Introduction to Management

IntroductIon to
ManageMent
(MGT 111)

Abnet Agegnehu 1
Addis Ababa Commercial College
Introduction to Management

Chapter One:
NATURE,SCOPE and ROLE OF
MANAGEMENT.

1.1. MEANING AND IMPORTANCE OF MANAGEMENT

The concept of management is as old as the human race it self.

The concept of “family” itself required that life be organized and resources
of food be appointed in a manner so as to maximize their usefulness.
Taking proper steps to safeguard the family from attacks by wild animals,
planning on where to go hunting and whom to go with are all subtle
ingredients of management.

Even the recorded history shows the application of some management

techniques, which are current even today, as for back as 5000 B.C., when
the ancient Sumerians used written records in assisting governmental
operations.

The Egyptian pyramids built as early as 3000 B.C., required the organized
efforts of over 100,000 people. It would be natural to assume that all
functions of modern management, i.e. planning, organizing, directing,
staffing and controlling played a heavy and coordinated role in the
construction of these monuments.

Management, then, is not only an essential element of organized society,

but also an integral part of life.

But what is Management?

How do we define it?

Management is an exciting subject because it deals with setting, seeking, and

reaching objectives. We are all mangers of our own lives, and the practice of
management is found in every facet of human activity: schools, businesses,
churches, government, armed forces and families. Establishing and achieving
objectives are challenging and rewarding missions for any enterprise.

A manager’s role is to set goals and a mass and mobilize the resources of men
and women, materials, machines, methods, money, and markets to accomplish
the desired results within predetermined constraints of time, effort, and cost.

Abnet Agegnehu 2
Addis Ababa Commercial College
Introduction to Management

Management is a difficult term to define. It has a variety of applications and

interpretations-all correct within a given set of parameters.

- If one is talking about labor-management negotiations, the word

management may be used to describe the executives and administrators
of an organization.
- Article No. 635 of the civil code of Ethiopia declares that the husband is
the head of the family. In this context, then, the husband as a head or
manager of the family is expected to perform the acts of management,
which are planning, organizing, leading and controlling.

Management can be defined as the use of people and other resources to

accomplish objectives.

This definition is applicable to all organizational structures, both profit-oriented

and non-profit for the process of management is as important to the effective
functioning of a hospital or fire depart as it is to a bank or insurance company.

Management by necessity involves the creation of an environment by which

people can use other resources to reach stated goals. It also involves the
implementation of the functions of management: planning, organizing, leading
and controlling.

Management is a pervasive aspect of the operations of all organizations.

Management is a distinct process consisting of activities of planning, organizing,
directing and controlling, performed to determine and accomplish stated
objectives with the use of human beings and other resourced.

Figure 1. Graphically presents this definition of management. The six Ms of

management, or basic resources, as they are often called, are subjected to the
fundamental functions of management- planning, organizing, directing, and
controlling-to achieve stated objectives.

Management is an activity that converts disorganized human and physical

resources into useful and effective results.

Figure-1: The meaning of management.

BASIC RESOURCES: FUNDAMENTAL FUNCTION: STATED OBJECTIVES:
The 6 M’s The process of mgt. End results.

Men and Women PLANNING DIRECTIONG

Materials
Methods
Money
Markets ORGANIZING CONTROLLING

Abnet Agegnehu 3
Addis Ababa Commercial College
Introduction to Management

The managerial process consists of four functions.

-Planning - organizing- directing(leading) & controlling
Planning: The process by which managers set objectives, assess the future,
and develop courses of action to accomplish the objectives.

The planning function is the capstone activity of management. Planning activity

determines an organization’s objectives and establishes appropriate strategies
for achieving them. A to priority management objective must be quality. The
organizing, leading, and controlling functions all derive from planning in that
these functions carry out the planning decisions.

Managers at every level of the organization do planning. Through their plans,

managers outline what the organization must do to be successful. While plans
may differ in focus, they all concern achieving short- and long-term organizational
goals.

Organizing: The process of arranging people and physical resources to carry

out plans and accomplish organization objectives.

After managers develop a strategy, objectives, and plans to achieve the

objectives, they must design and develop an organization that can accomplish
the objectives. Thus, the organizing function is to create a structure of task and
authority relationships.

The organizing function takes the tasks identified during planning and assigns
them to individuals and groups within the organization so that objectives set by
planning can be achieved.

Directing (Leading): The act of motivating and causing people to perform

certain tasks intended to achieve specified objectives. It is the act of making
things happen.

Sometimes called directing or motivating, leading involves influencing

organization members to perform in ways that accomplish the organization’s
objectives.

Controlling: The process by which mangers determine whether organizational

objectives are being achieved and whether actual operations are consonant with
plans.

Finally, a manager must make sure that the organization’s actual performance
conforms to the performance that was planned for it. This controlling function of
management requires three elements: (1) established standards of performance,
(2) information that indicates deviations between actual performance and the
established standards, and (3) action to correct performance that doesn’t meet
the standards.

Abnet Agegnehu 4
Addis Ababa Commercial College
Introduction to Management

Definition:
How do we define management so that all its activities are incorporated in it?
All management thinkers have defined management in their own way.

Kreitner, defines management as:-

Management is a problem solving process of effectively achieving organizational

objectives through the efficient use of scarce resources in a changing
environment.

Some of the integral elements of the above definition can be separated

and analyzed as follows:-

(a) Problem-solving process.

One of the most important functions of a manger is to make decisions and
solve problems. Some of the major problems that the central management
must continually face include

- Unpredictable economic trends devaluation

- Changing governmental regulations
- Resource shortages
- Employee demands
- Technical problems
- Technological changes

(b) Organizational objectives.

All organizations have certain missions and objectives for their very existence.
Basically, organizational (Business) objectives are profit oriented and the
management must plan its activities along those lines.

(c) Efficiency

Efficiency can be defined as a technique of operations which results in achieving

the objectives in an optimum and effective manner so that the resources of time,
talents and capital are utilized fully and without waste.

Accordingly a successful management would device means that are not only
effective in achieving the goals but also are efficient in utilizing the resources.

Abnet Agegnehu 5
Addis Ababa Commercial College
Introduction to Management

(d) Scarce resources

The resources of people, time, capital, raw materials are all finite and limited.
They are all scarce in natural and not expandable. Additionally, there is a fierce
competition for these resources. Management, hence, must make conscious
efforts to make the most of these resources.

(e) Changing Environment.

The dynamics of environments is evidenced by the tremendous and fast changes

that have taken place in all areas in the last 50 years. The advent of computers
and electronics have changed the way in which the information is processed and
handled for decision making purposes. The social standards have changed,
styles have charged, many laws have charged towards consumer
protectionism…. Accordingly management must be prepared to predict
accurately those charges and formulate ways to meet these new challenges
effectively.

Characteristics of Management
1. Management is purposeful:
Management deals with the achievement of something specific, expressed
as an objective/goal.
Managerial success is measured by the extent to which objectives are
achieved. Management exists because it is an effective means of getting
needed work accomplished.

