unit-3 1. definition, meaning & characteristic of organisation

SUNKARI SRIDHAR REDDY ASSISTANT PROFESSOR, 9492860119, [email protected] , sridharreddysunkari.webnode.com

UNIT-3

1. Definition, Meaning & Characteristic of Organisation:

Organisation and Organising:

Very often, these terms are used interchangeably, which is not correct. Orgnaisation is

different from organizing. Organizing is one of the function of management whereas

organization refers to the institution wherein the management functions are performed.

Meaning of Organisation:

An entrepreneur organizes various factors of production like land, labour, capital,

machinery, etc. for channelizing them into productive activities. The product finally reaches

consumers through various agencies. Business activities are divided into various functions,

these are functions are assigned to different individuals. Various individual efforts must leads

to achievement of common business goal. Organisation is related with developing a frame

work where the total work is divided into manageable components in order to facilitate the

achievement of objectives or goals. Thus, organisation is the structure or mechanism

(machinery) that enables living things to work together. In a static sense, an organisation is a

structure or machinery manned by group of individuals who are working together towards a

common goal.

Present business system is very complex. The unit must be run efficiently to stay in the

competitive world of business. Various jobs are to be performed by persons most suitable for

them. First of all various activities should be grouped in to different function. The Authority

and Responsibility is fixed at various levels. All efforts should be made coordinate different

activities for running the unit efficiently.

A like ‘management’, the term ‘organisation’ has also been used in a number of ways.

Broadly speaking, the term ‘organisation’ is used in four different senses: as a process, as a

structure of relationship, as a group of persons and as a system, as given below:

Organisation as a Process: organisation is treated as a dynamic process and a managerial

activity which is essential for planning the utilization of company’s resources, plant and

equipment materials, money and people to accomplish the various objectives.

Organisation as a Framework of Relationship: organisation refers to the structure of

relationships and among position jobs which is created to release certain objectives.

Organisation as a Group of persons: organisation is very often viewed as a group of

persons contributing their efforts towards certain goals. Organisation begins when people

combine their efforts for some common purpose. It is a universal truth that an individual is

unable ability and resources

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Organisation as a System: the organisation is viewed as system. System concepts recognize

that organizations are made up of components each of which has unique properties,

capabilities and mutual relationship. The constituent element of a system is linked together in

such complex ways that actions taken by one producer have far reaching effect on others.

In short, organizing is the determining, grouping and arranging of the various activities

deemed necessary for the attainment of the objectives, the assigning of people to those

activities, the providing of suitable physical factors of environment and the indicating of the

relative authority delegated to each individual charged with the execution of each respective

activity.

Definitions of Organisation

Different authors have defined organisation in different ways. The main definitions of

organisation are as follows:

According to keith Davis, “Organisation may be defined as a group of individuals, large of

small, that is cooperating under the direction of executive leadership in accomplishment of

certain common object.”

According to Chester I. Barnard, “Organisation is a system of co-operative activities of two

or more persons.”

According to Louis A. Allen, “Organisation is the process of identifying and grouping the

work to be performed, defining and delegating responsibility and authority, and establishing

relationship for the purpose of enabling people to work most effectively together in

accomplishing objectives.”

According to Koonz and O’Donnell, “The establishment of authority, relationship with

provision of co-ordination between them, both vertically and horizontally in the enterprise

structure .”

Characteristics / Features of Organisation

The main characteristics or Features of organisation are as follows:

1. Outlining the Objectives: Born with the enterprise are its long-life objectives of

profitable manufacturing and selling its products. Other objectives must be

established by the administration from time to time to aid and support this main

objective.

2. Identifying and Enumerating the Activities: After the objective is selected, the

management has to identify total task involved and its break-up closely related

component activities that are to be performed by and individual or division or a

department.



3. Assigning the Duties: When activities have been grouped according to similarities

and common purposes, they should be organized by a particular department. Within

the department, the functional duties should be allotted to particular individuals.

4. Defining and Granting the Authority: The authority and responsibility should be

well defined and should correspond to each other. A close relationship between

authority and responsibility should be established.

5. Creating Authority Relationship: After assigning the duties and delegations of

authority, the establishment of relationship is done. It involves deciding who will act

under whom, who will be his subordinates, what will be his span of control and what

will be his status in the organisation. Besides these formal relationships, some

informal organizations should also be developed.

2. Principles of Organisation

There is no unanimity as to number of principles of organisation amongst the leading authors

on the subject. L.K. Urwick, in his paper ‘Scientific Principles of Organisation’ (1938) and

‘Notes on the Theory of Organisation’ (1952) prescribed ten principles of organisation.

Thereafter, many other writers on the subject have added a few more principles of

organisation. The main principles of organisation are as follows:

a. The Principle of Objective (Align departmental objectives to corporate

objectives): Every enterprise, big or small, prescribes certain basic objectives.

Organisation serves as a tool in attaining these prescribed objectives. Every

department of the organisation and the organisation as a whole should be geared to the

basic objective determined by the enterprise.

b. Principle of Specialization: Particularly division of work facilitates specialization.

Similar activities are grouped together to ensure better performance. Specialization

will lead to efficiency, quality and elimination of wastage etc.

c. The Scalar Principle: The principle is sometimes known as the ‘chain command’.

There must be clear lines of authority running from the top to the bottom of the

organization.

d. The Principle of Authority (Define Authority flow of authority): Authority is the

element of organisation structure. It is the tool by which a manager is able to create an

environment for individual performance.

e. The Principle of Unity of Command (ensure one employee, one boss): One

subordinate should be kept in the supervision of one boss only. This principle avoids

the possibility of conflicts in instructions and develops the feeling of personnel

responsibility for the work.

f. The Principle of Span of Control (optimum number of subordinates): It is also

known as ‘span of management’, ‘span of supervision’ or ‘levels of organisation’, etc.

g. The Principle of Definition: The contents of every position should be clearly

defined. The duties, responsibilities, authorities and organizational relationship of an

individual working on a particular position should be well defined.



h. The Principle of the Unity of Direction (one head one objective): The basic

rationale for the very existence of organisation is the attainment of certain objectives.

Major objective should be split into functional activities and there should be one

objective and one plan for each group of people.

i. Cost effective operations: An organization is said to be efficient if it can achieve the

goals at the lowest cost.

j. The Principle of Balance: In every organisation structure there is need for balance.

For effective grouping and assigning activities, this principle calls for putting balance

on all types of factors human, technical as well as financial.

k. The Principle of Human Element: This principle indicates that the success or failure

of an enterprise largely depends on the handling of human element. If the organisation

has sound labor policies along with a number of welfare activities it is bound to

succeed.

l. The Principle of Discipline: According to his principle, it is the responsibility of the

management to maintain proper discipline in the enterprise. Fayol considered

discipline as ‘respect for agreements which are directed at achieving obedience,

application, energy and outward mark of respect.”

m. Ensure flexibility: The organization should be flexible to change / modify according

to changes in products, technology etc…

Organisational Structure and Design

Organizational design is a step-by-step methodology which identifies dysfunctional aspects

of work flow, procedures, structures and systems, realigns them to fit current business

realities/goals and then develops plans to implement the new changes. The process focuses on

improving both the technical and people side of the business.

