover all behaviours cannot be

determined by the basic needs alone. And finally, a satisfied need is not necessarily a

motivator.

Although hierarchical aspects of Maslow’s theory are questionable and often

not acceptable, his identification of basic human needs appears to be useful. In other

words, it is necessary that perceptive managers must take a situational or contingency

7

approach to the application of Maslow’s theory. What needs they must approach will

depend on the personality, wants and needs of individuals employees. In any case,

perceptive managers must not forget that most people especially in a developed society,

have needs that spread over the whole spectrum of Maslow’s hierarchy.

The thrust of Maslow’s hierarchy of needs is that one must satisfy one’s basic

needs before moving to the satisfaction of higher needs. Maslow draws attention to the

larger range of needs needing satisfaction. A manager must note that basic needs of

workers must be satisfied, but there are other needs as well. A satisfied need ceases to

be a need and another makes its appearance.


Maslow’s contribution in the form of his need hierarchy is a landmark in social-

psychological research. His theory has had tremendous impact on modern management

approach to motivation.

Maslow’s theory of need hierarchy was criticised mainly on grounds of

sophistication and validity of his research data and the order of hierarchy of needs.

Research on the realities of Maslow’s theory does raise questions about the accuracy of

the hierarchical aspects of these needs. However, his identification of basic needs has

been quite useful. Research by Lawler and Suttle of 187 managers in two different

organisations does not support Maslow’s theory that human needs conform to a

hierarchy. Researchers do note, however, that there are two levels of needs – biological

and other needs – and that the other needs would arise only when biological needs are

reasonably fulfilled. Their research, further, indicates that at the higher level, the

8

strength of the needs varies with individuals; in some individuals social needs

predominate, and in others self-actualisation needs are strongest.

Porter, in his study, also finds that needs do not follow a hierarchy, especially

after lower-level needs are satisfied. He finds that managers at all levels do have

common security and social needs and that the three higher needs in Maslow’s

hierarchy vary greatly with managerial ranks, with lower-level managers being less

satisfied than higher level managers. Yet, at all levels, satisfaction of these needs is

definitely more or less deficient.

Hall and Nougaim likewise, in their study of Maslow’s theory involving a group

of managers over a period of five years, do not find strong evidence of a hierarchy.

They discover that as managers progress in an organisation, they’re physiological and

safety needs tend to decrease in importance, and their needs for affiliation, esteem, and

self-actualisation tend to increase. They observe that upward movement of needs results

from career development and not from the satisfaction of lower-order needs.

The concept of self-actualisation and its characteristics as described by Maslow

have been subjected to criticism also. He does not elaborate the methodology adopted

by him to select the cases for study. Further, Maslow’s list of characteristics of a self-

actualised person also contains several contradictory and overlapping features. Cofer

and Apply observe that the emphasis on self-actualisation suffers from the vagueness of

its concept, the looseness of its languages and the inadequacy of the evidence related to

its major contentions.

9

Recent research studies by Wabha and Birdwell reveal that Maslow’s theory is

not valid. They say that there are two primary clusters of needs instead of five. They

note “there is no clear evidence that human needs are classified in five distinct

categories, or that these categories are structured in a special hierarchy. There is some

evidence for the existence of possibly two types of needs, deficiency, and growth

needs, although this categorisation is not always operative.

Similarly, Nash says that Maslow’s theory is interesting but not valid. “Maslow

had a good idea”. But “the problem with Maslow’s need hierarchy is that it cannot be

turned into a practical guideline for managers who are trying to make people

productive.

Thus the criticisms against Maslow’s theory mostly rest on its lack of research

support, on the dispute over the hierarchy of needs, and on the imprecise nature of the

term self-actualisation. Although Maslow’s theory has been subjected to questioning

and often not accepted, his identification of basic needs has been fairly popular. He has

made an important contribution to our understanding of the nature of motivation. His

distinct approach to motivation has greatly influenced the practice of modern

management.

12.3 Views of Frederick Herzberg

Frederick Herzberg is another distinguished American psychologist who has

questioned the conventional wisdom of managerial dogma and practices. He has

studied the problem of human motivation at the work place. “The central core of

Herzberg’s work stems from his Second World War experiences where he realised that

10

a society goes insane when the sane are driven insane. As a psychologist Herzberg felt

that sanity requires as much professional attention to nourishing the humanistic content

of character and ethics as to showing compassion for differences in personality. In this

context, Herzberg of serves: “The insane also require care and compassion but their

insane actions should never be reinforced by ethically neutral strategies. My theories

have tended to emphasise strategies for keeping the sane”.

Frederick Herzberg’s major works are:

• Work and the Nature of Man (1966).

• The Motivation to Work (1959); (Co-author).

• The Managerial Choice: To be Efficient and to be Human (1976).

In developing his motivation theory, Herzberg was influenced by the writings of

Abraham Maslow, Douglas McGregor and Chris Argyris. He analysed the relationship

between meaningful experience at work and mental health. He believed that all

individuals have two sets of needs: (i) to avoid pain, and (ii) to grow psychologically.

12.3.1 Motivation – Hygiene Theory

Herzberg’s theory of motivation is based on the work experience of some two

hundred engineers and accountants from nine companies in the Pittsburgh area of USA.

These men were asked to think of times when they felt exceptionally good or

11

exceptionally bad about their jobs. The responses were then classified by topic in order

to determine what type of events led to ‘job satisfaction’ and ‘job dissatisfaction’.

The research employed a combination of the critical incident technique,

retrospective pattern interview and content analysis. The major objective of the

research was to identify the factors that lead to positive and negative attitudes towards

the job and to study the effects of these attitudes on job performance, turnover, mental

health, etc. The focus of the study was whether different kinds of factors were

responsible for bringing about job satisfaction. The study confirmed this hypothesis. In

other words, his research purports to explain the factors behind motivation:

determinants for job satisfaction and job dissatisfaction. His theory identifies five

strong determinants for both job satisfaction and job dissatisfaction.

• Determinants of job satisfaction: Five factors that are strong determinants

of job satisfaction are: achievement; recognition; the attraction of the work

itself; responsibility; and advancement.

• Determinants of job dissatisfaction: Five factors that are strong

determinants of job dissatisfaction are: company policy and administration;

supervision; salary; interpersonal relations; and working conditions.

According to Herzberg the first group of factors, are ‘Motivators’. They have

the potential of yielding a sense of satisfaction. The second group of factors, are

‘Maintenance’ or ‘Hygiene’ factors. Their presence will not motivate people in an

organisation, yet they must be present; otherwise dissatisfaction will arise. Thus there

emerged two sets of job attitudes and factors, intrinsic and extrinsic. The latter set of

12

factors contributes towards job satisfaction, but does not directly lead to motivation.

The absence of these factors results in dissatisfaction. The intrinsic (job-content)

factors, on the other hand, do not cause dissatisfaction when missing but lead to

satisfaction when present. Herzberg makes a distinction between positive and negative

dissatisfiers and traces to them the lack of success that American industry has had in its

attempts to motivate employees via human relations training for supervisors and wage

incentive systems. Herzberg also suggests ways in which motivation to work may be

strengthened. The hygiene factors, according to Herzberg, operated to remove health

hazards....not a curative factor; it is rather, a preventive factor. Similarly, when there

are deleterious factors in the context of job, they serve to bring about poor job attitudes.

Improvements in the hygiene factors serve to remove the impediments to positive job

attitudes. The following table reveals the characteristics of hygiene and motivation

seekers:

Characteristics of Hygiene and Motivation

Sl.No. Hygiene Seekers Motivation seeker

1. Motivated by nature of environment Motivated by nature of the task

2. Chronic and heightened dissatisfaction with various aspects of his job context, e.g. Salary, supervision, working conditions, status, job security, company policy and administration, fellow employees.

Higher tolerance for poor hygiene factors.

3. Overreaction of satisfaction to improvement in hygiene factors

Less reaction to improvement in hygiene factors.

4. Short duration of satisfaction when the hygiene factors are improved.

5. Overreaction of dissatisfaction when the hygiene factors are not improved.

Milder discontent when hygiene factors need improvement.

6. Realises little satisfaction from accomplishments

Realises great satisfaction from achievements

13

7. Shows little interest in the kind and quality of work that he does

Shows capacity to enjoy the kind of work that he does.

8. Cynical view of positive virtues of work and life in general

Have positive feelings toward work and life in general.

9. Does not profit professionally from experience

Profits professionally from experience

10. Prone to making ‘cultural’ noises: (a) may be ultra-liberal or ultra

conservative (b) supports management philosophy (c) acts more like top management than

top management itself

Belief systems sincere and considered.

11. May be successful on the job because of talent

May be an overachiever

Herzberg makes a distinction between hygiene factors and motivators.

Improved hygiene factors in an organisation lead to less dissatisfaction: an improved

job context is not a satisfier and hence, not a motivator. Similarly, an absence of a

motivator does not lead to dissatisfaction; it leads to an absence of satisfaction. One

must note here that satisfaction and dissatisfaction are different in the sense that they

operate differently. In other words, hygiene factors should be attended to when

dissatisfaction is to be reduced. If, however, satisfaction is to be increased, attention

needs to be given to motivators. Herzberg thus provides the two-factor theory of

motivation. The hygiene factors are essential for obtaining minimum performance by

gratifying the lower level needs. But motivators are necessary for securing outstanding

levels of performance in an organisation.

12.3.2 Propositions in the Theory

Three propositions are at the heart of motivator-hygiene theory:

14

(i) First, it is basic to Herzberg’s approach that job satisfaction and job

dissatisfaction are not the opposite of one another, rather they are concerned

with two different sets of man’s needs. Therefore, the opposite of job

satisfaction, is not job dissatisfaction, but simply “no job satisfaction”.

Likewise, the opposite of job dissatisfaction is lack of job dissatisfaction.

(ii) Second, the factors that led to job satisfaction are of a different kind from

those that led to job dissatisfaction.

(iii) The motivators concerned with sustaining job satisfaction have a much

long-lasting effect than the hygiene factors concerned with removing

dissatisfaction.

The major findings of the study, that factors associated with job satisfaction and

job dissatisfaction were distinctly separate form each other, have been applied in

several subsequent investigations. In a study involving over 1600 employees belonging

to a variety of jobs in business and industry and in a number of countries, Herzberg’s

findings show that as much as 81 percent of the factors contributing to job satisfaction

are motivators concerned with growth and development. On the other hand, 69 percent

of the factors contributing to job dissatisfaction are factors concerned with hygiene or

environmental maintenance.

To an organisation, it is easy to motivate employees through fear of hygiene

deprivation than to motivate them in terms of achievement and actualising the goals.

Such a policy would be injurious to the long-term interests of the organisation.

Therefore, it is desirable to place emphasis on motivating the people. He advocates an

15

industrial engineering approach based on the design of jobs. Herzberg suggests job

enrichment, vertical job loading as the important means to motivate employees.

12.3.3 Job enrichment

Unlike Taylor’s method of rationalising the work to increase efficiency,

Herzberg suggests that including the motivating factors, which provide the opportunity

for the employee’s psychological growth, enrich jobs. In attempting to enrich an

employee’s job, Herzberg suggests that management should give him an opportunity

for growth in his existing job.

The term job enrichment designates a technique used by managers to maximise

in individual workers the internal motivation to work, which is the true source of job

satisfaction. The job-enrichment concept designates a production and profit-oriented

way of managing as well as a means of making work experience meaningful for people.

It is based on the premise that people are not motivated by what is externally done to

them by management with rewards, privileges or punishment, or by the environment or

context in which they perform their work. People develop lasting motivation only

through their experience with the content of their jobs i.e., the work itself. Job

enrichment calls for vertical job loading where opportunities for achievement,

responsibility, advancement and learning are designed into the job.

12.3.4 Vertical job loading

Herzberg contends that management often merely succeeds in reducing the

man’s personal contribution, rather than giving him an opportunity for growth in his

existing job. He calls this “horizontal job loading”, as opposed to “vertical loading”,

16

which provides motivator factors. Since job enrichment calls for vertical job loading, it

is necessary to look for a subtle approach. Herzberg’s approach is to look for ways of

removing some controls while retaining or increasing an individual’s responsibility for

his own work. Some of ways put forward by Herzberg are:

(i) making the individual accountable for his own work;

(ii) assigning a person a complete natural module of work;

(iii) granting freedom and authority to an employee in his job;

(iv) making reports directly available to the man himself rather than to the supervisor;

(v) introducing new and more difficult tasks; etc.

Herzberg observes that where these changes have been introduced, the results in

both performance and job satisfaction are considerable. For example, resulting increase

in job performance was found in the study of laboratory technicians who were asked to

write personal project reports in addition to those of the supervising scientists and were

authorised to purchase materials direct.

For job enrichment, it is equally important to provide for an effective feedback

process. An effective feedback has the following characteristics: (i) it is related to job

performance; (ii) it is given on an individual rather than group basis; (iii) it occurs at

short intervals; (iv) it is provided directly to the employee rather than through his

supervisor. Herzberg’s theory thus places on the management the task of calling out the

motivators to provide adequate hygiene through company policy, interpersonal

relations, working conditions, etc., for causing satisfaction in man’s work.


17

In spite of the wide ranging application and the popularity of two-factor theory,

there are criticisms about Herzberg’s propositions. Some studies by Shepard and

Herrick, confirm Herzberg’s conclusions. The main criticism of the motivation-hygiene

concept is that initially it interpreted job and company employment factors to be totally

distinct and separate sets of entities. Today it is recognised that these factors at times

can be both motivators and hygienic in nature.

Herzberg’s hygiene approach to motivation has raised questions about the

accuracy, of motivation-hygiene theory. Hinton questions Herzberg’s methodology. It

is charged that his questionnaire methods tended to prejudice his results. For instance,

the tendency of people to blame others for poor performance is thought to have

prejudiced Herzberg’s results of investigations. Some critics find that the hygiene

factors as postulated by Herzberg had the potential of yielding a sense of satisfaction or

dissatisfaction.

Mayers who applied Herzberg’s theory in his research at Taxas Instruments

observes that his findings only partially support Herzberg’s theory. He discovers that

those persons who seek opportunities for advancement and responsibility, whom he

characterises as “growth seekers”, do indeed fit into Herzberg’s approach in that they

were concerned with satisfiers and relatively little concerned with environment factors.

On the contrary, other people, whom he calls ‘maintenance seekers”, are greatly

concerned with environmental factors. In other words, Mayers observes that what

motivates people is largely a matter of personality.

Moreover, factors that are normally environmental may become motivational

factors or vice versa. In other words, if opportunities for advancement and achievement

18

are not given to growth seekers, they may become maintenance seekers. It is now

widely recognised that these factors at times can be both motivators and hygienic in

nature. Herzberg calls money and fringe benefits ‘negative motivators’ since people

feel sad if they have no money but money does not “necessarily make them happier or

more productive”.

One criticism against Herzberg’s theory is about the methodology adopted.

Schwab and others have adopted the same methodology as that of Herzberg, but they

have obtained results different form what the two-factor theory would predict.

Notwithstanding this criticisms, Herzberg’s contribution to human motivation

theory is substantial. The concept of job enrichment developed by him is certainly a

better-known contribution. He focuses attention on the significance of job content in

motivation, which was hitherto unknown. Modern managers have recognised the

significance of upgrading job content of their subordinates to motivate them with the

influence of Herzberg’s two-factor theory.