2. Management makes things happen.

Managers focus their attention and efforts on bringing about successful
action.
They know where to start, what to do to keep things moving, and how to
follow through.

3. Management is an activity, not a person or group of persons.

Management is not people, it is an activity, a distinct activity. It can be
studied, knowledge about it obtained and skill in its application acquired.

4. Management is usually associated with the efforts of a group.

The group emphasis as times from the fact that an enterprise comes into
existence to attain goals, and these are achieved more readily by a group
than by one person alone.

People become members of an enterprise to satisfy their needs and

because they feel their gain will out weigh their losses or burdens as
members of a group.

Abnet Agegnehu 6
Addis Ababa Commercial College
Introduction to Management

5. It is not a one-time activity.

Planning is the starting point. But it is not the end, we have to organize- to
do this, we have to design organization chart, know the man power
Requirement, Recruit, and Select, Orient. Periodically we have to measure
actual performance. Controlling is the base for next year’s planning.

1.2.LEVELS OF MANAGEMENT.
Management acts as a catalyst for getting things done within an organization. In
some cases, these organizational objectives can be accomplished through a
simple Management subordinate hierarchy. In many small businesses the owner
manger is the only member of the management team.

But as the organization becomes larger and more complex, a more sophisticated
structure is required. In such cases three managerial hierarchies can be
identified: Top management, Middle management and (lower) supervisory
management.

The management hierarchy provides an overall framework for the

accomplishment of objectives. Management uses the hierarchical structure to
reach its goals.

Top Mgt.

Middle Mgt.

Supervisory Mgt.

TOP LEVEL MANAGEMENT

It includes top executives such as chief executive officer, president, general
manager, board chairman.

Top management is usually appointed by the stockholders(owners) of the

organization-those to whom the organization is dedicated to serving-or their
representatives.

Top Management is concerned with overall management policy and strategy,

and ultimately it is responsible for all decisions made within the managerial
hierarchy.
Abnet Agegnehu 7
Addis Ababa Commercial College
Introduction to Management

These managers are primarily involved in broad organizational matters such as

policy formulation, long rage planning-goal setting and development of
organizational strategies.

In general, the top management effectively deals with all elements and forces
that affect the survival, stability, and growth of an organization.

MIDDLE LEVEL MANAGEMENT:

It generally consists of divisional and departmental heads such as marketing
manager, administration manager, production manager.

They deal with the actual administration and operation of the organization’s
activities.

Their job is to interpret policies and directions set by the top level management
into specific plans and guidelines for action.

These people posses considerable authority and responsibility in the

performance of their assigned missions.

Their responsibility is to co-ordinate the working of their departments so that the

set objectives can be achieved.

They are concerned with short-term goals and specific results. They spend more
time on operational planning, information processing and day-to-day monitoring
of their divisional activities.

SUPERVISORY MANAGEMENT
This level of management consists of supervisors, superintendents, unit heads,
foremen, chief clerks who have ongoing, direct contact with subordinates.

Their primary concern is with the mechanics of the job and they are responsible
for Coordinating the work of their employees.

They must possess technical skills so that they can assist their subordinates
when necessary.

They plan day-to-day operations, assign personnel to specific jobs, oversee their
activities, evaluate their performances, and become a link between the workers
and the middle level management.

Abnet Agegnehu 8
Addis Ababa Commercial College
Introduction to Management

Hierarchy Activities Examples

Top Policy formulation (Top executives)
Long range planning Chief executive officer,
Goal setting President,
Develop strategies. General manger,
Board chairman
Middle Interprets policies and directions (Divisional/
in to specific plans and Department mangers)
guidelines. Marketing manager
Short-term goals and specific Administration
results. manager
Operational planning, information Production manager
processing, and day-to-day
monitoring of divisional activities
Lower Plan-day to day operation, assign (Section/unit heads)
personnel to specific jobs, - Supervisors
Oversee their activities, - Superintendents
Measure their performance, - Foremen
Become a link between the - Chief clerks
workers and the middle level
management

1.3. MANAGEMENT: AS AN ART AND ASCIENCE

A controversy has raged for many years over the concept of management.
Is it an art, which depends upon skill or is it a science which depends upon
analysis?

(a) Management as a science.

Science is a systematic knowledge which explains the cause and effect

phenomenon with underling principles which have universal application.

Management has been the target of systematic study for centuries. In this
regard, management has developed certain principles, laws and
generalizations which are universal in nature and can be applied under
similar circumstances of business environment.

Both scientific management, which is the scientific study of management

principles and management science which is based upon sophisticated
quantitative decision making models has common approach that
subjectivity and intuition should be should be replaced by objectivity and
scientific methodology and rule-of-tumb approach be replaced with exact
knowledge and deductive decisions.
Abnet Agegnehu 9
Addis Ababa Commercial College
Introduction to Management

Can the management be an exact science where the same set of rule
apply under similar situations? Do similar causes result in similar effects
in the area of management? Hardly so. Management cannot be an exact
science because it deals with human beings and because their
psychological makeup are highly complex and unpredictable.

Additionally the business environment is highly dynamic and ever

changing. Accordingly the same rules may not always apply because the
situations are never similar.

Management may not be an exact science, but the application of scientific

methods to management problems have proved to be effective.
Objectives are defined, hypotheses formulated, necessary data collected,
analyzed and interpreted, conclusions tested, solutions arrived at and
implemented. Mathematical techniques have been successfully applied in
problems involving inventories, service facilities, and assignment of jobs to
machines for optimal results.

More important than the scientific methodology is the scientific mind and
scientific attitude of the manager. The scientific mind is always accepting
challenges, is always investigating and reaching objective conclusions.
The scientific attitude is selective, objective, and discriminating and it
implies creativity. In general, even if most observers classify management
as a developing science, by most standards management qualifies as a
science.

(b) Management as an art.

Henry O. Boettinger defined management as the “art of making decisions

with insufficient information. He said that to manage is to lead, and to
lead others requires that that one enlist the emotions of others to share a
visions as their own if that is not an art, then nothing is.

It has been pronounced that just like leaders managers are also born and
not made. There have been a number of cases in which some people
have become successful managers and entrepreneurs without having
been specifically educated for this profession. Many management writers
claim that management is an art. The artistic process is generally seen as
having three vital aspects: craft, vision & communication. Managers must
have the craft (tools) to accomplish their objectives. Managers must have
vision in order to implement innovative strategies, and they must be able
to communicate effectively in the work environment and elsewhere.

Abnet Agegnehu 10
Addis Ababa Commercial College
Introduction to Management

A balanced perspective suggests that management is both a science and an art.

The management process follows the general scenario for the artistic process.
But its craft or tool aspects are clearly based on a scientific body of knowledge
that has been accumulated over time. It seems likely that the discipline of
management will always maintain both scientific and artistic components. The
art of management is a personal creative power plus skill in performance. The
contemplation of problems, events, and possibilities develops personal creative
power, while experience, observation and study of results contribute to skilled
performance. If science teaches one to know, art teaches one to do.
Management has to know and do things efficiently and effectively to be
successful, so they are indeed a unique scientific and artistic combination in
practice.

