M & e notes - module -2 praveen

Management & Entrepreneurship [15EE51] M-2 Organizing & Staffing
Praveen Kumar .C, Assistant Professor, Dept. of EEE, SKIT Page 1
MANAGEMENT & ENTREPRENEURSHIP
[15EE51]
COURSE MATERIALS
MODULE -2
ORGANIZING & STAFFING
Praveen Kumar .C
Assistant professor, Dept. of EEE
SKIT, Bangalore,

3.1 INTRODUCTION:
Organization is the foundation upon which the whole organization is built. Without efficient
organization, no management can perform its function smoothly. Sound organization contributes
greatly to the continuity and the success of organization. A poor organization structure makes good
performance impossible, no matter how good the individuals are. The term organization connotes
different things to different people. In order to understand the meaning and characteristics of
organization, we shall study it under the following heads:
(1) Organization as a group of persons.
(2) Organization as a structure of relationship.
(3) Organization as a function of management.
(4) Organization as a process.
(1) Organization as a group of persons: Organization is viewed as a group of people contributing
their efforts towards certain goal.. Organization begins when people combine efforts for some
common purpose. Chester I Barnard defined organization “as an identifiable group of people
contributing their efforts. An organization comes into existence when there are a number of persons
in communication and relationship to each other and are willing to contribute towards a common
Endeavour. The group of people lay down rules and regulations and the formal structure or
relationship among themselves”.
(2) Organization as a structure of relationships: Some people view organization as a structure of
relationship. Organization sets up the scope of activities of the enterprise by laying down the
structure of relationships. If organization is merely recognized as ‘structure’, it will be viewed as a
static thing used to explain formal relationships. But an organization is a ‘dynamic’ entity consisting
of individuals, means, objectives and relationships among the individuals.
(3) Organization as a function of management: Organization is one of the basic functions of
management. It involves determination and provision of various resources for the achievement of
predetermined goal. Thus, organization is defined as a process of integrating and coordinating the
efforts of human, financial and other resources for the accomplishment of certain objectives.
(4) Organization as a process: Organization is the process of establishing relationship among the
members of the organization. Using this process organization structure is crated. The relationships
are created in terms of authority and responsibility. Each person in the organization is assigned
specific responsibility or duty to perform and is granted the corresponding authority to perform his
duty.
According to Louise A Allen, “Organization involves identification and grouping of activities to
be performed and dividing them among the individuals and creating authority and
responsibility relationship among them for the accomplishment of organizational objectives.”
Organizing being process, consists of departmentalization, linking of departments, defining authority
and responsibility and prescribing authority relationships. The organization structure is the result of
this process.
3.2 STEPS IN ORGANIZING
While organizing, a manager differentiates and integrates the activities of his organization.
Integration is the process of achieving unity of effort among various departments, segments or
subsystems. Organization involves the following interrelated steps:
(1) Consideration of objectives: The first step in organizing is to know the objectives of the
enterprise. Objectives determine resources and the various activities which need to be performed and
the type of organization which needs to be built for this purpose. Objectives also serve as guidelines
for the management and workers. They bring about unity of direction in the organization.

(2) Identification and grouping of activities: The various activities have to be grouped. Each job
should be properly classified and grouped. This will enable the people to know what is expected of
them as members of the group and will help in avoiding duplication of efforts. For example, the total
activities of an enterprise may be divided into major functions like production, purchasing,
marketing, finance etc., and such function is further subdivided into various jobs. The jobs then can
be classified and grouped to ensure the effective implementation of other steps.
(3) Assignment of duties: After classifying and grouping the activities into various jobs, they should
be allotted to the individuals for ensuring certainty of work performance. Each individual should be
given a specific job to do according to his ability and made responsible for that.
(4) Delegation of authority: Authority without responsibility is dangerous and responsibility without
authority is an empty vessel. Hence, corresponding to the responsibility authority is delegated to the
subordinates for enabling them to show work performance.
3.3 NATURE OF ORGANIZATION
The nature of organization can be highlighted by studying the following features:
(1) Organization is always related to certain objectives: Organization is influenced by objectives.
The operations are divided, authority and responsibility are determined to achieve
predetermined objectives.
(2) An organization connotes a group of people: Mc Farland has defined organization as “an
identifiable group of people contributing their efforts towards the attainment of goals. People form
groups or organizations to accomplish common objectives and pool their efforts by defining and
dividing various activities, responsibility and authority”.
(3) Communication is the nervous system of organization: The organizational members are able to
communicate with each other and may coordinate their activities. No organization can survive
without an efficient system of communication.
(4) Organizing is a basic function of management: Organizing is done in relation to all other
functions of management, namely planning, staffing, directing and controlling and in all the areas of
business namely production, marketing, purchasing, personnel. The organizing function is performed
by all managers.
(5) Organization is a continuous process: It is not a one step function. Managers are continuously
engaged in organizing and reorganizing.
(6) Organization connotes a structure of relationship: The structure of relationship deliberately
created by the management is referred to as formal organization. An organization may also have a
network of social relationships that arise between people working together. Such relationships are
known as informal organization. In formal organization people are able to communicate with each
other, are willing to act and share a purpose. In informal organization, people work together because
of their likes and dislikes.
(7) Organization involves a network of authority and responsibility relationship: Various positions
are created, specific tasks are assigned to them. To perform the task, each position is delegated
adequate authority. Authority and responsibility relationships throughout the organization must be
clearly defined to achieve coordination and to avoid conflicts between individuals and departments.
3.4 PURPOSE OF ORGANIZATION
Organization means a form of human association for the attainment of common objectives. An
industrial organization denotes a type of associationship of persons in relationship to some economic
activities. Organization is essential for the following purposes:
(1) To facilitate pattern of communication: Organization structure provide pattern of
communication and coordination. By grouping activities and people, structure facilitates
communication between people centered on their job activities. People who have joint problem often
need to share information to solve the problem.

