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Principle of Management

1st Semester

BTTM

By

Mr. Narayan Poudel

1. Introduction

Tribhuvan UniversityKathmandu, Nepal

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Part 1: Introduction to Management

INTRODUCTION

Management is a vital aspect of the economic life of man, which is an organised group activity. It is considered as the indispensable institution in the modern social organization marked by scientific thought and technological innovations. One or the other form of management is essential wherever human efforts are to be undertaken collectively to satisfy wants through some productive activity, occupation or profession.

It is management that regulates man's productive activities through coordinated use of material resources. Without the leadership provided by management, the resources of production remain resources and never become production.

Management is the integrating force in all organized activity. Whenever two or more people work together to attain a common objective, they have to coordinate their activities. They also have to organize and utilize their resources in such a way as to optimize the results. Not only in business enterprises where costs and revenues can be ascertained accurately and objectively but also in service organizations such as government, hospitals, schools, clubs, etc., scarce resources including men, machines, materials and money have to be integrated in a productive relationship, and utilized efficiently towards the achievement of their gals. Thus, management is not unique to business organizations but common to all kinds of social organizations.

DEFINITION OF MANAGEMENT

Although management as a discipline is more than 80 years old, there is no common agreement among its experts and practitioners about its precisenition. In fact, this is so in case of all social sciences like psychology, sociology, anthropology, economics, political science etc. As a result of unprecedented and breath-taking technological developments, business organizations have grown in size and complexity, causing consequential changes in the practice of management. Changes in management styles and practices have led to changes in management thought. Moreover, management being interdisciplinary in nature has undergone changes because of the developments in behavioral sciences, quantitative techniques, engineering and technology, etc. Since it deals with the production and distribution of goods and services, dynamism of its environments such as social, cultural and religious values, consumers' tastes and preferences, education and information explosion, democratization of governments, etc., have also led to changes in its theory and practice. Yet, a definition of management is necessary for its teaching and research, and also for improvement in its practice.

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Many management experts have tried to define management. But, no definition of management has been universally accepted. Let us discuss some of the leading definitions of management:

"Management is an art of knowing what is to be done and seeing that it is done in the best possible manner." (planning and controlling)- F.W. Taylor (father of scientific management)

"Management is to forecast, to plan, to organize, to command, to coordinate and control activities of others." - Henri Fayol (father of modern management)

"Management is the process by which co-operative group directs actions towards common goals."- Joseph Massie

"Management is that process by which managers create, direct, maintain and operate purposive organisation through systematic, coordinated and cooperative human efforts." – McFarland

"Management is the coordination of all resources through the process of planning, organising, directing and controlling in order to attain stated goals." -Henry Sisk

"Management is a social and technical process that utilises resources, influences human action and facilitates changes in order to accomplish an organization's goals."- Tho Harmann, William Scott

"Management is a process of working with and through others to achieve organizational objectives in a changing environment, central to this purpose is the effective and efficient use of limited resources."

Peter F. Drucker defines, "management is an organ; organs can be described and defined only through their functions".

According to Terry, "Management is not people; it is an activity like walking, reading, swimming or running. People who perform management can be designated as members, members of management or executive leaders."

Ralph C. Davis has defined Management as, "Management is the function of executive leadership anywhere."

Harold Koontz says, "Management is the art of getting things done through and within formally organized group."

William Spriegal, "Management is that function of an enterprise which concerns itself with direction and control of the various activities to

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http://en.wikipedia.org/wiki/Henri_Fayol

attain business objectives. Management is essentially an executive function; it deals with the active direction of the human effort."

Sir Charles Reynold, "Management is the process of getting things done through the agency of a community. The functions of management are the handling of community with a view of fulfilling the purposes for which it exists."

E.F.L. Brech, "Management is concerned with seeing that the job gets done, its tasks all centre on planning and guiding the operations that are going on in the enterprise."

Koontz and O'Donnel, "Management is the creation and maintenance of an internal environment in an enterprise where individuals, working in groups, can perform efficiently and effectively toward the attainment of group goals. It is the art of getting the work done through and with people in formally organized groups."

James Lundy, "Management is principally a task of planning, co-ordinating, motivating and controlling the efforts of other towards a specific objective. It involves the combining of the traditional factors of production land, labour, capital in an optimum manner, paying due attention, of course, to the particular goals of the organization."

Wheeler, "Management is centered in the administrators or managers of the firm who integrate men, material and money into an effective operating limit."

J.N. Schulze, "Management is the force which leads guides and directs an organization in the accomplishment of a pre-determined object."

Oliver Scheldon, "Management proper is the function in industry concerned in the execution of policy, within the limitst up by the administration and the employment of the organization for the particular objectives set before it."

Keith and Gubellini, "Management is the force that integrates men and physical plant into an effective operating unit."

Newman, summer and Warren, "The job of Management is to make co-operative endeavour to function properly. A manager is one who gets things done by working with people and other resources in order to reach an objective."

G.E. Milward, "Management is the process and the agency through which the execution of policy is planned and supervised."

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Ordway Tead, "Management is the process and agency which directs and guides the operations of an organization in the realizing of established aims."

Mary Parker Follett defines management as the "art of getting things done through people". This definition calls attention to the fundamental difference between a manager and other personnel of an organization. A manager is one who contributes to the organization’s goals indirectly by directing the efforts of others – not by performing the task himself. On the other hand, a person who is not a manager makes his contribution to the organization’s goals directly by performing the task himself.

Actuating means that managers motivate and direct subordinates. Controlling means that managers attempt to ensure that there is no deviation from the norm or plan. If some part of their organization is on the wrong track, managers take action to remedy the situation.

To conclude, we can say that various definitions of management do not run contrary to one another. Management is the sum-total of all those activities that

(i) Determine objectives, plans, policies and programmers(ii) Secure men, material, machinery cheaply (iii) Put all these resources into operations through sound organization (iv) Direct and motivate the men at work, (v) Supervises and control their performance and (vi) Provide maximum prosperity and happiness for both employer and

employees and public at large.

FEATURES/CHARACTERISTICS OF MANAGEMENT

1. Achieving the objectives: An organization comes into existence to attain certain objectives. Management deals with the achievement of these objectives. A manager success is measured by the extent to which these objectives are achieved. Hence goal setting and goal attainment are the strategic parts of a manager’s job. Objectives provide the standard against which the performance can be evaluated. A manager’s efficiency and tact can be measured by his capability of setting goals and achieving them.

2. Working with others: organizational goals are achieved with the joint effort of people. Therefore, the managerial challenge lies in working with people and managing group efforts. Management can provide effectiveness to human efforts only when team or group activities are managed properly. The emphasis on teamwork is very important. It involves a working environment in which team members interact with each other. Mangers would fail in these works if they are poor in interpersonal relations, communication, coordination, and adjustment. The basic elements in teamwork are

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motivation and empowerment. These qualities and skills of managers are, therefore the hallmarks of effective teamwork and organizational effectiveness.

3. Attaining Efficiency and Effectiveness: Efficiency is defined as “getting things right”. Efficiency is the managerial ability to minimize or optimize the use of organizational resources in attaining the objectives. Organizations are efficient when managers minimize the amount of input resources and the time to produce a given output of goods and services. Cost benefit ration measure such efficiency of management. Effectiveness on the other hand is defined as “doing the right things”. This means the ability of management to achieve the objectives. Organizations are effective when managers choose appropriate goals and then achieve them. Efficiency and effectiveness are the twin pillars of managerial success. These are also the bases of competitive advantage of organization. Therefore the managers should work to make intensive use of a variety of individual level and organizational level resources to accomplish the expected outcomes.

4. Adopting Situational Approach: The most effective and appropriate way of managing an organization depends up to the particular circumstances of each case. The implication here is that each case will be different. Therefore the solution to look for will also be different. Organizations generally have systems and rules for structures, leadership styles planning functions and other management practices. However the more challenging aspects of management can be done in a better way if situational factor are considered. The contingency approach to management suggests that there will be never a generic solution to any particular problem. Hence the management decision making depends up to the different circumstances faced on each occasion.