12.4. Comparison of Herzberg and Maslow Models

The models of both Maslow and Herzberg focus attention on the same relationship, that

is what motivates an individual. Maslow has suggested the theory of hierarchy of

needs and as to how people try to satisfy each higher level need successively. Thus,

any unsatisfied need becomes a motivating factor for the individual. In the

economically advanced countries most of the lower-order needs of workers are fulfilled

and hence, only higher-level needs remain motivating factors. This is what Herzberg

has suggested. Maslow’s physiological, security and social needs come under

19

Herzberg’s maintenance factors while self-actualisation under motivating factors. There

are some divisions of esteem need: some parts coming under maintenance factors, e.g.,

status, and others, advancement and recognition, going under motivational factors.

There is a particular difference between two models. Maslow emphasises that

any unsatisfied need, whether of lower order or higher order, will motivate individuals.

Thus, it has universality in its applicability. It can be applied to lower-level workers as

well as higher-level managers. In the underdeveloped countries, even lower-order needs

are not reasonably satisfied. Hence, needs continue to be motivators. However,

according to Herzberg, these are hygiene factors and do not help to motivate workers.

12.5 Conclusion

Employee motivation has occupied are important area of enquiry among many

administrative thinkers. Abraham Maslow and Frederick Herzberg have developed

comprehensive theories of motivation. Both were psychologists, who questioned the

conventional wisdom of managerial dogma and practices and have studied the problem

of human motivation in a systematic way.

According to Abraham Maslow, man is driven only by unsatisfied needs. He

identifies human needs in the form of a hierarchy. At the lowest end are the

physiological and security needs. The self-actualisation need is at the highest one. In

between there are social and self-esteem needs, once the needs at the lower order are

satisfied, they cease to be motivators’ only the higher older needs can motivate the

workers then. Maslow’s contribution in the form of his need hierarchy is significant in

organisation theory.

20

Herzberg develops motivation-hygiene theory of motivation through an

empirical study. His research purports to find two-factor explanation of motivation-

determinants for job satisfaction and job dissatisfaction. According to him hygiene

factors are essential for obtaining minimum performance by gratifying the lower level

needs. But motivators are necessary for securing outstanding levels of performance in

an organisation.

The theories of Maslow and Herzberg focus their attention on the same

relationship, that is what motivates an individual. But there is a particular difference

between their theories. Maslow emphasises that any unsatisfied need, whether of lower

order or higher order, will motivate individuals. According to Herzberg lower order

needs are hygiene factors and fail to motivate workers. Both these theories certainly

help the managers to understand the attitudes of employees towards work, and to take

appropriate steps to motivate them.

12.6 Key Concepts

Case Study: A research design that focuses upon the in-depth analysis of a single

subject.

Morale: The collective attitude of the workforce toward their work environment and a

crude measure of the organisational climate.

Self-actualisation: The apex of Abraham Maslow’s needs hierarchy, where an

individual theoretically reaches self-fulfilment and becomes all that he or she is capable

of becoming. The importance of the concept of self-actualisation was established long

before Maslow gave it voice. The nineteenth-century poet Robert Browning described

21

UNIT-13: SOCIO-PSYCHOLOGICAL APPROACH:

VIEWS OF DOUGLAS MCGREGOR AND VICTOR

VROOM

Structure


13.1 Introduction

13.2 Theories of Motivation

13.3 Views of Douglas McGregor

13.3.1 Theory X and Theory Y

13.3.2 Assumptions of Theory X

13.3.3 Assumptions of Theory Y

13.3.4 Comparison of Theory X and Theory Y

13.3.5 Managerial Implications of Theory X and Theory Y


13.4 Views of Victor Vroom

13.4.1 Expectancy Theory

13.4.2 Implications of the Theory

13.5 Conclusion

13.6 Key Concepts

13.7 References and further Reading

13.8 Activities


1

After studying this unit, you should be able to :

• understand assumptions of theory X and theory Y and managerial

implications of the theories of McGregor; and

• know Victor Vroom’s Expectancy theory and its implications for

organisational processes.

13.1 Introduction

People work for a wide variety of reasons. Some people want money, some

want challenge, and some want power. What each unique person in an organisation

wants from work has an instrumental role in determining that person’s motivation to

work. Motivation is vital to all organisations. Often the difference between highly

effective organisations and less effective ones lies in the motivation of their members.

Thus, managers need to understand the nature of individual motivation, especially as it

applies to work situations.

Motivation is the set of forces that lead people to behave in particular ways.

Managers strive to motivate people in the organisation to perform at high levels.

Motivation is the most difficult factor to manage. If motivation is deficient; the

manager faces the more complex situation of determining what will motivate the

employees to work harder. In view of the importance of motivation in managerial

processes, in this unit we will discuss the motivational models of Douglas McGregor

and Victor Vroom in the organisational context.

13.2 Theories of Motivation

2

Organisation theorists tried to find out the answer as to what motivates people

in human organisations. Fredric W. Taylor and his followers in the form of scientific

management and more particularly in the differential piece rate system, made the

starting. Scientific management attempted to use financial incentives to motivate

people in work organisations. Then came the findings of human relations, which

emphasized security and working conditions at the job besides financial incentives for

work motivation. In the early 1960s, those concerned with work motivation started to

search for new theoretical approaches and to devise new techniques for application.

Some of these approaches tried to identify the types of needs that people had and the

way these needs could be satisfied so that people could be motivated. These theories

are known as ‘content theories of motivation’. Maslow suggested the theory of need

hierarchy; Herzberg proposed two-factor theory; McClelland emphasised on power,

affiliation, and achievement motives; and Alderfer proposed three groups of core needs:

existence, relatedness, and growth (ERG model).

A need is anything an individual requires or wants. Most people have many

different needs. These needs can be grouped into two categories: primary and

secondary needs. Primary needs are things that people require to sustain themselves;

therefore, food, water, and shelter. Needs of this type are instinctive and

physiologically based. Secondary needs, on the other hand, are requirements based

more in psychology and are learned from the environment and culture in which the

person lives. Examples include the needs for achievement, autonomy, power, order,

affiliation, and understanding. Secondary needs often arise in organisational settings, so

it is especially important to consider them when examining motivated behaviour. For

example, if people are to be satisfied with their psychological contracts with their

3

organisation, the inducements offered by the organisation must be consistent with their

own unique needs.

Need theories are the starting point for most contemporary thought on

motivation, although these theories too attracted critics? The basic premise of need

theories, consistent with the motivation framework introduced earlier, is that humans

are motivated primarily by deficiencies in one or more important needs or need

categories. Need theorists have attempted to identify and categorise the needs that are

most important to people. The best known need theories are the hierarchy of needs and

the ERG theory.

Scholars also tried to find out the process involved in motivation. It led to the

emergence of process theories of motivation. These theories are more concerned with

the cognitive antecedents that go into motivation or effort and with the way they affect

each other. Vroom proposes the theory of work motivation based on valence and

expectancy. Porter and Lawler make some refinements in Vroom’s model and suggest

their own model. Behaviourists add the concept of equity to these models and propose

the ‘equity theory of work motivation’.

Some scholars attempt to relate the nature of human beings with the work

motivation. Though these propositions are not confined to work motivation, they offer

some insights into understanding work motivation. Prominent theories in this group are

McGregor’s theories of X.

Various theories of motivation approach the problems of motivation from

different perspectives, but all of them emphasise similar sets of relationships. These

relationships pertain to the individual, his needs, his perception of how he can satisfy

4

his needs, and whether his need satisfaction is equitable. All these theories have their

relevance only to particular contexts, and when the context changes, they may not work

because they are not universla theories, which can be applied in all situations.

13.3 Views of Douglas McGregor

Douglas McGregor was born in 1906 in Detroit, USA and was Professor of

Industrial Management at the Massachusetts Institute of Technology. In his quest for

productivity, McGregor develops two managerial approaches called Theory X and

Theory Y. The theories are published in his “The Human Side of Enterprise”, (1960).

McGregor was greatly influenced by Abraham Maslow and made him the starting point

for his work.

The main argument of McGregor’s work is that “the theoretical assumptions

which the management holds about controlling its human resources determine the

whole character of the enterprise.” Like other psychologists, McGregor studies the

assumptions about human behaviour, which underline the managerial actions. His

theoretical construct characterising ‘Theory X’ and ‘Theory Y’ assumes a quest for

high performance in the organisation. McGregor’s major works are:

• The Human Side of Enterprise (1960).

• Leadership and Motivation (1966).

• The Professional Manager (1967).

13.3.1 Theory X and Theory Y

The management’s action of motivating human beings in the organisation,

according to McGregor, involves certain assumptions, generalisations and hypotheses

relating to human behaviour and human nature. These assumptions serve the purpose of

5

predicting human behaviour. The basic assumptions about human behaviour may differ

considerably because of the complexity of factors influencing human beings.

McGregor presents these assumptions on two opposite sides: Theory X and Theory Y.

13.3.2 Assumptions of Theory X

The assumptions underlying Theory X are the following according to

McGregor:

• The average person is lazy and works as little as possible.

• People lack ambition, dislike responsibility, and prefer to be led.

• People are inherently self-centred and indifferent to organisational needs.

• People are resistant to change.

• Most people are gullible and stupid.

Theory X views that people are passive or resistant to organisational needs and

need to be persuaded, rewarded, punished or controlled to achieve organisational needs.

Theory X is based on the traditional conception of control and direction. It is

traditionally known as “the carrot and the stick” theory, and is based practically on the

mechanistic approach to human relations. Managers subscribing to these views about

human nature attempt to structure control and closely supervise their employees. They

feel that external control is most appropriate for dealing with irresponsible and

immature employees. McGregor believes that these assumptions about human nature

have not changed drastically though there is a considerable change in behavioural

patterns. He argues that this change is not because of changes in the human nature, but

because of changes in the industrial organisation, management philosophy, policy, and

practice.

6

The Hawthorne studies, research findings by Likert and other behavioural

studies suggest that the assumptions of Theory X cannot be meaningfully explained.

McGregor himself questions the validity of Theory X. The assumptions about human

motivation fail to motivate employees to work toward organisation goals. He says “the

‘carrot and stick’ theory of motivation which goes along with Theory X works

reasonably well under certain circumstances”. But this “theory does not work at all

once man has reached an adequate subsistence level and is motivated primarily by

higher needs”. McGregor argues that theory X fails to describe or explain human

nature. McGregor’s generalisation is that “so long as the assumptions of theory X

continue to influence managerial strategy, we will fail to discover, let alone utilise the

potentialities of the average human being”.

13.3.3 Assumptions of Theory Y

McGregor comes out with an alternative, “Theory Y” with the underlying

principle of integration which replaces traditional concepts of direction and control.

Theory Y takes the apposite view and assumes that:

• People are not by nature resistant to organisational needs.

• People have a latent capacity to develop and accept responsibility.

• People can be motivated towards management goals.

• Management must arrange matters so that people can achieve their goals through organisational objectives.

The assumptions of Theory Y suggest a new approach in management. It

emphasises the co-operative endeavour of management and employees. The attempt is

to get maximum output with minimum amount of control and direction. Generally, no

conflict is visible between organisational goals and individual goals. Thus, the attempt

of employees that are in their best interests are also in the interests of organisation.

7

Theory Y postulates that people can be encouraged to perform better and thus

recommends increased decentralisation of power, delegation of responsibility, job

enlargement, employee participation, consultative management and performance

appraisal in which the employee actively participates.

Theory Y leads to a preoccupation with the nature of relationships, with

creating an environment which encourages commitment to organisational objectives

and which provides opportunities for the maximum exercise of initiative, ingenuity, and

self-direction in achieving them. This theory recognises interdependence of human

organisations and participative management. The central principle of theory Y is that

integration of behaviours is the key process in management. The concept of integration

reflects a recognition of the needs of the individual and those of the organisation.

McGregor calls his theory Y an open invitation to innovation.

Theory Y is today a household expression in management circles.

Administration, today, is tending towards theory Y, and the future will see more and

more democratic administration.

13.3.4 Comparison of Theory X and Theory Y

Both theories X and Y have certain assumptions about human nature. These

assumptions seem to be mutually exclusive. The difference between the two sets of

assumptions can be visualised as follows:

• Theory X assumes human beings to be inherently distasteful towards work.

Theory Y assumes that for human beings work is as natural as play.

• Theory X emphasises that people do not have ambitions and try to avoid

responsibilities in jobs. The assumptions under Theory Y are just the

reverse.

8

• According to Theory X, most people have little capacity for creativity while

according to Theory Y, the capacity for creativity is widely distributed in

the population.

• In Theory X, motivating factors are the lower needs. In Theory Y, higher

order needs are more important for motivation, though unsatisfied lower

needs are also important.

• In Theory X, people lack self-motivation and require be externally

controlling and closely supervising to get maximum output from them. In

Theory Y, people are self-directed and creative and prefer self-control.

• Theory X emphasises scalar chain system and centralisation of authority in

the organisation while Theory Y emphasises decentralisation and greater

participation in the decision making-process.

• Theory X emphasises autocratic leadership; Theory Y emphasises

democratic and supportive leadership styles.

13.3.5 Managerial Implications of Theories X and Theory Y

The major implications of theories X and Y may be seen in the management

process. According to Harold Koontz and his colleagues, the managerial process

involves: (i) setting objectives and developing plans to achieve them; (ii) implementing

the plans through leadership; and (iii) controlling and appraising performance against

previously set standards. These key managerial activities are selected to illustrate the

possible effects of Theory X and Theory Y on managerial actions. These effects

summarised by Koontz and his colleagues, in the following table present conjectural

view that awaits validation by databased research.

Table I- Theory X and Theory Y

9

Selected key managerial activities

Theory X : People dislike work; people must be forced to work; people do not willingly assume responsibility

Theory Y : People like work; people work; best under self-direction; people like to assume responsibility

Superior sets objectives for subordinates.

Superior and subordinate set objectives jointly.

There is little participation by subordinates in setting objectives and developing plans. Few alternatives are explored.

There is a great deal of participation by subordinates in setting objectives and developing plans. Many alternatives are explored.

(a) Planning (including setting objectives)

There is low commitment to objectives and plans.

There is high commitment to objectives and plans.

Leadership is autocratic, based on authority only.

Leadership is participative and teamwork is based on competence.

People follow orders, but hidden resistance and mistrust exist.

People seek responsibility, feel accountable, and are committed to performance.

(b) Leading

Communication is one-way, top-down, with little feedback. Information flow is limited.

Communication is two-way with a great deal of feedback. Necessary information flows freely.

Control is external and rigid. Control is internal and based on self-control.

Superior acts as a judge. Superior acts as a coach.

Controlling and appraising

There is low trust in appraisal. There is high trust in appraisal.

(c)

Focus is on the past, with emphasis on fault finding.

People learn from the past, but focus on the future; feed forward control emphasises problem solving.

Source: Harold Koontz, Cyril O Donnel and Heimz Weihrich, Management, (McGraw

– Hill International, eighth edition, 1984), p. 465.