(2) To allocate authority and responsibility: Organization structure allocates authority and
responsibility. It specifies who is to direct whom and who is accountable for what results. The
structure helps the organization members to know what his role is and how it relates to others role.
(3) To locate decision centers: Organization structure determines the location of decision making in
the organization.
(4) To create proper balance: Organization structure creates the proper balance and emphasis of
activities. Those more critical to the enterprises success might be placed higher in the organization.
Activity of comparable importance might be placed at the lower level.
(5) To stimulate creativity: Sound organization stimulates independent, creative thinking and
initiative by providing well-defined areas of work with broad attitude of the development of new
and improved ways of doing things.
(6) To encourage growth: The organization structure provide framework within which an enterprise
functions. If the organization structure is flexible, it will help in meeting challenges and creating
opportunities for growth.
(7) To make use of technological improvements: A sound organization structure which is adoptable
to changes can make the best possible use of latest technology. It can modify the existing pattern of
authority-responsibility relationships in the wake of technological improvements.
3.5 PRINCIPLES OF ORGANIZATION
In order to facilitate the achievement of objectives, management thinkers have laid down certain
principles of organization. The principles are guidelines for planning organization structure.
Therefore, thorough understanding of the principles of organization is essential for good
organization. The principles of organization are discussed below:
(1) Objectives: The objectives of the enterprise influence the organization structure. Every part of
the organization and organization as a whole should be geared to the basic objective determined by
the enterprise.
(2) Specialization: Effective organization must promote specialization. The activities of the
enterprise should be divided according to functions and assigned to persons according to their
specialization.
(3) Span of control: A manager can directly supervise only a limited number of executives. Hence,
it is necessary to have a proper number of subordinates answerable to a manager. A maximum of six
may be prescribed for this purpose.
(4) Exception: This principle requires that organization structure should be so designed that
managers are required to go through the exceptional matters only. All the routine decisions should be
taken by subordinates, where as problems involving unusual matters and policy decision should be
referred to higher levels.
(5) Scalar principle: This is also known as chain of command. There must be clear lines of authority
running from the top to the bottom. Authority is the right to decide, direct and coordinate. Every
subordinate must know who his superior is and to whom policy matters beyond his own authority
must be referred for decision.
(6) Unity of command: Each subordinate should have only one supervisor whose command he has
to obey. Dual subordination must be avoided, for it causes uneasiness, disorder, and indiscipline and
undermine of authority.
(7) Delegation: Proper authority should be delegated at the lower levels of the organization also. The
authority delegated must be equal to responsibility i.e., the manager should have enough authority to
accomplish the task assigned to him.
(8) Responsibility: A superior should be held responsible for the acts of his subordinates. No
superior should be allowed to avoid responsibility by delegating authority to his subordinates.

(9) Authority: The authority is the tool by which a manager is able to accomplish the desired
objective. Hence, the authority of each manager must be clearly defined. The authority and
responsibility must be co-extensive in the organization.
(10) Efficiency: The organization should be able to attain the mission and objectives at the minimum
cost.
(11) Simplicity: The organization structure should be as simple as possible with minimum number of
levels. A large number of levels of organization means difficulty of effective communication and
coordination.
(12) Flexibility: The organization should be flexible, should be adaptable to changing circumstances.
It should permit expansion and replacement without dislocation and disruption of the basic design. A
sound organization must avoid complicated procedures, red-tape and excessive complication of
control so that it may adapt itself easily and economically to business and technical changes.
(13) Balance: There should be reasonable balance in the size of various departments, between
centralization and decentralization. There must be balance in the formal structure as regards to
factors having conflicting claims.
(14) Unity of direction: There must be one objective and one plan for a group of activities having
the same objective. Unity of direction facilitates unification and coordination of activities at various
levels.
(15) Personal abilities: As organization is a formal group of people there is need for proper
selection, placement and training. Organization structure must ensure optimum use of human
resources.
3.6 TYPES OF ORGANIZATION:
An organizational structure is mainly concerned with the allocation of duties and responsibilities and
delegation of authority. It represents hierarchical arrangement of various positions in the
organization. The adoption of a particular form of organization structure largely depends upon the
nature, scale and size of the business. The following are some important types of organization:
a) Line organization.
b) Functional organization.
c) Line and staff organization.
d) Committee form of organization.
e) Matrix organization.
a) Line organization: It is the basic framework for the whole organization. It represents a direct
vertical relationship through which authority flows. It is the simplest and oldest and is also
known as chain of command or scalar principle. The authority flows from top to the lower
levels. Every person is incharge of all the persons under him and he is accountable to his
superior only. In the words of J.M.Lundy,” It is characterised by direct lines of authority
flowing from the top to the bottom of the organizational hierarchy and lines of responsibility
flowing in a opposite but equally direct manner.”. It is followed in military establishment.
There are two types of line organization viz., Pure line organization and Departmental line
organization.
Pure line organization: In pure line organization all persons at a given level perform the same
type of work. The divisions are solely for the purpose of control and direction. An example of
pure line organization is shown in Fig 3.1

Fig 3.1. Pure line organization
Departmental Line organization: The enterprise is divided into different department which
are convenient of control process. The unity of control and line of authority flows from top to
the bottom. The whole organization is put under the overall control of chief executive who is
called General manager. Each department is put under the control of departmental managers.
Departmental managers get orders from the general manager and are independent. Various
departmental managers are equal in status and authority. Fig 3.2 shows Departmental line
organization.
Fig 3.2. Departmental line organization
Merits of line organization:
1. Simplicity: It is simple to establish and easy to understand. Everybody knows his work and
also to whom he is responsible. Hence it can be operated simply and clearly.
2. Identification of authority and responsibility: It helps to fix the responsibilities and
authority for each and every person in the organization. The authority is given with
reference to the assignment of task.
3. Coordination: The hierarchy in management helps in achieving effective coordination. The
general manager is incharge of all the department and he can easily coordinate the work of
various departments and similarly the departmental managers within the department.
4. Effective communication: The chain of command goes from top to bottom. There is a direct
link between the superior and his subordinate, both can communicate properly among
themselves.
5. Economical: It is easy to operate and less expensive. Line officers take their own decisions
without looking to specialized personnel. This reduces the establishment cost.
6. Quick decisions: Only one person is incharge for the department or division. All decisions
are to be taken by him. Hence decision making is faster.
Production manager
Foreman A
Workers
Foreman -B
Workers

7. Unity of command: Every person is under the command of one boss only. This is in
accordance with the principle of scalar chair.
8. Effective control and supervision: The number of subordinates is limited under line
organization. There is a direct link between superior and subordinates. Hence control and
supervision is easier.
9. Executive development: The departmental head is involved in taking and executing various
decisions. This helps an executive to learn many things and develop his capabilities.
10. Flexibility: Since the manager has to make all decisions, he can make changes if new
situation warrants.
Demerits of line organization:
1. Excess work: In line organization too much is expected from executives. They are expected
to make numerous decisions and supervise the work of subordinates. The line officers gets
overloaded and cannot devote sufficient time to each and every work.
2. Lack of specialization: The line officers cannot be experts in every line of business. They
are expected to make all decisions. Hence the quality of the decisions may suffer.
3. Lack of coordination: There is a lack of coordination among various departments. All
departmental heads try to run the departments in their own way and according to their suitability.
4. Improper communication: The line officers may become autocratic and start deciding
things without consulting their subordinates. There is a lack of communication between superior
and subordinates. This leads to many problems in smooth conduct of business.
5. Lack of initiative: The lower level do not show initiative in suggesting new things as all the
decisions are made by top management.
6. Favouritism: There is a scope of favouritism in line organization. The officers work
according to their preferences. There is a likelihood that some persons may be given favours and
deserving persons, on the other hand, may be ignored.
7. Instability: The business depends on some key persons and the sudden disappearance of
such persons from the scene may create instability in the business.
b) Functional or Staff organization:
The line organization does not provide specialists in the structure. Many jobs require
specialized knowledge to perform them. In functional organization the specialists are made
available in the top positions throughout the enterprise. It confers upon the holder of a
functional position, a limited power of command over the people of various departments
concerning their function. Functional authority remains confined to functional guidance of
different department. Under functional organization, various activities of the enterprise are
classified according to certain functions like production, marketing, finance, personnel etc.,
and are put under the charge of functional specialists as show in fig.3.3. A functional incharge
directs the subordinates throughout the organization in his particular area of business
operation. That means that subordinates receives orders and instructions not from one superior
but from several functional specialists.
Advantages of functional organization:
1. Specialization: This type of organization has the benefit of having specialists in each
area. The workers have the advantage of getting instructions from specialists.
2. Increase in efficiency: There is a division of labour upto manager level. Planning and
execution is separated. This helps to increase the overall efficiency in the organization.
3. Scope of growth: This organization provides wide scope for growth and mass
production.

