PRINCIPLES AND PRACTICES OF

MANAGEMENT

Nature of Management

What is Management:

# Management is vast and extensive

# Concerned with human beings who are highly

unpredictable ! ! !

# Young developing discipline – concepts are continuously

changing.

Some definitions :

Lawrence A. Appley – Management is accomplishment of

results through the efforts of the other people.

H. Koontz – Management is art of getting things done

through and with people in formally organized groups.

G. Terry – Management is process of planning, organizing,

actuating and controlling to determine and accomplish the

objectives by the use of people and resources.

Mc. Farland – Management is process by which managers

create, direct, maintain and operate purposive organizations

through systematic, coordinated, cooperative human effort.

Sisk – It is the coordination of all resources through the

process of planning, organizing, directing and controlling in

order to attain stated objectives.

Importance of Management

# Optimum use of resources - Ensures optimum utilization of

resources at command. Creates right climate for employees to

put their best

# Effective leadership and motivation.

# Establish sound employee relations.

# Achievement of Organizational goals and objectives.

# Change and growth.

# Improves standard of Living.

# Joseph A. Schumpeter – referred to Management and

entrepreneurs as engine of growth.

# Drucker – Management ‘the life blood’ of an enterprise.

Management is crucial factor in economic and social

factors.

Management vs. Administration

# Administration is broader than management:

Administration: Overall determination of policies, setting of major objectives and laying out of broad programs as described by Haimann.

Administration is policy making function. Management is carrying out the policies.

Spriegal – Administrative is largely determinative and management is essentially executive.

American thought : Administrators think

Managers act.

# Administration is part of management:

According to English school of thought - Management is a

wider concept than administration.

Administration handles the current problems arising in

carrying out policies laid down by management.

Management is the rule making and rule enforcing body

and is all encompassing. Administration is part of it and an

implementing agency

This thought is represented by

EFL Brech, Henry Fayol and Kimball

# Management and Administration are identical:

William Newman, Harold Koontz, Dalton E. McFarland,

Earnest Dale – Hardly maintain any distinction.

Any effort to stretch the matter too far may be self

defeating and thoroughly misleading.

Compartmentalization hardly serves any useful purpose.

To resolve the controversy – Drucker suggested that

“Management” is applicable in business enterprise while

as “Administration” is applicable in government offices,

military organizations, social and cultural institutions.

# Management as Science:

Science is - Systematic body of knowledge

Scientific inquiry and Observation

Experimentation

Universal truths

Management is also body of knowledge – has no. of principles

studied and put to application.

It is a social science – deals with Human beings and their

behavior, which is unpredictable and defies experimentation.

It is not exact science like physics, chemistry and biology.

Therefore offers only guidelines for solving problems.

Manager vs scientist – scientist can afford to wait till complete information is available. Manager cannot afford. He has to decide based on whatever information available.

“Scientific Management” – When Taylor used the term, he was aware experimentation and verification of facts is not possible.

He used this as an organized body of knowledge.

# Management as an art:

Art is application of knowledge and personal skills ! ! !

How to do things creatively and skillfully.

Management uses Knowledge of management theory to

achieve results.

Management is also creative like other art.

Personalized : Like art it is also a personalized activity. Every

manager has his own way of managing people and things

based on his knowledge and experience.

Constant practice: Managers learn from mistakes . They

develop their skills through constant practice.

Therefore management is science as well as art.

Management as a Profession

Characteristics of a profession –

• Well defined body of knowledge

• Formal education and training

• Minimum qualification

• Representative body

• Service above self

• Ethical code of conduct.

Management as a profession –

1.Management has a well defined body of knowledge

2. Management education through training is possible now.

3. Minimum qualification is required to be a manager.

4. Representative body – there is no such body as of now.

5. There is no universal code of conduct at present. Although

certain trade associations and management associations

formulated ethical code for managers.

6. Service motto – In absence of a regulating body and code of

conduct managers often indulge in practices aimed at

maximizing their personal wealth.

Professionalization of management – Now it is gaining

importance slowly in India. Public sector is professionally

managed – in private sector it is happening now.