For most companies, the design process leads to a more effective organization design,

significantly improved results (profitability, customer service, internal operations), and

employees who are empowered and committed to the business. The hallmark of the design

process is a comprehensive and holistic approach to organizational improvement that touches

all aspects of organizational life, so you can achieve:

Excellent customer service

Increased profitability

Reduced operating costs

Improved efficiency and cycle time

A culture of committed and engaged employees

A clear strategy for managing and growing your business



The typically hierarchical arrangement of lines of authority, communications, rights and

duties of an organization.

Organizational structure determines how the roles, power and responsibilities are assigned,

controlled, and coordinated, and how information flows between the different levels of

management.

An organization can be classified on the basis of authority relationships and on the basis of

departments. The types of organization based on authority relationship are: Line

organization, Line & Staff Organisation, Functional Organisation, Matrix organization,

Committee organization.

The organization can be classified as the following based on the departments: Functional

Organisation, Product organization, Regional or Geographical Organisation, Customer

organization, Matrix organization, Committee organization

Line organization:

It is also called military or scalar organization. It is the oldest and most traditional type of

organization, which is widely used one today. In this the manager is direct responsibility for

the result.

An important characteristic of such type of organisation is superior-subordinate relationship.

Superior delegates authority to another subordinate and so on, forming a line from the very

top to the bottom of the organisation structure. The line of authority so established is referred

as “line authority.” Under this type of organisation authority flows downwards, responsibility

moves upwards in a straight line. Scalar principle and unity of command are strictly followed

in line organisation.



Line & Staff Organisation :

Because of the inherent drawbacks of line organisation and functional organisation, they are

rarely used in pure forms.

The line organisation centralizes too much and the functional organisation diffuses too much.

To eliminate the drawbacks of both types of organisations the new organisation structure the

line & staff organisation is evolved.

In this type of organization structure, there are two types of relationships:

The Line relationships and The staff relationships.

Line relationship is a decision maker and staff personnel are an advisor.

According to Henry Fayol, “Staff is a group of men who have the strength, knowledge and

time which the line manager may lack”.

According to Allen, “Line refers to those positions and elements of organisation, which have

the responsibility and authority and are accountable for the accomplishment of primary

objectives. Staff elements are those which have responsibility and authority for providing

advice and service to the line in the attainment of objectives.”

Advantages

• It is simple to understand

• it is fleible

• it facilitate quick decision

• each department treated as a unit for control

• it sets clearly the direct lines of authority and responsibilty

Disadvantages

• it is likely the line manager over burdened with all task

• there is no scope for specialisation

•more scope for favouritisim

• Low morale



Merits of Line and Staff Organisation:

1. There is a balanced and prompt decisions

2. There is a well defined authority and responsibility. The line of command is maintained.

3. There is bifurcation of conceptual and executive function.

4. Lesser burden on line manager

5. Quick Actions

Demerits of Line and Staff Organisation:

1. There are bound to be occasions when line and staff may differ in opinion. This may result

conflict of interest & prevents a harmonies relationship.

2. Expensive

3. The staff people feel themselves status-less without authority.

4. Staff becomes ineffective in absence of authority.

Functional Organisation:

F.W. Taylor, father of scientific management, developed the concept of functional

organisation. He recommended functional organisation even at the shop level where workers

have to produce goods. He thought that one foreman could not manage all the aspects of

production work for directing a group of employees as they could not have varied knowledge.

He suggested the substitution of line authority by functional foremanship at the lower levels

of the organisation structure.

The line organisation suffers from a number of drawbacks. The line officer is over burdened

with responsibilities and he is unable to devote required time for each and every activity.

Moreover, line officer cannot be an expert in every field of business activity. The expansion

of business and large-scale production has necessitated the use of experts in different fields.


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In functional organisation the task of management and direction of subordinates should be

divided according to the type of work involved. All activities are grouped together according

to certain functions like production, marketing, finance, personnel, etc. and are put under the

charge of different persons.

Advantages of Functional Organisation:

1. Specialization:

This type of organisation has the benefit of having specialists in each area. The work is

performed by those who have the specialist knowledge of that work. The workers have the

advantage of getting instructions from specialists. This makes possible the fullest use of

energy in the organisation.

2. Increase in Efficiency:

There is a division of labour up to manager level. Planning and execution are also separated.

This helps to increase the overall efficiency in the organisation. The workers get guidance

from expert supervisors and this enhances their performance at work.

3. Scope for Growth:

The functional organisation provides wide scope for growth and mass production. The

employment of specialists at various levels of work enables the organisation to grow as per

the needs of the situation.

4. Flexibility:

Functional organisation allows changes in organisation without disturbing the whole work.

The span of supervision can also be adjusted according to the requirements.

5. Relief to Top Executives:

Top executives are not unnecessarily burdened as happens in line organisation. The line

officer is supposed to be a jack of all trades and is burdened with all types of works. On the

contrary a specialist is a master of his line and he has the expertise and capability of taking

his own decisions.

6. Economy of Operations:

The use of specialists helps in controlling the waste of materials, money and time. The

consolidation of activities leads to optimum use of facilities like office accommodation, plant

and machinery, etc.

7. Better Supervision:

Every superior is an expert in his own area and he will be successful in making proper

planning and execution. The superiors, being well acquainted with the work, will be able to

improve the level of supervision.



8. Democratic Control:

This type of organisation eliminates one man control. There will be a joint control and

supervision in the organisation. This boosts the morale of employees and also enthuses a

sense of co-operation among them. The democratic approach motivates workers to go deep

into their work and make suggestions for work improvement.

Disadvantages of Functional Organisation:

1. Conflict in Authority:

The principle of ‘unity of command’ is violated in functional organisation. A subordinate is

answerable to many bosses. Every superior considers his work important and wants the

workers to give top priority to his assignment. The workers feel confused and are unable to

decide about the priorities of their work.

2. Lack of Co-Ordination:

The appointment of several specialists creates problems of co-ordination, especially when the

advice of more than one is needed for taking decisions. Specialists try to give more

importance to their work as compared to other areas. This creates conflicts among specialists

and co-ordination becomes a problem.

3. Difficulty in Fixing Responsibility:

Since there is no unity of command, it becomes difficult to fix responsibility for slackness in

work. So many persons are involved in completing a work and everybody tries to blame

others for low performance.

4. Delay in Taking Decisions:

The involvement of more than one person in decision-making process slows the process

down. The speed or action tends to be hampered by the division of authority. Much time is

taken in consulting different specialists prior to decision-making.

5. Poor Discipline:

The division of authority creates problem of discipline. The workers have to obey many

bosses, their loyalty becomes divided. Discipline tends to break down not only among

workers but also among lower level supervisors.

6. Expensive:

Multiplicity of experts increases overhead expenses of the organisation. A number of

specialists are appointed for manning various lines of work. These persons being specialists

demand much higher emoluments. Small units cannot afford to have functional organisation.

7. Group Rivalries:



The emergence of many persons of equal status encourages group rivalries among executives.

Persons connected with different fields try to create their groups and then rivalry starts among

these groups. Every group tries to dominate the other. The growth of the unit is adversely

affected in a vicious atmosphere.

Committee organisaion:

A number of persons may come together to take a decision, decide a course of action, advise

line officers on some matters, it is a committee form of organization. It is a method of

collective thinking, corporate judgment and common decision. A committee may be assigned

some managerial functions or some advisory or exploratory service may be expected from it.