McGregor’s rejection of traditional conception of administration has been

questioned. Traditional concepts such as control and direction which he has rejected are

still of great value for understanding human motivation. Theory X that McGregor does

not favour, as it leads to an emphasis on the tactics of control, is of some value. Despite

all the researches and theories of motivation that have come to the fore in recent years,

it should not be forgotten that the carrot and stick theory (use of rewards and

punishments) is still strong, and hence could motivate people. In spite of the

tremendous amount of research generated by McGregor’s theory, it has never been

10

tested adequately. Douglas McGregor makes constructive contribution to the human

motivation theory. He rejects the underlying assumptions about human behaviour on

which formal organisation is built and propounds Theory Y based on a more adequate

understanding of human motivation. His theory has had a tremendous impact on

managerial thinking in modern organisations. Theory Y explodes the myth of the

“economic man” and traditional concepts of direction and control.

The current research in human motivation has gone far beyond Theory Y, but

this does not mean that this Theory is irrelevant. McGregor himself calls his Theory Y

an open invitation to innovation. His ideas on leadership, management development

programme, and on developing the professional manager are of considerable value to

current administrative practices.

13.4 Views of Victor Vroom

Content theories are basically based on three assumptions that (i) all employees

are alike, (ii) all situations are alike and (iii) there is only one best method to motivate

employees, i.e., satisfying needs. Contrary to the assumptions of content theory, a

number of other theories have been developed after extensive studies based on

empirical evidence.

13.4.1 Expectancy Theory

Criticising the content theories of motivation, which are based on the needs of

people and their priority, Vroom has presented an alternative theory, which is based on

11

motivation process. He made a significant contribution to our understanding of

motivation through his expectancy Theory. The basic expectancy theory model

emerged from the work of Edward Tolman and Kurt Lewin. However, Victor Vroom,

is generally credited with first applying the theory to motivation in the workplace. The

theory attempts to determine how individuals choose among alternative behaviours.

The basic premise of expectancy theory is that motivation depends on how much we

want something and how likely we think we are to get it.

Vroom’s expectancy theory can be classified as process theory in contrast to the

content theory primarily because it attempts to identity relationships among variables in

a dynamic state as they affect individual behaviour. This systems orientation is in direct

contrast to the content theories, which have attempted largely to specify correlates of

motivated behaviour. In the expectancy theory, it is the relationship among inputs that

is the basic focal point rather than the inputs themselves. Vroom develops his

motivation model around the concepts of value, expectancy and force.

Vroom`s expectancy theory has its roots in the cognitive concepts in the choice

behaviour and utility concepts of classical economic theory. According to Vroom,

people are motivated to do things to achieve some goals to the extent that they expect

that certain actions on their part will help them to achieve the goal. Vroom’s model is

built around the concepts of value, expectancy and force; its basic assumption is that

‘the choice made by a person among alternative courses of action is lawfully related to

psychological events occurring contemporaneously with the behaviour. Vroom’s

concept of force is basically equivalent to motivation and maybe shown to be the

algebraic sum of products of valences multiplied by expectations. Thus,

12

Motivation (force) = Σ Valence x Expectancy

Vroom’s expectancy theory is presented in figure. I

First-level Second-level Outcomes outcomes

Expectancy

Outcome-1a

Outcome-1b

Outcome-2a

Outcome-1

Outcome-2

Outcome-2a

Instrumentalities

Motivation (force)

The three terms referred by Vroom in his model are analysed below:

Valency

This term refers to degree of desirability or preferences for various outcomes or

incentives, which are available to him. These include value, incentive, attitude and

expected utility. Before an individual decides to put effort into the performance of a

task, he first looks at the various alternatives at his disposal and the outcomes (rewards)

associated with it. Hence, valency reflects the strength of a person’s desires for the

attraction to rewards, if he adopts a particular cause of action. Hunt and Will also opine

that valency is the strength of an individual’s desire for a particular outcome and it is

the subjective value attached to an incentive or reward. To clarify the concept of

valency they have taken the example of promotion. Assume that an individual wishes

for a promotion in his organisation and feels that if his performance is superior to

others, it will be a positive factor for him in achieving the promotion. His first level

13

outcomes are therefore superior, average or poor performance and his second level

outcome is promotion. The individual’s first level outcome i.e., high performance

acquires a positive valency by virtue of the expected relationship to the preferred

second level outcome i.e., promotion. Thus the individual would be motivated to give

superior performance in order to get promoted. The superior performance, i.e., the first

level outcome is instrumental in obtaining promotion, i.e., the second level outcome.

Expectancy

At first glance the expectancy may seem to be the same as the instrumentality

input into valence, but they are different. Expectancy differs from instrumentality in

that it relates efforts to first level outcomes where instrumentality relates second-level

outcomes to each other. Since expectancy is rated as the probability of connection

between effort and performance, its value ranges between 0 and 1. If an individual sees

no chance that effort will help him to achieve the desired performance level, the

expectancy is 0. On the other hand, if he is confident that the task will be completed

and he will achieve the desired performance level, the expectancy value assigned is 1.

Thus, the expectancy of an individual will lie between these two extremes, i.e., 0 to 1.

Hence, we can say, in order that motivation take place, the expectancy must also be

high like valence.

Expectancy = Efforts to First Level Outcomes.

(The belief that efforts lead to performance).

Instrumentality

Instrumentality refers to the outcomes (rewards) for the individuals for each

level of job performance (expectancy). It helps to answer such questions, ‘Will I be

rewarded if I perform the job well? Instrumentality is probabilities attached by an

14

individual to each possible performance-outcome alternatives as he previously assigned

probabilities to various levels of effort leading to different levels of performance. In the

example given earlier, instrumentality refers to the person’s perception of the

relationship between high performance (first level outcome) and promotion (second

level outcome). Thus perceived instrumentality is a subjective feeling, if an individual

perceives that his performance is suitably rewarded the perceived instrumentality will

be positive. On the other hand, if he perceives that the performance will make no

difference to the rewards the instrumentality will be low. Think of your own decision-

making process on how much effort you put into studies for an examination or writing

a term paper. And you get the answer based on Vroom’s model of motivation.

13.4.2 Implications of the theory

One of the important features of this theory is that it recognises individual

differences in work motivation and suggests that motivation is a complex process as

compared to Maslow’s or Herzberg’s simplistic models. It also clarifies the relationship

between individual and organisational goals. Hunt and Hill point out that instead of

assuming that satisfaction of a specific need is likely to influence organisational

objectives in a certain way, we can find out how important to the employees are the

various second-level outcomes (worker goals), the instrumentality of various first-level

outcomes (organisational objectives) for their attainment and the expectancies that are

held with respect to the employees’ ability to influence the first-level outcomes. Thus,

Vroom’s theory is consistent with the idea that a manager’s job is to design an

environment for performance, necessarily taking into account the differences in various

situations. Furthermore, this theory is also quite consistent with management by

objectives. However, Vroom’s theory is difficult to research and apply in practice. This

15

is evident from the fact that there have been only a few research studies designed

specifically to test Vroom’s theory. In fact, Vroom himself depended largely upon

researches conducted prior to the formulation of his theory. Nevertheless, from a

theoretical standpoint the Vroom model seems to be a step in the right direction, but

does not give the manager practical help in solving his motivational problem.

Vroom’s theory is very popular in academic circles and has generated some

research because it attempts in understanding organisational behaviour in a wider

perspective. This theory recognises the complexities of work motivation, but it is

relatively difficult to comprehend and apply in practice.

13.5 Conclusion

Motivation is vital to all organisations. Thus, managers need to understand the

nature of individual motivation, especially as it applies to work situations. Motivation is

the most difficult factor to manage. Theories of motivation can be classified into two

categories – content theories of motivation and process theories of motivation. Need

theories developed by Abraham Maslow and Alderfer come under content theories of

motivation. These theories are based on the types of needs that people have and the way

these needs could be satisfied so that people would be motivated. Motivation models

developed by McGregor and Vroom come under the category of process theories of

motivation. These theories are more concerned with the cognitive antecedents that go

into motivation or effort and with the way they affect each other.

McGregor studied the assumptions about human behaviour, which underline the

managerial actions. The management’s action of motivating human beings in the

organisation, according to McGregor, involves certain assumptions, generalisations and

16

hypotheses relating to human behaviour and human nature. He characterises these

assumption in two opposite points, Theory X and Theory Y. Theory X view is that

people are passive or resistant to organisational needs and need to be persuaded,

rewarded, punished or controlled to achieve organisational needs. On the other hand,

Theory Y takes the opposite view. The assumptions of Theory Y emphasise the co-

operative endeavour of management and employees. The central principle in the

assumptions of theory Y is that integration of behaviours is the key process in

management.

Victor Vroom presents expectancy theory that is based on motivation process.

The theory attempts to determine how individuals choose among alternative

behaviours. He develops his motivation model around the concepts of value,

expectancy and force. One of the important features of this theory is that it recognises

individual differences in work motivation and suggests that motivation is a complex

process and compared to Maslow’s or Herzberg’s simplistic models.

Motivation models developed by McGregor and Victor Vroom are useful to

managers in understanding the nature of motivation in work situations. These models

also help to understand the complexities of determining what motivates the employee to

perform better.

13.6 Key Concepts

Job Enlargement: Adding additional but similar duties to a job.

Job Enrichment: Adding different kinds of duties so that the work is both a higher level and more personally satisfying.

Job Satisfaction: The totality of an employee’s feelings about various aspects of his or her work; an emotional appraisal of weather a job lives up to an employee’s values..

17

Motivation: An amalgam of all of the factors in one’s working environment that foster (positively or negatively closed productive efforts.

Peer Group: People at the same organisational level in terms of rank, title or salary.

Reinforcement: An inducement to perform in a particular manner. Positive reinforcement occurs when an individual receives a desire reward that is contingent upon some prescribed behaviour. Negative reinforcement occurs when an individual works to avoid an undesirable outcome.

Theory X: The assumptions that the average human being has an inherent dislike of work, that most people must be threatened to get them to put forth adequate effort, and that people prefer to be directed and to avoid responsibility.

Theory Y: The assumptions that work is as natural as play, that workers can exercise self-direction and self-control, and that imagination, ingenuity, and creativity are widespread.


Ali, Shuma Sun Nisa, 1998, Eminent Administrative Thinkers, Associated Publishing House, New Delhi.

Koontz, Harold, Cyril O’Donnel and Heimz Weihrick, 1984, Essentials of Management, McGraw-Hill Book Company, New York.

Luthans, Fred, 1995, Organizational Behaviour, McGraw-Hill International Editions (Seventh Edition), New York.

McGregor, Douglas, 1960, The Human Side of Enterprise, McGraw-Hill, New York.

Moorhead/Griffin, 1999, Organisational Behaviour, A.I.T.B.S. Publishers & Distributors, New Delhi.

Prasad, D. Ravindra, V.S. Prasad and P. Satyanarayan, 2004, Administrative Thinkers (Ed), Sterling Publishers, New Delhi.

Prasad, L.M., 2004, Organisational Behaviour, Sultan Chand & Sons, New Delhi.

Vroom, Victor H., 1964, Work and Moivation, John Wiley & Sons, Inc., New York.

13.8 Activities Q.1 Theory X is based on traditional conception of control and direction. Explain. Q.2 Analyse the assumptions of Theory X and Theory Y. Q.3 Discuss the Victor Vroom’s expectancy theory and its implication on organisational processes.

18

UNIT 28 COMMUNICATION

28.0 Objectives 28.1 Introduction 28.2 Meaning and Definition 28.3 Elements of a Communication System 28.3 Essentials of Communication 28.5 'Types of Comn~unication 28.6 Media of Communication 28.7 Factors Inhibiting Communication 28.8 Let Us Sum Up 28.9 Key Words 28.10')~ome Useful Books 28.1 1 Answers to Check Your Progress Exercises

-28.0 OBJECTIVES

After studying the unit you will be able to:

0 describe the meaning and importance of communication in administration

identify tlie main elements and essentials of communication * diflirentiate between different types of communication

discuss different media of conlmunication; and @ analyse the factors that inhibit effective communication.

28.1 INTRODUCTION

In administrative theory and organisation, communication is one of the most widely discussed but l6ss clearly analys~d topics. According to Fred Lurhans "some estimates of the extent of its use go up to about three fourths of an active human beings life, and even higher proportions of a typical manager's time". Ineffective communicatinn has been identified as the root cause of many problems in the world. Hicks and Gullett have suggested that the heart of all the world's problerns - at least of men with each other-is man's inability to communicate as well as he thinks he is communica'ti~~~. The concept of communication is interrelated with concepts such as motivation, coordination, leadership, structure; and decision making in organisations. In this unit we will study communication, its importance, types, media, as well as the factors that inhibit proper communications.

A 28.2 MEANING AND DEFINITION I

Communication is one of the main principles of organisation. It has been considered as an effective tool for achieving the goals of an organisation. All organisations, may be small or big, simple or complex, general or technical, have the necessity of communication network. It plays a vital role, as functioning of all other important principles of the organisation depends upon its availability and effectivity. Moreover, communication is the only means for inspiring a person's enthusiastic and cooperative contacts.

Pfiffner considers the communication as "the heart of management", while Millet describes it as the "blood stream of an administrative organisation", Writing about communication, Ordway Tead has declared that the underlyirrg aim of communication has been defined as that process whereby one person makes his ideas and feelings known to another. Peter Drucker has defined communication as "the ability of the various

Concepts in Organisntion -11 functiond groups within the enterprise to understand each other and each other's functions and concerns'" Cornmunio,~tion is difficult to achieve, if the top management does not possess the ilrlaginatiorl and the kllnwledge to understand the behaviour of personnel working at the lower rungs. The fol!owing are sorne of fhhe definitions:

"Communication is the process of effecting an inter-change of understand betweer1 two or more people".

"Con~munication is the mutual inter-change of ideas by any effective means".

"....the imparting or inter-change of thoughts, opinions, or information by speech, writing, or signs".

"Communication is the arrangement of environmental stimuli to produce certain desired behnviour on the part of the organism".

The term communication is, generally applied in the sense of imparting knowledge or transmitting information, however, in its wider connotation, it includes inter-change of thoughts, partaking of ideas and a sense of participating and sharing. Thus, the essence of colnmunication is, not information but understanding. In sotne organisations it may be internal, external and interpersonal. In the former aspect, communication connects the organisation with its employees while the second aspect deals with the relationship of the organisation with the public and is called "public relations". The last one is concerned with the relationship among the organisation's employees. In brief comn~unication means "shared understanding of a shared purpose".

28.3 ELEMENTS OF A COMMUNICATION SYSTEM

There are five main elements of a communication system. The first among these is a communicator, he may be called as the speaker or sender. In some government agencies, the management comprising the administrator and his subordinates is the communicator. All the orders and instn~ctions are issued in the name of the Chief Executive. He himself does not prepare them but these are generally prepared and issued by the staff assisting him. This practice preserves singleness of purpose and direction to avoid conflicting instructions.

Transmission procedure is the second element. There may be certain media of communication, such as teletype, wire, radio and mail in an organisation for communicating messages. It is the responsibility of transmission centre to ensure proper delivery and distribution of messages in the organisation. ..