Arguments against

professionalization

• Improves knowledge in a systematic Manner• Improves professional status and prestige•Promotes managerial ethics•Promotes talent

• Formal qualification is difficult to set• Managers are known by performance•Managers are responsible to many groups ! •Competent education and training facilities do not exist

Levels of Management

# Top Management –

• Determines objectives and policies

• Designs the basic operating and financial structure of an

organization

• Provides guidelines and directions

• Lays down the standards of performance

• Maintains good public relations

# Middle Management –

• Interprets and explains the policies framed by the top

• Issues detailed instructions

• Participates in operating decisions

• Trains other managers

# Lower Management-

• Plan day-to-day operations

• Assigns job to workers

• Provide supervision and control over work

• Arranges material tools and equipment

• Maintains discipline

Chairman, CEO, President, MD etc

Functional Heads and immediate

Subordinates

Section Head, First Line

Managers, Supervisors

MMIMIDDLE

TOP

MIDDLE

LOWER

Managerial Skills

# Technical Skills: The activity to use specific knowledge,

methods and techniques in performing work.

Exa: Drilling Supervisor in Oil Exploration Company.

# Human Skills: Ability to understand, motivate and get along

with other people.

# Conceptual Skills: Ability to visualize the organization as a

whole, discern inter relationships among organization’s parts

and understand how the organization fits into the wider

context of the industry, community and the world.

Levels and Managerial Skills

TOP MANAGEMENT

MIDDLE MANAGEMENT

LOWER MANAGEMENT

Robert L. Katz Model

Characteristics of a Quality manager:

Successful managers have certain characteristics that

create a climate for success for themselves and their

subordinates. Some of the key traits are –

# Knowledge

# Decisiveness

# Ability to handle conflict

# Emotional stability

Evolution of Management

Development of Management has ancient roots.

# Pyramids and Great Wall of china – mega projects needed

management.

# 200 Years ago – Adam Smith talked about division of labor

and specialization and its advantages.

# However, study of management as science began recently,

especially after industrial revolution.

# Only last few decades it attracted attention of psychologists,

sociologists, anthropologists, mathematicians, political

scientists, economists and so on.

# Approaches by these scholars has created “ Confusion and chaos”. No wonder, Koontz described it as “Jungle”

# Koontz, O’Donnel and Weihrich suggested 11 approaches

In 1966 Stogdill suggested 18 approaches

In 1971 Hutchison suggested 5 approaches . . . . .

# To facilitate easy understanding – three broad approaches have been identified

• Classical Theory

• Neo - Classical Theory

• Modern theory

Classical Theory:

Classical means something traditionally accepted or Long-

established.

Does not mean they are static and outdated. Some of the

elements are still existing in one form or other.

1. Inter-related functions – such as planning, organizing,

staffing, directing and controlling – exercised in sequential

form and repeated over and over again to bring order.

2. Guiding principles – in order to crystallize, the increasing

knowledge and thinking the writers have developed certain

principles based on practical experience.

3. Bureaucratic structure: for maximizing efficiency, work

must be logically divided into simple, routine and repetitive

tasks. Then grouped according to work characteristics and

arranged in the form of departments headed by an executive

who has subordinates directly reporting to him.

Command should flow from only one individual ; everybody

should have only one boss.

Work must be allocated to individuals based in job demand

and individual’s ability.

Organizations are run through rules, regulations and

procedures.

The whole structure takes the shape of a pyramid

Top Management

Middle management

Supervisory

Management

Pyramid Structure and elements of classical Theory

EELEMENTS

•The Hierarchy•Division of Labor and specialization•The scalar principle•Unity of command•Departmentalization•Span of control•Parity of authority and responsibility•Centralization vsDecentralization•Line and staff relationship

4. Reward and punishment nexus:

“ Follow the rules, obey the orders, show the results and get the rewards”

Emphasis was laid on efficient use of resources while producing results.

Branches of Classical Theory:

Bureaucracy ( by Weber )

Scientific Management ( by Taylor )

Administrative theory ( by Fayol )

CLSSICAL SCHOOL

Bureaucracy :

A structure with highly routine operating tasks achieved

through

- specialization,

- very formalized rules, regulations and procedures and

impersonal,

- tasks that are grouped into functional departments,

- centralized and rigid hierarchy of authority - responsibility

relations,

- narrow spans of control and

decision making that follows the chain of command.