5. Coping with the Environment: The effectiveness of management also lies in its ability to cope with the changing environment. There are several internal and external forces influencing organizations. External environment is the most powerful influence organization. The changes taking place in the social –cultural, lead, political, technology and economic environment after organizations in various ways. The globalization movement is developing very fast. The globe has been shrinking every day. Consumerism, environmentalism and human rights movements have been awakening the consumers find their rights. These forces today surround managers. These developments taking place in the environment has been reshaping management practices.

PRINCIPLE OF MANAGEMENT

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Henry Fayol, a French industrialist, developed the theory of management. According to him, managerial excellence is technical ability and can be acquired. He developed theories and principles of management which are universally accepted and make him universalistic. He was pioneer of the formal education in management. Fayol's principles of management meet the requirements of modern management. Henry Fayol, offered fourteen principles of management for the first time in 1916. During the period of 1920-40 in the U.S. many authors did hard work in developing and testing various principles of management. Today, there is a very lengthy list of management principles and it is not possible to give an exhaustive lot of these management principles. Here, we are giving some important principles of management. HENRY FAYOL'S PRINCIPLE OF MANAGEMENT

Followings are the 14 principles of management developed by the Henry Fayol:

1. Division of Work:According to Henry Fayol under division of work, "The worker always on the same post, the manager always concerned with the same matters, acquire an ability, sureness and accuracy which increases their output. In other words, division of work means specialization. According to this principle, a person is not capable of doing all types of work. Each job and work should be assigned to the specialist of his job. Division of work promotes efficiency because it permits an organizational member to work in a limited area reducing the scope of his responsibility. Fayol wanted the division of work not only at factory but at management levels also.

2. Authority and Responsibility: Authority and responsibility go together or co-existing. Both authority and responsibility are the two sides of a coin. In this way, if anybody is made responsible for any job, he should also have the concerned authority. Fayol's principle of management in this regard is that an efficient manager makes best possible use of his authority and does not escape from the responsibility. In other words when the authority is exercised the responsibility is automatically generated.

3. Discipline: According to Henry Fayol discipline means sincerity about the work and enterprise, carrying out orders and instructions of superiors and to have faith in the policies and programs of the business enterprise, in other sense, discipline in terms of obedience, application, energy and respect to superior. However, Fayol does not advocate warming, fines, suspension and dismissals of worker for maintaining discipline. These punishments are rarely awarded. A well disciplined working force is essential for improving the quality and quantity of the production.

4. Unity of Command: A subordinate should take order from only one boss and he should be responsible and accountable to him. Further he claimed that if the unit of command is violated, authority is undermined, disciplined in danger, order disturbed and stability threatened. The violation of this principle will face some serious consequences. In this way, the principle of unity of command provides the enterprise disciplined stable and orderly existence. It creates

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harmonious relationship between officers and subordinates, congenial atmosphere of work. It is one of the Fayol's important essential principles of management.

5. Unity of direction: Fayol advocates "One head and one plan" which means that group efforts on a particular plan be led and directed by a single person. This enables effective co-ordination of individual efforts and energy. This fulfils the principles of unity of command and brings uniformity in the work of same nature. In this way the principle of direction create dedication to purpose and loyalty. It emphasizes the attainment of common goal under one head.

6. Subordination of individual interests to general interests: the interest of the business enterprise ought to come before the interests of the praise individual workers. In other words, principle of management states that employees should surrender their personnel interest before the general interest of the enterprise. Sometimes the employees due to this ignorance, selfishness, laziness, carelessness and emotional pleasure overlook the interest of the organization. This attitude proves to be very harmful to the enterprise.

7. Fair Remuneration to employees: According to Fayol wage-rates and method of their payment should be fair, proper and satisfactory. Both employees and ex-employers should agree to it. Logical and appropriate wage-rate and methods of their payment reduces tension and differences between workers and management, create harmonious relationship and a pleasing atmosphere of work. Further Fayol recommends that residential facilities be provided including arrangement of electricity, water and facilities.

8. Centralization and Decentralization: There should be one central point in the organization which exercises overall direction and control of all the parts. But the degree of centralization of authority should vary according to the needs of situation. According to Fayol there should be centralization in small units and proper decentralization in big organization. Further, Fayol does not favor centralization or decentralization of authorities but suggests that these should be proper and effective adjustment between centralization and decentralization in order to achieve maximum objectives of the business. The choice between centralization and decentralization is made after taking into consideration the nature of work and the efficiency, experience and decision-making capacity of the executives.

9. Scalar chain: the scalar chain is a chain of supervisors from the highest to the lowest rank. It should be short-circuited. An employee should feel the necessity to contact his superior through the scalar chain. The authority and responsibility is communicated through this scalar chain. Fayol defines scalar chain as "the chain of superiors ranging from the ultimate authority to the lowest rank." The flow of information between management and workers is a must. Business opportunities must be immediately avoided of. So we must make direct contact with the concerned employee. Business problems need

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immediate solution, so we cannot always depend on the established scalar chain. It requires that direct contact should be established.

10.Order: According to Fayol there should be proper, systematic and orderly arrangement of physical and social factors, such as land, raw materials, tools and equipments and employees respectively. As per view, there should be safe, appropriate and specific place for every article and every place to be used effectively for a particular activity and commodity. In other words, principles that every piece of land and every article should be used properly, economically and in the best possible way. Selection and appointment of the most suitable person to every job. There should be specific place for everyone and everyone should have specific place. This principle also stresses scientific selection and appointment of employees on every job.

11.Equity: The principle of equality should be followed and applicable at every level of management. There should not be any discrimination as regards caste, sex and religion. An effective management always accords sympathetic and human treatment. The management should be kind, honest and impartial with the employees. In other words, kindness and justice should be exercised by management in dealing with their subordinates. This will create loyalty and devotion among the employees. Thus, workers should be treated at par at every level.

12.Stability of use of personnel: Principle of stability is linked with long tenure of personnel in the organization. This means production being a team work, an efficient management always builds a team of good workers. If the members of the team go on changing the entire process of production will be disturbed. It is always in the interest of the enterprise that its trusted, experienced and trained employees do not leave the organization. Stability of job creates a sense of belongingness among workers who with this feeling are encouraged to improve the quality and quantity of work.

13.Initiative: Under this principle, the successful management provides an opportunity to its employees to suggest their new ideas, experiences and more convenient methods of work. The employees, who has been working on the specific job since long discover now, better alternative approach and technique of work. It will be more useful, if initiative to do so is provided to employees. In simple, to ensure success, plans should be well formulated before they are implemented.

14.Spirit of Co-operation (Spirit de crops): In order to achieve the best possible results, individual and group efforts are to be effectively integrated and coordinated. Production is a team work for which the whole-hearted support and co-operation of the members at all levels is required. Everyone should sacrifice his personal interest and contribute his best energies to achieve the best results. It refers to the spirit of loyalty, faithfulness on the part of the members of the group which can be achieved by strong motivating recognition and importance of the members

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for their valuable contribution, effective coordination, informal mutual social relationship between members of the group and positive and constructive approach of the management towards workers' welfare.

FUNCTION OF MANAGEMENT

1. Planning:It is the basic function of management. It deals with chalking out a future course of action & deciding in advance the most appropriate course of actions for achievement of pre-determined goals. According to KOONTZ, “Planning is deciding in advance - what to do, when to do & how to do. It bridges the gap from where we are & where we want to be”. A plan is a future course of actions. It is an exercise in problem solving & decision making. Planning is determination of courses of action to achieve desired goals. Thus, planning is a systematic thinking about ways & means for accomplishment of pre-determined goals. Planning is necessary to ensure proper utilization of human & non-human resources. It is all pervasive, it is an intellectual activity and it also helps in avoiding confusion, uncertainties, risks, wastages etc.

2. Organizing:

It is the process of bringing together physical, financial and human resources and developing productive relationship amongst them for achievement of organizational goals. According to Henry Fayol, “To organize a business is to provide it with everything useful or its functioning i.e. raw material, tools, capital and personnel’s”. To organize a business involves determining & providing human and non-human resources to the organizational structure. Organizing as a process involves:

Identification of activities. Classification of grouping of activities. Assignment of duties. Delegation of authority and creation of responsibility. Coordinating authority and responsibility relationships.