A committee is not a separated type of organization as such. But it is a method of attaching

persons or groups to line departments for advice and guidance in business planning and

execution. A group of competent and interested persons pool their thoughts for facilitating

decision making process.

Sometimes there is a need to get opinion of other persons for taking important decisions. The

thinking of varied persons is pooled together through deliberations and discussions and

common decisions are reached. Because of collective information and analysis, committees

are more likely to come up with solutions to complex problems. With the growth of

organization the need for committee is more.

Types of Committees:

Different committees may be formed with different id and purposes. Some committees may

be only advisory v some may perform managerial functions.

1. Formal and Informal Committees:

If a committees formed as a part of organization structure and is delegate some duties and

authority, it is a formal committee and informal committee may be formed to tackle some

problem, manager may call some experts to help him in analysing a problem and suggesting a

suitable solution. The chief executive may call a meeting of departmental heads and some

experts to find out a solution to some problem. In both the cases it is a case of an informal

committee.

2. Advisory Committees:

These are the committees to advice line heads on certain issues. Line officers may refer some

problems or issues to a committee for advice. The committee will collect information about

the problem and recommend solution for the same. The line officers have the powers to

accept, modify or reject the suggestions of advisory committees. These committees have no

managerial powers and cannot exert their views on the line executives.

3. Line Committees:

There may be committees with managerial powers. Instead of giving work to one person it

may be assigned to a number of executives. The committees having administrative powers



are called line or plural committees. Line committees help in planning company policies and

programmes and organizing efforts at fulfillment of these plans, etc. These committees also

direct and control the activities of employees for achieving organizational goals.

Advantages of Committee Form of Organization:

1. Pooling of Opinions:

The members of committees come from different background and areas of expertise and have

different viewpoints and values. When persons with varied abilities sit together and discuss a

problem, various aspects of the case are highlighted and pros and cons are assessed. The

pooled opinion will help in taking a realistic view of the problem.

2. Balancing of Views:

This type of organization helps in balancing the views expressed by different persons. There

is a tendency to over emphasize the aspects of one’s own department by ignoring the inter

dependent character of problems of different departments. A committee helps to bring out an

agreed view of the problem by taking into account divergent views expressed in such

meetings.

3. Motivation:

The committees consist of managers as well as subordinates. The views of subordinates are

given recognition and importance. It gives them encouragement and makes them feel as an

integral part of decision making process. Such committees boost the morale of subordinates

and motivate them to improve their performance.

4. Dispersion of Power:

The concentration of power in few persons may lead to misuse of authority and wrong

decisions. By spreading powers among committee members this problem can be solved.

5. Executive Training:

Committees provide a good forum for training executives. They learn the value of interaction,

group dynamics and human relations. They are exposed to various view points and learn the

art of reaching decisions and solving organizational problems.

Weakness of Committee Form of Organization:

1. Delay:

The main drawback of committee form of organization is delay in taking decisions. A

number of persons express their view points in meetings and a lot of time is taken on

reaching a decision. The fixing of committee meetings is also time consuming. An agenda is

issued and a convenience date is fixed for the meeting. The decision making process is very

slow and many business opportunities may be lost due to delayed decisions.



2. Compromise:

Generally, efforts are made to reach consensus decisions. The view point of the majority is

taken as a unanimous decision of the committee. The thinking of the minority may be valid

but it may not be pursued for singled out. They may accept less than an optimal solution,

because of a fear that if their solution proves wrong then they will be blamed for it.

3. No Accountability:

No individual accountability to be fixed if these decisions are bad. Every member of the

committee tries to defend himself by saying that he solves a different solution. If

accountability is not fixed then it is the weakness of the organization.

4. Domination by Some Members:

Some members try to dominate in the committee meetings. They try to thrust their view point

on others. The aggressiveness of some members helps them to take majority with them and

minority view is ignored. This type of decision making is not in the interest to the

organization.

Matrix Organisaion:

Matrix organisation or grid organisation is a hybrid structure combining two complementary

structures functional departmentation with pure project structure.

Functional structure is a permanent feature of the matrix organisation and retains authority

for the overall operation of the functional units.

Project departments are created whenever specific projects require a high degree of technical

skill and other resources for a temporary period.

Functional departments create a vertical chain of command while the project team forms the

horizontal lines, thereby forming a matrix. A matrix organisation is a two dimensional

structure, a combination of pure project structure and the traditional functional departments



Matrix organisation has been developed to meet the need of large and complex organisation

which requires a structure more flexible and technically oriented rather than the functional

structures. Temporary project teams are tailored to the successful completion of particular

projects. Project manager’s authority flows horizontally while functional manager’s authority

flows vertically.

Merits of Matrix Organisation:

1. It helps to focus attention, talent and resources on single project individually which

facilitates better planning and control.

2. It is more flexible than the traditional functional structures.

3. It provides an environment in which professionals can test their competence and make

maximum contributions.

4. It provides motivation to the project staff as they can focus directly on the completion of a

particular project.

Demerits of Matrix Organisation:

1. It violates the principle of unity of command. Each employee has two superiors-one

functional superior and other project superior.

2. The scalar principle is also violated as there is no determinate hierarchy.

3. Conflict may arise because of the heterogeneity of team members.

4. Here the organisational relationships are more complex. Apart from formal relationships,

informal ones also arise which create problems of co-ordination.

Departmentalization:

‘Departmentation’ or ‘Departmentalisation’ is the process of grouping the activities of an

enterprise into several units for the purpose of administration at all levels.

The administrative units so created may be designated as departments, divisions, units,

branches, sections, etc.

The process of organising consists of dividing and grouping of the works to be done in an

enterprise and assigning different duties and responsibilities to different people.

Dividing the work naturally means the identification of individual activities which have to be

undertaken for the attainment of the organisational objectives. But once the various activities

have been identified, it is necessary to group them together on some logical basis so that a

team can be organised.



Departmentation can provide a necessary degree of specialisation of executive activity for

efficient performance. It can simplify the tasks of management within a workable span. It

also provides a basis on which the top managers can co-ordinate and control the activities of

the departmental units.

Types of Departmentation:

There are several bases of Departmentation. The more commonly used bases are—function,

product, territory, process, customer, time etc.

(A) Departmentation by Functions:

The enterprise may be divided into departments on the basis of functions like production,

purchasing, sales, financing, personnel etc. This is the most popular basis of departmentation.

If necessary, a major function may be divided into sub-functions. For example, the activities

in the production department may be classified into quality control, processing of materials,

and repairs and maintenance.

Advantages:

(a) It is the most logical and natural form of departmentation.

(b) It ensures the performance of all activities necessary for achieving the organisational

objectives.

(c) It provides occupational specialisation which makes optimum utilization of man-power.

(d) It facilitates delegation of authority.

(e) It enables the top managers to exercise effective control over a limited number of

functions.

(f) It eliminates duplication of activities.


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(g) It simplifies training because the managers are to be experts only in a narrow range of

skills.

Disadvantages:

a) There may be conflicts between departments.

(b) The scope for management development is limited. Functional managers do not get

training for top management positions. The responsibility for results cannot be fixed on any

one functional head.

(c) There is too much emphasis on specialisation.

(d) There may be difficulties in coordinating the activities of different departments.