Elements of Bureaucracy:

• Hierarchy

• Division of work

• Rules, regulations and procedures

• Records

• Impersonal relationships,

• Administrative class

Advantages:

• Specialization

• Rationality

• Predictability

• Democracy

Disadvantages:

• Rigidity

• Impersonal

• Displacement of objectives

• Compartmentalization of activities

• Empire building

• Red tape

Scientific Management :

# An approach that emphasizes the scientific study of

work in order to improve worker efficiency.

# It arose from the need to increase productivity in US due

to shortage of skilled labor in early 20th Century.

# To enhance productivity, ways had to be found out –

• Work elimination

• Combining some parts

• Sequencing the tasks

• Is there one best way of doing job.

Frederick W. Taylor (1890~1930) undertook scientific study at Bethlehem Steel at Pennsylvania to answer these questions.

He offered increase in daily pay $ 1.15/day to $1.85/day to a worker to follow his instructions.

Taylor experimented with rest periods, walking speed, carrying positions and other variables. After a long period of scientifically trying various combinations of procedures, techniques and tools, Taylor succeeded in finding out “one best way” to perform the task and realized the goals set by him. He trained other workers.

Thus by putting the right person on the job with correct tools and equipment, by having workers follow Taylor’s instructions exactly and by motivating workers through economic incentives of higher daily wage – Taylor achieved significant improvements in productivity.

Basics of Scientific Management:

• Each task must be scientifically designed – to replace old methods.

• Workers must be scientifically selected and trained.

• Bring scientifically designed job and worker together and match them.

• There must be division of labor and cooperation between management and workers.

Taylor summed up his approach as following:

1. Science, not rule of thumb

2. Harmony, not discord

3. Cooperation, not individualism

4. Maximum output in place of restricted output

5. Develop each man to his greatest efficiency and prosperity

6. Equitable division of work and responsibility between

management and labor.

Key Concept:

1. Scientific task planning: Management should decided in

advance as to what work is to be done, how, when, where and

by whom.

2. Time and motion studies: The time study would indicate

minimum time required to do a job. Time standards are

developed by these studies.

3. Standardization: Standards have to be set in advance for the

task, materials, work methods, quality, time and cost etc. This

helps in simplifying the process of production, reducing waste

and improving quality.

4. Differential piece rate system: Taylor advocated differential

piece rate system based on actual performance.

5. Functional Foremanship: In order to achieve better

production control, Taylor advocated functional foremanship,

where the factory is divided into several components, each in

charge of a specialist –such as route clerk, instruction card

clerk, cost & time clerk, gang boss, inspector , repair boss and

disciplinarian etc. These functional specialists plan and give

expert advice.

Contributions:

# Conservation and saving – adequate utilization of every

piece of resource.

# Specialization and division of labor brought about second

Industrial Revolution in America and other developing

nations.

# American Production Miracle is result of Scientific

Management.

# Stress on work design encouraged managers to pursue “one

best way” philosophy and achieve the tasks with minimum

effort and cost.

Limitations:

1. Exploitative device – Has two objectives; increasing

workers’ productivity and improve workers economic

welfare. While first objective was achieved, the second

objective never got realized.

2. Depersonalized work – Standardized jobs led to straight

jacket. Workers made to repeat the same operations everyday.

This produced boredom and monotony.

3. Unpsychological – No accurate information as to how

workers’ efficiency to be measured and how wages are to be

given.

4. Undemocratic – Drucker questioned the idea of managers

planning and workers loaded with boring and routine work. It

overshadows workers independence. Treats workers as

unthinking animals.

5. Anti-social – workers are treated as economic tools only.

According to Myers it aims at excluding the average workman

from field of work as far as possible.

6. Unoriginal – Hoagland questioned the originality. Later

research into Bethleham Steel records and other sources

indicated that Taylors’ report was almost lie.

7. Unrealistic – Taylor believed that workers are motivated by

material benefits. Current research indicates that employees do

not work for money alone. They seek job satisfaction, growth

opportunities, challenging work, recognition ete.

Administrative Theory: Henry Fayol ( 1841~ 1925 )

# About the time when Taylor was developing Scientific

Management in US, Henry Fayol was revolutionizing managerial thinking in France.

# He was mining engineer with Coal and Iron combine, where he spent his entire working career.

# He took over the company when it was near bankruptcy in 1888 and turned into financially strong company.

# Based on his own experience, he developed the administrative theory, explained the process of management from top managerial perspective.