Form of the communication is the third element and it may be an order, regulation, manual, letter, report, ruling, circular, etc. Usually, Forms of communication fall into three prinliry types: rules and regulations governing relationship of an organisation with its clientele, these must be known to all the employees of the organisation, so that these should be properly carried out; operating instructions of administration including various orders, circulars, manuals and official letters prescribing internal organisation and procedures and certain informational media such as the house journal the training hand book, the periodic report, and other methods to convey the general tone of management. ,

Recipient is the fourth element and for this, an organisation should ensure that the information and instruction being obtained by persons arc determined by the organisilfion. Every communication should reach to all those who are tobe involved in effecting their behaviour.

Desired response is recognised as the fifth and last element of coinmunication. Under it, the higher authority requires evidence of compliance with instructions through formal replies and reports to determine whether the information or instruction has influenced the administrative behaviour of the recipients or not. It is possible through upward flow of requisite information in an organisation.

28.4 ESSENTIALS OF COMMUNICATION

I t is worthwhile to mention the essentials of effective communication. According to Teny

the eight factors essential to make communicatio~l effective are (a) Inform yourself f~tlly: (b) Establish a mutual trust in each other; (c) find a common ground of experience; (d) Use mutual known words; (e) Have regard to context; (f) Secure and hold the receiver's attention; (g) Employ examples and use visual aids; and (h) Practice delaying reactions. But Richards and Nielander opine that il should reflect the policies, programmes and practices of management. Millet has given %even facrcjrs viz., co~lmunication should be clear, consistent with the expectation of the recipient, adequate, timely, uniform, flexible and acceptable.

It is essential for the management to clarify ideas before co~nmunicating them. To convey precise information to the recipients it is desired that they should be clearly communicated the course of the decision, mode of action and the time elenlent etc. Such a clarity will help establishing effective communication.

Secondly, the communicator should examine within himself as to why is he communicating and what is the main objective of this communication.

Thirdly, communication must convey adequate information to stimulate the expected response from the recipients. Prior assessment should be made of the total physical and human setting which are to he involved. Voluminous and repetitive communicalion should be avoided.

Fourthly, communication must be timely to provide sufficient time to the recipient to act upon it.

Fifthly, uniformity% should be maintained in the nature of communication in such cases where the recipients are expected to behave or act'in a similar way.

Sixthly, communication should permit flexibility. "Top management usually learns that it is preferable to communicate broad purpose 'and general intent to subordinates and to leave good deal of judgement to the individual; so communiciltors tend to be more effective if they are not too exacting in their detail and allow for adaptability to peculiar circumstances."

Finaily; communications should stimulate acceptance by referring to previous agreements or understandings or by calling attention to the new circumstances requiring new action.

The American Management Association has given ten commandments of good communication. These are as follows:

1) Clarify your ideas before you communicate.

2) Examine within yourself why are you communicating and what is the true purpose of this communication.

3) Before you launch :q con~munication measure, consider the total physical and human '

setting which will get invoived in the process which you want to ignite.

4) Consult others for planning because your own subjectivity, operates adversely in designing your communication network.

5 ) Be mindful of the content of human message, because it iS possible that the message may be lost in the context, and the overall configuration of the contents may disfigure the message itself.

6) Convey other things to help him because a communicatee is not only looking forwal, for a command, but he is curious to seek guidance and assistance.

7) Follow up your communication, for it being a chain process does not stop at a given point of a letter or the despatch of a message. It needs to be continuously followed and strengthens at every bend of the way. It ensures effectivity and keeps It moving till the attainment of goal.

8) Communicate for today as well as for tomorrow. It means the communicalor should establish a rapport and establish his own image as knowledgeable person with sound commonsense and robust pragmatism. This image makes him a better communicator and even those who do not take him seriously today, will gradually respond to his communications.

Concepts in Organisation -111 9) Acdon suppons communications. Communication is not merely letter writing. It is desirable that the cornrnunicatee should watch and assess the behaviour of the communicator.

10)Seek to understand before you get understood. Commonly, understanding of situations, requires more brains than imposing one's ideas on helpless subordinates as it is not easy to understand others, if someone is ignorant. These help in achieving a shared understanding of shared purposes. If these essentials are not observed the communicatiorl process may break down.

Chester Barnard was one of the earliest writers who have recognised the importance of communication as a facilitating factor in maintaining authority in organisations. According to him, the following seven elements are very important in maintaining authority in an organisation:

1) The channels of communication should be definitely known.

2) There shouId be a definite formal channel of communication to every member of an organisation.

3) The line of com~munication should be as direct and short as possible.

4) The complete fonnal line of communication should normally be ysed.

5) The persons serving as communication centres should be competent.

6) The line of communication should not be interrupted while the organisation is functioning; and

I

7) Every communication should be authenticated.


Note: i) Use the space below for your ariswers. ii) Check your answers with those given at the end of the unit.

1) Explain the impnrtance of communication in organisations.

.......................................................................................................................................................

i : a 2) What are the main elements of communication? !

i ............................................................................................................................................... 1

3) What factors make communication effective?

There are three types via., downward, upward and lateral, based on the direction of ! communication flow. It would be woi-thwhile for us to briefly discuss fhese types. These

fonnal types are also supplemented by informal types like the 'grapevine'.

Downward Communication

Downward communication refers to the instructions and other official messages originating with the top personnel of an organisation. These are transmitted from top to down through hierarchical set up and reach the lowest ranking official in the chain. The top level for downward communication makes use of devices, such as, directives, written or verbal orders or instructions, manuals, staff conferences, budget sanctions, other authorisations to inform the lower rungs about its attitude and ideas as well as to direct, guide and advise. 'In large organisations, downward communication is difficult enough to begin with, because orders must descend through numerous intermediate levels before the point of execution is reached. Miisunderstandings can easily occur when instructions pass through so many people. If little upward communication exists, the difficulties are multiplied, because the orders themselves are apt to be unrealistic and are likely to meet with worker's resistance.'

In upward communication, messages are passed by the lower levels in the hierarchy up to those heading the organisation. This includes whatever information is passed up through methods, such as written and verbal reports pertaining to performance and progress, statistical and accounting reports related to work, written and verbal requests for seeking guidance s~~ggestion and discussions. The upward reporting system is often of very limited use or value in finding fault. in the agency's operation because some tirnes the head of [he

* agency may appear to be unbelievably blirrd as to what is really going on in his agency; yet based on the reports he gets everything is fine: these reports simply do not present hi~n with all the facts.

Lateral Communication

Lateral calmmunication may take place arnong officials of the same level in the hierarchy or among the officials who are out of su~erior-subordinate relationship. We may call it

I

Contepts in Orgatllsation --I1 acrohs communication. l'he methods viz., written or verbal iriformation and reports, formal and informal as well as personal contacts, staff meetings and coordination comnzittees, are used in this type of communicatiort. This type is helpful in bringing together the related but different parts of the organisation. Assuring coordination of organisational objectives, ihe officials of the organisation should communicate their plans and interactiorls to one another clearly.

Informal Communication

Tile rigidity of formal channels gives rise to informal channels of conmunication. They supplement formal ones. Such channels of communication, often called 'grapevinc' are branded as dangerous and mischievious to organisational functioning. They damage the organisational interebls by carrying gossip and False information. But oftcn they play a very constructive role. For example, take Lhe case of a person in an organisation who is worried over a particular matter, but has no access to such information which will relieve hirn of his tension. In such circumstances, the informal channels which'have an access to that information will help the employees by furnishing the information or by informing to higher ups about his genuine concern over the matter.

Informal communication flows througi.1 friendship circles and other small groups in the organisition. They may even be uilorthodox channels like espionage networks. One positive feature of these cliannels is that it removes some of the problems in upward -

cornrnu~rica~ion. They also facilitate downward and lateral communication.

The greatest danger of infor~nal channels is that they can. distort the information. If the aclministrators know what type of infornlal channels are working in the organisation anti what sort of infornlation is circulated, it helps them in coordinating the affairs. Excessive dependence of the employees on informal channels is an indicator of weak coordination in , the organisation. Some times infornzal channels work to sabotage the organisational I purpose. To counter this danger, organisatiotls have to develop openness in infornlalion sharing and socialisation practices.

28.6 'MEDIA OF COMMUNICATION

It wol~ld be possible to classify the communication media i n t ~ three main groups: Audial, Visu,il and Audio-Visual.

Audil.1 cornlnullication media is adopted through cor~ferences, the interviews, the inspection trips, public meetings, broadcasts, telephone calls, etc.

Visual communication media includes written con~munications viz., circulars, ma~.lurrls, reports, bulletins and hand books and pictorial forms namely pictures, photographs, posters, cartoons, slides, flags, insignia, etc.

Audio-visual media comprises sound motion pictures, television and personal demonstrations.

Each of these media has its advantages and disadvantiiges bun it is up to t l ~ e management to decide what media will be used for which purpose.

The conference as method of cbmmunication has gained momentum in attaining marked popularity. This method helps in avoiding delays, minimisllag correspondence and reducing red-tapism. The main uses of the conference method, according to Millett, are: (1) to gain awareness of a problem; (2) to help in problem solving; (3) to gain acceptance and execution of deci'sion; (4) to help/prornote a sense of unity among the officials of the organisation; (5) to help in appraising personnel; and (6) to help in encouraging an exchange of information and informal relationsl~ip among administrative personnel. Conferences aid ir~dividuals to discharge, their present responsibilities mare effectively, coordinate their warking relationship, and enable them to profit from others experieace, broaden their view point and formalise organisadonal colnmunication.

The conference method possesses the advantage of creating a high degree of interest, full and equal participation by group members, satishction through mutual achievement, acceptance of results by participants inculcating habit of anaiysis and integratiol, of thought, developing group morale and possessin,: an informality.

There are some limitations of conference method in the views of the Estimate Committee of Government of Ifidia. Its 9th report stales: "The conferences have become so xiany and are sotnetimes so unwieldy that i t is impossible for officers participation in them to do frill justice to the subject matter of the discussions and, in prcctice, instead of the meetings, short discussions, noting.,, etc. ... they sometimes lead to protracted correspondence, in as much as different view points which are expressed have to be recorded, corrected and reconciled and delay occurs in framing agreed minutes and sometimes further conferences become necessary as a result of incomplete discussions. sometimes, the same officer has to attend more than one conference the same day and cannot obviously be fully prepared for each conference, consequently, he does nor contribute fully to the discussions. In ihort, the conference system is proving more elaborate than the original procedure of noting on files."

Conferences should be carefully managed so as t o make them most useful. h conference must follow or observe preliminary planning, expert services, rules and provide for adequate organisation for effective working. Persons responsible for preliminary planning nlust be given adequate or sufficient time and the qualified persons should be assigned tasks well in advance. The conference room should be well equipped with the provision of aids like black-boards, slides and projectors, recording, seating arrangement, timing, eto. The personality of the Chairman and the procedure adopted may lrelp in niaking the conference successful.

28.7 FACTORS INI%IBITHNG 6110MMIJNHCATIOW

There are certain factors which come in the way of S I I I O O ! ~ l'low of c o ~ i ~ ! ~ ~ u ~ ~ ~ c ; l f i r n process. With the result, the comlnunication becomes inet'l'ective. ' I l ~ c y ;Ire dc\crilxel below.

Rigidity

In a conversation, the meaning attached to viirious words and expressions very from person to person. Soinc people llold stray views on varioa~s matter!;. They hardly lisrcn to other persons, in view of their rigid smrad on certain matters. This leads to ineftkclive communication. People have to tlevelop the skill of listeninE to others. They must have patience to accomtnodate the view points of others. This lead!; to effective co!nrnunication.

Generalisations

Another factor which leads to ineffective colnr-unication is generalisation. If an aged person has had n bad experience with some youth, he considers all youth as unruly. Similarly, if a person had read an unimpressive poem written by a poet, I P ~ considers all that is written by that poet as unworthy. Siicll feelings about persons and things in day to day life act as stereotype ideas on one's personality. This leads to ineffective communication.

Extreme Oainions

Some people br:tnil everything in this world as either good or bad. In their day to day life they show rigidity. But, in real life it is difficuh to view things in two simplified cornpartnients. There are so Inany grey nreas which esist. Pedple with extreme opinions behave in such a way, that if a person is good in one area, they consider him gorid in every aspect of life. This happens in the other way also. This leads to ineffective communication.

There is need to overcome some of these limiting factors and make the communications effective. The following suggestions are given for the pul'pose:

a) Communicariori should express the total needs of the organisation.

b) Communication is effective in a climate of mutual trust and confidence.

C) Communication sl~ould be treated as a continuing programme. It should not be equatcd with a brief campaign.

dl The putpose of com~ni~nication and the person to w!~o~n directed should be very clear.

4

, Concepts in Organisition-JI e) C~mmunica t i~~n should be both ways i.e., upward and downward.

f) The language and line of communication should be very clear.

g) Communication should reflect the policies, programmes and practices of management.

More important than the above is the need for mutual understanding and respect and -confidence and trust between communicators. Only this will enable communication of personal feelings and real problems.


Note: i) Use the space below for your answers. i i ) Check your answers with those given at the end of the unit.

I ) Explain the role of informal communications in an organisation.

2) How conference method helps communication process?

3) What factors inhibit communications?

These are some of the key elements of communication. The following activity gives you the opportunity to explore how they work in practice.

& Activity 6. l

In your workplace, observe three brief exchanges of communication in the course of one or two days. These should be communications you participated in.

Make brief notes in your learning journal on each one of these communications, using the list of key elements above as a checklist as to how effective they were.

Evaluate each exchange in the following terms:

P Which of the elements in the checklist were evident?

P Which were lacking?

P How good were your communication skills and what might you do to improve them?

> How good were those of your communicator?

> How effective was the communication? Why?

Share your findings with work colleagues (if appropriate), friends, or fellow students in a tutorial session.

Important note: Remember to preserve confidentiality. Do not use the name of the person and do not use any sensitive material. You should also explain to each person the nature of this course and this activity and ask their permission before you use them as the focus of your observations.

Unfortunately, communication is not always a smooth and successful process. You may have discovered this in Activity 6.1! There are many barriers to communication. Let's look at some of them now.

Barriers to communication

Barriers affect everyone differently. The l ist we offer here aims to be inclusive. You will not find all of these things a problem - but others may. We suggest you work through the barriers, reflect on whether they affect you, and think about tactics to avoid each one. We have included activities to help you do this.

Language

You should send your message in words the receiver will understand. For example, patients may not be able to understand the complex language of medical specialists because of the language they use

6 I COMMONWEALTH YOUTH PROGRAMME DIPLOMA IN YOUTH IN DEVELOPMENT WORK 1

(sometimes called the language register or jargon). So if a doctor communicates with his or her patient, the language should be understandable. Plain language is always worth striving for - it removes one of the most common communication barriers.

Activity 6.2

Think of one recent incident where this barrier occurred -either with you or in your presence - and write notes in your learning journal.

> Describe the incident in two or three sentences.

> Write down what practical steps could be taken to avoid this happening again.

Noise

Noise in the form of overwhelming sounds can make communication strained or impossible - if, for example, you are trying to facilitate a group of young people but construction workers are repairing the floor above you with noisy equipment.

Distractions

This is any sound or aspect that interferes with or detracts from the communication process. For example, if you communicate through a memo in your organisation but everyone receives lots of memos per day, this will interfere with the effectiveness of your communication. People may come to ignore memos altogether to try and get some work done. A fairly new medium, the e-mail, is prone to this because people receive so many messages that are not important and a waste of time.