1.4. ROLES OF MANAGEMENT

According to Henry Mintzberg, roles of management can be categorized into
three areas:

- Interpersonal relationships
- Information processing, and
- Decision making

(A) Interpersonal Relationships.

1. Figurehead.
Managers act as symbolic figureheads performing social or legal
obligations. These duties include greeting visitors, signing legal
documents, taking important customers to lunch, attending a
subordinates wedding.

2. Leadership role.
Since a manager is responsible for the activities of his subordinates he
must motivate them to perform better. He must be an exemplary
leader so that his subordinates follow his directions and guidelines with
respect and dedication.

3. Liaison officer.
Managers must maintain a network of outside contacts in order to
assess the external environment of competition, social changes or
changes in governmental rules and regulations. Meetings,
professional conferences, personal phone calls.

Abnet Agegnehu 11
Addis Ababa Commercial College
Introduction to Management

(B) Information Processing.

4.Monitor.
Managers are constantly monitoring their environment, collecting and
studying information regarding their organization and the outside
environment affecting their organization. This can be done by reading
reports and periodicals and through personal contacts.

5.Disseminator of information.
They transmit the information regarding changes in policies or other
matters to their subordinates, their peers, and to other members of the
organization. This can be done through memos, phone calls or group
or individual meetings.

6. Spokesman. The manager has to be a spokesman for his unit and

represents his unit in other sending information to people or making
some demands on behalf of his unit. This can be done through
meetings and phone calls.

(c) Decision Making

7. Entrepreneur.
Managers are constantly on the lookout for new ideas for product
improvement or product addition. They initiate feasibility studies,
arrange for capital for new products, and ask for suggestions from the
employees for ways to improve the organization. This can be achieved
through suggestion boxes, holding strategy meetings.

8. Conflict handler.
The mangers are constantly involved as arbitrators in solving
differences among the subordinates or the employees’ conflicts with
the management.

9. Resource allocatter.
Managers make budgetary allocations to different activities of the
organization. They assign personal to jobs, allocate their own time to
different activities and allocate funds for new equipment, advertising.

10. Negotiator. They negotiate contracts with the unions. The sales
manger may negotiate prices with customers. The purchasing manger
may negotiate prices with the suppliers.

Abnet Agegnehu 12
Addis Ababa Commercial College
Introduction to Management

1.5. Managerial Skills

Successful mangers must possess and be skilled in the technical, human and
conceptual areas of organizational life.

Technical knowledge and skill.

It includes understanding and being proficient in using a specific activity such as

a process, procedure or technique. This usually consists of specialized
knowledge and the ability to perform within that specialty. Technical skill enables
a person to accomplish the mechanics demanded in performing a particular job.
This may be knowing how to install a minicomputer and train subordinates to
install and program the computer.

Human knowledge and skill.

It includes the ability to work with others and to win cooperation from people in
the work group. This means, for example, knowing what to do and being able to
communicate ideas and beliefs to others, and understanding what thoughts
others are trying to convey to you. In addition, the manager with human
knowledge and skill understands and recognizes what views are brought to
situations, and in turn what adjustments or changes in these views might be
made as a result of working with associates. The application of human skill may
involve persuading a sales force to accept a revised sales presentation, or
obtaining support from an office and clerical staff to save money on supplies and
energy costs (e.g. reusing old files, turning off lights)

Developing empathy is a requirement for successful communication. It is the

ability to put one self on the other person’s position and see things from his point
of view.

Conceptual Skill
It includes having the ability to visualize the enterprise as a whole, to see the “big
picture,” to envision all the functions involved in a given situation or circumstance.
It is this conceptual requirement that enables an executive to recognize the
interrelationships and relative values of the various factors intervened in a
managerial problem. To conceptualize requires imagination, broad knowledge,
and the mental capacity to conceive abstract ideas. Applying this requirement
may involve suggesting a new product line for a company, entering the
international market, or introducing computer technology to organization’s
operations.

The figure hereunder suggests that top managerial jobs usually require more
human and conceptual knowledge and skill than technical know-how. The lower

Abnet Agegnehu 13
Addis Ababa Commercial College
Introduction to Management

organizational levels, more technical and human needs are involved, with less
emphasis on conceptual work.

Organizational
levels

Conceptual
Top

Middle Human

Supervisory
Technical

Knowledge and Skill required

Knowledge and Skill required for management vary with the organizational level.

Universality of the management process

The management process has universal applications. This is significant; it means
that the fundamental functions of planning, organizing, actuating and controlling
are basic and are performed by the manager, regardless of the type of enterprise,
the major activity, or the level at which the manager works. The management
process represents the common fabric of managers and expedites the study of
management. It is universally found wherever people work together to achieve
common objectives.

Erroneously, and all too frequently, management is thought of as existing only in

the top level and not in all levels down to supervisory management. The fact is,
however, that when acting in their respective management capacities, not only
the company president but also the office supervisor performs the fundamental
functions of management. The difference lies in such things as the breadth of
objectives, the actions that constitute the plans, the magnitude of the decisions
made, the organization relationships affected, and the amount of leadership
required.
Reference:
1. J S Chandan, Management-theory and practice, Vikas Publishing House
Ltd., New Delhi,1987.
2. Terry and Franklin, Principles of Management, A.I.T.B.S. Publishers and
Distributors, Delhi, 1999.
3. Ivancevich, Management-Quality and Competitiveness, Richardo D. Irwin,
Inc., 1994.

Abnet Agegnehu 14
Addis Ababa Commercial College
Introduction to Management

Chapter Two:
EVOULUTION OF MANAGEMENT THOUGHT
EARLY PERSPECTIVES
Management has evolved and changed considerably over a period of
time – scientific management established it self in the early 20th
century. But the recorded use of organized management goes back to
5000 B.C.

The construction of Egyptian pyramids as early as 3000 B.C. is a

classic example of management and coordination.

The writings of Socrates (4000 B.C) and Plato (350 B.C) discuss the
universality of management and specialization.

Alexander the great used staff organization in his military conquest

during 336 B.C. to 323 B.C.

Roman Empire showed an outstanding expertise in general

administration, political, military and judicial judgment issues, using
communication and centralized control.

In 900 A.D Alfarbi listed and discussed the traits of a successful leads.
In 1100 A.D. Ghazali discussed the characteristics of a successful
manager.

Industrial Revolution
 The mid 1700’s saw the movement from the cottage (where production of
items were limited to family living and working quarters) to the factory
system (where products are produced in a centralized location), and this
gave birth to the Industrial Revolution in Europe and especially in United
Kingdom.

 Adam smith established the management principles in the area of division

of labour and specialization in 1776. In his book, wealth of nations, he
identified that division of labor results proficiency, saving of time and
capability to develop machines.

 In 1800 Elton Mayo introduced the idea of interchangeability of parts

which led to standardization of parts resulting in mass production.

Abnet Agegnehu 15
Addis Ababa Commercial College
Introduction to Management

Some of the characteristics associated with the industrial revolution are

1. Specialization:- Specialization comes with the division of labour, where

each worker is assigned to a small unit of a job in which he becomes a
specialist. This gives a rise to assembly line production.