# He is acknowledged as father of classical management

school, not because he was first to investigate managerial

behavior, but because he was the first to systematize it.

# He believes that sound managerial practice falls into certain

patterns that can be identified and analyzed. He believed

that management can be taught , once its basic principles

were understood and general theory of management

formulated.

Fayol’s Six Activities:

Fayol began by classifying business operations into six

major activities:

# Technical ( Production )

# Commercial ( Buying and Selling )

# Financial ( Use of Capital )

# Security ( Protection of Property )

# Accounting ( Keeping Financial records )

# Managerial

Since first five were understood by managers, Fayolfocused on the last one.

Management Functions :

Fayol argued that managers should perform five functions –

1. Planning – Devising a course of action that will help

organization to meet its objectives.

2. Organizing – Mobilizing the material and human

resources of the organizations to put the plan into effect.

3. Commanding – Giving directions to employees so that

they perform the needed tasks.

4. Coordination – Make sure that the resources and

activities are working harmoniously.

5. Controlling – Monitoring the plans to ensure that they

are being carried out properly.

Principles of Management:

At the operating level, Fayol asserted that managers should

apply fourteen principles. These principles can be applied

in all types, functions, levels, and sizes of organizations.

1. Division of work – Principle of specialization. Applies to all

kinds of work. Increases output making employees more

efficient.

2. Authority and Responsibility – Right to give orders and

power to obtain obedience. Official and personal authority.

3. Discipline – Respect to rules and regulations.

4. Unity of Command – Receiving command from one

supervisor.

5. Unity of direction – “ One manager one plan” One manager

to have one direction.

6. Subordination of individual interest to common good –

Organizational interest above personal interest. Manager must

set an example through his good conduct and behavior. In

case of conflict scarify personal interest.

7. Remuneration of personnel – Fair compensation for all.

Fayol did not favor profit sharing with workers but advocated

for managers.

8. Order – Materials and people should be at right place and

right time.

9. centralization – Decision making power should be in right

proportion.

10. Scalar chain – The graded chain of authority from top to

bottom through communication flow is termed as ‘Scalar

Chain’

11. Equity – Employees must be dealt fairly. Equity is

combination of justice and kindness.

12. Stability of tenure- Stability is essential because time is

required for an employee to get used to new work to succeed

in doing it well.

13. Initiative – Employees must be encouraged to think

through to implement a plan, even though some mistakes may

result. Opportunity to perform independently is essential

component of employee growth and development.

14. Esprit de corps – “Union is strength” Promoting team

spirit will give organization a sense of unity.

Managerial Skills:

Fayol emphasized the need for following skills-

1. Physical ( Health and vigor )

2. Mental ( ability to understand, learn; apply judgment and

adapt to different situations )

3. Moral ( Energy, initiative, firmness, loyalty, tact and dignity)

4. Educational ( Acquaintance with matters not related to the

function performed)

5. Technical ( Specialized knowledge relating to one’s area of

specialization, especially about machines and work processes)

6. Experience ( Related to the work carried out )

Contribution of Fayol:

1. All operations in business can be classified into six major

heads.

2. Main elements of Management

3. Proposed fourteen principles of management which could

be applied universally

He always believed that managerial ability could be

applied to the home, the church, the military, the school,

politics as well as to industry.

Limitations:

1. Lack of empirical evidence – The theory is not supported

by any data or empirical evidence.

2. Neglect of human factor – Views human beings as passive

and capable of reacting to rules and economic incentives.

Human attributes such as emotion, attitude, creativity

have been totally ignored.

3. False assumptions – assumes that all organizations can be

managed by the same set of rules and principles. It does

not recognize differences. Rules have to be applied

carefully looking at the internal and external dynamics of

the organization.

4. Pro-management bias – It is more concerned with what

managers should know and do rather than with a more

general understanding of managerial behavior.

5. Historical Significance – It has only historical significance.

It is more appropriate for the past ( environment was

stable and predictable) than for the present ( environment

is turbulent, competent and continuously changing) .

Neo – Classical Theory:

Also known as Human Relations theory –

# Feeling of incompleteness.

# Shortsightedness in Scientific and Administrative theories.

# Appeared as if human element is some where neglected.

Hawthorne Experiments:

Conducted in Western Electric Company at Hawthorn

plant near Chicago – during 1920s and early 1930s.