Selfhelp question 6.1

What other distractions can create barriers to,communication? .......................................................................................................................................................................... .......................................................................................................................................................................... .......................................................................................................................................................................... .......................................................................................................................................................................... .......................................................................................................................................................................... ..........................................................................................................................................................................

Compare your answer. with those provided at the end of the unit,

I MODULE7 UNIT 6: MANAGING COMMUNICATION (

Whatever the distraction, don't just put up with it. Take steps to improve the communication environment by reducing the distractions - or if you can't, reschedule your communication for another time or place. Also, if you find your colleagues are suffering from comm~~nication fatigue - too much information -choose to speak to them faceto face, and find a relaxed, quiet time and place to do it in.

Too many steps

Do not form long chains in the communication process. This may result in the right message being sent but the wrong one being received. You can illustrate this by playing the 'telephone game'. Start spreading a message in a group by whispering it to the person on your left. Helshe should continue with this message until it reaches the person on your right, who says it out aloud. Then the group can compare the two messages - the original and the final one - and make their own conclusions.

Self-help question 6.2

Suggest three strategies you could use to reduce the risk of too many steps in the communication chain.

1 ................................................................................................................................................... ..................................................................................................................................................

2. .................................................................................................................................................. ..................................................................................................................................................

3. .................................................................................................................................................. ..................................................................................................................................................

Compare your answers with those provided at the end of the unit.

Listening difficulties

Listening is a very special skill - and it's under-used.

Listening skills include:

being attentive

looking attentive

feeding back what the other person says to show you have heard and understood

processing what the other person has communicated

including the other person's views and ideas in your feedback.

8 I COMMONWEALTH YOUTH PROGRAMME DIPLOMA IN YOUTH IN DEVELOPMENT WORK I

Listening difficulties can also arise if the people you are communicating with have a lot on their minds. They may have too much work or information overload, or they may have had a fight at home, or be thinking about a sick child. These are all examples of listening difficulties.

Activity 6.3 - Check yourown listeningskillr

Ask a trusted friend, family member, work colleague or fellow student to evaluate your listening skills as you discuss a matter with them or someone else.

Get them to use the above checklist to assess your success at avoiding listening difficulties.

Discuss the results with them.

C

Lack of feedback

This i s linked to listening. Communication is a two-way process and all parties must share an understanding of what is communicated. You can make sure of this by giving clear, consistent and regular feedback. If you don't, people will act on their own assumptions and understandings, with no common ground. Giving feedback will avoid this problem.

Distrust

If the receiver or the sender distrust the credibility or sincerity of the other person, this could result in suspicion which will undermine the communication process. The message will be heard but may be discounted or discredited.

Emotions

An emotionally charged situation usually distorts communication. What is communicated may get buried under strong but irrelevant feelings. This is why it so important a part of professionalism to restrain your emotions in work situations and remain calm, rational and polite at all times. Indifference, apathy, unconcern and insensitivity are also emotions that impede the communication process. On the positive side, of course, if communications touch emotions such as enthusiasm, friendliness, concern and sympathy, excellent work will result.

>

1 MODULE 7 UNIT 6: MANAGING COMMUNICATION [ 9

& Activity 6.4

In your workplace, identify an incident in which strong emotions or distrust obstructed the communication process.

Briefly describe it in your learning journal (remember to preserve confidentiality).

Suggest ways the incident could have been better handled to avoid the communication problems.

Culture

Everyone comes from a specific cultural and work background, with their own language, view of the world and set of experiences. The receiver of a communication might not have the same culture, Language or work background as the sender. Communication bemeen sender and receiver will be difficult unless each is sensitive to the other's background.

Overcoming communication barriers

Here are some quick suggestions to overcome barriers to communication:

@= Adjust to the world of the receiver. Fi t your message to the receiver's vocabulary, interests and values.

* Give feedback. Use a message that tells you how much the receiver has understood.

GF Use face-to-face communication -you can adapt the message to the receiver's reactions.

w Use reinforcement. Send the message in a number of different ways (oral and written) to get it across.

w Re-emphasise important points -and follow up.

GP Use direct, simple language.

GP Suit the actions to the word. Do what you say you are going to do.

GP Streamline communication channels.

Communication barriers can create major problems for managers. The following ase study gives you some idea of what can go wrong when communication channels are impeded - or dry up altogether.

10 I COMMONWEALTH YOUTH PROGRAMME DIPLOMA IN YOUTH IN DEVELOPMENT WORK I

Case study 6.1 - Frank Sanders and the Egyptian project Adapted from Knapper & McAfee, 1982, pp. 254-256.

Frank Sanders was appointed the manager of Champion Construction's new project in Egypt. As a proven manager of many successful projects, he looked forward to his first assignment overseas. He called on the president of the company just before leaving for Cairo.

After ten minutes of personal chitchat, the president said, W e hope your project will be the first of many for us in Egypt and other countries in the Middle East. We need to develop a new set of policies and procedures, and we hope your experience will be a major asset. I have no doubt about your skill as a manager; we're pleased with how you have run your projects here. And I know you realise that you will have to adapt to this new situation. It won't take you long to discover cultural, legal and political differences. You know the old saying, When in Rome ...' Well, that's why I think we should consider that we are going into Egypt as a guest. They need our knowledge at this time, but none of us knows what the future will be.

Frank, it will be up to you to develop rapport with the various political factions that might gain power in the future. You will be the only American on this project, so it will be important for you to learn as much as you can about how your employees think. I'm sure you can do this, but you will be in for many surprises. They may have a different view of 'right and wrong'. Your employees might expect you to be an all-knowing, paternalistic leader, or they might want to participate fully in decisions. You'll need to find out some answers for us. Can we promote the most capable workers regardless of their affiliations? Will they work for money, or do they value other things too much? What about risk-taking? Do they expect things to be done by 'custom and tradition', or will they welcome change that promises material rewards? Which of your actions will be well-received by your employees, your suppliers, and government officials? You are going to have to sort through all of this for us."

Frank remembers leaving the president's office wondering where to turn. Earlier, Frank had bought a guide book on Egypt and a phrase book, The Tmveller's Door to Arabio. After talking with the president, Frank only had a week to make preparations for the trip to Cairo, but he continued to devote as much time as possible to learning Arabic phrases. On the trip he continued his studying.

Frank soon found that living and working in Egypt were very different from anything he had ever done. Just getting a place to live and setting up his office brought up one problem afler another. Most of the Egyptians working on the project spoke good to excellent English; but except when they were talking to Frank, they rarely used it. While Frank's few phrases were satisfactory for shopping, they were of little help in his work.

Frank could pick out a few words that his employees spoke in Arabic, but he was never sure of the meaning. Sometimes they would look over at him and smile. Frank began to think they were making fun of him. Frank's displeasure must have shown on his face, for on several occasions the conversation would stop. In fact, the smiles were just attempts to be friendly, but the employees did become uncomfortable as a result of the displeasure they sensed in Frank's reactions.

One month after arriving in Cairo, Frank Sanders was largely isolated from his employees. His contact was limited to formal discussions. He was unhappy and apprehensive. He had no idea how he was going to carry out the directives the president gave him just before he lefl for Egypt.

I

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I MODULE 7 UNIT 6: MANAGING COMMUNICATION [ 11

Unit 4: Historical Perspective

Objectives

After going through this unit, you will be able to:

• understand the meaning of corporate governance;

• identify the need for corporate governance;

• lack the history of corporate governance;

• explain corporate governance in Indian Context.

Structure

4.1 Introduction

4.2 The History

4.3 The need (Why?)

4.4 Corporate Governance in Indian context

4.5 Summary



4.1. Introduction:

Change is the order of the day. Advancement in science and technology has changed the way we

live. Globalisation and liberalization has changed the way we do our business. There is change in

environment, change in culture and change in ethos. This change has brought some negative

impacts along with the positive ones. There is decline in ethics and values that ought to be

followed by everyone including states and corporates. This means that there is loose governance

by these entities. When this happens the objectives set for the entity cannot be achieved. In this

unit we shall focus on the meaning, objective and nuances of corporate governance.

1

Before we understand the term Corporate Governance (CG), let us first understand the

term governance. The concept of governance has been known in both political and academic

circles for a long time, referring generally to the task of running a government, or any other

appropriate entity for that matter. According to the World Bank, “ Good governance is

epitomized by predictable, open and enlightened policy making, a bureaucracy imbued with a

professional ethos acting in furtherance of the public good, the rule of law, transparent processes,

and a strong civil society participating in public affairs.” On the other hand, Organisation for

Economic Cooperation and Development (OECD) defines governance as the use of political

authority and exercise of control in a society in relation to the management of its resources of

social and economic development. This broad definition encompasses the role of public

authorities in establishing the environment in which economic operators function and helps in

determining the distribution of benefits, as well as the nature of the relation between the ruler

and the ruled. Good governance encompasses all actions aimed at providing its citizens, a good

quality of life.

With the rapid change in the business environment and emergence of new regulations by world

bodies like EEC, WTO, OECD, World Bank etc. the concept of CG is gaining momentum.

Corporate governance is a concept rather than an instrument. It focuses on appropriate

management and control structure of a company. Also included in the concept are power

relations between owners, the board of directors, management and the stakeholder. Most

definitions relate to control of a company or managerial conduct. The Cadbury Report (U.K.)

states; “Corporate governance is the system by which businesses are directed and controlled”.

OECD definition says, “ Corporate governance provides the structure through which the

objectives of the company are set, and the means of attaining those objectives and monitoring

performances are determined.” The following definition helps us in understanding the concept

even better: “ Corporate governance is not just corporate management, it is something much

broader to include a fair, efficient and transparent administration to meet some well defined 2

objectives. It is a system of structuring, operating and controlling a company with a view to

achieve long term strategic goals to satisfy shareholders, creditors, employees, customers and

suppliers, and complying with the legal and regulatory requirements, apart from meeting

environmental and local community needs. When it is practiced under a well-laid out system, it

leads to the building of a legal, commercial and institutional framework and demarcates the

boundaries with in which these functions are performed.” To state in simple terms, corporate

governance relates to a code of conduct, the management of a company observes while

exercising its powers. Quality corporate governance not only serves the desired corporate

interest, but is also a key requirement in the best interests of the corporates themselves.

Box No.4.1: Some Useful Definitions of Ethics and Corporate Governance

The History

Tho gly used

in development literature since re rnance is not new. It is as old as

hum hasis was

laid n

polit economic and religious. Peace, order, security

ugh the terms governance, good governance and corporate governance is increasin

cent times, the concept of gove

an civilization. The eastern civilization has enumerable examples, where in emp

on good governance. The activity of the state, as envisaged by the great eastern thinkers o

y relates to all aspect of human life, social,

Sri Aurobindo

But that which determines his ethical being is his relations with God, the urge of the Divine whether concealed in his nature or conscious in his higher self or inner genius. He obeys an inner ideal, nor to a social claim or a collective necessity. The ethical imperative comes not from around, but from within and above him.

Peter F. Drucker

The Ecological Vision (1993)

Above all, the ethics or aesthetics of self-development would seem to be tailor-made for the specific dilemma of the executive in modern organization. Their function demands the self-discipline and the self-respect of the superior man.

RGarrett and Klonoski, 1986:2

Business ethics is concerned primarily with the relationship of business goals and techniques to specifically human ends. It studies the impacts of acts (DECISIONS)on the good of the individual, the firm, the business community and society as a whole…business ethics studies the special obligations which a person and a citizen accepts when he or she becomes a part of the world of commerce.

Robert C. Solomon

Ethics and Excellence (1992) ….integrity, in the face of conflict of the virtues, is the challenge rather than the answer. It is moral courage… moral courage is not self-sacrifice… Moral courage is not self-righteous obstinacy and it is not at all opposed to compromise…Moral courage includes an understanding of the big picture, the purpose(s) of the organization, and the way in which the organization or some part of it thwarts its own best intentions.

Corporate Governance is a system by which companies are run. It relates to the set of incentives, safeguards and the dispute resolution process that is used to control and coordinate

3

Activity 1

Enumerate five points to highlight the importance of Corporate Governance as a concept than an

instrument.

4.2 History

Though the terms governance, good governance and corporate governance is increasingly used

in development literature since recent times, the concept of governance is not new. It is as old as

human civilization. The eastern civilization has enumerable examples, where in emphasis was

laid on good governance. The activity of the government of the state, as envisaged by the great

eastern thinkers on polity relates to all aspects of human life, social, economic and religious.

Peace, order, security and justice were regarded as the fundamental aims of the states (the largest

form of corporate). State was considered a means to the realization of decent, good and

meaningful life and justice were regarded as the fundamental aims of the states (the largest form

of corporate). State was considered a means to the realization of decent, good and meaning full

life.

Manu, the son of Prajapathi was the first king who brought out a comprehensive code of conduct

or governance for men, society and the state as a whole in his treaty called Manu Dharma

Shastra. In Mahabharata while delivering his first formal discourse on polity Bhisma says in

equivocal terms that the kin should always put the interest of his subjects over that of his own.

The great political thinker of 3rd century BC namely Kautilya in his treaty Arthasastra has laid

down the ideals at which the king was expected to aim.

In eastern literature a good society is one wherein a high, ethical standard of life is characterized

by the pursuit of wealth, enjoyment and liberation. It is the prevalence of dharma, which

characterizes an ideal society. Such a society is possible if the governance of the country is based 4

on clear, efficient and effective administration and all the rulers aim at this goal in the ancient

times.

Box No. 4.2: AGELESS ETHICS and GOVERNANCE

SATYAVADI RAJA HARISCHANDRA SRI RAMA and THE CONCEPT OF RAMA RAJYA -"RAGHUKUL REETI

SADAA CHALI AAYEE PRAAN JAYE PAR VACHAN NA JAYE" M. K. GANDHI- MY EXPERIMENTS WITH TRUTH GOVERNMENT OF INDIA - SATYAMEVA JAYATE

However people in the west started feeling the need for good corporate governance in early 80’s

as the corporate misdemeanours increased. In U.K., in 1980s, the corporate sector was beseeched

with a number of problems. Business failure, limited role of auditors, weak accounting standards

culminated in loss of control. The Cadbury committee was set up by the London Stock Exchange

to address the dreary financial aspect of corporate performance. A few years later, director’s pay

became such a live political issue that a study group on director’s remuneration was formed

under Sir Richard Greenbury. Then came two other committees – the King Committee and the

Hampel Committee to diagnose the issue of corporate governance. The Asian financial crisis,

recent scandals in US, Italy, India have triggered fresh initiatives of thinking towards good

governance. Corporate governance has been much talked in India particularly after 1993.

Liberalisation brought in its wake a spate of corporate scandals, the first of which was a bank

scam involving securities. CRB scam and the UTI episode made it very clear that a serious

thinking is required on the front of corporate governance. SEBI in India has taken the initiative

in framing new rules and laws to strengthen corporate governance. Committees like Kumar

Mangalam Birla Committee (2000), Naresh Chandra Committee (2002) brought out reports on

corporate governance. SEBI has also constituted a committee on corporate governance under the

chairmanship of Sri N.R. Narayana Murthy.

5

Presently corporate India is going through a great churning phase, as companies are doing

business with global ambition, placing a lot of emphasis on governance and transparency.