Fig 3.3. Functional ( Staff) organization.
4. Flexibility: Functional organization allows changes in organization 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 in line
organization due to the introduction of the specialist.
6. Economy of operation: 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.
8. Democratic control: This type of organization eliminates one man control.
Disadvantages of functional organization:
1. Conflict of authority: The subordinate is answerable to many bosses. Every superior
considers his work as 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 coordination: The appointment of several specialists creates problems of
coordination, especially when the advice of more than one is needed for taking decision.
3. Difficulty in fixing responsibility: Since there is no unity of command, it becomes
difficult to fix responsibility for slackness in work.
4. Delay in taking decisions: The involvement of more than one person in decision making
process slows it down.
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.
6. Expensive: Having may experts increases overhead expenses of the organization. Small
units cannot afford to have functional organization.
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.
Table 3.1 shows the difference between line and functional organization.

Table 3.1. Functional v/s Line organization
Sl .
No.
Line organization Functional organization
1 Doing of actual work, both physical
and mental
Perform only specialized functions,
advisory in nature
2 Centralized authority Decentralized authority
3 One supervisor-one subordinate Several advisors to one subordinates
4 Responsibility is fixed No fixed responsibility
5 Less expensive and flexible More expensive and less flexible
6 Suitable for small business Suitable for big business
7 Have authority of command that flows
downwards
Have authority of ideas and
knowledge.
c. Line and staff organization:
It is used to reap the advantages of both line organization and staff organization. In line and
staff organization, the line authority remains the same as it does in the line organization.
Authority flows from top to bottom. In addition, the specialists are attached to line managers to
advice them on important matters. There are two types of executives : Staff officers and line
manager.
Line manager is the executive authority. He is responsible for making decisions and is
accountable for its implications.
Staff officers are experts in their fields. They are attached to line managers to advise them in
the field of their specialization. Their role is of advisers An organization chart for line and staff
organization is shown in Fig 3.4
Fig 3.4. Line and staff organization
The staff executives can be of different types namely PERSONAL STAFF, SPECIALIST
STAFF, GENERAL STAFF.

1. Personal staff: They are attached to individual line officers. The PA or the Private secretary
etc from personal staff of line managers. They fix routine meetings, open the posts, maintain
diaries etc. They take care on the routine work and hence line officers are spared of routine
works and are able to devote much time for planning and execution.
2. Specialist staff: These are technically qualified persons who provide service to the whole
organization. They serve line and other staff in planning, organizing and coordinating their work.
Their specialist knowledge is an asset to the organization.
3. General staff: They are persons attached to the key executives. They have the same
background as that of the line officers. They are attached to important functionaries as their
deputies. The designations line deputy managers, assistance managers etc are examples of general
staff.
Merits of Line and staff organization:
1. Specialization: It introduces specialisation in a systematic manner.
2. Better discipline: The unity of command is maintained in this type of organization. The
staff personnel do not interfere in the executive work of the line managers. Workers get
command only from line officers.
3. Balanced and prompt decision: Due to the expert advice, the line officers can take balanced
and quick decisions.
4. Growth and expansion: It is suitable for growth and expansion. The line officers can devote
much time in future planning.
5. Development of Employees: It provides scope for advancement of career to able and
dedicated employees. Promotional chances increase for deserving persons.
6. Lesser burden on line officers: Due to the appointment of staff officers the burden on the
line officers is greatly reduced. The line officers will have time in supervising the
implementation of various plans and policies.
7. Quick action: The line officers will be able to devote time for decision making and hence timely
decisions can be taken.
Demerits of line and staff organization:
1. Conflict between line and staff personnel: There is a possibility of conflict between line
and staff personnel. This will adversely affects the work in the organization.
2. Lack of responsibility: There is a lack of responsibility for the staff officials. They are not
accountable for the actual results of operations. This may tempt them to give rash or
theoretical advice.
3. More dependence on staff: The line officers become habituated for advice of staff.
Overdependence on staff will make line officers less creative.
4. Lack of coordination: There will be lack of coordination between line and staff. The staff
advice may be confused with line orders. This can create disorder among employees.
5. Ineffective staff: The staff officers without power feel unimportant and the quality of advice
will also be adversely affected.
6. Expensive: It is very expensive as a large number of specialists are needed.
Summary of line and staff organization:
• Staff thinks, lines do.
• Staff advices, lines perform.
• Staff tells the line what to do, lines tell staff where to go.
• Staff has the authority of line. Lines have the authority to command.
• Staff has no fixed responsibility, lines have fixed responsibility.
• Staff has no authority over the line and has only power to recommend. Line is responsible
for actual execution of work.

d. Committee form of organization:
A committee is a group of persons performing a group task with the object of solving certain
problems”. A group of competent and interested persons pool their thoughts for facilitating
decision-making process. Due to collective information and analysis, committees are more likely
to come up with solutions to complex problems.
Need for committees:
1. It provides a forum for exchanging ideas.
2. This leads to generation of suggestions and recommendations useful for the organization.
3. Possibility of proper efforts to find solution for problems.
4. Committees may also be needed in establishing and developing organizational policies.
Types of committees:
Different committees may be formed with different ideas and purposes. The committees are
classified as :
1. Formal and informal committees: If a committee is formed as a part of organization s
structure and is delegated some duties it is a formal committee. An informal committee may
be formed to tackle a specific problem.
2. Advisory committees: These are the committees to advice line heads. Line officer may refer
some problems or issues to a committee for advice. The committee will collect information
about the problem and recommend solutions for the same. The committee has no managerial
powers and cannot force their views on the line managers.
3. Line committees: These are committees with managerial powers. They are also called plural
committees. It helps in planning company policies and organizing efforts at fulfillment of
these plans. These committees also direct and control the activities of employees for
achieving organizational goals.
Merits of committee form of organization:
• Pooling of opinions: Persons with varied abilities sit together various aspects of the case is
highlighted. The pooled opinion will help in taking realistic view of the problem.
• Balancing of view: A committee helps to bring out an agreed view of the problem by taking
into account divergent views expressed in the meetings.
• Motivation: The committee is formed with managers as well as subordinates. The
subordinates gets motivated to provide their views and suggestions.
• Dispersion of power: By spreading the power among committee members the problem of
concentration of power can be solved.
• Better acceptance of decisions: The decisions taken by committees are better accepted by
subordinates. The decision of individual may be autocratic while committees decide in wider
perspective of organization
• Better communication: It is a better form for discussing matters of mutual interest and
reaching certain conclusions. These decisions can be properly communicated to subordinates
through committee members.
• Executive training: Committee provide a good forum for training executives. They learn the
value of interaction, group dynamics and human relations.
• Better coordination: Committee form of organization brings more coordination among
different segments of the organization when representatives of different department sit
together.