1. Changing intensity of lighting in test group

2. Keeping every thing constant in control group

# Repeated with another test group – giving more facilities to

test room. Over a period both control and test room

performance have gone up.

Why ? ? ?

Hawthorn Effect ! ! !

• Workers knew that they are part of an experiment.

• Given special attention and treatment

• Consulted for changes against imposed from above

• Resulted in stimulating feeling of group pride and

belongingness.

# Interviewing program By Mayo:

Mayo has interviewed many employees and patiently

listened to them. Discussed their personal problems also.

Such as –

• Children education and wellbeing

• Family’s ration expenses

• What friends think their job

• And so on.

# Bank wiring room Experiment resulted in no gain in

results.

Human relations – Key concepts

# Employees are not only economic beings, but also

social and psychological beings.

# Man is motivated by more than satisfaction of

economic needs.

# Emphasis should be on creating a humanistic or

informal organization rather than mechanistic or

formal organization.

# Organization should be democratized and should

feel part of a “one big happy family”

Human Relations in Action

• The Individual – Each person is unique. Each is bringing

certain attitudes, beliefs and way of life and also skills –

technical, social and logical.

The individual The work environment

The work Group The leader

• The work group – Work is a social experience and most

workers enjoy membership of social groups. Managers

should recognize this to improve relations at work. Good

interpersonal and inter group relationships among people

will obtain productivity gains.

• The work environment - Managers have to create positive

work environment where employee feels prior to achieve

organizational goals. i) Goals are clearly defined ii)

Incentives are properly used iii) Decisions are timely and

participative iv) conflicts openly resolved v) Work is

interesting and growth oriented.

• The leader – Behave to generate respect, able to adjust to

various personalities and situations.

# Participative Climate:

• Workers discuss with supervisors and influence

decisions that effect them - is major aspect of

human relations theory.

• Before changing any thing the group is consulted.

Their comments are listened and discussed.

• The group unquestionably develops a sense of

participation.

Refinements in neo- classical theory :Basics Classical Theory Neo-classical Theory

Structure Impersonal, Mechanical Orgn. is a social system

Behavior OB is a product of rules Product of feelings, sentiments

and Regulations. and attitudes

Focus Work & economic needs Small groups, emotional and

human qualities

Emphasis Maximize rewards, Personal, security and social

Emphasis on order needs .

and rationality

Practices Authoritarian, rules Democratic practices,

regulations participation, Recognizes

importance of dignity and

Values.

Results Work alienation, Happy employee & trying

dissatisfaction. to produce more.

Criticisms :

- Philosophy - Economists fell that it develops loyalities to their own self interests. Preaching collaboration instead of competition and human relations will ultimately reduce

efficiency.

- Scientific validity – Research by Mayo and associates had many weaknesses in design, analysis and interpretation.

- Short-sighted – The approach lacks adequate focus on work. Overemphasis on psychological aspects at the cost of structural and technical aspects. Tends to neglect economic dimension of work satisfaction.

- Over concern with Happiness – studies have failed to show consistent relation between happiness and productivity. Quite possible to have lot of happy but unproductive employees.

- Anti individualist. Individual losing to the group !

Systems Approach

# Systems theory is the “ Big picture” approach that overcomes the narrow approach.

# System’s theory tells us activity of an organization effects every other part. Job of manager is to ensure that all parts of the organization are coordinated internally.

# System’s view of management recognizes that regardless of how efficient the production department might be, if the marketing department does not anticipate the consumer tastes and work with the product development department in creating what consumer want – the organization as a whole will suffer.

# System theory tries to solve problems by diagnosing within a framework of inputs, transformation processes , outputs and feed back.

An open system

EIN

ENVIRONMENT

INPUTSMEN,MATERIAL,

MONEY, TECHNOLOGY

PROCESSESACTIVTIES,

OPERATIONS

OUTPUTSGOALS,

SALES/PROFITS

TARGETS

System Vocabulary:

• System : A set of inter-related parts ( sub systems ) which are mutually related to each other. A change in one part may lead to change in other parts.