(e) There may be inflexibility and complexity of operations.

(B) Departmentation by Products:

In product departmentation, every major product is organised as a separate department. Each

department looks after the production, sales and financing of one product. Product

departmentation is useful when the expansion, diversification, manufacturing and marketing

characteristics of each product are primarily significant.

It is generally used when the production line is complex and diverse requiring specialised

knowledge and huge capital is required for plant, equipment and other facilities such as in

automobile and electronic industries.

In fact, many large companies are diversifying in different fields and they prefer product

departmentation. For example, a big company with a diversified product line may have three

product divisions, one each for plastics, chemicals, and metals. Each division may be sub-

divided into production, sales, financing, and personnel activities.

Advantages:

(a) Product departmentation focuses individual attention to each product line which facilitates

the expansion and diversification of the products.


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(b) It ensures full use of specialised production facilities. Personal skill and specialised

knowledge of the production managers can be fully utilised.

(c) The production managers can be held accountable for the profitability of each product.

Each product division is semi-autonomous and contains different functions. So, product

departmentation provides an excellent training facility for the top managers.

(d) The performance of each product division and its contribution to total results can be easily

evaluated.

(e) It is more flexible and adaptable to change.

Disadvantages:

(a) It creates the problem of effective control over the product divisions by the top managers.

(b) Each production manager asserts his autonomy disregarding the interests of the

organisation.

(c) The advantages of centralisation of certain activities like financing, and accounting are not

available.

(d) There is duplication of physical facilities and functions. Each product division maintains

its own specialised personnel due to which operating costs may be high.

(e) There may be under-utilisation of plant capacity when the demand for a particular product

is not adequate.

(C) Departmentation by Territory:

Territorial or geographical departmentation is specially useful to large-scale enterprises

whose activities are widely dispersed. Banks, insurance companies, transport companies,

distribution agencies etc. are some examples of such enterprises, where all the activities of a

given area of operations are grouped into zones, branches, divisions etc.

It is obviously not possible for one functional manager to manage efficiently such widely

spread activities. This makes it necessary to appoint regional managers for different regions.

Advantages:




(a) Every regional manager can specialise himself in the peculiar problems of his region.

(b) It facilitates the expansion of business to various regions.

(c) It helps in achieving the benefits of local operations. The local managers are more familiar

with the local customs, preferences, styles, fashion, etc. The enterprise can gain intimate

knowledge of the conditions in the local markets.

(d) It results in savings in freight, rents, and labour costs. It also saves time.

(e) There is better co-ordination of activities in a locality through setting up regional

divisions.

(f) It provides adequate autonomy to each regional manager and opportunity to train him as

he looks after the entire operation of a unit.

Disadvantages:

a) There is the problem of communication.

(b) It requires more managers with general managerial abilities. Such managers may not be

always available.

(c) There may be conflict between the regional managers.

(d) Co-ordination and control of different branches from the head office become less

effective.

(e) Owing to duplication of physical facilities, costs of operation are usually high.

(f) There is multiplication of personnel, accounting and other services at the regional level.

(D) Departmentation by Customers:

In such method of departmentation, the activities are grouped according to the type of

customers. For example, a large cloth store may be divided into wholesale, retail, and export

divisions. This type of departmentation is useful for the enterprises which sell a product or

service to a number of clearly defined customer groups. For instance, a large readymade

garment store may have a separate department each for men, women, and children. A bank

may have separate loan departments for large-scale and small- scale businessmen.



Advantages:

(a) Special attention can be given to the particular tastes and preferences of each type of

customer.

(b) Different types of customers can be satisfied, easily through specialised staff. Customers’

satisfaction enhances the goodwill and sale of the enterprise.

(c) The benefits of specialisation can be gained.

(d) The enterprise may acquire intimate knowledge of the needs of each category of

customers.

Disadvantages:

(a) Co-ordination between sales and other functions becomes difficult because this method

can be followed only in marketing division.

(b) There may be under-utilisation of facilities and manpower in some departments,

particularly during the period of low demand.

(c) It may lead to duplication of activities and heavy overheads,

(d) The managers of customer departments may put pressures for special benefits and

facilities.

Centralization and Decentralization

Centralization is said to be a process where the concentration of decision making is in a few

hands. All the important decision and actions at the lower level, all subjects and actions at the

lower level are subject to the approval of top management. According to Allen,

“Centralization” is the systematic and consistent reservation of authority at central points in

the organization




Centralization is a common occurrence in small enterprises. The success of organisaion

depend upon the authenticate personality.

Advantages:

Easy to understand

Clarity in authority

Economy

Facilitate evolution

Disadvantages:

Over burden to top executives

Slow down operations

Delay in decisions

No scope for specialization

Decentralization is a systematic delegation of authority at all levels of management and in

all of the organization. In a decentralization concern, authority in retained by the top

management for taking major decisions and framing policies concerning the whole concern.

Rest of the authority may be delegated to the middle level and lower level of management.

In large organization impossible to implement centralization, it can encourage

decentralization.

Advantages:

Reduce burden to top executives

Quick decisions

Effective control

Motivation & satisfy the employees

Disadvantages:

Lack of co-ordination

Difficulty in control

Costly

No connection to top management & worker

Recentralization: Centralization and decentralization depend on many factors and so the

degree of centralization and decentralization also change with the changing situation

It should not be supposed that authority once decentralized is decentralized forever.

Recentralization means back to centralization and vice versa.

Delegation:

Delegation of Authority is an important step in organising.


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It means granting of authority by the superior manager to his subordinates in order to

accomplish particular assignments.

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When the work of an executive increases so much in volume that he cannot cope with it,

he has to divide it among his subordinates.

This process of dividing the work with others and giving them authority to do it is

referred to as ‘Delegation’.

So, Delegation may be defined as the process of entrusting some part of the work of

operations or management to others; thus sharing one’s responsibilities with others. It

involves granting the right to decision-making in certain defined areas and charging the

subordinates with responsibility for carrying out the assigned tasks.

Process or Elements of Delegation:

1. Assignment of Duties:

As one manager cannot perform all the tasks, he must allocate a part of his work to the

subordinates. The sharing of duties between a manager and his subordinates can only be

done when the work is divided into parts. In delegating duties, the manager has to decide

what part of the work he will keep for himself and what parts should be transferred to his

subordinates.

Defining the work of the subordinates by their superior manager is known as assignment

of duties. It also covers defining of the results expected from the subordinates. The

manager may assign various duties in terms of goals, functions or results.

Duties may also be assigned in terms of job description. Expressing the duties in terms of

goals will probably result in more effective delegation, because it provides mental

satisfaction to the subordinates of being involved in fulfilling a mission through the

performance of certain allotted activities. Duties should be allocated according to the

qualification, experience and aptitude of the subordinates.

2. Granting of Authority:

If the delegated duties are to be discharged by the subordinates, they must be granted

requisite authority for enabling them to perform such duties. Assignment of duties is

meaningless unless adequate authority is given to the subordinates. The same rights and

powers as would have been necessary on the part of a manager for his self-performance

are to be conferred upon his subordinates.



In the process of delegating authority, the executive gives power or permission to the

subordinate to use certain rights— such as the right to spend money, to direct the work of

other people, to use raw materials and other property, or to represent the organisation to

outsiders. Effective delegation, however, requires that the limits of authority should be

made clear to each subordinate.