4.3 The Need of Corporate Governance

Recent corporate failures and scandals involving mis-governance and unethical behaviour on the

part of corporates rocked the corporate sector all over the world, shook the investor confidence in

stock markets, and caused regulators and others to question the assumption that most companies

do the right thing most of the time. These incidences diminished reputation and goodwill of even

those corporates who enjoy the trust and confidence of public at large. These factors highlight

the importance of good corporate governance. On the other hand, corporate governance is

important because corporate decisions impinge on its shareholders, customer, creditors, the state

and employees. Globally the objective of corporate governance is to maximize long-term

shareholder value. With the assumption that capital and financial markets are working properly,

anything that maximizes shareholder value will necessarily maximize corporate prosperity.

For sound governance, managers need to act as trustee of shareholders, prevent asymmetry of

benefits between sections of shareholders, especially between owner-managers and the rest of

shareholders. They also need to be a part of societal concerns about labour and environment. In

fact stock market analysts see these days a greater correlation between governance and returns.

Investment analysts recommend a company based on strength or weakness of a company’s

governance infrastructure. Confidence of investors, both domestic and foreign, is the need of the

hour. This is to attract ‘patient’ long –term capital that will reduce their cost of capital. Thus,

there is a need for intellectual honesty, integrity and transparency, which form the basis for good

corporate governance.

Activity 2

State any three prerequisites for a sound Corporate Governance.

4.4 Corporate governance in Indian Context 6

As it was briefly stated earlier, corporate governance has been much talked about in India

particularly after 1993. Liberalization brought mixed results for Indian economy. Noticeably, it

brought in its wake a spate of corporate scandals. Later on scores of companies made public

issues with large premium and then disappeared; prospectus misled the public. The management

of most of these companies diverted funds and investors had no option but to repent their lost

money. Primary market literally collapsed in the after math of these failures. Slowly, many a

family owned businesses moved to become widely held limited companies. The question, how to

function in a corporate setup overriding family interest and obligations called for a code of

governance. Similarly, corporate banks also came under strain due to scams; governance failure

was total. The story of UTI is also well known where millions of small investors lost their capital

due to inadequate management practices and weak supervision.

Auditors were following questionable accounting practices on behest of the management and

often advising on how doubtful accounting choices might be made so as to remain on the right

side of law and at the same time, escape detection by users of financial information. All these

factors put strong pressure on many corporates to evolve a good governance practice.

Over the period of time in India companies like Tata Group, Infosys, Wipro have evolved sound

principles of governance, intertwining corporate governance with social responsibility. These

companies have become global and it is common to find global norms of accounting and

disclosure being followed in these corporate houses. Rights of employees, stock options,

independent directors, meeting quality norms, price warranty and guarantee- all these have made

room for quality governance. Managers have indeed become trustees of shareholders.

It began in 1998 with the Desirable Code of Governance- a voluntary code published by CII, and

the first formal regulatory framework for listed companies, established by the SEBI in February

2000, following the guidelines enunciated by the Kumar Mangalam Birla Committee Report. On 7

21st August, 2002, the Department of Company Affairs under the Ministry of Finance appointed

Naresh Chandra Committee to examine issues pertinent to governance. The committee looked

into financial and non-financial disclosure and independent auditing and board oversight of

management.

Apart from financial compliance or disclosure, the independent oversight of management is also

important. Many companies have disappeared, vanished either due to fraud or poor quality of

board resulting in lack of independent oversight. The Kumar Mangalam Birla Committee

focused on the role of independent and statutory auditors and also the role of the board of

directors.

SEBI constituted a committee on corporate governance under the chairmanship of Sri N. R.

Narayana Murthy. The committee included representatives from the stock exchange, chamber of

commerce and industry, investor associations and professional bodies, which debated on key

issues related to corporate governance. Findings and recommendations of these committees are

discussed in the later chapter.

Thus we find that the corporate India is going through a great churning phase. New aggressive

companies are doing business with global ambitions, placing a lot of emphasis on governance

and transparency. FIIs are very serious about good governance and disclosures. Liberalization

brought great challenges, after initial jolts and pain of restructuring, companies are seeing profits

more than before.

4.5 Summary

Good corporate governance is good business because it inspires investors confidence, which is

very essential to attract capital. A few unscrupulous businessmen can, largely undo all the

8

confidence built through the good work by the good companies over time. They need to be

handled with iron hands.

However, corporate governance goes beyond the realm of law. It comes from the culture,

mindset of management and cannot be regulated by legislation. The watchwords are openness,

integrity and accountability.

Companies need not be myopic with short-term goals, caring only about quarterly results or

immediate stock prices in the bourses, or that cherished P/E ratio. Good governance maximizes

long-term shareholder value, which in turn takes care of short-term goals too.


1. Explain the concept of Corporate Governance.

2. Why has it become necessary for business houses to have a good corporate Governance? Discuss.

3. Discuss the emergence of Corporate Governance as a concept.


Gopalasamy. N. (1998)., CorporateGovernance : The New Paradigm, Wheeler Publishing, Allahabad.

Balasubramanium N. (January-March, 1997). ‘Towards excellence in board performance’,Management Review.

O.E.C.D. Report on Corporate Governance.

Aiyangar. K. V. R. (1941). ‘Rajadharma’. The Adyar Library, Chennai.

Altekar. A.S. (1992). ‘State and Government in Ancient India’, Motilal Banarsidas, New Delhi.

www.sebi.gov.in

Report of Sir Adrian Cadbury Committee on Financial Aspect of Corporate Governance (1992).

www.business-ethics.com

Narayana Murthy, N.R., ‘Corporate Governance: The Key Issues’, Vikalpa, vol. 24, No.4. 9

http://www.sebi.gov.in/

Unit 6 Code and Laws for Corporate Governance

Objectives

After going through this unit, you will be able to:

• know the emergence of corporate governance;

• understand the importance of government initiatives taken to boost good

corporate governance.

Structure

6.1 Introduction

6.2 Reports of Committees on Corporate governance

6.3 Government Initiatives

6.4 National Award Initiated by the Government of India

6.5 Recent Developments in Other Markets

6.6 Summary



6.1 Introduction

For any concept or idea to form a part of our existence or business needs to be put in

papers in distinct terms, so that they are understood and followed by all in a similar

fashion. These are called rules or codes of conduct. These are principles and standards

that are intended to control, guide or manage behaviour or the conduct of individuals.

However, codes are self-imposed and regulations are imposed by the states.

There are many corporate governance codes developed by non-governmental

organizations, stock exchanges, investor groups and professional associations.

1

Government also issues rules concerning corporate governance through capital market

regulatory body like SEBI and by enacting laws.

Here we will try to understand codes of corporate governance recommended by various

committees and some relevant laws enacted by the government.

6.2 Reports of Committees on Corporate governance

As it was explained in the previous units the events in the corporate world (through out

the world) raised concern about standards of financial reporting and accountability of

management. Many believe that the failures could have been avoided had the companies

followed good governance. In recent years, governments and corporates have made

sincere efforts in designing and implementing codes for good corporate governance.

Some of the reports on corporate governance published abroad and in India are:

• Cadbury Committee Report

• CII Committee Report

• Kumara Mangalam Birla Report

• Narayana Murthy Committee Report

Cadbury Committee Report

The Cadbury Committee was set up in May 1991 by the Financial Reporting Council of

the London Stock Exchange to address the financial aspects of corporate performance.

The sponsors of the committee were concerned at the perceived low levels of confidence,

both tin the financial reporting, and in the ability of auditors to provide safeguards which

the users of the company reports sought and expected. The move to set up the committee

2

was to improve the standards of financial reporting and to arrest any likely damage to

London’s reputation as a financial centre and the reputation of the British accounting

firms.

The Committee published its report and code of best practice in December 1992. From

July 1993; all companies registered in the UK and listed on the London Stock Exchange

have been obliged to state in their Annual Report how far they comply with the code, and

to give reasons for areas of non-compliance.

The Code of Best Practice has been divided into four sections- the first concerning the

role of the board of the directors and covering such matters as the duties of a board, its

composition; the second dealing with the role of the outside non-executive directors; the

third covering executive directors and their remunerations, and the final section

addressing questions of financial reporting and financial controls. The major

recommendations made by the committee are as follows:

• A single person should not be vested with the decision making power i.e. the roles

of chairman and chief executive should be separated clearly.

• The non-executive directors should act independently while giving their

judgement on issues of strategy; performance; allocation of resources; and designing the

code of conduct.

• A majority of directors should be independent non-executive directors, i.e. they

should not have any financial interests in the company.

• The term of the director can be extended beyond three years only after the prior

approval of the shareholders.

3

• A Remuneration Committee with majority of non-executive directors should

decide on the pay of the executive directors.

• The Interim company report should give the balance sheet information and should

be reviewed by the auditor.

• The information regarding the audit fee should be made public and there should

be regular rotation of the auditors.

• An objective and professional relationship with the auditors must be ensured.

• It must be reported that a business is a going concern.

CII Report

Post liberalization years saw major upheavals in the Indian corporate world. Growing

international competition, growth in the economy as well as scams and frauds brought

forth the importance of corporate governance.

The Confederation of Indian Industry (CII) took the initiative to draft some codes of

corporate governance. A national task force on corporate governance was set up in mid

1996 under the leadership of Mr. Rahul Bajaj, ex.-President, CII, and then CMD, Bajaj

Auto Ltd. The committee issued desirable corporate governance. The major

recommendations are as follows:

• The board should meet minimum of six times a year, preferably at an interval of

two months, and each meeting should have agenda items that require at least half a day’s

discussion.

• At least 30% of the board (where the chairman of the company is non-executive)

and 50% (where the position of the chairman and managing director is combined) of

4

listed companies with a turnover of Rs.100 crores and more should comprise of

professionally competent and independent non-executive directors.

• No person should hold directorships in more than 10 companies. In an earlier

draft of the code this number was to exclude directorship on the company’s subsidiaries

(50% or more of equity holding) and affiliates (25% or more of equity holding).

• While re-appointing members of the board, companies should give the attendance

record of the concerned directors. If a director has not been present (absent with or with

out leave) for 50% or more meetings, then this should be explicitly stated in the

resolution that is put to vote. As a general practice, one should not re-appoint any director

who has not had the time to attend even one half of the meetings.

• Non-executive directors should actively participate in board affairs and not be

passive advisors, have clearly defined responsibilities within the board, and should be

literate in understanding financials of the company.

• Non-executive directors should be adequately compensated through commissions

and stock options. The need for remuneration committee of the board has been brushed

aside as not being necessary.

• Board members should be provided timely and adequate information to enable

them to discharge their duties. A comprehensive list of illustrations is provided in the

code.

• Listed companies with a turnover of at least Rs. 100 crores and a paid up capital

of at least Rs. 20 crores must appoint audit committees of the board within two years.

• Major Indian Stock Exchanges should gradually insist upon a compliance

certificate, signed by the CEO and CFO which clearly sates that, the management is

5

responsible for the preparation, integrity and fair presentation of the financial statements

and other information in the annual reports, and which also suggest that the company

will continue in business in the course of the following year; the accounting policies and

principles confirm to standard practice, and where they do not, full disclosure has been

made of any material departures; the board has overseen the company’s system of

internal accounting and administrative controls system either directly or through its audit

committee.

Kumara Mangalam Birla Committee Report

Over the years some Indian companies have voluntarily established high standards of

corporate governance, but there are many more, whose practices are a matter of concern.

There is also an increasing concern about standards of financial reporting and

accountability, especially after losses suffered by investors and lenders in the recent past,

which could have been avoided, with better and more transparent reporting practices.

Investors have suffered on account of unscrupulous management of the companies, which

have raised capital from the market at high valuations and have performed much worse

than the reported figures leave alone the financial projections at the time of raising

money. Another example of bad governance has been the allotment of promoter’s shares,

on preferential basis at preferential prices, disproportionate to market valuation of shares,

leading to further dilution of wealth of minority shareholders. This practice however was

later contained.

There are also many companies, which are not paying adequate attention to the basic

procedures for shareholders’ service; for example, many of these companies do not pay

6

adequate attention to redress investors’ grievances such as delay in transfer of shares,

delay in dispatch of share certificates and dividend warrants and non-receipt of dividend

warrants. SEBI has been daily receiving large number of investor complaints on these

matters. While enough laws exist to take care of many of these investor grievances, the

implementation and inadequacy of penal provisions.

In the above-mentioned context, the Committee on Corporate Governance was set up on

May 7,1999, by the Securities and Exchange Board of India (SEBI) under the

Chairmanship of Shri Kumar Mangalam Birla, member SEBI Board, to promote and raise

the standards of corporate governance. The purpose of the committee was;

1. To suggest suitable amendments to the listing agreement executed by the stock

exchanges with the companies and any other measures to improve the standards of

corporate governance in the listed companies, in areas such as continuous disclosure of

material information, both financial and non-financial, manner and frequency of such

disclosures, responsibilities of independent and outside directors;

2. To draft a code of corporate best practices; and

3. To suggest safeguards to be instituted within the companies to deal with insider

information and insider trading.

Major recommendations of the committee are as follows.

• The board should have an optimum combination of executive and non-executive

directors and at least 50% of the board should comprise of non-executive directors.

7

• No director should be a member in more than 10 committees or act as chairman of

more than five committees in which he is a Director.

• The board of the company should set up a qualified and independent “Audit

Committee”.

• Board should set up a remuneration committee to determine the remuneration

packages for the executives.

• The corporate governance section of the Annual Report should make disclosures

on remuneration paid to directors in all forms including salary, benefits, bonuses, stock

options, pensions and other fixed as well as performance linked incentives .

• Management should assist the board in its decision-making process in respect of

company’s strategy, policy, code of conduct and performance targets.

• The management should implement the policies and code of conduct of the board

• It should provide timely, accurate, substantive and material information, including

financial matters and exceptions to the board, board committees and the shareholders.

• As a part of the disclosure related to management, in addition to the Director’s

report, Management Discussion and Analysis Report should form part of the Annual

Report to the shareholder.

The committees also took note of various steps taken by SEBI for strengthening

corporate governance, some of which are:

• Stringent disclosure norms for Initial Public Offers

• Providing information in director’s reports for utilization of funds and variation

between projected and actual use of funds as per the requirements of the Companies Act,

8

• Declaration of quarterly results

• Mandatory appointment of compliance office for monitoring share transfer process

• Timely disclosure of material and price sensitive information having a bearing on the

performance of the company

• Dispatching one copy of complete balance sheet to every household and abridged

balance sheet to all shareholders

• Issue of guidelines for preferential allotment at market related process

• Issue of regulations providing for a fair and transparent framework for takeovers and

substantial acquisitions.

The recommendations made by Shri Kumar Mangalam Birla Committee were accepted

by SEBI in December 1999, and are now enshrined in Clause 49 of the Listing

Agreement of every Indian stock exchange.

Refer to Annexure No. 1 for the Draft report of the committee.

Narayana Murthy Committee

In its zest to improve governance in the companies through the regulatory process SEBI

also instituted a committee under the chairmanship of Mr. N. R. Narayana Murthy which

recommended enhancements in corporate governance. The committee comprised of 23

persons and submitted its final report on 8th February 2003.