• Sub system: Parts which make up the whole system are called sub-system. Basically there are five sub systems in an organization – 1. Goal sub-systems (Orgn., team and individual) 2. Technical Subsystem( tools, equipment, skills, knowledge) 3.Structural sub-systems (Authority and relationships) 4.Managerial sub-system( Plan, lead, Control etc) 5.Psychosocial sub-system( Psychological and social factors influencing people at work)

• Synergy : “Whole is greater than sum of the parts.” Challenge is getting all elements of an organization functioning together for optimal output.

• Open and closed system : A system is considered open if it

interacts with environment; considered closed if it does

not.

• System boundary : Every system has boundary that

separates it from environment. Boundary is rigid if it is

closed system and flexible in an open system.

• Flow : Open system receives inputs from its environment

which are transformed which are transformed into

outputs. For a business firm inputs would be information,

materials, labor, capital etc. Undergo transformation

processes within the system ( operations that alter them )

and exit the system as outputs

Contingency Approach

# Also called situational approach.

# Research has found that non of the theories are universal in

their applicability. No single way is best for all occasions.

# Contingency theorists ( Selzenic, Burns and stalker,

Woodward, Lawrence and Lorsch, James Thomson and

others) that the method of managing must differ, since

organizations differ in character and content.

# “ It depends” – often managers answer for most questions.

# Contingency approach is both analytical and situational

with the purpose of developing a practical answer to the

question at hand.

* * * * *

ETHICS

“Ethics” is a Greek word Meaning “Character” –

norms, morals and ideals prevailing in a group,

society.

# Standardized form of conduct/behavior understood

and accepted in a particular field of activity.

# Moral principles or set of values. They give an idea

of what is right or wrong, true or false, fair or unfair,

just or unjust, proper or improper

# Ethics is fundamental, personal trait which one

adopts and follows as a guiding principle or

basic Dharma in one’s life.

# Most cases runs parallel to law and shows due

consideration to others’ rights, interests in a

civilized society.

# “Compassion” on other hand induces a person to

give more than what ethics might demand.

# Every rational human being practices ethics for

his own and others’ wellbeing and society

Business Ethics

# Rules of biz conduct, by which propriety (correct

conduct) of biz activities may be judged. Ethical

principles are dictated by society and underlie

broad social policies.

# Biz ethics also relate to the behavior of the

managers. Focus is in people, how individuals

fulfill the ethical requirements of business.

# Deepak Parekh : “Do not do something that you

would be ashamed of, if it becomes public”

# Carter McNamara Defined

“Biz ethics is generally coming to know what is right or wrong in the work place and doing what is right, in regard to effects of products/services and in relationships with stake holders”

# It is now become a management discipline, especially since the birth of the “Social responsibility of Business” to society and to all stakeholders.

# Robert Kreitner - “Highly publicized accounts of corporate misconduct in recent years have lead to wide spread cynicism about biz. Ethics”

# Gallop Poll - 18% professionals rated high in ethics in USA.

Principles of Business Ethics

Four principles of ethics ( Decision Making Criteria)

1. Utilitarian Criteria: Decisions are made solely on the

basis of their outcomes or consequences. The goal is to

provide greatest good for the greatest number.

For instance, firing employees, raising prices, selling products

with questionable quality, closing down plants, laying off large

number of employees and similar decisions can be justified in

utilitarian terms.

Decision makers tend to feel safe. A lot of questionable

actions can be justified as in the best interests of “the

organization”.

Many argue that this perspective needs to change.

2. Rights Criteria: Another critical criteria is to focus on rights. To make decisions consistent with fundamental liberties and privileges as laid in the constitution. Decisions to respect and protect the basic rights of individuals.

3. Focus on Justice Criteria: This requires individuals to impose and enforce rules fairly and impartially so there is equitable distribution of benefits and costs.

It looks at issues from the perspective of the other person’s or affected parties. The questions to be asked are :

i) Have you defined the problem accurately?

ii) Would you define in the same way if you stood on the other side.

iii) To whom and what is your loyalty as a person and as a member of the organization.

iv) Whom will the decision injure?

v) Can you discuss with affected party?

vi) Will the decision stand the test of time?

4) Ethics of care:

Advocated by Manuel G.Velasquez. Individual cannot exist in isolation from caring relationship of others.

Relationships are necessary for self to exist and should be maintained and nurtured.