2. Standardization:- It means to produce identical goods in millions of units.

This results in the interchangeability of parts making specialization less
complicated. And helps the consumer to acquire the product anywhere
and from any competitor.

3. Synchronization:- It means the coordination and blending of all elements

at one place. It helps in assembly line fittings and operations. Today’s
virtual factories are the result of this concept.

4. Concentration:- People were taken from farms and concentrated at the

location of factories. The location of auxiliary support systems to these
factories gave rise to urban inhabitation resulting in industrial complexes
and cities.

5. Maximization:- This characteristic of the industrial revolution has

emphasized efficiency and optimum returns on investment of capital, time
and labour. This results in the “survival of the fittest” Philosophy giving
rise to mergers and acquisitions resulting in huge industrial complexes.

6. Centralization:- Centralization requires that control and policy decisions

be made at the top, while operational decisions are made in a
decentralized from at the operational level.

SUMMARY:- The history of management thought.

Period Era Representative

contributors
1870-1930: SCIENTIFIC MANAGMWNT ERA
1. Planning separated from operations Fredrick W.Taylor
2. Search for one best Frank & Lillian Gilbreth
3. Efficiency increased through
Specialization
4. Scientific motion study Henry Gantt

Abnet Agegnehu 16
Addis Ababa Commercial College
Introduction to Management

1830-1940: HUMAN RELATIONS ERA

1. Type of supervision given importance Hawthorne

2. Social side of work-the group important Elton Mayo
3. Participation is effective Fritz Roethliberger

1990-1940: CLASSICAL MANAGEMENT ERA

1. Functions of management defined Henery Fayol
2. Principles of management defined James D.Mooney
3. Managerial problem solving examined Mary Parker Follett
Hervert simon
4. Formal organization and its co-
Ordination explored Chester L.Bernard

1940-Present: MODERN MGT ERA

1. Needs of individual and motivation Abraham Maslow
emphasized Fredrick Herzberg
Douglas Mc Gregor

2. Social systems explored Chris Argyris, Edoar Schien

Rensis likert.
3. Job design emphasized Fredrick Herezborg ,Chris
Argysis.
4. Managerial leadership Robert Blake and Jone
Mouton Fred Fiedler W.J
Reddin Paul Hersey and
Kenneth Branc ard.
5. Quantitative decision

Making developed Numerous quantitative theorists.

SCHOOLS OF MANAGEMENTENT

The various schools of management can be put into three broad categories.
These are:-

A. The classical approach

B. The behavioral approach
C. The quantitative approach

Abnet Agegnehu 17
Addis Ababa Commercial College
Introduction to Management

A. THE CLASSICAL APPROACH

- The classical approach is based upon the ideas similarly generated
in the late 1800’s and early 1900’s and is primarily based upon the
economic rationality of all employees.
- This evolved around the classical assumption of Adam smith, that
people are motivated by economic incentives and that they will
rationally consider opportunities that provide for them the greatest
economic gain.
- The classical approach to management has three braches. They
are:-

I. Scientific Management
II. Administrative Principles
III. Bureaucratic Organization.

I. SCIENTIFIC MANAGEMENT
The term “scientific management” was devised to describe principles of
management developed and espoused by Frederick Taylor which were
intended to bring to the industrial scene new problem-solving methods based
on investigation and measurement. This school of management is primarily
attributed to the ideas and works of Fredrick W. Taylor, who is known as “the
father of Scientific Management.” Fredrick Taylor published his work, “The
principles of scientific Management” in 1911, which became the foundation of
scientific management movement. Taylor criticized the methods of traditional
management which were composed of the following elements:

a. Subjective or intuitive evaluation. Decisions were based

on feelings, opinions and traditional past experience, rather
than scientific investigation.
b. Jobs were performed by rule of thumb, rather than
standard times, methods and motions.
c. The prevalent practices were assumed to be correct and
no efforts were made to introduce new and novel
techniques of management.
d. Training at least was under an apprentice system and no
formal techniques of skill and professional development
existed
e. Management was considered as a group of overall
supervisors rather than a group performing unique duties

Taylor was interested in replacing the traditional management by developing the

most scientific and rational principles of handling people, machines, materials,
and money and to secure maximum benefits for the employers as well as
employees.

Abnet Agegnehu 18
Addis Ababa Commercial College
Introduction to Management

One of Taylor’s most noted experiments centered around the simple job of
carrying pig iron (casting from a blast furnace) from yard pile to freight car. After
watching his men load pig iron into freight cars from the storage yard, Taylor
decided that they were not doing it in the best way. He thought that they used
wrong motions and that they worked too hard and too long, becoming overtired
and having to rest too long. He believed that the work would be less tiring if the
workers did it differently and took frequent short rest periods.

The men were paid $1.15 a day, loading an average of 12½ tons of pig iron per
man per day. One person in the group named Schmidt was offered the
opportunity to earn more money if he would follow directions on how to pick up,
carry, and put down the pigs of iron, and to take frequent short rests.

The results obtained were startling, as the figures in the table indicate. Schmidt
followed the directions, loading 47 tons in one day and earning $1.85, and
continued to do so thereafter.
Before tests After completion of tests
Output per day per 12 ½ tons 47 ½ tons
worker
Wages per day per $1.15 per day $1.85 per day
worker
Labor cost per ton 9.2 cents 3.9 cents

As we can see both the company and the worker had benefited from the works of
Taylor.

Specific Application of Scientific Management Approach

1. Maximum utility of efforts, thus eliminating waste.

2. More emphasis on fitting workers to particular tasks and training
them further to best utilize their abilities
3. Greater specialization of activities, with proper design of jobs,
specification of methods and set time and motion standards.
4. Establishment of standards of performances as average output and
maximum output per capita.
5. The role of compensation and other incentives for increase in
productivity.

He offered 4 principles as basis for scientific management. These are:-

1. Every job should be broken into its elements and a

scientific method to perform each element should be
established.

Abnet Agegnehu 19
Addis Ababa Commercial College
Introduction to Management

2. Workers should be scientifically selected with right

attitudes for the job and ability and then properly trained
to perform the work.
3. Management should cooperate with workers to ensure
that all work is done in accordance with the scientific
principles
4. Scientific distribution of work and responsibility between
workers and the mangers. The management should
design the work, set up and supervise the work and the
workers are free to perform the work.

II. ADMINSTARTIVE PRINCIPLES.

- This approach is based primarily on the ideas of Henry Fayol.
(1841-1925)
- Fayol divided the administrative activities into 6 groups, all of which
are closely dependent on one another.

- These six areas are:-

1. Technical operations:- This area is concerned with producing and

manufacturing products.
2. Commercial operations:- This area deals in purchasing raw
materials for the products and selling the finished product.
3. Financial operations:- This area involves searching for and
acquiring capital and allocating it to various functions in an optimal
manner and keeping an overview control of the flow of capital.
4. Security operations:- This involves taking the necessary and
adequate steps for the production and safety of goods and people.
5. Accounting operations:- This area covers all accounting aspects of
the organization including recording and taking stocks of costs,
profits, liabilities, assets, preparing balance sheets and compiling
accounting statistics
6. Managerial operations:- he defined these operation in terms of 5
functions. There functions are:-
a. Planning
b. Organizing
c. Command
d. Coordination
e. Control

Fayol also proposed 14 principles of administration. There are:-

1. Division of work:- This means that a worker is given

only a small element of work to do, in which he
becomes a specialists.