The Narayana Murthy Committee has mentioned about correct approach for successful

corporate governance. It has said:

“Corporate Governance is beyond the realm of law. It stems from culture and

mindset of management, and cannot be regulated by legislation alone. Corporate

governance deals with conducting the affairs of a company such that there is fairness to

9

all stakeholders and that its actions benefit the greatest number of stakeholders. It is

about openness, integrity and accountability. What legislation can and should do, is to

lay down a common framework- the “form” to ensure standards. The ‘substance’ will

ultimately determine the credibility and integrity of the process. Substance is inexorably

linked to the mindset and ethical standards of management.”

Thus we see that the whole thing has got an ethical orientation now, and emphasis is laid

on raising the ethical standards for good corporate governance. Some of the major

recommendations made by the committee are as under:

• All audit committee members should be ‘financially literate’ and at least one

member should have accounting or related financial management expertise.

• Mere explanation as to why a company has followed a different accounting

standard from the prescribed standards will not be sufficient.

• Board members should be informed about risk assessment and minimization

procedures.

• Board members should be trained in the business model of the company as well as

the risk profile of the business parameters, their responsibilities as directors and

best ways to discharge them.

• Use of proceeds of IPO should be disclosed to the audit committee.

• There shall be no nominee directors when a director is to be appointed on the

board and shareholders shall make such appointments.

10

• Board of Directors, limiting the maximum number of stock options that can be

granted to non-executive directors in any financial year, may fix compensation

paid to non-executive directors.

• Whistle Blowers should not be subject to unfair or prejudicial employment

practices.

• A peer group comprising the entire board of directors, excluding the director

being evaluated, should make the performance evaluation of non-executive board

members.

Naresh Chandra Committee

On 21 August 2002, the Department of Company Affairs (DCA) under the Ministry of

Finance and Company Affairs appointed a committee under chairmanship of Shri Naresh

Chandra to examine various corporate governance issues. The committee has been

entrusted with analyzing and recommending changes if necessary, in various areas, like,

statutory auditor-company relationship, independence of auditing functions, certification

of accounts and financial statements by managers and directors, adequacy of regulation

of chartered accountants, company secretaries, and cost accountants, and other similar

statutory oversight functionaries, the role of independent directors, etc. The committee

recommended detailed regulations on auditor’s independence, working of audit

committees, board composition and governance. The recommendations have also been

drawn from The Sarbanes-Oxley Act, 2002, of the U.S.A. These recommendations have

been widely debated in public domain. If implemented, they may bring sweeping changes

in governance systems in Indian corporates. The same committee is also examining

governance issues related to private companies in India.

11

6.3 Government Initiatives

From the government’s side, there have been swift moves through law and regulations

made by the Department of Company Affairs (DCA) and Securities and Exchange Board

of India (SEBI) to hasten the process of bringing improvements in the Corporation’s

functioning. The DCA has amended Companies Act at short intervals for this purpose.

Numbers of provisions in the Companies Act 1956 concerning corporate governance

have been inserted in the Act through Companies (Amendment) Act 2000. Important

changes to improve corporate governance in this act are:

• Providing for Director’s Responsibility Statement (Section 217(2A))

• Board to report in cases where buyback was not completed within the time

specified in sub-section (4) of section 77.

• Small shareholders to get representation through Director (Section 252)

• Limitations in Directorship in companies (Section 274 & 275)

• Constitution of Audit Committees (Section 292A)

• Providing for higher penalties (tenfold increase) for offences provided in various

sections of the Companies Act etc.

The Amending Act of 2000 thus increased manifold, the duties and responsibilities of the

Directors in the companies as a step to improve the corporate governance.

6.4 National Award initiated by the Government of India

Realizing the significance of efficient financial markets in achieving higher growth rates

in economy, The Honorable Union Finance Minister Shri Yashwant Sinha initiated

several measures to promote corporate governance among Indian companies and for

12

orderly development of Indian financial markets. While presenting the Budget for 1999-

2000, he mentioned:

Lately, there has been considerable debate on the importance of good governance of

Indian corporates. It is increasingly being realized that if investors have to be drawn

back to the capital market, companies have to put their houses in order by following

internationally accepted practices of corporate governance. This is necessary to enhance

investor confidence. To help promote this trend, I propose to institute a National Award

for Excellence in Corporate Governance (Para. 36).

In order to promote good governance practices in Indian companies and enhance

investors’ confidence in the market, the Government of India awards the National Award

for Excellence in Corporate Governance every year. The Award is recommended by a

Panel consisting of eminent persons from financial markets and corporate world. The

Ministry of Finance (Department of Economic Affairs) in the Government of India

constitutes the panel. Unit Trust of India has come forward to sponsor the award. UTI

Institute of Capital Markets also provides research support to the Panel.

In the year 1999 the panel constituted for the purpose initially short- listed the following nine

criteria for evaluation. Two criteria were subsequently added to the list later. The broad criteria

prescribed by the first panel for screening the companies for excellence in corporate governance

were as under:

1. Adequate representation of independent directors on the Board.

2. Existence of institutions, like audit committee, which enable the Board to adequately guide the

management.

13

3. Adherence to prescribed accounting standards and quality of disclosures relating to financial

and other information provided to shareholders in the Annual Reports.

4. Frequency and content of communication of financial and operating data to the shareholders

and to the public.

5. Investor- friendly procedures and practices.

6. Enhancement of shareholder value vis- à- vis the industry performance.

7. Discharge of social obligations and obligations related to employee welfare.

8. General concern for the environment.

9. Ethical code of conduct.

In the later years, the following two criteria were added to the list:

1. HRD policies for succession, delegation, and empowerment of employees.

2. Innovative practices to improve quality of life for other stakeholders of the company.

Based on these criteria the following Companies were nominated for the consideration

for the Award;

1 Agrevo (India) Ltd. 33 Hindustan Lever Ltd.

2 Archies Greetings and Gifts Ltd. 34 HPCL

3 Asea Brown Boveri Ltd. 35 ICICI Ltd.

4 Asian Paints Ltd. 36 Indian Hotels Company Ltd

5 Bajaj Auto Ltd. 37 Indian Oil Corporation

6 BFL Software Ltd. 38 ITC Ltd.

7 Bharat Forge Ltd. 39 Larsen & Toubro Ltd.

8 BPCL 40 Lupin Laboratories Ltd.

9 Britannia Industries Ltd. 42 Mahindra & Mahindra

10 BSES Ltd. 43 Mphasis BFL Ltd.

14

11 Cadbury India Ltd. 43 Motor Industries Company Ltd.

12 Castrol India Ltd. 44 MRF Ltd.

13 Cipla Pharma 45 Nicholas Piramal India Ltd.

14 Colgate India Ltd. 46 NIIT Ltd.

15 Container Corporation of India Ltd. 47 Novartis India Ltd.

16 Corporation Bank 48 ONGC

17 CRISIL 49 Pidilite Industries Ltd.

18 Dabur India Ltd. 50 Procter & Gamble India Ltd.

19 Digital Equipment India Ltd. 51 Punjab Tractors Ltd.

20 Dr. Reddy’s Laboratories Ltd. 52 Ranbaxy Laboratories Ltd.

21 E I H Ltd. 53 Reckitt & Coleman India Ltd.

22 Finolex Cables Ltd. 54 Reliance Industries Ltd.

23 Finolex Industries Ltd. 55 Satyam Computers Ltd.

24 GACL 56 SmithKline Beecham India Ltd.

25 Glaxo India Ltd. 57 State Bank of India

26 Global Telesystem Ltd. 58 Sun Pharmaceuticals Ltd.

27 HCL Infosystems Ltd. 59 Sundaram Fastners Ltd.

28 HCL Technologies Ltd. 60 TVS Suzuki Ltd.

29 HDFC Bank Ltd. 61 VSNL

30 HDFC Ltd. 62 Wipro Ltd.

31 Hero Honda Motors Ltd. 63 Wockhardt Ltd.

32 Hindalco

The assessment process is divided into three phases. I) Quantitative II) Quasi-quantitative III) Qualitative List of broad criteria for Phase – I analysis (Figures in parentheses are scores assigned to that item)

15

No. Criteria and selection Individual scores

Total scores

1. 1 Governance structure 1.A. Composition of the board 1.B. Committees of the board

(15%) (15%)

30%

2. 2 Disclosures in the annual report 2.A. Statutory disclosure 2.B. Non-statutory disclosures

(10%) (10%)

20%

3. 3 Timeliness and content of information to the investors and the pubic 3.A. A compliance with the Listing Agreement 3.B. Contents on website 3.C. Grievance resolution ratio

(6.67%) (6.67%) (6.66%)

20%

4. 4 Enhancement of shareholder value 4.A. Share prices 4.B. Return on net worth

(10%) (20%)

30%

Total 100%

Phase II analysis: Fine-tuning Phase I analysis

Suggested items for fine-tuning the result of Phase I analysis

1. Governance structure

a. Number of meetings of the board during the year

b. Attendance record per meeting

c. Attendance record of individual directors

d. Number of meetings of the committees of the board

e. Do the directors receive:

• All quarterly and annual production & sales plans

• Budgets

• Internal audit reports

• Any process or product liability claim on the company

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• Any Joint Venture or collaboration that the company proposes to enter into

• Labour policy changes and disputes

• Any defaults by the company

• Any show cause considered materially important

• Important economic and market developments

• Disclosure of directors’ shareholding and interests in contracts

• Agenda papers with adequate notice

f. Whether the Chairman and the Managing director are different?

g. Whether remuneration policy for directors is in place?

h. Ratio of remuneration of promoter-related director to the next level professional

director.

i. Do non-executive directors examine the performance of the management?

j. Existence of committees such as project management committee, capital

investment committee, consumer redressal committee, etc.

k. Does the nomination committee have a right to short- list candidates for the board?

l. Is there a well-defined process for selection of executive and non-executive

directors?

m. Does the audit committee have all the powers and authority as envisaged?

n. Does the audit committee review the interim and annual financial statements

before submission to the board?

o. Is there an internal audit department?

p. Is there a policy of limiting the number of terms a director can serve on the board?

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2. Disclosure in the annual report

• Does the annual report contain a statement of remuneration policy and details of the

remuneration of a director?

3. Timeliness and content of information to the investors and public

• How long (within statutory limit) does company take to disclose material

information?

• Time period between last day of financial year of the company and date of AGM.

• What is the quality of content in communication with investors and public?

4. Enhancement of shareholder value

• Growth in assets

• Growth in sales

• Solvency ratio

• Margins

Phase III analysis: Qualitative criteria

Items for which detailed information were sought from company through personal interviews and

administering informal questionnaire

1. Employees

• Discharge of obligations relating to employee welfare

• HRD policies for succession, delegation and empowerment of employees

2. Stakeholders

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• Innovative practices with respect to the other stakeholders including the customers (for example,

customer grievance resolution mechanism) and the vendors (wherever applicable).

3. Government and regulatory authorities

• FERA/FEMA violations

• Excise and custom raids

• Show-cause notices from Income Tax Authorities and other regulatory authorities

4. Society

• Discharge of social obligations

• General concern for environment

5. Ethical code of conduct

• Code of ethical behaviour for employees

• Rules for insider trading

Based on these criteria companies are rated F, A, AA, AAA. Infosys and TISCO were awarded National

Award for Excellence in Corporate Governance in the year 1999 and 2000 respectively.

Activity Discuss the feasibility of the National Award initiated by Government to promote good corporate governance. 6.5 Recent developments in other markets

19

Implementation of Sabarnes-Oxley Act, 2002 in the U.S. A. In response to the public

outcry against the recent corporate scandals like, Enron, World Com, etc., a new

legislation viz., the Sarbanes-Oxley Act has been enacted on July30, 2003 in the U.S.A.

in order to protect investors by improving the accuracy and reliability of corporate

disclosures made pursuant to the securities laws. The legislation initiated major reforms

in the following areas.

1. Public Company Accounting Oversight Board

2. Auditor’s independence

3. Conflict of interest

4. Corporate responsibility

5. Enhanced financial disclosures

6. Analyst conflict of interest

7. Corporate and criminal fraud accountability

8. White-collar crime penalty enhancements

9. Corporate fraud and accountability

10. Studies and reports

European Union

The European Commission recently completed a study of 43 different corporate

governance codes and proposed to merge all of them to create a single, consistent code.

20

Germany

The German government had announced details of comprehensive new voluntary

guidelines to improve their corporate governance practices. The code aims at

strengthening the rules concerning auditor and supervisory board independence, gives

shareholders a limited role in takeovers, recommends that companies disclose board

remuneration individually, and requires a company to disclose whether or not they

comply with the code.

Ireland

Irish Association of Investment managers revealed a high level of compliance amongst

Irish corporates with the Combined Code on governance implemented by LSE. 97% of

firms allow shareholders to vote on re-election of directors every three years. 85% and

79% of them have remuneration and audit committees respectively comprised fully of

non-executive directors. 79% of them have separate role for the chairman and the chief

executive officer.

Asian and Latin American markets

S&P carried out a survey of 350 Asian and Latin American companies on 10 points based

on 98 information attributes grouped into 3 categories: financial transparency and

information is closures; investors relation, and ownership structure; and board and

management structure and practices. 19 out of 43 Indian companies managed to get score

of 4; Infosys scores 7.

Kenya

Kenya’s Capital Market Authority has introduced new guidelines to imp rove corporate

governance practices. The guidelines include: appointment of independent directors,

21

constitution of nomination committee, the role of CEO and Chairman to be separated;

limiting the term of director on the board subject to shareholders’ approval and frequent

appraisal of the board.

Thailand

Stock exchange of Thailand is set to introduce a new committee to strengthen corporate

governance and make best corporate practice a national priority. Of the 580000

companies, nearly half do not report balances-sheet and a quarter of them do not pay even

taxes. Thailand’s SEC has drafted a framework for corporate governance ratings aimed at

protecting shareholders’ rights, the quality of directors and the efficiency of internal

controls. The Thai SEC will offer highly rated firms bunch of incentives, including a fast-

track review of their corporate filings to issue new shares.

Russia

Russia’s Federal Commission for Securities Markets introduced new code of corporate

governance which includes a number of tax incentives and investor friendly regulations.

Hong Kong

Hong Kong’s SFC proposed a rule that executives who intentionally or recklessly,

provide false or misleading information in public disclosures, shall face up to two years

in prison and a HKD 1 million fine.

Philippines

Philippines SEC has requested that all listed firms establish an evaluation system to track

performance of their boards and executive management. The recently approved code of

corporate governance recommends that all public entities and fund raising entities shall

22

adopt the same. Philippines’ SEC is likely to extend new corporate governance code to

require even non-listed firms to place at least one independent director on the board.

6.6 Summary

It would have been very clear by now as to the importance that has been laid in good

corporate governance. Government, corporates and the civic societies have been doing

their bit to improve upon the existing level of governance. Corporate governance goes

beyond the realms of law. It comes from the culture, ethos and the mindset of

management. However due emphasis must be given to the role of legislation also. Need

of the hour is to build an atmosphere of mutual trust, responsibility and accountability

that makes the governing team enthusiastic and makes them aspire for excellence.

Procedural refinements and innovation are no substitute for ‘good’ men, while good men

are never short of capacity to innovate. Thus, it is men more than measures that make

good corporate governance for that matter ‘the governance’ give its true result.