3. Leading

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Leading involves the social and informal sources of influence that you use to inspire action taken by others. If managers are effective leaders, their subordinates will be enthusiastic about exerting effort to attain organizational objectives. The behavioral sciences have made many contributions to understanding this function of management. Personality research and studies of job attitudes provide important information as to how managers can most effectively lead subordinates. For example, this research tells us that to become effective at leading, managers must first understand their subordinates’ personalities, values, attitudes, and emotions. Studies of motivation and motivation theory provide important information about the ways in which workers can be energized to put forth productive effort. Studies of communication provide direction as to how managers can effectively and persuasively communicate. Studies of leadership and leadership style provide information regarding questions, such as, “What makes a manager a good leader?” and “In what situations are certain leadership styles most appropriate and effective?”

It involves Supervision Motivation Leadership Communication

Supervision- implies overseeing the work of subordinates by their superiors. It is the act of watching & directing work & workers.

Motivation- means inspiring, stimulating or encouraging the sub-ordinates with zeal to work. Positive, negative, monetary, non-monetary incentives may be used for this purpose.

Leadership- may be defined as a process by which manager guides and influences the work of subordinates in desired direction.

Communications- is the process of passing information, experience, opinion etc from one person to another. It is a bridge of understanding.

4. Controlling:

It implies measurement of accomplishment against the standards and correction of deviation if any to ensure achievement of organizational goals. The purpose of controlling is to ensure that everything occurs in conformities with the standards. An efficient system of control helps to predict deviations before they actually occur. According to Theo Haimann, “Controlling is the process of checking whether or not proper progress is being made towards the objectives and goals and acting if necessary, to correct any deviation”. According to Koontz & O’Donell “Controlling is the measurement & correction of performance activities of subordinates in order to make sure that the enterprise objectives and plans desired to obtain them as being accomplished”. Therefore controlling has following steps:

a. Establishment of standard performance.


b. Measurement of actual performance. c. Comparison of actual performance with the standards and finding out

deviation if any. d. Corrective action.

LEVEL OF MANAGEMENT OR HIERARCHY OF MANAGEMENT

Many managers work in an organisation. However, these managers do not work at the same level. They work and operate at different positions. Hierarchy of these managerial positions is called Levels of Management.

Generally, there are Three Levels of Management.

1. Administrative or Top Level of Management.2. Executive or Middle Level of Management.3. Supervisory or Lower Level of Management.

At each level, individual manager has to carry out different roles and functions.Diagram of Levels of Management

Digram in Emotion Format:


A. Top Level of Management

The Top Level Management consists of the Board of Directors (BOD) and the Chief Executive Officer (CEO). The Chief Executive Officer is also called General Manager (GM) or Managing Director (MD) or President. The Board of Directors are the representatives of the Shareholders, i.e. they are selected by the Shareholders of the company. Similarly, the Chief Executive Officer is selected by the Board of Directors of an organisation.

The main role of the top level management is summarized as follows:-

1. The top level management determines the objectives, policies and plans of the organization.

2. They mobilizes (assemble and bring together) available resources.


3. The top level management does mostly the work of thinking, planning and deciding. Therefore, they are also called as the Administrators and the Brain of the organization.

4. They spend more time in planning and organizing.5. They prepare long-term plans of the organization which are generally made

for 5 to 20 years.6. The top level management has maximum authority and responsibility. They

are the top or final authority in the organization. They are directly responsible to the Shareholders, Government and the General Public. The success or failure of the organization largely depends on their efficiency and decision making.

7. They require more conceptual skills and less technical Skills.

B. Middle Level of Management

The Middle Level Management consists of the Departmental Heads (HOD), Branch Managers, and the Junior Executives. The Departmental heads are Finance Managers, Purchase Managers, etc. The Branch Managers are the head of a branch or local unit. The Junior Executives are Assistant Finance Managers, Assistant Purchase Managers, etc. The Middle level Management is selected by the Top Level Management.

The middle level management emphasize more on following tasks :-

1. Middle level management gives recommendations (advice) to the top level management.

2. It executes (implements) the policies and plans which are made by the top level management.

3. It co-ordinate the activities of all the departments.4. They also have to communicate with the top level Management and the lower

level management.5. They spend more time in co-ordinating and communicating.6. They prepare short-term plans of their departments which are generally

made for 1 to 5 years.7. The middle Level Management has limited authority and responsibility. They

are intermediary between top and lower management. They are directly responsible to the chief executive officer and board of directors.

8. Require more managerial and technical skills and less conceptual skills.

C. Lower Level of Management

The lower level management consists of the Foremen and the Supervisors. They are selected by the middle level management. It is also called Operative / Supervisory level or First Line of Management.

The lower level management performs following activities:-

1. Lower level management directs the workers / employees.2. They develops morale in the workers.


3. It maintains a link between workers and the middle level management.4. The lower level management informs the workers about the decisions which

are taken by the management. They also inform the management about the performance, difficulties, feelings, demands, etc., of the workers.

5. They spend more time in directing and controlling.6. The lower level managers make daily, weekly and monthly plans.7. They have limited authority but important responsibility of getting the work

done from the workers. They regularly report and are directly responsible to the middle level management.

8. Along with the experience and basic management skills, they also require more technical and communication skills.

MANAGERS

A Manager is the person responsible for planning and directing the work of a group of individuals, monitoring their work, and taking corrective action when necessary. For many people, this is their first step into a management career.

Managers may direct workers directly or they may direct several supervisors who direct the workers. The manager must be familiar with the work of all the groups he/she supervises, but does not need to be the best in any or all of the areas. It is more important for the manager to know how to manage the workers than to know how to do their work well.

A manager may have the power to hire or fire employees or to promote them. In larger companies, a manager may only recommends such action to the next level of management. The manager has the authority to change the work assignments of team members.

What does Manager Does:

Adapted from “The Wall Street Journal Guide to Management” by Alan Murray, published by Harper Business.

What do managers do? One good answer to this question comes from the late Peter Drucker, whose name that stands out above all others in the century-long history of management studies.

A native of Vienna, Austria, Mr. Drucker was an intellectual who worked as a journalist and studied economics. At some point in his studies he had an epiphany: economists, he realized, “were interested in the behavior of commodities, while I was interested in the behavior of people.” That led him to, in effect, create the modern study of management.

Mr. Drucker divided the job of the manager into five basic tasks. The manager, he wrote:


1) Sets objectives. The manager sets goals for the group, and decides what work needs to be done to meet those goals.

2) Organizes. The manager divides the work into manageable activities, and selects people to accomplish the tasks that need to be done.

3) Motivates and communicates. The manager creates a team out of his people, through decisions on pay, placement, promotion, and through his communications with the team. Drucker also referred to this as the “integrating” function of the manager.

4) Measures. The manager establishes appropriate targets and yardsticks, and analyzes, appraises and interprets performance.

5) Develops people. With the rise of the knowledge worker, this task has taken on added importance. In a knowledge economy, people are the company’s most important asset, and it is up to the manager to develop that asset.

MANAGERIAL SKILLS

Management is a challenging job. It requires certain skills to accomplish such a challenge. Thus, essential skills which every manager needs for doing a better management are called as Managerial Skills.

According to Professor Robert Katz, there are three managerial skills, viz.,

1. Conceptual Skills,2. Human Relations Skills, and3. Technical Skills.

According to Prof. Robert Katz, all managers require above three managerial skills. However, the degree (amount) of these skills required varies (changes) from levels of management and from an organisation to organisation.


The above picture or diagram shows the managerial skills which are required by managers working at different levels of management. The top-level managers require more conceptual skills and less technical skills. The lower-level managers require more technical skills and fewer conceptual skills. Human relations skills are required equally by all three levels of management.

Technical Skills

These skills basically involve the use of knowledge, methods and techniques in performing a job effectively. This is a specialized knowledge and expertise which is utilized in dealing with day to-day problems and activities. For example, engineers, accountants, computer programmers and systems analysts, all have technical skills in their areas and these skills are acquired through education and training.