Ethics of care means that we have an obligation to exercise special care towards those particular persons with whom we have valuable close relations particularly relations of dependency - key concept in “ethics of care”

Role of ethics in Business

1.Ethics have a considerable influence - Ethics help the

market to it’s best.

2. The government, laws and lawyers cannot resolve some

key problems of business and protect the society :ethics can.

Ethics only can resolve futuristic issues such as technology

races ahead much faster than the government regulations.

3.Ethical activity is valuable in itself, because it enhances the

quality of lives and the work we do. Business has an ethical

responsibility for fairness for humanity, e.g. employees.

Conceptual Model for Business Ethics

Peter Madsen explains that business ethics can broadly be

divided into separate areas. The three “ Cs” model.

1. Compliance of rules:

• Laws

• Principles of morality

• Policy of the company and fairness.

2. Contribution the business can make to society:

• The core values

• Quality of one’s products and services

• By providing jobs to people

• Use fullness of activities to surrounding community and

• Quality of work life (QWL) influenced by ethical and moral values.

3. The consequence of business activity:

• Towards environment inside the plant and outside the organization

and community. e.g Union Carbide - Bhopal tragedy.

• Social responsibility towards share holders, bankers, suppliers,

customers and employees of the organization.

• Good public image. Sound business practices so that public image is

not tarnished.

Social responsibility of Business

Business depends on society for various needs. Such as

money, people and skills. Also depends on society for

markets where products are sold.

In other words, it depends on society for it’s existence,

sustenance and growth.

Being so much dependent, business has definite

responsibility towards society.

Therefore social responsibility of business means the obligation of business enterprise to ensure policies are made and implemented in line with values and objectives of the society.

Changing views of management responsibility

There has been changes in attitude of managements in taking social responsibility in the past century.

Phase-1: Profit maximizing management – This derives strength from Adam Smith’s “Wealth of Nations” , entrepreneurs produce what people want and they want profit.They produce more for self interest to earn more profit and benefit all. Thus competition brings down prices. “What is good for business is good for country”

The classical economic doctrine of maximizing profits was against corporate social responsibility.

Phase-2: Trusteeship management - It began with diffusion of corporate responsibility as shareholders. So managers are not only to maximize profits, but also serve as trustees of employees, stock holders, suppliers, customers and public at large. They emphasized concern for the interest of others

as well as their own. The change in society’s attitudes and

expectations is reflected in the socio-economic model of

business. This model views business as a sub-system of

society.

Phase-3 :Quality-of-Life Management – The values of QOL

management contrasts with both the profit maxi miser and

trustee manager. Now the essential equation becomes “what is

good for society becomes good for the company”. While

accepting profit as essential, the QOL management would

neither produce nor sell unsafe or shoddy goods.

It also considers government as a partner in a joint effort to

solve society’s problems.

Modern View: A case for social responsibility.

Peter Drucker argued that management should assume social

responsibility. Thus it is important for management to consider

the impact of every business policy and action upon society. It

has to consider the actions are likely to promote the public

good.

Why business should assume social responsibility

Business plays a very significant role in economic, social, political and technological affairs and owes responsibilities to all segments of society.

Five broad reasons:

1. Responding to demands of society – as business grows, public takes more interest in it, as it has a greater impact on the community. Managers need to respond so as to maintain public image of their company.

2. Longer-run self- interest of business – Concern for employees can harmonize with company’s best interests. Responsibilities to share holders for attracting investments. Avoiding environmental pollutions.

3. Moral justification – Businesses now tend to participate in

the development of better world.

4. Ethical behavior and generation of profits – for share

holders is not incompatible.

5. All stake holders have a “stake” in companies because they

can be harmed, if company behaves unethically.

Government has enacted number of laws to check these

practices and to bring in an element of ethics into business.

Social responsibility Approaches

1) Social Opposition – Feel no obligation to society.

2) Social Obligation – Obligation only to obey the laws.

3) Social response position – Go beyond legal requirements.

4) Social contribution – Have deep obligation to society.

Responsible citizen eager to contribute to the improvement

of the society.

Business and its interest groups

Two broad categories –

1. Internal interest groups

- Owners

- Employees

2. External interest groups

- Consumers

- Government

- Society

- Creditors, Suppliers, Distributors, Dealers.

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