Demerits of committee form of organization:
• Delay: Delay in taking decisions is a disadvantage due to the number of persons involved in
the decision making.
• Compromise: Efforts are made to reach consensus decisions. The view point of the majority
is taken as a unanimous decision. The view of the minority may be valid but is left out.
• No Accountability: No individual accountability can be fixed if these decisions are bad. If
accountability is not fixed then it is the weakness of the organization.
• Domination by some members: Some members try to dominate in the committee meetings.
The views of the others may be ignored. This type of decision making is not in the interest of
the organization.
• Strained relations: Relations among committee members or with others become strained due
to the divergent stands on certain issues.
• Lack of effectiveness: The role of committee is not effective in all areas. The committees
may be useful where grievance redressal are concerned.
• This type of organization is uneconomical and secrecy cannot be maintained.
Matrix organization:
It is also known as grid organization, project or product management. The essence of matrix
organization is the combination of functional and product patterns of Departmentation in the
same organization. An important feature of matrix organization is that violates classical principle
of unity of command.The employees have two bosses – functional departmental managers and
product managers.The employees are subject to dual chain of command. They are accountable to
their functional head as well as product line manager.
Eg. Construction, aerospace [ designing and launching a weather satellite], in marketing [
advertising and campaign for a new product]. Fig 3.5 shows a matrix organization.
Fig 3.5 Matrix organization
Merits of matrix organization:
1. It reduces drawbacks of bureaucratic design.
2. The dual line of authority reduces the tendency of departmental heads to put their
departmental goals first before the organization goals.
3. The direct and frequent contact between different experts in the matrix can provide better
communication.
4. Matrix facilitates the efficient allocation of specialists. When specialists are confirmed to one
department only their talent remains under utilised.
5. Matrix organization brings about good coordination of various activities when a multiplicity
of complex and independent activities are taken up in the organization.
General manager
Engineering
Engg Group
AccountingMarketing
Accounting groupMarketing groupProject Manager

Demerits of matrix organization:
1. A state of conflict exists between functional and project managers.
2. An unbalance of authority and power can lead to problems in matrix organization.
3. Due to potential conflicts, the managers may want to protect themselves against blame by
putting everything in waiting which increases administrative cost.
4. It requires many time consuming meetings.
5. It puts a lot of pressure and stress on the individual employees.
6. Dual unit of command introduces role conflict and unclear expectations introduce role
ambiguity.
3.7 DEPARTMENTATION
It is a process of grouping various activities into separate units of departments. A department is a
distinct section of the business establishment concerned with a particular group of business
activities. The actual number of departments in which a business house can be divided depends
on the size of the organization and its nature. In the words of Alien, “Departmentation is a
means of dividing a large and monolithic functional organization into smaller, flexible,
administrative units.”. Departmentation aims at i) Specialization of activities for efficient
performance; ii) simplifying the task of management within a workable span; iii) maintaining
coordination and control of the various activities.
The advantages of Departmentation can be summed up as:
• It increases efficiency of the enterprise.
• It renders the task of fixation of accountability for results very easy since activities are well
defined and responsibilities are clearly laid.
• It provides for fixation of standards for performance appraisal and thus ensure effective
control.
• It creates opportunities for the departmental heads to take initiative and thus develop
managerial facilities.
3.7.1 Methods / Basis / Types of Departmentation:
There are several ways of Departmentation, each of which is suitable for particular corporate
sizes, strategies and purposes. The important methods of grouping activities may be
summarized as below:
1. Functional Departmentation.
2. Product wise Departmentation.
3. Territorial or Geographical Departmentation.
4. Customer wise Departmentation.
5. Process or equipment wise Departmentation.
a. Functional Departmentation:
This is the simplest and most commonly used base for Departmentation. Each major function
of the enterprise is grouped into a department. For example there may be production, finance,
marketing and personnel department in an organization as shown in fig.3.6. The actual
number of departments in which an enterprise can be divided depends upon the size of the
establishment and its nature.
Advantages: 1. It is very simple, natural and logical way of Departmentation. 2. It promotes
specialization and expertise in various functional areas and experts can be employed. 3. It
facilitates coordination both within the function and at the inter-departmental level. 4. It
generates a high degree of centralization at the level of chief executive.

Fig 3.6 Functional Departmentation
Disadvantages: 1. Tendency of internal frictions among the various departmental heads as
one department may ignore the interest of the other. 2. Men are experts in their own areas
only. This hinders the development of all-round managers. 3. It leads to excessive
centralization and delay in decision making. 4. It is unsuitable where emphasis lies on
products more than the function.
b. Product-wise Departmentation:
The grouping of activities on the basis of products is very popular in very large organizations
having distinct type of products. Here all the activities related to one type of product are put
together under one department under the direction of a production manager. Fig 3.7 shows a
product-wise Departmentation.
Fig 3.7 . Product-wise Departmentation.
Merits: 1. It ensures a better customer service. 2. It makes control effective.
3. Unprofitable product lines can be easily determined.
4. It assists in the development of all-round managerial talent.
5. It is flexible as a new product division can be easily added.
6. It solves the coordination problem of functional departments.
Demerits: 1. It is expensive because of duplication of service functions in various product
division.
2. It may not be liked by customers who have to deal with different salesmen of the
same company for different products.
3. It may cause difficulty in divide out the general expenses incurred by the company as
a whole.
Chief Executive
Production Dept Personnel DeptFinance DeptR & D
Chief Executive
Medical Dept FMCG DeptComputer DeptAgro dept
Prodn Finanace Msrketing
Prodn Finance Marketing

c. Territorial / Geographical Departmentation:
This type of Departmentation is preferred when several activities of an enterprise are
geographically dispersed in different location. All activities relating to a particular area or
zone may be grouped together under one zonal manager or head. Fig 3.8 shows a Territorial
Departmentation structure.
Fig 3.8 Territorial / Geographical Departmentation
Merits:
1. It enables organization to cater to the needs of local people.
2. It helps organization to make use of locational advantages.
3. It facilitates effective control.
4. It facilitates effective coordination of activities within an area.
5. It assists in the development of all-around managerial talent.
Demerits:
1. Overhead costs increases.
2. It leads to duplication of activities which creates confusion and involves costs.
3. Coordination among various territorial divisions may become difficult.
d. Customer-wise Departmentation:
A business house may be divided into a number of departments on the basis of customers it
serves, viz, large and small customers, individual and ultimate buyers, government and other
customers etc.
Advantage: It ensures full attention to different types of customers and their different needs,
tastes and requirement.
Disadvantage:
1. It may not be possible to group all activities of an enterprise on the basis of customers.
2. There may not be enough work in case of certain types of customers. This leads to idle
capacity.
e. Process or equipment-wise Departmentation:
An enterprise where production is carried through different processes may adopt process wise
Departmentation.. If work is carried on machines which are common then departments can be
created on the basis of equipments such as milling department, lathe department.
Chief Executive
Manager –
North zone
Manager -
West zone
Manager -
East Zone
Manager --
South Zone
Production Marketing Finance