Technical skills are most important for the first-level managers, but for the top managers, these skills are not something with high significance level. As we go through a hierarchy from the bottom to higher levels, the technical skills lose their importance.

Human Skills

Human skill is the ability to work with other people in a cooperative manner. It involves understanding, patience, trust and genuine involvement in interpersonal relationships. These are interpersonal skills and are necessary at all levels of management. People with good interactory human skills build trust and cooperation as they motivate and lead and thus become successful managers.


http://lh6.googleusercontent.com/-pq5pyvDkzsQ/Teo7rLQX_2I/AAAAAAAAEzc/rhEKHFyq9l4/Managerial-Skills.jpg

This skill is gaining more importance as the work place is becoming more and more ethnically diversified and the manager has to be aware and become adaptive to cultural differences. Furthermore, since the businesses are more and more becoming multinational and global, managers are required to learn new ways of dealing with people in different countries with different cultures and value systems.

These skills will enable managers to become leaders, to motivate employees for better accomplishments, to make more effective use of human potential in the company and so on. Simply, they are the most important skills for managers.

Conceptual Skills

Conceptual skill is the ability to view the organization as a whole and as a total entity as well as a system comprised of various parts and subsystems integrated into a single unit. This skill is especially crucial for top level executives who must keep the whole system under focus. They must understand the complexities of the overall organization, including how each unit of the organization contributes towards the overall success of the entire organization.

This skill generally depends upon an organized thinking process which deals with understanding of various functions of an organization, their interdependence and the relationship of the organization with the outside environment in terms of threats and opportunities.

These skills will enable managers to become leaders, to motivate employees for better accomplishments, to make more effective use of human potential in the company and so on. Simply, they are the most important skills for managers.

MANAGER’S ROLES

Managers fulfill a variety of roles. A role is an organized set of behaviors that is associated with a particular office or position. Dr. Henry Minzberg, a prominent management researcher, says that what managers do can best be described by looking at the roles they play at work. The term management role refers to specific categories of managerial behavior. There are three types of roles which a manager usually does in any organization.

A. Interpersonal roles are roles that involve people (subordinates and persons outside the organization) and other duties that are ceremonial and symbolic in nature. The three interpersonal roles include being a figurehead, leader, and liaison.

Figurehead: In this role, every manager has to perform some duties of a ceremonial nature, such as greeting the touring dignitaries, attending the wedding of an employee, taking an important customer to lunch and so on.


Leader: As a leader, every manager must motivate and encourage his employees. He must also try to reconcile their individual needs with the goals of the organization. Liaison: In this role of liaison, every manager must cultivate contacts outside his vertical chain of command to collect information useful for his organization.

B. Informational roles involve receiving, collecting, and disseminating information. The three informational roles include a monitor, disseminator, and spokesperson.

Monitor: As monitor, the manager has to perpetually scan his environment for information, interrogate his liaison contacts and his subordinates, and receive unsolicited information, much of it as result of the network of personal contacts he has developed. Disseminator: In the role of a disseminator, the manager passes some of his privileged information directly to his subordinates who would otherwise have no access to it.

Spokesman: In this role, the manager informs and satisfies various groups and people who influence his organization. Thus, he advises shareholders about financial performance, assures consumer groups that the organization is fulfilling its social responsibilities and satisfies government that the origination is abiding by the law.

C. Decisional roles revolved around making choices. The four decisional roles include entrepreneur, disturbance handler, resource allocator, and negotiator.

In the late 1960s, Henry Mintzberg concluded that managers perform 10 different, but highly interrelated roles. Entrepreneur: In this role, the manager constantly looks out for new ideas and seeks to improve his unit by adapting it to changing conditions in the environment. Disturbance Handler: In this role, the manager has to work like a fire fighter. He must seek solutions of various unanticipated problems –


a strike may loom large a major customer may go bankrupt; a supplier may renege on his contract, and so on. Resource Allocator: In this role, the manager must divide work and delegate authority among his subordinates. He must decide who will get what. Negotiator: The manager has to spend considerable time in negotiations. Thus, the chairman of a company may negotiate with the union leaders a new strike issue, the foreman may negotiate with the workers a grievance problem, and so on.

Follow-up studies of Mintzberg's role categories in different types of organizations and at different managerial levels within organizations have generally supported the notion that managers perform similar roles.

However, the more traditional functions have not been invalidated. In fact, the functional approach still represents the most useful way of classifying the manager's job.

As depicted in following table, Mintzberg delineated ten managerial roles in three categories

This chart summarizes a manager’s ten roles:

Mintzberg’s Managerial Roles

Category Role Activity Examples

Informational

Monitor Seek and acquire work-related information

Scan/read trade press, periodicals, reports; attend seminars andtraining; maintain personal contacts

Disseminator

Communicate/ disseminate information to others within the organization

Send memos and reports; inform staffers and subordinates of decisions

Spokesperson

Communicate/transmit information to outsiders

Pass on memos, reports and informational materials; participate in


conferences/meetings and report progress

Interpersonal

Figurehead Perform social and legal duties, act as symbolic leader

Greet visitors, sign legal documents, attend ribbon cutting ceremonies,host receptions, etc.

Leader Direct and motivate

subordinates, select and train employees

Includes almost all interactions with subordinates

Liaison Establish and

maintain contacts within and outside the organization

Business correspondence, participation in meetings with representativesof other divisions or organizations.

Decisional Entrepreneur

Identify new ideas and initiate improvement projects

Implement innovations; Plan for the future

Disturbance Handler

Deals with disputes or problems and takes corrective action

Settle conflicts between subordinates; Choose strategic alternatives; Overcome crisis situations

Resource Allocator

Decide where to apply resources

Draft and approve of plans, schedules, budgets; Set priorities

Negotiator Defends business

interests Participates in and directs negotiations within team, department, and organization

TYPE OF MANAGERS

On the basis of Level of Managers (Hierarchy of Mangers)


Managers are leaders who play an integral role in the organizations for which they work. Managers of larger organizations have specific functions they fulfill within the management hierarchy. Within this hierarchy, managers typically have varying levels of power and responsibility. In most organizations, this hierarchy consists of three primary levels.

Top Level Managers Middle Level Managers First Level Managers( Frontline/Supervisory Level)

Top-Level Mangers

Top-level managers are the top executives in a company. They rely on input from mid-level managers to determine what direction the company is heading and if any changes need to be made. Upper-level managers usually include chief executive officers, chief financial officers and other top leaders responsible for developing the company's vision and making the executive decisions that affect the organization's future. They are responsible for the performance of all departments and therefore have a cross-departmental responsibility. Because top management is ultimately responsible for the success or failure of the organization, persons inside and outside of the organization closely scrutinize their performance. It is the CEO’s responsibility to build a top management team that performs well. The term COO (chief operating officer) is often used to refer to the top manager who is being groomed to take over when the current CEO leaves the company or retires.

Mid-Level Managers

Mid-level managers, or middle managers, are a step above the first-level managers. They serve as intermediaries between lower-level managers and the highest level within the management hierarchy. These managers may still be involved in the daily company operations, but they often depend on the input of first-level managers. Mid-level managers are generally operations managers or general managers, but they can also serve as regional managers. They supervise first-line managers. They also work with first line managers to identify new ways of reaching organizational goals. Very often, the suggestions that they make to top management can dramatically increase organizational performance.

First-Level Managers

First-level managers, sometimes called lower-level managers, are at the bottom of the managerial hierarchy. They are in contact with non management employees, often serving as supervisors or retail managers, or in other capacities that involve the day-to-day business operations. Their tasks often include scheduling, budgeting, human resources activities and disciplinary measures. They are responsible for the daily supervision of non managerial employees.

On the basic of Nature of Work

Functional /Line Manager


Staff Manager Generalist/Administrative Manager

Functional /Line Manager

A manager who heads a revenue-generating department and is responsible for achieving an organization's main objectives by executing functions such as policy making, target setting, decision making.