Abnet Agegnehu 20
Addis Ababa Commercial College
Introduction to Management

2. Authority and responsibility:- Authority is the right

to command to get the work done. Responsibility is
the accountability of authority so that the official
authority is not misused.
3. Discipline:- Fayol considered discipline as, “outward
marks of respect” observed in accordance with the
employment agreements and organizational rules.
These rules and agreements should be clearly defind,
understood and should be enforced fairly and
judiciously.
1. Unity of Command:-Every one should have only
one superior, otherwise conflict and confusion in
authority and instructions would result.

2. Unity of direction:-There should be one head and

one plan for a group of activities having the same
objective

3. Subordination of individual interest to

organizational interest:-The interests of the
organization must take priority over the interests of
the individual or a particular group, whenever
there is a conflict between the two.

4. Remuneration of staff:-All employees should be

fairly paid with appropriate additional incentives
for additional efforts

4. Centralization:- While some authority should be given

to the subordinates to make decisions, all major policy
decisions should be made at the top management
level.
5. The scalar chain:-The communication should follow
the formal channel in the hierarchy. The line of
authority should run in order of rank from the top
management to the lowest level in the enterprise.

However this proved to be very time consuming in

cases where people in different departments but at
the same level of hierarchy, needed to communicate
with each other. Fayol solved this problem by

Abnet Agegnehu 21
Addis Ababa Commercial College
Introduction to Management

introducing the gang plank policy where such people

could communicate with each other directly.

6. Order:- A place for everything and everything in its

place. The workers and the materials should be in
the right place at the right time for maximum efficiency.
7. Equity:- Managers should be both fair and friendly to
the subordinates. Equity results when friendliness is
coupled with justice. The application of the principles
of equity requires good sense, experience and good
nature
8. Stability of staff

- Employee turnover should be minimized.

- Tenure and long term commitment should be
encouraged

13. Initiative:- Subordinates should be encouraged to

initiate new ideas and carryout their plans.
14. Esprit de Corps:-
The employee should work as a team because
there is strength in unity.

III. BUREAUCRATIC ORGANIZATION

Max Weber believed in strict adherence to rules which would make bureaucracy
a very efficient form of organization founded on principles of logic, order and
legitimate authority.

The basic characteristics of a bureaucratic organization are:-

1. A division of labour or functional specialization

A maximum possible division of labour makes it possible to utilize all links of the
organization experts who are fully responsible for the effective fulfillment of their
duties.
2. A well-defined hierarchy of authority
Each lower official is under the control and supervision of a higher one.

3. A system of rules covering the duties and rights of employees.

Abnet Agegnehu 22
Addis Ababa Commercial College
Introduction to Management

The responsibility of every member in the organization must be clearly defined

and assigned.

4. A system of procedures for dealing with work situation

These procedures must be time tested and equally applicable under similar
situations of work.

5. Impersonal relations between people

- Rewards should be based on efficiency rather than nepotism or
family connections
- To practice unbiased approach intervention of personal
considerations, emotions and prejudices should be excluded

6. Selection and promotion based upon technical competence and excellence

- The employees must be protected against arbitrary dismissed.
- The system of promotion should correspond to seniority or merit or
both.

Benefits of Bureaucracy

1. Since the policies, rules and procedures are set and applicable to all, this
leads to consistent employee behavior. This behavior is predictable,
making the management process easier to implement.
2. Since the jobs, duties and responsibilities are clearly defined, the
overlapping or conflicting job duties are eliminated.
3. Hiring and promotions are based on merit and expertise.

- This results in rightfully matching the right workers with the jobs
which makes the utilization of human resources optimum
- Also the individuals move up the hierarchy as they gain expertise
and experience.

4. The division of labour makes the workers specialists.

Hence, their skills are further polished. They become experts and perform
more effectively

5. The organization continues, even if the individuals leave since the position
is emphasized rather than the person .

For example, if a president leaves, another person is hired or promoted to

that position and the organization continues to operate.

Abnet Agegnehu 23
Addis Ababa Commercial College
Introduction to Management

Disadvantages of Bureaucracy

1. There is too much red tape and paperwork

3. Because of impersonal nature of work, the employees don’t care about the
organization. Since there is no sense of belonging and devotion
4. Excessive rules and regulations and a strict adherence to these policies
inhibit the initiative and growth of the workers. Employees are treated like
machines and not like individuals.
5. Employees become so used to routines that there is a resistance to change
and introduction of new techniques.

B. THE BEHABIOURAL APPROCH

This approach is based upon the premises of increase in production and
managerial efficiency through an understanding of the people. The growth and
popularity of this approach is attributable to Elton Mayo (1880-1949). His
experiment, call Hawthore studies (1924-1932), was made to determine the
effect of better physical environment on workout put. The study showed that
better or increased economic benefits in itself were not sufficient motivators in
increasing productivity.

In effect the emphasis shifted to psychological and social forces, in addition to

economic forces.

In the 1930s, Elton Mayo and Fritz Roethlisberger conducted the famous
Hawthorne studies at Western Electric. The Hawthorne studies sought to
determine the impact of factors in the physical environment (e.g., lighting
intensity) on worker productivity. No relationship was found. The study’s original
aim was to determine the relationship between intensity of illumination and two
groups of worker’s efficiency, measured in out put. The intensity of light under
which one group worked was varied, but was held constant for the other group.
No simple relations were found between experimental changes in the intensity of
illumination. They concluded that the workers were providing a “psychological”
reaction to the lighting changes. That is, they were reacting the way they thought
the experimenters wanted them to react. This is called Hawthorne effect.

Elton Mayo discovered that when workers are given special attention by
management the productivity is likely to increase irrespective of actual changes

Abnet Agegnehu 24
Addis Ababa Commercial College
Introduction to Management

in the working conditions. The study, hence, gave consideration to non-financial

incentives in improving productivity. Central to this approach was an increased
understanding of the individual worker with emphasis on motivation, needs,
interpersonal relationships and group dynamics.

These experiments suggested that an office or a factory is not only a work place
but also a social environment in which the employees interact with each other.

This gave rise to the concept of the “social man”

 In support of Elton Mayo’s contention and findings, Abraham Maslow

presented a theory of individual needs.

According to Maslow, human needs could be physiological or psychological. He

developed a hierarchy to present his findings

higher level needs

 Self actualization, self –fulfillment
 Ego/esteem
 Love or social needs
 Safety or security needs
 Physical or physiological needs.

Lower level needs

Maslow believed that people went from the most basic needs in the hierarchy to
the next higher level needs.

 In general, the behavioral approach changed the structure of

organizations from bureaucratic to participative in which the workers have
more freedom to participate in the affairs of the organization.