The superior and the subordinate should clearly understand the subordinate’s right to act,

to request others to act, and to maintain discipline. The superior can delegate only that for

which he has the authority and power to perform. He, however, does not give away the

total authority; he only delegates a part of it, retaining the ultimate authority and

responsibility to himself.

3. Creation of Obligation or Accountability for Performance:

The last step in the process of delegation of authority is the creation of moral compulsion

or obligation on the part of the subordinates for the satisfactory performance of their

duties. The subordinates to whom authority is delegated must be made answerable for the

proper performance of the assigned duties and for the exercise of delegated authority.

The creation of obligation is—in real sense—assumption of responsibility by the

subordinates. By accepting an assignment (i.e. a delegated task), a subordinate, in effect,

gives his promises to do his best in carrying out his duties. His obligation to do the task

assigned makes him accountable to the delegator for discharge of his duties.

As the manager himself remains ever accountable to his superior for the satisfactory

performance of the work, he has to exercise control over the performance of his

subordinates. This control is exercised through demanding accountability from the subor-

dinates. Duty and authority can be delegated by a manager to his subordinates, but

accountability flows from subordinates to the superior in an upward direction.

The process of delegation is shown in the following diagram:



Benefits of Delegation of Authority:

1. Reduction in Work-Burden of the Chief Executive:

2. Benefits of Specialised Service:

3. Aid to Expansion and Diversification of Business:

4. Aid to Employee Development:

Difficulties and Problems in Delegation of Authority:

1. Superiority complex:

2. Maintenance of tight control:

4. Fear of exposure:

5. Fear of the subordinates:

5. Love for authority:

6. No Dependence on the boss for decisions:

7. Fear of criticism:

8. Lack of self-confidence and fear of failure:

7. Over-work:

EMPOWERMENT

Employee empowerment has given several employees some degree of responsibility and

autonomy for making decisions related to specific tasks of the organization.


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It will also allow the decisions to be made at much lower levels of the organization where

the employees look at issues in a unique way and don’t have problem while facing their

organization at some level after a point.

Advantages of Employee Empowerment:

1. Boosts productivity and Smooth production

2. Better Quality

3. Can embrace change

4. Improves the quality of work:

5. Collaboration:

6. Communication is boosted:

7. A turnover that is reduced:

8. Clients are much happier:

Disadvantages of Employee Empowerment:

1. Abusing power:

2. Arrogant

3. Additional costs of training:

4. Poor knowledge and understanding:

6. Risks of security and confidentiality

Organizational culture

The term culture in the organizational context was first introduced by Dr. Elliot Jaques.

He discussed in his book “ The changing culture of a factory”, In 1951.

Culture means beliefs, Collective values and principles.

Organizational Culture means “ Collective values, beliefs and principles of organisainal

members and is a product of factor such as market, product, technology, style.

One of the most important building blocks for a highly successful organization and

an extraordinary workplace is “organizational culture”.

The most important thing about culture is that it’s the only sustainable point of difference

for any organization. Anyone can copy a company’s strategy, but nobody can copy their

culture. But what is organizational culture?



Culture is driven by leadership. How leaders behave, what they say, and what they value

drives culture

Culture is how organizations do things

The values and behaviors that contribute to the unique social and psychological

environment of an organization

Organizational culture defines a jointly shared description of an organization from

within

Organizational culture is the sum of values and rituals which serve as “glue” to

integrate the members of the organization

Organizational culture is a system of shared assumptions, values, and beliefs, which

governs how people behave in organizations

Organizational culture is civilization in the workplace

Organizational culture refers to the philosophies, attitudes, beliefs, behaviors and

practices that define an organization

Culture is the organization’s immune system

A good organization culture build with:

Fair treatment of employees

Leadership interaction

Clear accountability

Opportunity for every one

Organizational Climate

The concept of organisational climate was formally introduced by the human relationists in

the late 1940s. Now it has become a very useful metaphor for thinking about and describing

the social system. Organisational climate is also referred to as the “situational determinants”

or “Environmental determinants” which affect the human behaviour.

Some persons have used organisational culture and organisational climate interchangeably.

But there are some basic differences between these two terms. According to Bowditch and

Buono, “Organisational culture is connected with the nature of beliefs and expectations about

organisational life, while climate is an indicator of whether these beliefs and expectations are

being fulfilled.”

According to Forehand and Gilmer, “Climate consists of a set of characteristics that describe

an organisation, distinguish it from other organisations are relatively enduring over time and

influence the behaviour of people in it.”



According to Campbell, “Organisational climate can be defined as a set of attributes specific

to a particular organisation that may be induced from the way that organisation deals with its

members and its environment. For the individual members within the organisation, climate

takes the form of a set of attitudes and experiences which describe the organisation in terms

of both static characteristics (such as degree of autonomy) and behaviour outcome and

outcome- outcome contingencies.”

Dimensions of Organisaional Climate:

Structure of organization

Responsibility of employees

Reward system

Risk and Challenge

Support

Standards

Factors Influencing Organisational Climate:

Litwin and Stringer have included six factors which affect organisational climate. These

factors are:

(i) Organisational Structure: Perceptions of the extent of organisational constraints, rules,

regulations, red tape,

(ii) Individual Responsibility: Feeling of autonomy of being one’s own boss,

(iii) Rewards: Feelings related to being confident of adequate and appropriate rewards,

(iv) Risk and Risk Taking: Perceptions of the degree of challenge and risk in the work

situation,

(v) Warmth and Support: Feeling of general good fellowship and helpfulness prevailing in

the work setting.

(vi) Tolerance and Conflict: Degree of confidence that the climate can tolerate, differing

opinions.

Schneider AND Barlett give a broader and systematic study of climate dimensions.

Lawrence James and Allan Jones have classified the following factors that influence

organisational climate:

(i) Organisational Context: Mission, goals and objectives, function etc.

(ii) Organisational Structure: Size, degree of centralisation and operating procedures.

(iii) Leadership Process: Leadership styles, communication, decision making and related

processes.



(iv) Physical Environment: Employee safety, environmental stresses and physical space

characteristics.

(v) Organisational Values and Norms: Conformity, loyalty, impersonality and reciprocity.

Organisational Change

Organisational change refers to any alteration that occurs in total work environment.

Organisational change is an important characteristic of most organisations. An organisation

must develop adaptability to change otherwise it will either be left behind or be swept away

by the forces of change. Organisational change is inevitable in a progressive culture. Modern

organizations are highly dynamic, versatile and adaptive to the multiplicity of changes.

Organizations survive, grow or decay depending upon the changing behaviour of the

employees. Most changes disturb the equilibrium of situation and environment in which the

individuals or groups exist. If a change is detrimental to the interests of individuals or groups,

they will resist the change

Human Resource Management (HRM)

Human Resource Management (HRM) is an operation in companies designed to maximize

employee performance in order to meet the employer's strategic goals and objectives. More

precisely, HRM focuses on management of people within companies, emphasizing on

policies and systems.

In short, HRM is the process of recruiting, selecting employees, providing proper orientation

and induction, imparting proper training and developing skills.

HRM also includes employee assessment like performance appraisal, facilitating proper

compensation and benefits, encouragement, maintaining proper relations with labor and with

trade unions, and taking care of employee safety, welfare and health by complying with

labor laws of the state or country concerned.