It is a business term to describe the administration of activities that contribute directly to the output of products or services. In corporate hierarchy, a Line Manager holds authority in a vertical (chain of command), and/or over a particular product line. He or she is charged with meeting corporate objectives in a specific functional area or line of business.

As an example, one type of line management at an automobile conglomerate might be the "light truck division", or even more specifically, the "light truck marketing line". Similarly, one type of line management at a financial services firm might be "retention marketing" or "state municipal bond funds".

The most common of all formal relationships in organizations today is the supervisor-subordinate one. This line or operational supervisor, whatever his title, has the power and authority to direct the actions of the subordinate who is accountable for carrying out certain duties.

The supervisor might use any one or combination of many management styles in working with his staff, but he will see that there are results. It is those results that produce revenue, whether it is profit from a business or non-profit grants from the government. That money will not be there unless the produce or the service is delivered.

Staff Manager

Person who heads a revenue consuming department (such as accounting, customer service, human resources) which serves the line managers of the organization in an advisory or support capacity by providing them with information and advice. Staff managers usually do not make operating decisions.

The staff manager or supervisor is in a position that supports line management. He is usually a specialist of some kind. Examples are the manager of the IT department, and the directors of HR. Managers in these positions do not have the authority to tell the line staff how to do the work for which the organizations exist. Instead, the staff manager or supervisor is responsible for making sure all the supports are in place so the line staff are hired, trained, equipped and supported while they carry out the actual operations.

Staff management authority is very different from line management authority. While the line manager makes sure that there is revenue, the staff manager often has to spend that money to support further operations. This can lead to tensions in


the workplace, especially when there is no clear understanding of the difference in the authority of the positions.

Becoming a Manager: Role of Education, Experience & Situation

The foregoing discussion highlighted the roles and skills of managerial jobs. The range of problems that managers face is enormous. There are a wide variety of problems which they have to manage. Not only this, they also have to frequently deal with many problem simultaneously. Moreover for senior manager in particular the current situation is constantly changing, and a decision that seems right today may prove to be wrong tomorrow. Hence, managers & their subordinates learn both from their successes and from their failures.

Education gives a manger a platform and a process of logical reasoning. Experience on the other hand provides the manager on the job PRACTICAL SKILLS. Both are necessary requirement to be a manager. However educational and experience requirement for manager vary widely, depending on the size & Complexity of the organization. In smaller organization, experience may be the only requirement needed to enter a position. In large organization, however both education and experience would be required.

Certain situation may require a manger to make sound business decisions in a relatively short amount of time. Along with this level of responsibility comes a fair amount of stress & pressure, which some people are not comfortable with. If someone thrives on high activity and demanding situations, he or she will more than likely be a preferred candidate for management positions. Entry to manage a particular environment within an organization, therefore, may required a relevant qualification or professional accreditation.

Employers often ask for relevant work experience. Candidates are also judged for their personality & attitudes. They, therefore, need to show evidence of the following:

A friendly personality & genuine desire to help & please others; Ability to think clearly and make quick decisions; Numeracy and logistical planning skills A professional manner and clam, rational approach in hectic situation Ability to balance customer & business priorities Energy & Patience Excellent communication & interpersonal skills


A few studies were conducted in the past on how the managers learn the art and science of managing. Honey well undertook a study of 3600 manager in the US who was asked to state how they learnt the art of managing. Their responses indicate that the basics of management can be learnt through formal training and education (40%). The remaining part of management knowledge usually comes through job assignment (35%) and from relationship, including bosses, mentor and co-workers ( 25%). Learning to mange is indeed like learning to ride a bike. You get on, you fall off and skin your knee, and you get a bit smarter, until you are able to wobble down the road.

Thus two crucial aspect of managerial success are: EDUCATION & EXPERIENCE. These enable managers to recognize and develop the skills they need. Formal education & training are thus very important in helping managers develop conceptual skills. Business education at the undergraduate (BBA) & graduate (MBA) level provides many of the conceptual tools (Theories & Techniques in marketing, finance, Human resources, & other areas) that managers need to comprehend & perform their roles effectively. The study of management helps develop the skills that allow managers to understand the big picture confronting an organization. The ability to focus on the big picture lets the manager see beyond the situation immediately at hand and consider choices while keeping in mind the organization’s long term goals.

Today, continuing management education and training are integral steps in building managerial skills, because new theories & techniques are constantly being promoted to improve organization effectiveness. A quick glance at business magazines such as business week, The business Age reveals a host of seminars being organized on topics such as competition, quality management, good governance, social responsibility, strategic management, liquidity and financial crisis, social responsibility and the like. Business schools today offer executive education and executive development programs to enhancing executive ability and skills to manage their organization in turbulent times. The relevant attributes and core competences of manager in the present context are, therefore, their ability to be team player, critical thinkers, global players, situation readers & lifelong learners. These can develop only through proper education, exposure & experience.


PART 2: BUSINESS ENVIRONMENT

BUSINESS & SOCIETY

A business firm is a social creation. Hence its existence depends on the willingness of society to continue to allow it to operate. The idea of a social contract between business and individual members of society suggests that while the main aim of a business is to make profit, it also has a moral obligation to act in socially responsible manner. This obligation is the basic of an intangible social agreement or contract between business & society.

A business firm is an open and flexible system. It is made up of diverse actors. It is also active in a network of relationships with various stakeholders. The business firm must therefore consider the interests of stakeholders while working out the plans and policies of its operations.

Stakeholders of business firms show concern not only for issue that affect their own welfare but also for issues that do not affect them directly. Stakeholder issues thus include broader interests, such as community service, industrial pollution, transparency of financial information, equal opportunity to minority groups, and so on. These issues are thus directly related to the interest of the wider society.

There are a number of groups that a business is answerable to when pursuing its stated aims and objectives. The major area of business society relationships are:

Community Environment Weaker Section of the society

Community: The important activities of business related to community services include employment,community services, social services, and infrastructure development.


Environment: Environment is a vital issue today. The growing problems of environment degradation are serious social concern. Business ia also responsible for this problem of increasing pollution, which is disrupting the ecology. The responsibilities of business related to environment are: Cleaning up the existing environment, designing and using the processes to prevent or reduce pollution, and protecting the environment.

Weaker Sections of the society: Business firms run various programs to help and uplift the status of the poor section of society. Business activities related to this responsibility include employment to minority groups, education and training to disadvantages groups, female employment, and equal opportunities.

It is clear from the above explanation that society is expecting a significant change in the social interaction between business and society. Society is asking business to engage in a broader range of social activities that serve a wider area of social needs. Emphasis is on a more nebulous social quality of life. Society and business are thus mutually dependent and the relationship between them takes place in a changing environment.

BUSINESS ENVIRONMENT

Environment occupies a very significant place in the functioning of an organization. It is being generally realized that even the best managed organization may, at times, be not able to attain desired goals due to environmental factors. Environmental understanding is more important to management today than ever before. This is both because of the faster rate of environmental changes, and because of widening dimensions of environmental forces. The failure of an organization to understand, assess, predict and manage these environmental forces ultimately affects the organization and its business.

Business environment is defined in many ways. Three definitions are given here for explaining the meaning of business environment.

Richman & Copen(1983): Business environment constitutes the factors or constraints that are largely if not totally, external and beyond the control of individual business enterprise and its management.

Keith Davis (2001): Business environment is the aggregate of all conditions, events and influences that surround and effect a business.

Breardwell & Holden (2009): Business environment is multi-layered, multi-dimensional and interwoven in which concrete events and abstract ideas intertwine to create business scenarios and issues.


Business environment consists of the forces and conditions outside the boundaries of a firm. These forces change over time and thus present the firm with opportunities and threats that influence its ability to carry out its operations effectively to attain its objectives.

ORGANIATION- ENVIRONMENT RELATIONSHIP

A system is an entity consisting of functional and interdependent parts operating in a large environment. Viewed in this sense, a business organization is an open system.. There is constant interaction between a business system and its environment. The impact of these environmental forces is very powerful on the functioning of the business system. It is almost impossible for the business system to exist and grow without taking them into account. An organization is, thus, dependent upon the environment for its functioning.