Abnet Agegnehu 25
Addis Ababa Commercial College
Introduction to Management

C. MODERN MANAGEMENT SCHOOLS

The Quantitative Approach
This approach emphasizes the use of mathematical techniques and
models in solving many complex management problems.

These quantitative tools and methodologies, known as operations

Research techniques, are designed to aid in decision-making relating to
operations and production.

The basic contention of this approach is the premises that if managerial

and Organizational operations and decisions are based on a logical
process, then it can be expressed in terms of mathematical symbols and
relationships. These techniques assist the management for improving
their decision by:

A. Increasing the number of alternatives that can be considered

B. Assisting in faster decision making based upon objective analysis of
available information
C. Helping management in evaluating the risks and results of different
courses of action
D. Helping to bring into optimum balance the many diverse elements of a
modern enterprise

The quantitative approach to management has provided the manager with

some important tools in solving problems, especially where the managerial
process can be rationalized and quantified.

However, the involvement of the human factor which is not quantitative

must be fully appreciated and emphasized in all managerial processes
and decisions. The primary purpose of this approach is to give assistance
in decision-making. It has two main characteristics.

1. Optimizing or minimizing input or out put

- Optimization of sales, gross margin, machine utilization,

service and productivity
- Minimizing of cost, time….

2. Using mathematical models:- A mathematical model makes the

optimizing or minimizing work feasible. A mathematical model is a
symbolic representation showing all pertinent factors quarterly and
reflecting the relative influence of each factor on the entire situation

Abnet Agegnehu 26
Addis Ababa Commercial College
Introduction to Management

and the impact of a change in any one, or group, of the factors on

the reaming factors and on the total.

The mathematical model can be a single equation or a series of equations

depending on the complexity and number of factors involved.

The quantitative approach is especially effective when applied to the

measurable physical problems of management such as inventory, material
and production control rather then to problems where measurement is
difficult, such as human behavior.

Systems approach
 Organization cannot exist alone, therefore, should consider
the external environment for its growth and progress. This is
an open system’s approach. It implies that organizations
receive input from the environment and send its output to the
environment.
 A closed system’s perspective claims that it can be self-
contained with no interaction with the environment.
 Characteristics of an open system includes:

Every organization is an operation system.

Implications:-

- It has objective:- Every system shall have an objective which is the

purpose of its existence
- It has subsystem: - Every system has subsystems or
subcomponents; and they must cooperate or be coordinated for the
system’s existence. If there is contradiction among the subsystems
it cannot exist as a system.
- It has boundaries:- It implies that any system is part of the larger
system. It must be integrated with the external environment.
Unless the external environment gives its consent the system
cannot exist/survive.
- Dynamic:- A system is not a one time activity rather it is continuous
in nature. More over a system is not anyone of its parts or the
simple sum of its parts; it is the result of a constant interaction and
integration of its component parts.
- Synergy:- The whole is greater than the sum of its parts. It
advocates team work and cooperation.

Abnet Agegnehu 27
Addis Ababa Commercial College
Introduction to Management

Management by Objective (MBO)

The more modern concept of participative management evolved for various
reasons.
- As the organizations become more complex both in organizational
structure as well as the extent of operations, the need for more
sophisticated techniques of management arose.
- The conglomerates by mergers, acquisition, or expansion become
sufficiently complicated so that it became necessary to devise new
methods of managing that would ensure that the desired results are
achieved effectively
- As the patterns of the work force changed so that they became
more aware and educated, it was felt that their participation in the
affairs of the organization would be useful both for the workers and
the company.

The type of management that gives consideration for the aforementioned ideas is
known as “Management by Objective” or MBO.
George Odiorne:
“The system of management by objective 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 the contribution
of each of its members.”

MBO can also be referred as Management by Results or Goal Management, and

is based on the assumption that involvement leads to commitment and if an
employee participates in goal setting as well as setting standards for
measurement of performance towards that goal, then the employee will be
motivated to perform better and in a manner that directly contributes to the
achievement of organizational objectives.

 MBO by definition is a goal oriented process

- It is both an aid to planning as well as a motivating factor for

employees.
- By its proper use, some of the planning errors can be minimized or
eliminated.
- It is a comprehensive system based upon set objectives in which all
members participate.

These objectives are common objectives for all participants and the extent
of rewards for each member would be determined by the degree of
achievement. This leads to a fair appraisal system. A good MBO plan
involves regular and face-to-face superior subordinate communication and
hence it improved the communication network.

Abnet Agegnehu 28
Addis Ababa Commercial College
Introduction to Management

Contingency management school

Contingency management theory evolved out of the systems approach to
managing organizations. It is an attempt to translate or operationalize systems
theory by assessing the many operant factors in any situation and establishing
definite patterns and relationships between those factors that might serve as
guides in other similar situations.

Some believe that the development of the contingency approach with its
situational emphasis and integration of environment into management theory and
practice will encourage a manger to use the various schools of management in
his work. In other words, grater consideration for the environmental and
situational aspects of a given problem will suggest greater use of the different
schools of management in solving that problem.
Reference:

1. J S Chandan, Management-theory and practice, Vikas Publishing House Ltd.,

New Delhi,1987.
2. Terry and Franklin, Principles of Management, A.I.T.B.S. Publishers and
Distributors, Delhi, 1999.
3. Ivancevich, Management-Quality and Competitiveness, Richardo D. Irwin,
Inc., 1994.
4. Edward J.Polk, Methods Analysis and Work measurment, McGraw-hill Book Company,
1984.

Abnet Agegnehu 29
Addis Ababa Commercial College
Introduction to Management

Chapter Three:
Managerial Planning

3.1. Meaning, Nature and Importance of Planning

- Planning is known as the primary management function since it is a bridge
between the present and the future. It is a first function of managers
because it must be undertaken before other functions.
- Planning is particularly important because of scarce resources and
uncertain environment with a fierce competition for these resources
- Planning is a decision-making activity requiring the process of ascertaining
objectives and deciding on activities to attain these objectives.

Therefore, planning can be defined as the process by which managers set

objectives, assess the future and develop courses of action to accomplish these
objectives.

- Planning is a decision made now that will affect the future of the company.
Hence, it has three characteristics.

1. Planning is anticipatory in nature

A decision must be made now as to what to do and how, before it is
actually done.

2. Planning is a system of decisions

It involves a process of making decisions which will define what is to be
achieved in the future and the formulation of action plans for achievement
of goals.

3. It is focused on desired future results.

It is a means of insuring that the important organization objectives are
accomplished as and when desired.

Abnet Agegnehu 30
Addis Ababa Commercial College
Introduction to Management

THE IMPORTANCE OF PLANNING

While planning doesn’t automatically guarantee success in accomplishing
organizational objectives, it is rare for an organization to succeed solely by luck
or circumstance.

Careful planning should result in the development of a blue print describing the
means to accomplish objectives. Such a blue print will typically include
checkpoints where actual operations can be compared with expectations to
determine whether these activities are moving the organization toward its
objectives.

There are several reasons why planning is considered to be a vital function for
every manager.