Talent Management

Talent management indicates the skills of attracting highly skilled workers, integrating new

workers, and improving and retaining current workers to meet the current and future business

objectives.

identifying need for change

elements to be change

planning for change

assessing change force

Implemening Changes



Companies involved in a talent management strategy shift the duties of employees from the

human resources department to all managers throughout the company. It is also

called Human Capital Management (HCM).

Talent management is basically concerned with coordinating, collaborating and managing

the different talents people have to offer within a company. This is done by studying and

examining each individual on the basis of their skills, talent, personality and character in

relation to filling a particular vacancy within the company.

Every individual has different skills to offer and the difficult part for a company is choosing

those individuals who fit in with the existing company culture. Effective HR procedures will

be able to identify these individuals and appoint them appropriately.

Functions of Talent Management

After gathering all the skilled people required for the job, we need to handle them. This is

not possible without specifying the operations that need to be undertaken in talent

management. Various functions that organizations should perform with the help of HRM

and other departments are given below −

Talent requirement analysis

Allocating the talent resources or sources

Influencing talents towards the organization

Recruiting or nominating the in house or outsourced talents

Managing combative salaries or professional fees

Training and progress of talent pool

Performance examination of talent

Career and prosperity planning

Withholding management

We can conclude that talent management or human capital management is a set of business

practices that manages the planning, acquisition, development, retention and growth of talent

in order to achieve business goals with optimized performance.

Human Resource Planning (HRP)

Human Resource Planning (HRP) is the process of foreseeing the requirement of human

resources in an organization. The objective is also to determine how the existing human

resources best fit in their jobs.



Thus, it focuses on the basic economics concept of demand and supply in the context of the

human resource capacity of an organization.

1. Analysing Organizational Objectives:

The objective to be achieved in future in various fields such as production, marketing,

finance, expansion and sales gives the idea about the work to be done in the organization.

2. Inventory of Present Human Resources: From the updated human resource information storage system, the current number of

employees, their capacity, performance and potential can be analysed. To fill the various job

requirements, the internal sources (i.e., employees from within the organization) and external

sources (i.e., candidates from various placement agencies) can be estimated.

3. Forecasting Demand and Supply of Human Resource:

The human resources required at different positions according to their job profile are to be

estimated. The available internal and external sources to fulfill those requirements are also

measured. There should be proper matching of job description and job specification of one

particular work, and the profile of the person should be suitable to it.

4. Estimating Manpower Gaps: Comparison of human resource demand and human resource supply will provide with the

surplus or deficit of human resource. Deficit represents the number of people to be employed,

whereas surplus represents termination. Extensive use of proper training and development

programme can be done to upgrade the skills of employees.

5. Formulating the Human Resource Action Plan:

The human resource plan depends on whether there is deficit or surplus in the organization.

Accordingly, the plan may be finalized either for new recruitment, training, interdepartmental

transfer in case of deficit of termination, or voluntary retirement schemes and redeployment

in case of surplus.

6. Monitoring, Control and Feedback: It mainly involves implementation of the human resource action plan. Human resources are

allocated according to the requirements, and inventories are updated over a period. The plan



is monitored strictly to identify the deficiencies and remove it. Comparison between the

human resource plan and its actual implementation is done to ensure the appropriate action

and the availability of the required number of employees for various jobs.

Recruitment and Selection

Recruitment and Selection is an important operation in HRM, designed to maximize

employee strength in order to meet the employer's strategic goals and objectives. It is a

process of sourcing, screening, short listing and selecting the right candidates for the required

vacant positions.

Types of Recruitment

For any organization, recruitment is a crucial part of developing and maintaining an

effective and efficient team. A good recruitment strategy will cut down the wastage of time

and money, which would have incurred for extensive training and development of

unqualified resources.

Have you ever thought of, how a recruiter finds the right candidates? Recruiters use different

methods to source, screen, shortlist, and select the resources as per the requirements of the

organization. Recruitment types explain the means by which an organization reaches

potential job seekers.

In this chapter, we will shed some light on the secrets of hiring and recruiting methods, used

by the recruiters. Recruitment is broadly classified into two different categories − Internal

Sources and External Sources.

Internal Sources of Recruitment

Internal sources of recruitment refer to hiring employees within the organization internally.

In other words, applicants seeking for the different positions are those who are currently

employed with the same organization.

At the time recruitment of employees, the initial consideration should be given to those

employees who are currently working within the organization. This is an important source of

recruitment, which provides the opportunities for the development and utilization of the

existing resources within the organization.

Internal sources of recruitment are the best and the easiest way of selecting resources as

performance of their work is already known to the organization. Let us now discuss more on

the various internal sources of recruitment.

Promotions

Promotion refers to upgrading the cadre of the employees by evaluating their performance in

the organization. It is the process of shifting an employee from a lower position to a higher



position with more responsibilities, remuneration, facilities, and status. Many organizations

fill the higher vacant positions with the process of promotions, internally.

Transfers

Transfer refers to the process of interchanging from one job to another without any change

in the rank and responsibilities. It can also be the shifting of employees from one department

to another department or one location to another location, depending upon the requirement

of the position.

Recruiting Former Employees

Recruiting former employees is a process of internal sources of recruitment; wherein the ex-

employees are called back depending upon the requirement of the position. This process is

cost effective and saves plenty of time. The other major benefit of recruiting former

employees is that they are very well versed with the roles and responsibilities of the job and

the organization needs to spend less on their training and development.

Employee Referrals

Employee referral is an effective way of sourcing the right candidates at a low cost. It is the

process of hiring new resources through the references of employees, who are currently

working with the organization. In this process, the present employees can refer their friends

and relatives for filling up the vacant positions.

Organizations encourage employee referrals, because it is cost effective and saves time as

compared to hiring candidates from external sources. Most organizations, in order to

motivate their employees, go ahead and reward them with a referral bonus for a successful

hire.

Advantages of Internal Sources of Recruitment

It is simple, easy, quick, and cost effective.

No need of induction and training, as the candidates already know their job and

responsibilities.

It motivates the employees to work hard, and increases the work relationship within

the organization.

It helps in developing employee loyalty towards the organization.

The drawbacks of hiring candidates through internal sources are as follows −

It prevents new hiring of potential resources. Sometimes, new resources bring

innovative ideas and new thinking onto the table.

It has limited scope because all the vacant positions cannot be filled.

There could be issues in between the employees, who are promoted and who are not.

If an internal resource is promoted or transferred, then that position will remain

vacant.

Employees, who are not promoted, may end up being unhappy and demotivated.



External Sources of Recruitment

External sources of recruitment refer to hiring employees outside the organization

externally. In other words, the applicants seeking job opportunities in this case are those

who are external to the organization.

External employees bring innovativeness and fresh thoughts to the organization. Although

hiring through external sources is a bit expensive and tough, it has tremendous potential of

driving the organization forward in achieving its goals. Let us now discuss in detail the

various external sources of recruitment.

Recruitment Agencies

Recruitment agencies are a good external source of recruitment. Recruitment agencies are

run by various sectors like private, public, or government. It provides unskilled, semi-skilled

and skilled resources as per the requirements of the organization. These agencies hold a

database of qualified candidates and organizations can use their services at a cost.