It should be noted that the circumstances often change dramatically over time. They differ significantly from organization to organization, industry to industry, and market to market. The open systems view of an organization, thus, implies that the effectiveness of the organization would largely depend on its ability to develop mechanisms for coping with these environmental influences.

A business system is involved in input-process-output fuctions. It exchanges resources and information with the external environment that are relevant to its operations. For instance, it imports inputs like capital, technology, manpower, and raw materials.From the external environment. These inputs are then processed within the business system and transformed into useful in the form of goods and services. These outputs are sent back or exported to the external environment for final consumption. In this process of exchanging and trading an organization has to face never ending series of opportunities and threats.

Figure below explains the input-process-output system. The figure tells that the larger socio-economic system (consisting of social, economic, political, legal and cultural institutions) and the business organizations depend up to each other for their survival and growth. The society (broadly referred to as socio-economic system) depends up to business for the supply of outputs (Goods & Services, employment opportunities, tax revenues etc). Business organizations also depend on the society for the supply of inputs (resources like land, labor, capital, markets, technology etc)

Figure bellow:


The exchange relationship of inputs and outputs between the business organization and the socio-economic system is continually reflected to terms of their response behavior.If a business organization continues to supply socially useful products to the society it will get a positive response from the environment (i.e. society) in terms of regular and sufficient supply of input-resources and vice versa. This process of increasing or reducing the support of both to a business organization and the society in response to their performances is known as “Feedback”

TYPES OF BUSINESS EVNIRONMENT

The components of business environment can be classified into two broad categories:

1. Internal Environment

2. External Environment

Forces in the Organization Environment Figure:


Internal Environment:

An organization has several forces operating within its internal system. These forces together shape the internal environment. An organization internal environment has the following components:

EMPLOYEES: Employees are the vital part and important asset of an organization. Though they are insiders of the organization, they are an important source of external information. At times, the employees resist managerial, technical and other changes that affect them and their work. Without the cooperation of employees and their productivity, organizations cannot attain their expected goals.

STRUCTURE: Structure is the overall framework for organization roles, rules, hierarchy, relations, and authority. Structure also includes individuals, groups, units and their inter-relationships. An organization’s structure keeps on changing. The periodic adjustments made in the work or functions of individuals, groups or units changes the internal working of the organization.

CORPORATE CULTURE: Culture means the “Assumptions that members of an organization share in common”. Every Organization has its own culture. Members of an organization hold two principal types of assumptions in common: beliefs and values. The sources of these beliefs and values are many. Both internal as well as external factors affect an organization’s culture. Organizational culture has a powerful influence on the process of organizational change and decision-making.


SHAREHOLDERS: Shareholders being the owners of business firms have a direct interest in their performance. The Directors elected by them represent their interest in the board. The shareholders expect to get full information from the management of the functioning and financial status of the organization at regular intervals.

UNIONS: Laour unions represent the problems and feelings of their members to management. In this process, labor and management interact with each other. To negotiate wages, working conditions, hours of work, and so on, collective bargaining mechanisms are used. To avoid unnecessary disturbances, the management institutionalizes grievance handling and collective bargaining systems in consultation with the unions. Employees are also given opportunity to participate in some aspects of the management.

All these internal factors put together define an organization’s strengths and weaknesses. When the composition of people, resources, structure, culture, network of relations, nature of products or services, and shareholders changes, an organization’s internal environment also changes. The management has some control over these internal forces.

EXTERNAL ENVIRONMENT

The external environment can further be classified into two interrelated sub-categories those in the general (Macro) environment and those in the more task (micro) environment. This classification of external environment helps managers to identify opportunities and threats caused by the forces and conditions that originate outside the organization.

GENERAL ENVIRONMENT

The general environment affects the organization and its task environment. It is also called remote environment. It is composed of a set of forces that are outside the organization’s operating system- that is, political, economic, social, legal, technological factors. These are the forces, which are beyond the control of business firms. Hence they are uncontrollable factors. The general environment presents opportunities, threats, and constraints for the organization. For a manager opportunities and threats resulting from changes in the general environment are often more difficult to identify and respond to them in the task environment.

ECONOMIC ENVIRONMENT: The economic environment of business is largely determined by the economic system of the company. The major elements of the economic environment are: The System of economic planning and control; fiscal, monetary, and industrial policies; the conditions prevailing in agriculture, industrial and service sectors; and a host of other economic conditions prevailing in the


country. Poor economic conditions make the environment more complex and managers job more difficult and demanding.

SOCIALCULTURAL ENVIRONMENT: Social environment is made up of the social institutions class structure, desires, expectations, beliefs, and customs of people in a given society. Closely associated with social environment is cultural environment that includes values, norms, and accepted behavior patterns of people. These elements of society directly influence business organizations. Managers must be responsive to change in the social structures and national cultures of the country in which they operate.

POLITICAL ENVIRONMENT: The political environment mainly refers to the political structure, composition of bureaucracy, ideology of the ruling government, the political stability, public opinion and government-business relations. The degree of political risks existing in a country determines the investment climate in that country. Deregulation and privatization are just two examples of legal forces that can create challenges for firms and managers. Other examples include increased emphasis on environment protection, safety of workers and legarl constraints against discrimination.

LEGAL ENVIRONMENT: the legal environment refers to the framework of laws, regulations, and court decision intended to encourage, guide, activities. Some are designed to protect workers, consumers, and communities. Others are designed to regulate the behavior of managers and their subordinates in business and other enterprises.

TECHNOLOGICAL ENVIRONMENT: Radical developments have occurred over the past several years in communication, information and automation including robotics. These developments not only present enormous opportunities for business organization in terms of enhanced effectiveness, but also place heavy demands on them in the ever increasing competitive markets.

GLOBAL ENVIRONMENT: Global forces are outcomes of changes in international realationships. International developments have their effects on domestic business. For certain categories of business, global environment is very important. For instance the firms dealing with import expoert business are most affected by the changes taking place in the international market. Similarly the increase in oil prices has far reaching effects on all economies and business firms. Falling trade barriers have created enormous opportunities for firms. At the same time, falling trade barriers also pose a serious threat.


Though often beyond the control of a firm the overall external environment within which it operates must be known by the manager. The interaction of its many facets must be understood by thim or her to ensure the continued survival and growth of the firm. Managers must also pay attention to their casual interactions as well. That is because these set the stage for new opportunities as well as threats.

TASK ENVIRONMENT:

The task environment involves factors in the immediate competitive situation of a particular organization. Forces in the task environment result from the actions of suppliers,distributors,customers, and competitors. These groups affect a manager’s ability to obtain resources and dispose of outputs. The task environment is also called the competitive or operating environment. The task environment differs from the general environment in that it can be influenced or controlled to some extent by an organization.

CUSTOMERS: A customer may be an individual, a family,a business house, or an institution. These customers are not only linked with the business firm for the purchase of goods and services they are also an important source of ideas, opinion, information and reaction. The managers, therefore, maintain close realationship with them for information. Changes in the number and type of customers or changes in their tastes and needs result in opportunities and threats. An organization’s success depends on its response to customers.

SUPPLIERS: A business firm buys raw materials from the suppliers who are an important part of the task environment. As the quality and price of the raw material received from the suppliers determine the quality of output, the business firms try to obtain lower prices, better-quality work, and faster deliveries. This strengthens their competitive position. Changes in the nature, numbers or types of any supplier result in focus that produces opportunities and threats to the firm.

DISTRIBUTORS: Distributors are organizations that help other organizations sell their goods or services to customers. The decisions that organizations make about how to distribute products to customers can have important effects on organizational performance. The changing nature of distributors and distribution method can also bring opportunity and threat for managers. If distributors are so large and powerful that they can control customers access to a particular organizations goods and services. In contrast the power of a distributor may be weakened if there are many options.

GOVERNMENT: The role of the government is to regulate business systems and to protect the interest of the consumers and the general public.Its role is also to protect industries ensuring adherence to free-market principles. The policies and


regulations of the government have, therefore, a major impact on the functioning of the business systems.