1. Planning is related to performance: -

Studies showed that companies that engage in formal planning
consistently outperformed those companies with no formal planning.
This might be because of: -
 Formal planning forces managers to examine all areas of the
organization from all angles and efficiently coordinate the
activities of all these areas. Without planning managers may
overlook or ignore some critical aspects.

 Proper planning results in proper and effective utilization of

organizational resources. Since planning involves the
identification of such resources for optimum utility, there is no
waste or minimum waste of these resources. Planning involves a
lot of time, energy and money for its formulation. If once it is
formulated and implemented in the right sprit, it lead to reduction
in cost.

 Proper planning helps in the process of motivation

If plans are properly communicated to all levels of the
organization, then everyone can feel involved in carrying it out
and their sense of belonging increase.

 It increases the competitive strength of the company: -

Because the company can use its time to buy best and
competitive raw materials, equipment managers do not worry
about the operation –it is already planned.

Abnet Agegnehu 31
Addis Ababa Commercial College
Introduction to Management

2. Plans focus attention on objectives

- Plans give managers some purpose and direction. All management
activities take place for achieving organization objectives. However,
planning makes the objectives more concrete and tangible by focusing
attention on these.
- Since planning is future oriented it forces managers to look beyond the
present
- Plans continually reinforce the importance of these objectives by focusing
upon them
- It prevents the over involvement of managers in less important decision
and alternatives.

3. Plans help offset uncertainties and anticipate problems.

- A significant aspect of any planning process is the collection of information
for use in forecasting the future.
- Accurate forecasting reduces the elements of risk and uncertainty.
- Based on possible future events contingency plans, called scenarios, can
be developed. Hence, managers are better prepared to take actions with
minimal interruptions.
Planning gives a room to adjust the organization to the environment
instead of merely to react to it. Planning helps in forecasting macro
and micro environmental changes in order to cope up with these
changes. The company also can easily change its line of products.

4. Plans provide guidelines for decision making

Knowing the organizational objectives and the methods to achieve these
objectives eliminates ambiguity in the decision making process.

5. Plans are necessary to facilitate control

The controlling process serves management by determining whether
plans are being implemented correctly and whether organizational
objectives are being achieved.
- Planning provides performance standards for measuring the progress of
the organization.
- Well- developed plans can aid this process in the following ways.
 Establish advance warnings of possible plan deviation. Review
statements (that are made periodically) report deviations from
specified production, sales, or profit levels. Such deviations can
then be investigated and remedial action may be considered.
 Performance standards and performance appraisal methods
assist in the development of human potential and an equitable
reward system.
 Provide concrete data. Plans specify quantitative data for use in
making comparisons of actual performance.

Abnet Agegnehu 32
Addis Ababa Commercial College
Introduction to Management

3.2. The Elements of Planning

The planning function requires managers to make decisions about four
fundamental elements of plans: objectives, actions resources, and
implementation.

Objectives
Objectives are specific future conditions that a manager hopes to achieve in a
specific period of time. Organizations are created for the fulfillment of some
objectives. The end for which they strive are known as vision, mission, objectives,
goals. The vision and mission express the end results in more generalized terms
and objectives and goals are expressed in more specific terms.

The following questions should be properly addressed:

1. Which objectives will be sought?
2. What is the relative importance of each objective?
3. What are the relationships among the objectives?
4. When should each objective be achieved?
5. How can each objective be measured?
6. Which person or organizational unit should be accountable for achieving
the objective?

Actions
Are the means, or specific activities, planned to achieve the objectives.
Establishing objectives and choosing courses of action also require forecasting
the future. A manager cannot plan without giving consideration to future events
and factors that could affect what will be possible to accomplish.

The following questions should be properly addressed:

1. Which important actions bear on the successful achievement of objectives?
2. What information exists regarding each action?
3. What is the appropriate technique for forecasting the future state of each
important action?
4. Which person or organizational unit should be accountable for the action?

Resources
Are constraints on the course of action. A plan should specify the kinds and
amounts of resources required, as well as the potential sources and allocation of
those resources. Specifying resource constraints also involves budgeting,
identifying the sources and levels of resources that can be committed to the
course of action.

The following questions should be properly addressed:

1. Which resources should be included in the plan?

Abnet Agegnehu 33
Addis Ababa Commercial College
Introduction to Management

2. What are the interrelationships among the various resources?

3. Which budgeting technique should be used?
4. Which person or organizational unit should be accountable for the
preparation of the budget?

Implementation
Involved the assignment and direction of personnel to carryout the plan. A plan
must include ways and means to implement the intended action.
Example: - Policies-are general guidelines or constraints that aid in management
thinking and action.

The following questions should be addressed:

1. Can the plan be implemented through authority or persuasion?
2. What policy statements are necessary to implement the overall plan?
3. To what extent are the policy statements comprehensive, flexible,
coordinative, ethical and clearly written?
4. Who or what organizational units would be affected by the policy
statements?

In general planning activities can rage from complex, formal procedures to simple
and informal ones. Although the form of planning activities varies from
organization to organization the substance is the same. Plans and planning
always involve objectives, actions, resources and implementation directed toward
improving an organization’s performance in the future.

Abnet Agegnehu 34
Addis Ababa Commercial College
Introduction to Management

3.3. The Process of Planning

Planning can be considered as a series of sequential steps. These are: -

1. Setting organizational goals

- The central and overall objective of the organization must be established
and defined.
- Objectives serve as a focal point for organizational decisions and activities.
- A well-defined objective can make the difference between success and
failure. So, objectives are the starting point for planning (and all the other
managerial process for that matter). Plans are developed to achieve
organizational objectives.

Objectives improve the effectiveness of an organization by producing three

major benefits

a. Objectives provide direction

Objectives define the product or service as well as the purpose of the
organization. So, they specify an end goal for the organization.

b. Objectives serve as standards

Accomplishments can be measured against these standards. Without
objectives, mangers possess no tools for performance evaluation.

c. Objectives serve as motivation

Objectives encourage workers to put forth their best efforts to achieve the
end goals.

What are the objectives of a business? Most people say “profit”

Peter Drucker argues that profits are not even a major objective.
“There is only one valid definition of business purpose: to create a
customer. What the business thinks it produces is not of first importance
especially not to the future of the business and to its success. What the
customer thinks he is buying, what he considers “value” is decisive it determines
what a business is, what it produces, and whether it will prosper.”

Henry Ford, who had formed ford motor company with a simple but specific
objective in mind to provide the American public with inexpensive transportation.
He said, “If one does this, one can hardly get away from profits.”

Profits are obviously necessary for the survival of a business firm. But
profitability may also be viewed as a measure of the firm’s ability to serve its

Abnet Agegnehu 35
Addis Ababa Commercial College
Introduction to Management

customers by providing desired goods and services. Customer service is of

equal importance in the non-profit organization.

Types of Objectives
 Short range and long range objectives

- Objectives may be labeled short range, if they refer to a period of one year
or less
- On the other hand, long-range objectives refer to a period longer than on
year.

 External and Internal objectives

- External objectives are service objectives. They include service to

customers and to society as a whole.