23

Appendix I

Ethical Complacency: The Recipe for Failure

We are good people

We just wrote a new code of ethics

We have never had a problem

Appendix II

24

Kashmir: A case of Governance Failure

Facts:

• Four hundred and seventy four officers and men of the Indian Armed Forces laid

down their lives in Kargil to protect the integrity of the country

• Many innocent civilians too lost their lives and property and found their livelihood

disrupted, as had tens of thousands earlier through years of proxy war.

• The entire nation united in grief with widows and parents across the land to mourn

the blood, tears and treasure invested in Kargil.

Why?

• The findings showed many grave deficiencies in India's security management

system.

• Lord Ismay formulated and Lord Mountbatten recommended was accepted by a

national leadership unfamiliar with the intricacies of national security management.

• There has been very little change over the past 52 years despite the 1962 debacle,

the 1965 stalemate and the 1971 victory, the growing nuclear threat, end of the cold

war, continuance of proxy war in Kashmir for over a decade and the revolution in

military affairs.

Reason:

Unit 5 Top Management and Corporate Governance

Objectives

After going through this unit you should be able to:

• understand the role and responsibility of BoDs;

• understand the role and functions of Chairman and CEO; and

• know the process of creating an Effective Board.

Structure

5.1 Introduction

5.2 Role of Board of Directors

5.3 Responsibilities of Board of Directors

5.4 Strategic Management: Role of the Board

5.5 Board Committees

5.6 Role of Chairman

5.7 Role of CEO

5.8 Creating an Effective Board

5.9 Summary



5.1 Introduction

“The major players in the area of corporate governance, within the corporation are corporate

board, shareholders and employees. Externally, the pace for corporate governance is set by the

government as the regulator, customer, and lenders of finance and social ethos of our times. The

scope and extent of corporate governance are set by the legal, financial and business framework.

1

In essence, corporate governance is the system by which companies are directed and controlled.

Board of directors are responsible for the governance of their enterprises.” -Corporate

Governance: A Multi-faced Issue; The Chartered Secretary, May’97

As it is very clear from the above statement, people at the helm of affairs of an enterprise are

responsible for the good governance of the enterprise. The Board of Directors are responsible for

the governance of their enterprises, in a given economic, political and social environment. The

role of the board and the shareholder is interactive in nature and therefore the quality of

governance depends upon the level of interface established by them. The quality of the board

also depends upon a number of other factors, such as its size, its composition in terms of number

and proportion of whole-time and part time directors, the chairman of the board, power and

position of the CEO, the merit and qualification of the directors, etc. In this unit we will try to

find out the roles and responsibilities of the board and other executives for good governance.

5.2 Role of Board of directors

Law –Related Expectations

The Indian Companies Act does not define the Board of Directors (BoDs). Even ‘Director’ is

simply defined as ‘it includes any person occupying the position of Director, by whatever name

called’ [sec.2 (13)]. With the help of this open definition of Director, we may infer that a Board

of Directors is a group of individuals each of whom is labeled as ‘Director’ (or by any other title

with identical substantive intention). No person is to hold more than 20 directorships.

Section 269 says that, the commencement of the Companies (Amendment) Act, 1988, certain

specified public companies or private companies which are subsidiaries of public companies,

2

shall have a Managing or Wholetime Director, a Manager, and each such appointment must be

made with prior approval of the central Government.

What is a BoDs suppose to do? This again we can know inferentially by referring to a definition

of ‘Manager’ and ‘Managing Director’ in section 2 of the Act, and also Sections 291-93. Both

these incumbents have to exercise their powers of management’s ‘subject to the superintendence,

control and direction of the Board’. Thus, the BoDs, in broad terms, is expected to perform the

role of overseeing the running of the enterprise by its chief executive.

On whose behalf does the BoDs perform this role of overseeing? It is expected to do this on

behalf of the shareholder. It is they who elect the directors on the board. And it is the BoDs,

which, in turn, selects the Chief Executive.

The directors individually have no powers in the eyes of law. It is only the collective body of

directors, i.e., the board, which has a superior total power over the Chief Executive. The intent of

the Indian Companies Act appears to include only outside non-employee directors on the board.

Otherwise, if internal Wholetime Executive, say the MD were to be the directors on the board,

how could they exercise ‘superintendence, control and direction’ over themselves?

Section 291 stipulates that the BoDs shall be entitled to exercise all such powers, and to do all

such acts and things as the company authorizes to exercise and do, except those things which can

be done in a general meeting of the company. The powers exclusive to the BoDs (sec. 292) are:

• To make calls on shareholders in respect of money unpaid on their shares

• To issue debentures

• To borrow money otherwise than through debentures

3

• To invest the funds of the company

• To make loans

Correspondingly, section 293 restricts the powers of the BoDs, by making them subject to the

consent of general meeting of the company, in respect of selling, leasing or disposing of the

property of the company; remitting debt due by the director; borrowing money to an extent

which exceeds the net worth of the company etc.

The Board of Directors is expected to meet once in a quarter and the quorum for a valid meeting

of the board is one –third of the total strength or two directors, which is higher. The power to

declare dividends is exclusive to the BoDs.

Section322 of the companies Act allows ‘ memorandum of association ‘ of a limited company to

provide for a director or directors with unlimited liability.

Managerially –Derived Expectations

The dimension relating to the managerially derived expectations of the Board of Directors role

seems to be of relatively recent origin. In more than two decades or so, industrial development

had been marked by far-reaching technological changes, leading to equally fundamental

competitive reorientation at the global level. As a result, many erstwhile great names in the

industry have been humbled. With such rapidly mounting changes and uncertainties, the role of

BoDs has begun to be viewed from much wider and long –term perspective beyond the

minimum requirements of the law. Probably, upto 1970’s, the duty of BoDs to superintend,

control and direct had gone by defaults. Stable environment had helped this key role to remain

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dormant. What is then the renewed ramifications of this role at present? These are meant to

ensure that.

• The enterprise continues to remain effective on the standpoint of technology parameter.

• The enterprise continues to achieve healthy market growth in competitive conditions.

• Divestments and diversification take place on sound lines.

• Long-term productivity and quality are never sacrificed at the alter of short term profitability

• Judicious earnings retention policy is adopted for financing growth, modernization, etc.

• Serious and sustained attention is adopted towards building a sound system of human values and

exalted corporate culture.

It is a common observation that BoDs function rather passively. Often the members are selected

not because of their knowledge and competence but because of their compatibility, prestige or

esteem in the community. Usually, the Chief Executive Officer or the group of promoters has

free reign in choosing the directors and in having them elected by the shareholder. The directors

thus selected often feels that they should go along with any proposal made by the CEO and his

group. Interestingly, the board members find themselves accountable to the very management

they are expected to oversee.

Over the recent past, however, lending institutions, financial media and corporate analysts have

seriously questioned the role of BoDs. The investors and government in general are better aware

of the role of the BoDs. Though the Companies Act throws some light on the powers of the

BoDs and the restrictions placed on those powers, it does not specify to whom they are

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responsible and what for. However, there is a broad agreement that BoDs appointed or elected by

the shareholders are expected to:

• Oversee the management of the company’s assets

• Establish or approve the company’s mission, objective, strategy and policies

• Review management actions and financial performance of the company

• Hire and fire the principal executive and operating officers of the company

An important issue in this context is: should BoDs merely direct or may they manage also? Many

experts and practicing top managers say that BoDs should only oversee and direct, and never get

involved with the detailed management. There are others who feel that, for direction to be

realistic and sensible, some in-depth involvement with details is necessary. The majority view,

however, is in favour of directors directing the affairs of the company and not managing them.

5.3 Responsibilities of BoDs:

The board is expected to act with “ due care”. That is, they “must act with that degree of

diligence, care, and skill which ordinarily prudent men would exercise under similar

circumstances in like positions”. If a director or the Board as a whole fails to act with due care

and, as a result, the company in some way, is harmed, the careless director or directors may be

held personally liable for the harm done.

Further, they may be held personally responsible not only for their own actions but also for the

actions of the company as a whole.

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In addition, directors must make certain that the company is managed in accordance with the

laws and regulations of the land. They must also be aware of the needs and demands of the

constituent groups so that they can bring about a judicious balance between the interest of these

diverse groups, while ensuring at the same time that the company continues to function.

5.4 Strategic Management: Role of the Board

According to Bacon and Brown, BoDs, in terms of strategic management, have three basic tasks.

• To initiate and determine: A board can delineate an organisation’s mission and specify

strategic options to its management.

• To evaluate and influence: A board can examine management proposals, decisions and actions;

agree or disagree with them; give advice and offer suggestions; develop alternatives.

• To monitor: By acting through its committees, a board can keep abreast of developments, both

inside and outside the organization. It can thus bring new developments to the attention of the

management, which it might have overlooked.

While the BoDs are not expected to involve itself in day-to-day operating decisions, they are

nonetheless expected to consider and give their views on all such matters that have long-term

connotations. In fact, such matters by convention are referred to the board. These relate to issues

such as introduction of new product, new technology, collaboration agreements, senior

management appointments and major decisions regarding industrial relations.

The directing function of the board has internal and external components. Internal components

relates to various actions taken by the executives and their implications for the organization,

including R&D, capital budgeting, new projects, new competitive thrust, relationship with

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financial institutions and banks, foreign collaborators, major customers and suppliers. External

component relates to identifying broad emerging opportunities and threats in the environment

and feeding them to the management so that “strategic mismatch do not occur”. The board

should see that the organization always remains in alignment with the social, economic and

political milieu.

5.5 Board Committees

The provision of section 292 of the Companies Act provides for delegation of powers by the

BoD to the Committee of Directors of the powers regarding (a) borrowing money for the

company otherwise than for debentures, (b) investing the funds of the company, and (c) making

loans by the company.

In practice, however, Boards do appoint –specific committees for in-depth exploration of certain

matters e.g., diversification project, shutting down a plant. These committees work for a

specified period and submit their views to the full board. There are standing committees, which

meet in the interval between the board meetings, and are expected to devote greater attention to

details in important matters arising from those functions. It is the outside directors who officially

comprise such committees. Some important committees usually set up by the board, comprising

outside directors are as follows:

• Audit committee: It consists of independent directors who report to the board. Usually the

committee acts as a link between the board and the external auditors. They look into the issues

raised by the external auditors in greater details. Some of the functions of the audit committee

are:

- To review the interim and final accounts in Toto.

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- To solve any problem they come across while completing the audit with due consultation

with the independent auditor.

- To make recommendations regarding the audit fees, selection and replacement of the

auditors.

• Remuneration committee: This committee reviews the remuneration packages of the executive

directors and other top-level managers. It consists of independent directors and drafts the

remuneration policy of the company, which checks the unreasonable increase in the executive

compensations.

• Nomination Committee: Nomination committee is usually set up to select new non-executive

directors. The chairman of the board heads the committee.

5.6 The Role of a Chairman

The role of the Chairman is to manage the board and ensure that its policies are put into practice

by the management. He must have a good knowledge of company’s financial position and

closely monitor its performance. The chairman has to work closely with the company secretary

to address legal issues.

With the knowledge of the way in which the company is managed and its financial standings, the

chairman has to play a proactive role. He should be in a position to identify the short comings

and see that the board discusses these. By being proactive the chairman can help the CEO take

corrective action before things get out of hand. Since the chairman leads the board, its for him to

maintain good relation between the board and the company’s shareholders. In the process of

maintaining such relationship he ensures that the board makes decision in accordance with the

interest of the shareholder and all other stakeholders of the company. Primarily the chairman has

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to cater to the internal needs of the board and its conduct. He also should maintain good relation

with the CEO and executive and non-executive directors.

Functions of the Chairman

Some of the other important functions of the chairman include:

• To act as a representative of the company

• To ensure that policies and practices are in place

• To see to it that directors make good decision

• To act firmly in times of crisis

• To upgrade the competence of director so as to meet the current and future needs of the

company.

5.7 The Role of CEO

The role of a CEO is to achieve the organizational objective, by efficiently running the

organization. He also needs to maintain close working relation with chairman and the directors.

His relation with the chairman requires a high degree of trust, respect and an ability to

communicate openly. On the other hand he should maintain cordial relationship with the

executive directors to ensure that they act in the interest of the whole organization. He needs to

motivate the directors in improving the performance of the organization.

Functions of the CEO

Apart for the above roles, a CEO should;

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• Present the company to major investors, media and the government

• Provide leadership and direction to all executive directors

• Assist the executive directors in formulating strategies proposals that have to be endorsed by the

board.

• Be a source of inspiration , leadership and direction to all the employees, customers and

suppliers

• Take firm decision when situation demands.

Non-Executive Directors

These are the directors, who do not hold an executive position in the organization. They are also

known as outside directors. These directors play a very important role in the governance of the

company. As these directors do not have any other (than remuneration) material pecuniary

relation or transaction with the company, its promoters, its management or its subsidiary, they

will have unbiased judgment on the workings of the board and the company.

5.8 Creating an Effective Board

The function of a board is very comprehensive. In practice, it could be said that the board is

responsible for laying down matters of principle and of accounting, statistical and management

procedures. It is also responsible for the decision of what product to make, which market to

penetrate, determination of manufacturing capacity, investment decision, cash flow, liquidity etc.

In summary, the directors are responsible for ensuring that the top management functions

effectively and that through the information system, proper reports are generated and information

is made available for both control and planning purposes.

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Ideally, the board of directors should be the heart and soul of a company. Whether a company

grows or declines depends very much upon the sense of purpose and direction, the values, the

will to generate customer satisfaction, and the desire to achieve, develop and learn, that emanates

from the board and the extent to which it is visibly committed to them.

The efficient board should be the one which is willing to identify, discuss and tackle barriers to

its own contribution. The board can be constrained or enhanced by the limitations or strengths of

its individual members.

While effectiveness may be influenced by a number of factors, the following provide a model

checklist:

• Do the board members share a common, clear and compelling vision? Are they committed to an

agreed and realistic strategy to the achievement of the vision?

• Have the necessary resources, processes, role, competencies, enabling technology and learning

capabilities for successful implementation been assembled?

• Whether special responsibilities for projects that stretch beyond a financial year, such as

strategic business developments, entrusted to select directors?

• When the company expands into a international network, whether the governance needs of the

new style entity are given a fresh look?

• When the role of chairman and the CEO are separated, whether there is mutual trust and respect

to supplement and complement each other’s responsibilities and contributions?

Activity

12

13

List some more functions of the Chairman and CEO, to improve the Corporate Governance of an

organization.

5.9 Summary

A group of outstanding individuals do not necessarily make an effective board. Directional

competence and contribution depends upon the interaction of a particular combination of people

and personalities in the boardroom. This sense of direction and purpose of the board will lead to

good governance and that will determine the growth of the enterprise.


1. Discuss the legal and managerial roles of BoDs.

2. Should the role of Chairman and CEO be merged? Explain.

3. What are the major attributes of creating an Effective Borad?


Gopalasamy. N. (1998). Corporate Governance : The New Paradigm, Wheeler Publishing,

Allahabad.

Balasubramanium N. (1997). ‘Towards Excellence in Board Performance’, Management Review,

January- March.

Various Committee’s Reports.

www.sebi.gov.in

www.dca.nic.in

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