The major advantage of this method is that it avoids duplication of equipment in various
activities. Specialized people can be engages to work on specialized equipments and
departments
3.8 SPAN OF CONTROL:
The span of control indicates the number of subordinates who can be successfully directed by a
supervisor. It is often referred to as span of management, span of supervision, span of authority.
The importance of span of management is :
1. It affects the efficient utilization of managers and the effective performance of the
subordinates.
2. A narrow span results in tall organization with many levels of supervision between top
management and lowest organizational levels which creates more communication and cost
problems. On the other hand, a wide span for the same number of employees results in flat
organization with fewer management levels between top and bottom.
The above concept can be understood from the fig 3.9
Factors influencing the span of control:
The following are some of the factors which influence the span of management:
(1) Ability of the manager: Some managers are more capable than others and hence can handle a
large number of subordinates.
(2) Ability of the employees: If employees are more competent, less attention from the managers
is required and a larger span of management can be used.
(3) Type of work: If employees are doing similar jobs, the span of management can be large. If
their jobs are quite different, a small span may be necessary.
(4) Geographic location: If all subordinates are located at the same place span of management
can be large. If subordinates are geographically distributed, a lower span is essential.
(5) Well-defined authority and responsibility: Clear-cut authority and responsibility helps a
manager to supervise large number of subordinates.
(6) Level of management: The span of management is narrow at higher level of management,
and span can be wider at lower levels.
3.9a. Wider
span
3.9b. Narrow
span

(7) Economic considerations: Narrow the span, taller is the structure is more is the cost. On the
other hand, wider span reduces the number of levels and cost.
(8) Dynamics or rate of change: Certain enterprises change much more rapidly than others.
This rate of change determines the stability of policies and practices of an organization. The span
of control tends to be narrow where the policies and practices do not remain stable.
(9) Degree of decentralization and extent of delegation: If a manager clearly delegates
authority to undertake a well-defined task, a well trained subordinate can do it with minimum of
supervisors time and attention and in such cases the span can be wide.
(10) Need for Balance: According to Koontz and O’Donnel, “There is a limit in each managerial
position to the number of persons an individual can effectively manage, but the exact number in
each case will vary in accordance with the effect of underlying variable and their impact on the
time requirements of effective managing.”
3.9 Authority and Responsibility:
Managers have a right to command others to get the work done. This ‘right’ is technically
known as what we call ‘Authority’, which every manager must have to perform his function
effectively. Authority is a legal or rightful power, a right to command or to act.The authority
may be exercised through persuasions or sanctions. If the subordinates does not obey, the
superior has right to take disciplinary action. Authority has the following elements:
1. There exists a right in authority.
2. The right of giving of order to legitimate.
3. The right of decision-making also goes with authority.
4. The use of authority is always subjective.
5. Authority is given to influence the behavior of subordinates so that right things are done
in the right times.
The power may be defined as the capacity or ability to influence the behaviour of other
individuals. If a person has a power, it means that he is able to influence the behaviour of
others. The essence of power is control over the behavior of others.
The difference between authority and power is shown in table 3.2
Table 3.2: Authority v/s Power
Authority Power
1. It is institutionized right of the
superior to command and compel his
subordinates to perform a act
It is the ability of a person to influence
others.
2. It rests in the position. It rests in the individual.
3. It is delegated to an individual by his
superior.
It is earned by individual.
4. It is well defined. It is undefined.
5. It is what exists in eyes of law. It is what exists in fact.

Sources of authority:
There are many theories about the sources of authority. The various sources of authority are
discussed below:
1. Legal/Formal Authority: It is based on rank or position. This type of authority is embedded
in the bureaucracy where authority is bestowed upon contractually hired and appointed
officials. Eg. President of company, Managers, Policemen, HoD, Principal etc…
2. Traditional authority: Evolves from a social order and communal relationship. The
obedience results in traditional authority of the person. Eg. Father in a family system. There
is no formal law or structured discipline.
3. Acceptance Theory: Acceptance is important for the authority to be exercised. This theory
supports the behavioural approach to management.
4. Competence theory: Authority is generated by personal competence of a person. A person
may get his orders accepted not due to formal authority but because of his personal qualities.
These qualities may be personal or technical. E, Patient accepting Doctors advice.
5. Charismatic Authority: Personal charisma of a leader who commands respsect of his
followers. The followers become attached to the leader because they feel that he will help
them in achieving their goals. Eg. Mahatma, Netaji, JFK. They are normally good orators.
Responsibility:
It is the obligation to do something. It is the duty that one has to perform in organizational
tasks, functions. Authority can be delegated but not responsibility. The various features of
responsibility are:
1) Responsibility arises from superior-subordinate relationship.
2) It always flows upwards from juniors to seniors.
3) It arises from the duty assigned.
4) It cannot be delegated.
5) It is an obligation to complete the job as per instructions.
Authority and responsibility should match each other and should be balanced. More
authority may be misused and inadequate authority will not help in getting the task
performed.
Delegation of authority:
The capacity of the Manager to do the work and to take decisions is limited. He therefore assigns
same part of his work to his subordinates and grants them necessary authority to make decisions
within the area of their assigned duties. This downward pushing of authority to make decisions is
known as delegation of authority. The delegating manager always retains the overall authority
which was assigned to him to perform his functions. It is something like imparting knowledge.
advantages of delegation of authority.
(1) It relieves the manager of his heavy work load.