Advertisements

Advertisements are the most popular and very much preferred source of external source of

recruitment. The job vacancy is announced through various print and electronic media with a

specific job description and specifications of the requirements. Using advertisements is the

best way to source candidates in a short span and it offers an efficient way of screening the

candidates’ specific requirements.

Let’s take an example. Assume that there is a Sales Company called XYZ Ltd which has got

a new project of selling a product in a short span of time, as the competition is very high. In

this scenario, choosing the specific recruitment plays a vital role. Here the ideal type of

recruitment which should be chosen is Advertisement.

Advertisement is the best suitable practice for this kind of hiring, because a large volume of

hiring in a short span can be done through Advertisement only. Advertisement is one of the

costliest ways to recruit candidates, but when time and number are important, then

advertisement is the best source of recruitment.

Campus Recruitment

Campus recruitment is an external source of recruitment, where the educational institutions

such as colleges and universities offer opportunities for hiring students. In this process, the

organizations visit technical, management, and professional institutions for recruiting

students directly for the new positions.

Recruitment Agencies

Recruitment agencies are outside firms who go and find candidates for employers.

Recruiting people takes a huge amount of time, and for many firms it is a real struggle to

find enough time to do it well. Recruitment is also very much a numbers game: an employer

often has to look at a lot of applications before he finds the right person for the role. That

might sound a bit horrible and impersonal, and it is, but it’s also how it is.

Recruitment agencies fill a specific need. Employers need the right people to apply for their

jobs, but often they don’t have the time to go and find these people themselves. They use

recruitment agencies to do this for them, so that the employer can spend more of their time

interviewing applicants.



Advantages of External Sources of Recruitment

It encourages new opportunities for job seekers.

Organization branding increases through external sources.

There will be no biasing or partiality between the employees.

The scope for selecting the right candidate is more, because of the large number

candidates appearing.

The disadvantages of recruiting through external sources are as follows −

This process consumes more time, as the selection process is very lengthy.

The cost incurred is very high when compared to recruiting through internal sources.

External candidates demand more remuneration and benefits.

Selection

Selection is the process of picking or choosing the right candidate, who is most suitable for a

vacant job position in an organization. In others words, selection can also be explained as the

process of interviewing the candidates and evaluating their qualities, which are required for a

specific job and then choosing the suitable candidate for the position

Different authors define Selection in different ways. Here is a list of some of the definitions −

Employee selection is a process of putting a right applicant on a right job.

Selection of an employee is a process of choosing the applicants, who have the

qualifications to fill the vacant job in an organization.

Selection is a process of identifying and hiring the applicants for filling the vacancies

in an organization.

Employee selection is a process of matching organization’s requirements with the

skills and the qualifications of individuals.

A good selection process will ensure that the organization gets the right set of employees

with the right attitude.

Importance of Selection

1. Selection is an important process because hiring good resources can help increase the

overall performance of the organization. In contrast, if there is bad hire with a bad

selection process, then the work will be affected and the cost incurred for replacing

that bad resource will be high.

2. The purpose of selection is to choose the most suitable candidate, who can meet the

requirements of the jobs in an organization, who will be a successful applicant. For

meeting the goals of the organization, it is important to evaluate various attributes of

each candidate such as their qualifications, skills, experiences, overall attitude, etc. In

this process, the most suitable candidate is picked after the elimination of the

candidates, who are not suitable for the vacant job.



3. The organization has to follow a proper selection process or procedure, as a huge

amount of money is spent for hiring a right candidate for a position. If a selection is

wrong, then the cost incurred in induction and training the wrong candidate will be a

huge loss to the employer in terms of money, effort, and also time. Hence, selection is

very important and the process should be perfect for the betterment of the

organization.

Selection Process:

As we have discussed that Selection is very important for any organization for minimizing

the losses and maximizing the profits. Hence the selection procedure should be perfect. A

good selection process should comprise the following steps:

Employment Interview − Employment interview is a process in which one-on-one

session in conducted with the applicant to know a candidate better. It helps the

interviewer to discover the inner qualities of the applicant and helps in taking a right

decision.

Checking References − Reference checking is a process of verifying the applicant’s

qualifications and experiences with the references provided by him. These reference

checks help the interviewer understand the conduct, the attitude, and the behavior of

the candidate as an individual and also as a professional.

Medical Examination − Medical examination is a process, in which the physical and

the mental fitness of the applicants are checked to ensure that the candidates are

capable of performing a job or not. This examination helps the organization in

choosing the right candidates who are physically and mentally fit.

Final Selection − The final selection is the final process which proves that the

applicant has qualified in all the rounds of the selection process and will be issued an

appointment letter.



A selection process with the above steps will help any organization in choosing and selecting

the right candidates for the right job.

Training and Development

Training and Development is a subsystem of an organization which emphasize on the

improvement of the performance of individuals and groups. Training is an educational

process which involves the sharpening of skills, concepts, changing of attitude and gaining

more knowledge to enhance the performance of the employees. Good & efficient training of

employees helps in their skills & knowledge development, which eventually helps a company

improve.

Importance of Training and Development

For companies to keep improving, it is important for organizations to have continuous

training and development programs for their employees. Competition and the business

environment keeps changing, and hence it is critical to keep learning and pick up new skills.

The importance of training and development is as follows:

• Optimum utilization of Human resources

• Development of skills

• To increase the productivity

• To provide the zeal of team spirit

• For improvement of organization culture

• To improve quality, safety

• To increase profitability

• Improve the morale and corporate image



Process of Training & Development

Training Methods:

A large variety of methods of training are used in business. Even within one organization

different methods are used for training different people. All the methods are divided into two

classifications for:

A. On-the-job training Methods:

Under these methods new or inexperienced employees learn through observing peers or

managers performing the job and trying to imitate their behaviour. These methods do not cost

much and are less disruptive as employees are always on the job, training is given on the

same machines and experience would be on already approved standards, and above all the

trainee is learning while earning. Some of the commonly used methods are:

1. Coaching:

Coaching is a one-to-one training. It helps in quickly identifying the weak areas and tries to

focus on them. It also offers the benefit of transferring theory learning to practice. The

biggest problem is that it perpetrates the existing practices and styles. In India most of the

scooter mechanics are trained only through this method.

2. Mentoring:

The focus in this training is on the development of attitude. It is used for managerial

employees. Mentoring is always done by a senior inside person. It is also one-to- one

interaction, like coaching.

3. Job Rotation:

It is the process of training employees by rotating them through a series of related jobs.

Rotation not only makes a person well acquainted with different jobs, but it also alleviates

boredom and allows to develop rapport with a number of people. Rotation must be logical.



4. Internship:

Internship/ Apprenticeship is a system of training a new generation of practitioners of a skill.

This method of training is in vogue in those trades, crafts and technical fields in which a long

period is required for gaining proficiency. The trainees serve as apprentices to experts for

long periods. They have to work in direct association with and also under the direct

supervision of their masters.

B. Off-the-job Training Methods:

Off-the-job training methods are conducted in separate from the job environment, study

material is supplied, there is full concentration on learning rather than performing, and there

is freedom of expression. Important methods include:

1. Case study method:

Usually case study deals with any problem confronted by a business which can be solved by

an employee. The trainee is given an opportunity to analyse the case and come out with all

possible solutions. This method can enhance analytic and critical thinking of an employee.