SPECIAL INTEREST GROUPS: The main special interest groups are environmentalist, unions, consumer advocates, and many other professional organizations. These special interest groups exert pressure on the business firm to advance their position on issues like quality, service, price, waste management, environmental protection etc. These groups, thus, influence the business firm by drawing the attention of the politicians, legislators and the media. Progressive managers should welcome their suggestions as an opportunity to understand customer needs and to learn about changes in the market place.

FINANCIAL INSTITUTIONS: Business firms rely on the services of institutions like commercial banks, development banks, finance companies and insurance companies to meet their short and long term financial needs and other service requirements. The terms and conditions of loans and advances, and the quality and promptness of their services have an impact on the performance of a business. Therefore, maintaining effective working relationship with this financial institution is essential for the business firm.

MEDIA: A business unit being an important social entity often draws the attention of the media. The media keeps an eye on the vital decision or actions of the business firm having general public interest. Managers, therefore, need to maintain good communication with the media and external audiences, and deal with them effectively and promptly.

COMPETITORS: A business firm faces competition in the market. Competition is, therefore inevitable. Managers work out strategies to deal with the competitors and the competing products.Information on market behavior and competitors strategies is gathered and analyzed to identify future opportunities and threats for the firm. If installed properly the marketing information system helps managers to catch the market signals in time. Rivalry between competitors is potentially the most threatening force that managers must deal with.

CORPORATE SOCIAL RESOPNSIBILITY

Business firms, at all times have been expected to operate within the law and within prevailing norms of society. However during the past few decades, social responsibility of business become and extremely broad and deep subject. Particulary we western industrialized society has become increasingly concerned that greater affluence has not been accompanied by equal progress in solving important social problems. Thus the notion of the responsibility of business took a distinctive turn in the late sixties. The demands on business accelerated sharply


and have continued as a high school. Over the years the nature of the demands and the nature of business response to them have changed in important qualitative was.

CONCEPT of CORPORATE SOCIAL RESPONSIBILITY

Some confusion exists regarding the concept of “Social Responsibility”. This is mainly due to the connotations of the terms “Society’ & “Responsibiilty”. It is therefore,important to clarify these terms first. Varadharajan & Maharajan (1986) have tried to clarify the meaning of these terms in the following words:

The term “Society” refers to all those individuals, institutions, and other entities that come in contract with a business firm (Like shareholders, consumers, employees, government and the general community around the business place). Thus “Society doesn’t not mean society as a whole, rather the society of the business.

Similarly the term Responsibility denotes some kind of an obligation on the part of the business firms to fulfill the legitimate demans of such individuals, instutions and other entities insofar as they help in conducting business activity. Hence the idea of social responsibility is that business firms are obliged to take actions, which perotect and improve the welfare of the society of the business as a whole along with their own interests. In this way, harmony is achieved between business actions and the social aspirations.

The above explanations represent the view that the present day business firms not only economic institutions. They are social institutions and living members of society well. They perform both economic as well as social functions, which are indispensable their survival, growth, and profitability. To gain a more clear perspective on the concept corporate social responsibility, a few definitions are quoted below:

Howard R. Brown- “Corporate social responsibility is the obligation to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of the society”

Davis & Blomstrom- “Corporate Social responsibility is the businessman’s decision and action taken for reasons at least partially beyond the firms’s direct economic and technical interest.”

Michael Armstrong – “Corporate social responsibility focuses on what on what an organization does to society and what it does for society”

These definitions indicate why corporate social responsibility is necessary for a business firm. The above definitions also indicate the various types of social obligations of business. Corporate social responsibility can be categorized into four types:


Economic Responsibility of business is to produce goods and servies that society wants at reasonable price and to satisfy its obligation to investors.

Legal Responsibility is to obey relevant national laws & regulations. Ethical Responsibilities include meeting societal expectations. Voluntary Responsibilities are additional behaviors and activities that society

finds desirable.

APPROACHES TO CORPORATE SOCIAL RESPONSIBILITY

Jones, George & Hill (2000) have identified four different approaches to corporate social responsibility. These are:

Obstruction Approach Defensive Approach Accommodative Approach Proactive Approach

Organizations commitment to social responsibility ranges from low to high. At the lower end is the obstruction approach. At the higher end is the proactive approach. Brief explanations of each of these approaches are as follows:

Obstruction Approach: Some business firms may not behave the way they are expected to behave. They choose not to behave in a socially responsible way. They feel that they have no obligation to society in which they operate. They may violate prevailing laws and at the same time may not really care for the society. Hence they behave unethically and illegally. Example of business firms caught bribing officials, hoarding essential goods, breaking pollution standards, ignoring employee safety standards, or dumping unsafe products apperar regularly in newspapers. In many cases, these firms also seem unconcerned about their role in improving society. Because of this behavior of some firms, the whole business community is defamed.

Defensive Approach: This approach is the most common. Adefensive approach indicates at least a commitment to ethical behavior. Defensive


managers stay within the law and abide strictly with legal requirements. But they make no attempt to exercise social responsibility beyond what the law dictates. Social response is the position taken by the firms. On Selective basis, the firms may volunteer to participate in limited socially responsible efforts, but not until they are convinced that the benefits outweigh the costs.

Accommodative Approach: An accommodative approach supports social responsibility. Accommodative managers agree that organizational members should behave legally and ethically. Hence they try to balance the interests of different stakeholders against one another. Managers adopting this approach want to make choices that are reasonable in the eyes of society.

Proactive Approach: This is the strategy of being both legal and responsible. This is the preferred, socially desirable strategy. The position taken in that business firms have a responsibility not only to abide by legal constraints, but also to take a proactive stance and support social causes or institutions that they believe represent a positive force, after allowing for a reasonable profit. Business firms are foten involved in philanthropic activities such as supporting higher education, local sports clubs, health projects, local religious activities, etc. It is a belief that firms have a responsibility to be good citizens in the community and to protect and improve the environment in which their people live, work, and do business.

The approaches suggested above highlight the practices of business firms with respect to their corporate social responsibility. Business firm can be categorized on the basis of their motives & response. Firms with forward looking approach and long-term vision give due consideration to their social responsibility for their continued image and prosperity. Such firms are self regulated. On the other hand, the firms with just the profit motive adopt obstructional strategy. Such firms are also the units, which are often the targets of public criticism. These firms also face considerable amount of public pressure.

AREAS OF CORPORATE SOCIAL RESPONSIBIILTY

After having considered the approaches of business firms to their social responsibility, we will now address the different areas of corporate accountability. There is a difference between responsibility and corporate accountability. In corporate social responsibility, business firms agree to voluntarily behave responsibly. Corporate accountability, on the other hand, has an additional obligation, where there is an enforceable framework to compel business firms to respect human rights and the environment.

As members of society, business firms have clear and distinct responsibilities to various groups and entities that have a stake in the firms. The stakeholders may not own a financial share of the firm. Even so they have a claim on the business firm,


requiring it to act responsibly toward them. We will examine four areas in which corporate social accountability is most evident. These include accountabilities towards consumer’s shareholders (investor), employees and government and society.AREA OF SOCIAL RESPONSIBILITY

1. To Consumer/ Customers: Communicate facts about the product Product Safety Product Reliability2. To Investors /Owners Wealth Maximization Disclosure of financial position Participants in Management Dividend3. To Employees

Work Environment Safety & Health Quality of Work Life Good Labor Relations

4. To Local Community Environmental balance Employment Generation Community Needs

5. To Government Local/State Legal Compliance Politically unbiased National Interest

TOWARDS CONSUMERS: A person who buys the commodities of a business firm is its consumer. He or she plays an important role in the survival and growth of business. He or she provides sales revenues, the main source of income for a business firm. Therefore the purpose of a business is to create customers. For that, business has the accountability towards its customers. This includes:

Charge reasonable prices for products Provide quality products, product guarantee, and after sale services

consistent with customers requests Truthful and socially responsible advertising Protection against monopoly and restrictive trade practice Treat customers fairly in all respects of the business transactions


Make every effort to ensure that the health and safety of the consumer will be enhanced by the product and services

TOWARDS SHAREHOLDERS: Shareholders are the investors. They together own the business. They contribute capital to the business in the hope of earning dividends and appreciation in share prices. The shareholders are also the members of society. Hence the accountabilities that a business owes to its shareholders are:

Regular payment of dividends Disclosure relevant information to shareholders subject only to legal

requirements and competitive constraints Respect shareholders request, suggestions, complaints and formal resolution

and Report on social issues ( The amount spent on social and development

programmers)

TOWARDS EMPLOYEES: Employees are the vital components of a business firm. They are employed in a business as workers and managers. As workers they are directly involved in performing the basic and operating organizational functions. They include production workers, sales persons, clerks, etc. Managers are responsible for the formulation of corporate plans and policies and ensuring their proper implementation. They are mainly responsible for guiding, directing and unifying human effoerts and activities for the accomplishment of organizational tasks. Thus business firm owes responsibilities to these employees on the following counts:

Provide legitimate decision making and policy making freedom to managers and ensuring their full potential growth

Provide fair wages, bonus and other economic benefits to all employees that improve their living conditions

Grant right to form union,giving representation on decision making bodies Provide working conditions that respect each employees health and dignity

and Institute grievance settling, social security & welfare schemes

TOWARDS GOVERNMENT & SOCIETY: Business firms and government have many common areas of social accountability. Government as the elected representative of the people, has to carry out the economic, social and other programmes with a view to ensuring rapid growth of the nation. In the economic sphere, the government has to formulate policies which will ensure a sufficient collection of tax revenues and regulate the functioning of business firms, through


various legislative enactments in the best interest of the nation. In strengthening the hands of the government in this endeavor, a business firm needs to discharge the following accountabilities:

Regular and Correct Payment of Taxes Faithful Application of Business Laws Respect human rights and democratic institutions and promote them

wherever practicable Help in tackling problems like unemployment, poverty, and price rise &

impact substitution. Help to maintain the social order through their proper business actions. Design and implement programmers for the weaker sections of society

ETHICS & ETHICAL STANDARDS

CONCEPT OF ETHICS

Ethics is also known as moral philosophy.It involves systematizing, defending and recommending concepts of right and wrong conduct. Ethics investigates what is the best way for human to live, and what kind of actions are right or wrong in particular circumstances. It is thus a person’s own attitude and beliefs concerning good behavior. Ethics reside within individuals and as such are defined separately by them in their own way.Many writers have defined ethics and ethical standards. We have selected the following three definitions of ethics:

Stoner, Freeman and Gilber : Ethics is the study of how our decision affect other people. It is the study of people rights and duties, the moral rules that people apply in making decision.

Jones George & Hill: Ethics are moral principle or belief about what is right or wrong. These beliefs guide individuals in their dealing with other individuals and groups.

Ricky W. Griffin: Ethics is an individual’s personal belief about whether a behavior, action or decision is right or wrong.

These definitions mainly highlight four basic concepts of ethics. These concepts are as follows:

Ethics are principle of personal and professional conduct. They are reflected in an individual’s behavior


Ethics behavior differs from person to person. For one person certain behavior may be ethical. For other the same behavior may be unethical.

Ethical behavior confirms to generally accept social norms. Unethical behavior does not conform to generally accept social norms.

Ethical Issues in Nepalese business are frequently raised in newspaper. Stories about insider trading, illegal donations, commission, bribery and many other types of scandals and corporate misconducts often appear in public media. Business organization are criticized for their acts to gain advantages for their own benefits.

ETHICAL STANDARDS

Ethical standards are the norms of behavior that guide individuals and business firms to act in an honest and trustworthy manner in all their work and interactions. These standards help employees to make the right dishonest and unethical behavior. Organizational programs focused on ethics help lay out standards and expected practices as they relate to ethical behavior and decisions. This can include providing clear guidance on common ethical dilemmas,such as using the phone at work for personal calls or using company software programs for personal projects or wasting time gossiping and reading newspapers.

There is not however one consistent set of standards that all business firms follow. Each business firm has the right to develop the standards that are meaningful for its organization. Ethical standards are not always easily enforceable, as they are frequently vaguely defined and somewhat open to interpretation, such as “ Men & Women should be treated equally,” or “Treat the customer with respect and kindness”. Others can be more specific, such as “Do not share the customer’s private information with anyone”

As a general practice, organizations often set ethical standards for their employees. They expect that their employees demonstrate ethical behavior in their work and in their dealings with customers. Generally, the organizational expectation is that its employees:

Act with integrity Always provide a high standard of service Act in a way that promotes trust in their work Treat others with respect Take Responsibility


Ethical standards for manager and employees thus have positive effects on the organization and its stakeholders in several ways.

Managerial ethics determines management employee relationship in an organization. Employment issues are being affected by the ethical standards of managers. Hiring, firing, promotion, rewards, welfare, and compensation are influenced by the ethical practices of managers.

The individual ethical standards of employees also affect organizations. Employee are responsible for maintaining work standards, secrecy, honesty, and information. They can use unethical methods in procurement, entertainment, travel and other expenses related to doing business.

Ethical issues are also significant in the relationship of an organization with its stakeholders. Unfair business practices affect customers, government, competitors, suppliers, and shareholders. False financial statements, adulteration, use of unfair means, evading taxes, and withholding information are some examples of unethical behavior of a business toward its stakeholders.

CORPORATE GOVERNANCE

Concept of Corporate Governance

The framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in a company's relationship with its all stakeholders (financiers, customers, management, employees, government, and the community).

The corporate governance framework consists of

(1) explicit and implicit contracts between the company and the stakeholders for distribution of responsibilities, rights, and rewards,

(2) procedures for reconciling the sometimes conflicting interests of stakeholders in accordance with their duties, privileges, and roles, and

(3) procedures for proper supervision, control, and information-flows to serve as a system of checks-and-balances.

Corporate governance is the set of processes, customs, policies and laws affecting the way an organization is directed, administered, and controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the organization is governed. The


Principal stakeholders are the shareholders, management, and the board of directors. Other stakeholders include employees, suppliers, customers, banks, regulators, the environment and the community at a large.

Corporate governance, as applied to business, is about assuming that the conduct of a business is carried out properly. By the term “carried out properly” we mean that the results of what the business or company does it to the benefit of the interested parties and doesn’t do harm to the commonweal. Hence corporate governance is a multi faceted subject. An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal agent problem.

Today’s business firms operate in an environment of intense media, investor, regulatory, and public scrutiny. These agencies are interested to know how the objectives of the business firm are set and achieved how risk is monitored and assessed how performance is optimized and how social accountabilities are addressed. The key elements of corporate governance monitored by the society include honest, trust, integrity, openness, performance orientation, disclosure and transparency, responsibility and accountability, mutual respect and commitment to the organization.

PRINCIPLES OF CORPORATE GOVERNANCE

Corporate governance enables business firms to realize their corporate goals, protect shareholder rights, meet legal requirements and demonstrate to a wider public how they are conducting their businesses. The commonly accepted principles of corporate governance include the following:

Rights and equitable treatment of shareholders: Organizations should respect the rights of shareholders and keep shareholders to exercise their rights.

Interests of other stakeholders: organizations should recognize that they have legal and other obligations to all legitimate stakeholders.

Role and responsibility of the board: The board needs a range of skills and understanding to be able to deal with various business issues and have the ability to review and monitor management performance.

Integrity and ethical behavior: Ethical and responsible decision making are not only important for public relations, but they are also necessary elements in risk management and lawsuits. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making.


Disclosure and transparency: Organizations should clarify and make publicly known the role and responciligy of board and management to provide shareholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company’s financial reporting. Disclosures of matters concerning the organization should be timely and balanced to ensure that all investors have access to clear and factual information.

The corporate governance framework should:

Promote transparent and efficient markets, be consistent with the rule of law and clearly articulate the division of responsibilities among different supervisory regulatory, and enforcement authorities.

Protect and facilitate the exercise of shareholders rights Recognize the rights of stockholders established by law. Ensure that timely and accurate disclosure is made on all matters

regarding the corporation, including financial situation, performance, ownership and governance of the company.

Ensure the strategic guidance of the company, the effective monitoring of management by the board and the board accountability to the company and the shareholder.


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