(2) It leads to better decision. This is because, the subordinates are closest to the situation and
have the best view of the facts, are in better positions to make decision.
(3) It speeds up decision-making.
(4) It helps to train the subordinates and builds moral.
(5) It helps to create formal organization structure.
3.10 Centralization v/s Decentralization:
3.10.1 Centralization:
It indicates the location of decision-making authority in an organization. The power of decision-
making is with one person at the top. It is suitable for small scale enterprises due to limited
operations. The success depends on the dynamic manager/entrepreneur who single handedly
commands the running of the concern.
Factors determining centralization of authority:
1) Achieving uniformity of action: Uniformity of action is possible when decision-making
authority is centralized. The decisions taken at the top level will be implemented at all levels.
2) Facilitating integration: Centralized management facilitates integration of activities by
devising common policies and programmes.
3) Promoting personal leadership: The whole authority is in the hands of the chief executive.
This will result in quick decisions and imaginative actions. The managers will acquire more and
more skill and experience which will promote their personal leadership.
4) Handling emergencies: Under uncertain business conditions there is a need to take
emergency decisions. Centralized management facilitates this.
Advantages of centralization:
1) Standardization of procedures: It enables standardization of procedures and systems. It
facilitates smooth working in the organization.
2) Facilitates evaluation: When same policies are used for all segments of the enterprise their
performance can easily be evaluated. This helps to evaluate performance of different
departments.
3) Economics: There will be a centralised buying and selling. This will enable bulk buying and
results in discounts and savings. There will be an economy in managerial expenses also.
4) Coordination of activities: Coordination is facilitated due to centralised management. It will
help in coordinating the work of different segments in such a way that organizational goals
are achieved.
Disadvantage of centralization:
1. Destroys individual initiative: Centralization revolves around one person only. This destroys
the initiative of subordinates.
2. Overburden of few: This system results in over-burdening of few people. Centralization of
all power do not allow the chief executive to devote sufficient time for important tasks of
planning etc.
3. Slows down the operation: Unavailability of the manager can cause slow down in the
operations.

4. Distance from customers: The customers do not come in contact with the policy makers.
They will meet only those officials who do not have the powers to take decision.
5. No space for specialization: Since all the decisions are centered around one person there is no
scope for specialization
3.10.2 Decentralization:
It refers to dispersal of decision-making power at lower levels of management. When the power
to take decisions and formulate policies does not lie with one person at the top but it is passed on
to different persons at various levels, it will be a case of decentralization. In the words of Alien.
“Decentralization refers to the systematic effort to delegate to the lowest levels all authority
except that which can only be excercised at the central points.
Degree of decentralization can be determined by following test:
Decentralization is not a absolute term. The degree of decentralization varies from concern to
concern. The various tests that can be used to determine the degree of decentralization are:
1. Number of decision: Greater the decisions at the lower level, greater the degree of
centralization.
2. Importance of decision: If important decisions are taken at lower levels then degree of
decentralisation will be more.
3. Effect of decisions: If only operational decisions are made at lower levels then
decentralization will be less.
4. Checking of decisions: When decisions are subject to the approval of the superiors then the
decentralization is less.
Advantages of decentralization:
1. Reduces the burden on the top executives: Since the decision making power is delegated to
the lower levels top executives are less burdened.
2. Quick decision: There is no need to make reference to the top level for most of the work. It
quickens the process of decision making.
3. Facilitates diversification: For diversification to be effective there is a need to delegate
authority at departmental level.
4. Motivation of subordinates: The subordinates get opportunity for taking decisions
independently. The subordinates realize their importance in the organization. The subordinates
feel motivated.
5. Sense of competition: Different departments or units are made separate profit centers. The
employees of different departments will compete with each other to show better results.
6. Provides product or market emphasis: Since decision is at lower level the emphasis will be
on market or product.
7. Division of risk: Management can experiment new ideas at one department without disturbing
others. This reduces the risk if things go adverse.
8. Effective control and supervision: Span of control will be effective. This will improve
supervision and control.

Disadvantages of de centralization:
The various disadvantages of decentralization is discussed below:
1. Lack of coordination: Each department, unit or section makes its own policies and programs.
Due to various possible policies and programs it becomes difficult to coordinate the activities
of various segments. This leads to more difficulties in coordinating activities.
2. Difficulty in control: All units work independently. Hence it becomes difficult to control their
activities. Top management cannot exercise effective control as it is not in touch with day-to-
day activities of various segments.
3. Costly: Every decentralized division has to be self-sufficient for its activities. This leads to
High overhead expenses. This method is suitable for large organizations only.
4. Lack of able managers: Decentralized system will succeed only if competent persons are
employed to manage various jobs. Competent persons are not sometimes available as per the
requirements.
3.10.3 Factors influencing degree of centralization/decentralization:
The various factors influence a decision both the degree of centralization and decentralization.
Some of the key factors are discussed below:
1. Size and complexity of organization: Big companies or companies with complex operations
need to decentralize authority. It facilitates decision making and control. Centralized
organization is preferred in small concerns. If the operation is complex decentralization is
useful and if operations are simple then centralization will be useful.
2. Communication system: If communication system is good then centralization can be used.
If communication system is slow and ineffective then decentralization can be used.
3. Competence of personnel: Decentralization can be made if the personnel are competent. In
case competent persons are not available to share the responsibility of the top management
then decision-making should be centralized.
4. Degree of standardization: The greater the degree of standardization in operation the more
will be centralization. The centralized structure will bring uniformity of action when degree
of standardization required is greater.
5. Spread of activities: If a business has different plants or units situated at different places
then decentralization is essential.
3.11 Staffing:
Staffing is basically matching jobs and individuals. It may be defined as filling and keeping
filled positions in the organization structure. This may require functions like manpower planning,
recruitment, selection, training, performance appraisal, transfers, promotions etc.
The important features of staffing are:
1. Staffing is a basic function of management.
2. It is concerned with HR management in the organization.
3. It is a continuous process. The main purpose to make optimum utilisation of human resources
and also to provide proper satisfaction to employees.
4. It is performed by all managers. In big organization there will be separate department to
handle the process.
5. Due to human beings involved this function is different from other managerial functions.