2. Incident method:

Incidents are prepared on the basis of actual situations which happened in different

organizations and each employee in the training group is asked to make decisions as if it is a

real-life situation. Later on, the entire group discusses the incident and takes decisions related

to the incident on the basis of individual and group decisions.

3. Role play:

In this case also a problem situation is simulated asking the employee to assume the role of a

particular person in the situation. The participant interacts with other participants assuming

different roles. The whole play will be recorded and trainee gets an opportunity to examine

their own performance.

4. Business games:

According to this method the trainees are divided into groups and each group has to discuss

about various activities and functions of an imaginary organization. They will discuss and

decide about various subjects like production, promotion, pricing etc. This gives result in co-

operative decision making process.

5. Lectures:

This will be a suitable method when the numbers of trainees are quite large. Lectures can be

very much helpful in explaining the concepts and principles very clearly, and face to face

interaction is very much possible.

6. Simulation:



Under this method an imaginary situation is created and trainees are asked to act on it. For

e.g., assuming the role of a marketing manager solving the marketing problems or creating a

new strategy etc.

7. Conferences:

A meeting of several people to discuss any subject is called conference. Each participant

contributes by analyzing and discussing various issues related to the topic. Everyone can

express their own view point.

Performance Appraisal

Performance Appraisal is the systematic evaluation of the performance of employees and to

understand the abilities of a person for further growth and development.

Performance appraisal is the process of evaluation of an employee at higher levels. In order to

know whether the selection of an employee is right or wrong, performance appraisal is

resorted to. Promotion, transfer, salary increase etc. are some of the matters that are

dependent upon the evaluation of the performance of an employee.

Appraisal of an employee reveals as to how efficiently the subordinate is performing his job

and also to know his aptitudes and other qualities necessary for performing the job assigned

to him. The qualities of employees that are apprised through performance appraisal are ability

to do work, spirit of co-operation, managerial ability, self-confidence, initiative, intelligence

etc.

Performance Appraisal is regarded as a most significant tool for the success of any concern.

The main objective of performance appraisal is to improve the efficiency of a concern by

mobilising the best possible efforts from individuals employed in it.

Definition:

Performance appraisal is a systematic, periodic and so far as humanly possible, the impartial

rating of an employee’s excellence in matters pertaining to his present job and to his

potentialities for a better job. ” —Edwin B, Flippo

“It is the evaluation or appraisal of the relative worth to the company of a man’s services on

his jobs.” —A1 ford & Beatty

Objectives of Performance Appraisal

1. To maintain records in order to determine compensation packages, wage structure,

salaries raises, etc.



2. To identify the strengths and weaknesses of employees to place right men on right

job.

3. To maintain and assess the potential present in a person for further growth and

development.

4. To provide a feedback to employees regarding their performance and related status.

5. To provide a feedback to employees regarding their performance and related status.

6. It serves as a basis for influencing working habits of the employees.

7. To review and retain the promotional and other training programmes.

Traditional Methods:

Ranking Method:

It is the oldest and simplest formal systematic method of performance appraisal in which

employee is compared with all others for the purpose of placing order of worth. The

employees are ranked from the highest to the lowest or from the best to the worst.

Paired Comparison:

In this method, each employee is compared with other employees on one- on one basis,

usually based on one trait only. The rater is provided with a bunch of slips each coining pair

of names, the rater puts a tick mark against the employee whom he insiders the better of the

two. The number of times this employee is compared as better with others determines his or

her final ranking.

Grading Method:

In this method, certain categories of worth are established in advance and carefully defined.

There can be three categories established for employees: outstanding, satisfactory and

unsatisfactory. There can be more than three grades. Employee performance is compared

with grade definitions. The employee is, then, allocated to the grade that best describes his or

her performance.

Check-List Method:

The basic purpose of utilizing check-list method is to ease the evaluation burden upon the

rater. In this method, a series of statements, i.e., questions with their answers in ‘yes’ or ‘no’

are prepared by the HR department (see Figure 28-2). The check-list is, then, presented to the

rater to tick appropriate answers relevant to the appraisee. Each question carries a weight-age

in relationship to their importance.



Critical Incidents Method:

In this method, the rater focuses his or her attention on those key or critical behaviours that

make the difference between performing a job in a noteworthy manner (effectively or

ineffectively). There are three steps involved in appraising employees using this method.

First, a list of noteworthy (good or bad) on-the-job behaviour of specific incidents is

prepared. Second, a group of experts then assigns weightage or score to these incidents,

depending upon their degree of desirability to perform a job. Third, finally a check-list

indicating incidents that describe workers as “good” or “bad” is constructed. Then, the check-

list is given to the rater for evaluating the workers.

Graphic Rating Scale Method:

The graphic rating scale is one of the most popular and simplest techniques for appraising

performance. It is also known as linear rating scale. In this method, the printed appraisal form

is used to appraise each employee.

field Review Method:

When there is a reason to suspect rater’s biasedness or his or her rating appears to be quite

higher than others, these are neutralised with the help of a review process. The review

process is usually conducted by the personnel officer in the HR department.

Confidential Report:

It is the traditional way of appraising employees mainly in the Government Departments.

Evaluation is made by the immediate boss or supervisor for giving effect to promotion and


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transfer. Usually a structured format is devised to collect information on employee’s strength

weakness, intelligence, attitude, character, attendance, discipline, etc. report.

Modern Methods:

Management by Objectives (MBO):

Most of the traditional methods of performance appraisal are subject to the antagonistic

judgments of the raters. It was to overcome this problem; Peter F. Drucker propounded a new

concept, namely, management by objectives (MBO) way back in 1954 in his book.

The Practice of management. The concept of MBO as was conceived by Drucker, can be

described as a “process whereby the superior and subordinate managers of an organization

jointly identify its common goals, define each individual’s major areas of responsibility in

terms of results expected of him and use these measures as guides for operating the unit and

assessing the contribution of each its members”.

Behaviourally Anchored Rating Scales (BARS):

The problem of judgmental performance evaluation inherent in the traditional methods of

performance evaluation led to some organisations to go for objective evaluation by

developing a technique known as “Behaviourally Anchored Rating Scales (BARS)” around

1960s. BARS are descriptions of various degrees of behaviour with regard to a specific

performance dimension.

BARS method of performance appraisal is considered better than the traditional ones because

it provides advantages like a more accurate gauge, clearer standards, better feedback, and

consistency in evaluation.

360 degrees Performance Appraisal

The 360 degrees Performance Appraisal method was first used in the 1940s. 360-degree

feedback or multi-source feedback is an appraisal or performance assessment tool that



incorporates feedback from all who observe and are affected by the performance of a

candidate.

360 degree respondents for an employee can be his/her peers, managers (i.e. superior),

subordinates, team members, customers, suppliers/ vendors - anyone who comes into contact

with the employee and can provide valuable insights and information or feedback regarding

the “on-the-job” performance of the employee.

360 degree appraisal has four integral components:

1. Self appraisal

2. Superior’s appraisal

3. Subordinate’s appraisal

4. Peer appraisal.

Human resource accounting

“Human resource accounting is accounting for people as an organizational resource. It

involves measuring the costs incurred by business firms and other organizations to recruit,

select, hire, train and develop human assets. It also involves measuring the economic value of

people to the organization.”


unit-3 1. definition, meaning & characteristic of organisation

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