The complexity of staffing varies with the size of the organization
3.11.1 Process of staffing:
The purpose of staffing is to employ most suitable and competent persons as per the requirements.
With this aim in view the following staff process is followed:
1. Estimating manpower needs: The first thing in staffing process is to estimate manpower
needs. These needs are influenced by the type and size of the organization. In case if the
requirement is more than the persons already available in the organization then efforts are made
to recruit more people.
2. Recruitment and selection of staff: Recruitment is a process of searching prospective
employees and persuading them to apply in the organization. Selection is a process of spotting
most suitable candidates out of those who are interested to get employment. There are number
of tests which can help in short listing the candidates and ascertaining their skills and aptitude.
3. Training and development: Training is meant to improve the skill and knowledge of
employees. It is beneficial to both employer and employees. A well trained worker improves
his efficiency and productivity. Suitable training methods are to be devised for different
categories of employees. Development refers to the training of managerial staff,. It helps the
managerial staff to increase their capabilities to perform the present work and enhance their
ability to meet challenges in future.
4. Promotion and transfer: Employees are promoted to higher ranks on the basis of their merit
and seniority. Staffing also involves transfer of persons from one job to another, one place to
another on the basis of their ability, competence.
5. Remuneration: It is the money paid for the service of labour. Employee motivation mainly
depends on the wage and salary structure the company offers. Employees should be paid fair
remuneration so that they feel encouraged to contribute maximum in their efforts. In order to
create interest among workers some incentive plan may also be used along with the regular
payment.
6. Performance Appraisal: It is a systematic evaluation of employees contribution to the
organization in performance of their jobs. This evaluation is normally done by immediate
superior in the organization and it is reviewed by his superior.
3.11.2 Need and importance of staffing: Staffing function is very important for recruitment of
right type of people. This function is important for the following reasons:
1. Employing suitable persons: The employment of suitable persons is essential for every
enterprise. The procedure of recruitment, tests for selection and methods of training are decided by
the staffing team. A properly laid down scheme will ensure the employment of right persons.
2. Keep pace with new development: A business will have to keep pace with new changes. This
will be possible only if competent persons are employed who can adjust as per the new situation.
3. Manpower development: The future requirement of personnel will be estimated quite in
advance. The new staff will be recruited, people will be prepared for taking up higher
responsibility jobs, all this will be possible only with a well planned staffing function.
4. Optimum utilization of manpower: The cost of recruiting, selecting and training the staff is
very high. The remuneration is also paid at high rates. The manpower should be utilized to the
maximum capacity.
5. Ensuring job satisfaction: Staffing function will have to ensure job satisfaction to the
employees. A good staffing function should device methods which will ensure job satisfaction to
everyone.

3.12 RECRUITMENT:
It is a process of searching for prospective employees and stimulating them to apply for jobs in the
organization. When more persons apply for jobs then there will be a scope for recruiting suitable
persons. Recruitment process passes through the following stages:
1. Finding out the sources where suitable persons will be available for recruitment. If young
engineers are to be recruited then engineering colleges will be the best source.
2. Developing the techniques to attract the desired candidates. The good will of the organization
in the market may be one technique. The publicity about the company being a good employer
may also help in stimulating candidates to apply.
3. Employing of techniques like better salary, proper facilities etc to attract candidates.
4. The next stage in this process is to stimulate as many candidates as possible and ask them to
apply for job. In order to get a better candidate there is a need to attract more candidates.
3.12.1 Factors affecting recruitment: A number of factors influence the process of recruitment.
Some of the factors have been discussed below:
1. Size of organization: The number of persons to be recruited will depend upon the size of an
organization. A big enterprise needs more persons at regular intervals while a small
undertaking employs sometimes only. A big business house can afford to spend amount
in locating prospective candidates. So the size of the enterprise will influence the process
of recruitment.
2. Employment conditions: Employment conditions in a country greatly influence recruitment
process. In underdeveloped countries employment opportunities are limited and there is
no shortage of prospective candidates. At the same time suitable candidates may not be
available because of the lack of educational and technical facilities.
3. Salary structure: The wages offered influence the supply of personnel. If higher wages are
paid as compared to similar concerns, then the organization will not face any difficulty in
making recruitments.
4. Working conditions: The working conditions in an organization will determine job
satisfaction of employees. Proper sanitation, lighting, ventilation, etc., will have a impact
of the satisfaction of the employees.
5. Rate of Growth: The growth rate of an enterprise also influences recruitment process. An
expanding concern will require regular employment of new employees. There will also
be promotions of existing employees to higher hobs. A stagnant enterprise will recruit
persons only when some one vacates his position on retirement.’
3.12.2. Recruitment policy: A good recruitment policy should consider the following objects:
1. Organizational objectives: A recruitment policy must help the organization in achieving its
goals. It is the manpower of the organization which facilitates the achievement of objectives.
2. Identifying recruitment needs: There should be an identification of number and types of
persons required in the organization. The type of jobs and the section or department where they
will be deployed should also be known before hand. The qualification and experience for different
jobs to be clearly defined.
3. Sources of recruitment: The sources from where the persons are to be recruited should be
specified. There may be internal or external sources or both.
4. Criterion for selection: There should be guidelines for the recruitment based on caste etc.,
The recruitment policy should incorporate a criterion to be followed for selection of personnel.
5. Cost factor: The cost involved in the recruitment process should be taken into consideration
while framing a recruitment policy. It may be very costly if every post is advertised in news
papers.

3.12.3 Prerequisites of a good recruitment policy:
A good recruitment policy must satisfy the following:
i) It should be in conformity with the company’s personnel policies.
ii) It should be adjustable or flexible enough to meet the changing needs of the organization.
iii) It should be so planned that it develops the potentialities of employees so that they stay in
organization for a longer period.
iv) The qualities of employees should match the job requirements for which they are employed
v) It should emphasize the need for job analysis.
vi) It should ensure organization’s interest in personal goals and employment objectives of
employees.
3.12.4 Sources of recruitment: The various sources of recruitment are broadly classifies as:
Internal and external sources.
a) Internal sources: Internal sources involve transfer and promotion. Transfer involves the
shifting of an employee from one job to another. Many companies follow the practice of
filling higher jobs by promoting employees who are considered fit for such positions. Filling
higher positions by promotion motivates employees, boots employee’s morale.
b) External sources: The various external sources of recruitment are:
(1) Direct recruitment: An important source of recruitment is direct recruitment by placing a
notice on the notice board of the enterprise by specifying the details of the jobs available. This
is also known as recruitment at factory gate.
(2) Unsolicited applications: Many qualified persons apply for employment to reputed
companies on their own initiative. Such applications are known as unsolicited applications.
(3) Advertising: Large enterprises particularly when the vacancy is for higher post or there are
large number of applications use this source where advertisements are made in local and
national level newspapers. This helps in informing the candidates spread over different parts of
the country. The advertisement contains information about the company, job description, and
job specialization etc.
(4) Employment agencies: This is the good source of recruitment for unskilled and semiskilled
jobs. In some cases, compulsory notification of vacancies of employment exchange is required
by the law. The employment exchanges bring job givers in contact with job seekers.
(5) Educational institutions: Many jobs in business and industries have become increasingly
varied and complex which need a degree in that particular area. That is why many big
organizations maintain a close liaison with the colleges, vocational institutes and management
institutions for recruitment of various jobs.
(6) Labour contractor: Often unskilled and semiskilled workers are recruited through labour
contractors.
(7) Recommendations: Applicants introduced by friends, relatives and employees of the
organization may prove to be a good source of recruitment. Many employers prefer to take such
persons because something about their background is known.
3.13. Selection: As defined by Dabyoder “Selection is a process in which candidates for
employment are divided into two classes, those who are to be offered employment and those who
are not.”The selection process can be explained as below:
a) Receipt and scrutiny of application: Scrutiny is essential to take out those applications
which do not fulfill the requirements of posts.
b) Preliminary interview: It is the first occasion when applicants come into contact with
company officials. The candidates are asked questions regarding his educational qualifications,
experience, age, hobbies etc. The applicants selected at preliminary interview are given blank
application form for supplying detailed information regarding experience, reference etc.,

c) Employment test: The employment tests can be broadly classified as Proficiency test and
Aptitude tests. Proficiency test is measure of skill the applicant possesses at the time of testing.
The aptitude test is measure the ability which a person may develop later on. It includes
intelligence test, personality test, interest test etc.. A good test is characterized by reliability,
objectivity, consistency and standardization.
d) Interview: In words of Scott, “ An interview is a purposeful exchange of ideas, the answering
of questions and communication between two or more persons”. The objective of interview is
judgment of applicant, give information to the candidate, promote goodwill. The types of
interview are: i) Structured interview: It is systematically planned in advance. The questions, time
all are planned properly. The interview is conducted in a pre-planned sequence [ like CET
counseling]. ii) Free interview: This is unstructured interview and is not planned . The candidate
is made to express his views on his interests, motivation etc. The interviewers make judgment
about the candidate. iii) Panel or board interview: In this interview the candidate is interviewed
by a panel. Different interviewers put questions on separate topics. iv) Stress interview: The
interviewer sees how well a candidate behaves in a difficult situation. The candidate may be
asked questions in rapid succession; questions may be put on his answers and he may be
criticized.
e) Checking reference: The references may provide significant information about the candidate
if they happened to be his former employers or with whom he might have been working earlier.
Prospective employer normally makes an investigation on the reference supplied by the candidate
and undertakes search into his past employment, education, personal reputation etc.
f) Preliminary and final selection: This is more of technical interview. The line officers finally
decide about the work to be assigned to them. The line officer may assess the candidate on the
job requirement and make final selection.
g) Physical examination: The jobs may require certain physical standards as to height, eyesight,
hearing etc., Medical examination is an essential condition for final selection but it should not be
used as a tool for rejecting the candidates.
h) Placement and orientation: The placement and orientation of the employee is also an
important step in selection. The selected candidates are given the copies of rules, regulations,
procedures etc., to be followed in the company. The candidate should be detailed about their job
and duties. Table below shows the difference between recruitment and selection.
Basics of
difference
Recruitment Selection
Nature It is positive in nature It is negative in nature
Process It starts before selection Starts after process of recruitment
Meaning It involves the identification of
sources of potential employees
It is the selection from amongst the
qualified applicants.
Classification The sources of recruitment is
classified as internal & external
No such classification
Object Main object is to create a large
pool of candidates
TO select the most appropriate person
after eliminating others
Restriction No restriction on the number of
persons applying
Only restricted number of persons are
selected.

3.13 Management by objective: [MBO]
Management by objectives or results is an important practice for accomplishing the objectives of
an enterprise in an effective way. In the words of George S. Ordiome the system of MBO 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 of its members. He also stressed that MBO is not a set
of rules, a series of procedures or methods, but it is a way of thinking about management.
Management by objectives calls for regulating the process of managing in terms of meaningful,
specific and variable objectives at different levels of management hierarchy. MBO moulds
planning, directing and controlling in a number of ways.
Features of MBO:
(1) An attempt is made by the management to integrate the goals of an organization and
individuals. This will lead to effective management.
(2) MBO emphasize not only on goals but also on effective performance.
(3) It pays constant attention to refining, modifying and improving the goals and changing the
approaches to achieve the goals on the basis of experience.
(4) It increases organizational capability of achieving goals at all levels.
(5) A high degree of motivation and satisfaction is available to employees through MBO.
(6) Recognizes the participation of employees in goal setting process.
(7) Aims at replacing the exercise of authority with consultation.
(8) Encourages a climate of trust, goodwill and a will to perform.
Steps/Process in MBO:
MBO is used to plan goals for the employees through their own participation. The setting of
objectives requires following steps:
(1) Setting of organizational objectives: The first step in MBO is defining organizational
objectives. This exercise is undertaken at the top level. The goals should be verifiable or
other criteria for goal accomplishment should be established beforehand.
(2) Setting departmental objectives: Objectives for each department, division and section
are framed on the basis of overall objectives of the organization. Period within which these
objectives should be achieved is also fixed. Goals or objectives are expressed in a meaningful
manner.
(3) Fixing key result areas: Key result areas are fixed on the basis of organizational objectives
premises. Key result areas are arranged on the basis of priority. Key result areas indicate the
strength of an organization. The examples of key result areas are profitability, market standing,
innovation etc.
(4) Setting subordinate objectives or targets: Departmental objectives are then set by
departmental managers, and get them approved by the top management. This process of setting
the objectives is repeated at the lower levels of management. At each level, objectives are set in
verifiable unit so that performance of every department and individual may be reviewed after the
end of a particular period.
(5) Appraisal of activities: In this step, superiors periodically review the progress and the
subordinate’s performance is evaluated against the specified standards and initiates corrective

action. The superior should identify the reasons for failure of achieving objectives and should
tackle such problems.
(6) Reappraisal of objectives: An organization has to operate in a dynamic world. So the top
management should review the organizations objectives to frame the objectives according to the
changing condition.
Benefits of MBO
The following are the benefits of MBO—
(1) Managers are involved in objectives setting at various levels of management under MBO and
this commitment ensures hard work to achieve them.
(2) MBO process helps the managers to understand their role in the total organization.
(3) MBO provides a foundation for participative management. Subordinates are also involved in
goal setting.
(4) A department does not work at cross purpose with another department. In other words, each
department’s objectives are consistent with the objectives of the whole organization.
(5) Systematic evaluation of performance is made with the help of MBO.
(6) MBO gives the criteria of performance. It helps to take corrective action.
(7) MBO motivates the workers by job enrichment and makes the jobs meaningful.
(8) The responsibility of a worker is fixed through MBO.
3.14 Management by exception: [MBE]
The management should not concentrate on things of minor nature. If things are happening as per
decided standards, there is no need to inform the management, rather it there are minor deviations
even it should be adjusted at lower levels. The management must be informed if there are
significant deviations between the standards and actual performance. If the top management is
informed of small deviations then it will distract its attention from important issues.
• Advantages:
1. Time of managers is saved.
2. Manager finds more time and feels comfortable to think of improvements.
3. Subordinates feel free and take responsibility of work.
4. People at lower level take corrective actions for minor problems
5. It brings confidence among workers in their work.
• Disadvantages:
There is a possibility of misusing the authority by the subordinates. If the subordinate is not a
better judge of minor problem the problem may turn out to be a major one.
3.15 Difference between MBO and MBE:
MBE is a control technique which helps in deciding what’s to be reported to the top
management. MBO on the other hand, is the philosophy of decentralization and participative
management. MBO helps subordinates in setting their goals and then making effects to
achieve them. MBE only exceptions are reported to the top executives so that they are able
to devote their time and energy for important tasks. In MBO the superiors regularly
evaluate the performance of the subordinates and take corrective measure whenever needed.
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M & e notes - module -2 praveen

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