Every socially responsible organization is operating in a manner designed

to attain these external objectives. Failure to consider such
responsibilities often results in adverse publicity, passage of restrictive
legislation, establishments of consumer and environmental protection
agencies, and impaired sales and profitability.

- Internal objectives are those aims designed to satisfy groups within the
organization. These objectives include such areas as sales, profitability,
growth and market standing. Other internal objectives may be directed
toward employees in such forms as safe working conditions, equitable
wages, and attractive fringe benefit programs.
- In addition to External and Internal objectives, firms increasingly recognize
a number of social objectives. They may include such areas as providing
job opportunities for all qualified workers, paying fair wages, making
factories and offices safe place to work, and being a good corporate
citizen of the community.

2. Developing Planning Premises

a. Determine the current position of the organization relative to its
objectives.
 This can be achieved by making an assessment of the
strengths and weaknesses of the company.
 Such an analysis helps mangers to determine if the goals
are realistic and achievable and whether they need to be re-
evaluated and modified.

b. Develop forecasts and future conditions

Abnet Agegnehu 36
Addis Ababa Commercial College
Introduction to Management

In order to effectively plan, it is important and necessary to forecast

as accurately as possible, the future trends that will affect the
company’s standing and operations. The factors of forecast
includes: -
 General economic conditions
 Changes in consumer attitudes
 New technological and production development
 Possible competitive strategies
 And adverse legal developments.
While these changes are beyond the control of managers, effective
planning aids introducing risk and preparing the organization to with stand
future uncertainty.

Usually companies conduct SWOT analysis, which as the name indicates

will enable them to evaluate the strength and weakness of the company
and if there are any opportunities and threats in the environment.

3. Preparation of derivative plans.

Once an over all plan has been adopted, it is necessary to develop other
derivative plans for each segment of the company, to support the formal plan.

Derivative or sectional plans are developed in each area of the business,

but within the framework of the primary plan in order to coordinate and
integrate programs and policies of all sections of the organization.

Planning must specify the actions needed to reach the organizational

objectives. In doing so, questions like what must be done, when, how, by
whom and where have to be answered.

4. Developing methods to control the operation of the plan.

 Follow up and controlling mechanisms are developed at the planning

stage
 The periodical controlling and review system involves the analysis and
measurement of actual operations to the established standards
developed during the planning process.

Abnet Agegnehu 37
Addis Ababa Commercial College
Introduction to Management

3.4. TYPES OF PLANS

Since organizations may be involved with thousands of plans of widely

varying degrees of importance, a method of classifying plans must be
developed.

Plans can be classified on three bases: - Time, Use, and Scope or breadth.

The Time Dimension in Planning.

Of all the ingredients in the planning process, time is one of the most
critical, most elusive, and most often abused.

A voter once pointed to the legs of six-foot, four-inch candidate Abraham

Lincoln and asked him how long he thought a man’s leg should be. “Long
enough to reach the ground.” Lincoln replied. Planning should reach far
enough into the future to cover the subject under consideration.

What determines the length of the planning period? The commitment

principle determines it. The commitment principle states that an
organization should plan for a period of time in the future sufficient to fulfill
the commitments resulting from current decisions. Planning must
encompass a sufficiently long time frame to meet the commitments of
current decisions.

A long-range plan is built upon the foundations of short and intermediate

range plans, all attainable within a specified time frame.

 Short range: One year or less

 Intermediate range: Between one and five years
 Long range: Five years or more.

The Use Dimension in Planning

Plans may be divided into two major categories on the basis of their usage:
single-use plans and standing plans.

Single-use plans
Single-use plans are predetermined courses of action developed for
relatively unique, non-repetitive situations.

The three basic types of single-use plans are Programs, Projects, and
Budgets.

Abnet Agegnehu 38
Addis Ababa Commercial College
Introduction to Management

A program: -
It is a large-scale, single-use plan involving numerous interrelated
activities. The program will typically specify the objectives, major steps
necessary to achieve these objectives, individuals or departments
responsible for each step, the order of the various steps, and resources to
be employed.

A project: -
It is a single-use plan that is a component of a program or that is on a
smaller scale than a program.

A budget: -
It is a financial plan listing in detail the resources or funds assigned to a
particular program, project, product or division. Budgeting is an important
device for controlling organizational activities. In addition, they are
important components of both programs and projects. However, budgets
are also considered as single-use plans since the process of developing
budgets is clearly planning and since it takes objectives into account in
deciding in advance how to allocate resources among alternative activities.
Many organizations utilize the budget as the basis for planning and
coordinating other activities.

Standing plans
Standing plans are predetermined courses of action developed for
repetitive situations. Such plans speed the decision making process and
allow the managers to handle similar situations in a consistent manner.
Standing plans may be categorized as policies, procedures, or rules on
the basis of their scope.

They are usually made once, but may undergo periodic revisions and
updates.

Policies
Policies are general guidelines for decision-making. Many organizations
provide parameters within which decisions must be made. Human
resources policies may focus upon hiring from within; purchasing
department policies may prohibit gifts from suppliers.

Procedures
Procedures are guide to action that specify in detail the manner in which
activities are to be performed. They tend to be narrower in scope than
policies and are often intended to be used in implementing policies.

Abnet Agegnehu 39
Addis Ababa Commercial College
Introduction to Management

Rules
Rules are statements of actions that must be taken or not taken in a given
situation. Rules are the simplest type of standing plans. They serve as
guides to behavior. Certain rules may require employees to wear
protective head coverings and safety shoes in construction sites.

N.B. Although procedures may incorporate rules, rules do not incorporate

procedures. Rules, unlike procedures, do not specify a time sequence. They
permit no deviation from a stated course of action, and the manager’s discretion
is limited to deciding whether or not to apply a rule in a given situation.

The Scope or Breadth Dimension in Planning

Some plans are very broad and long range, focusing upon key organizational
objectives. Other types of plans specify how the organization will mobilize to
achieve these objectives. The three basic types are strategic plans, tactical plans
and operational planning.

Strategic Planning: -
It is the process of determining the major objectives of an organization and then
adopting the courses of action and allocating the resources necessary to achieve
those objectives. Such planning provides the organization with overall long-
range direction and leads to the development of more specific plans, budgets
and policies. Although strategic planning focuses upon what the organization
will be in the future, tactical planning emphasizes how this will be accomplished.

Tactical Planning: -
It refers to the implementation of activities and the allocation of resources
necessary in the achievement of the organization’s objectives.

It adds a level of detail in strategic plan and deals with work sequences and
proper utilization of resources. Tactics are the means needed to achieve a
strategy, to achieve it and make it work. Hence, tactical plans are plans with
shorter time frames and narrower scopes as compared to strategic plans.
 In some instances strategic planning is short term. In most cases,
however, it is associated with long-term planning. Tactical planning,
on the other hand, typically focuses upon short-term implementation of
activities and resource allocations.
Operational Planning: -
It further identifies those who perform each task and specific work schedules are
developed. The time horizon needed to accomplish (time spent on planning) is
very short as compared with the other two planning activities.

Abnet Agegnehu 40
Addis Ababa Commercial College
Introduction to Management

CLASSIFICATION OR PLANNING

Factor Types
Time Shortage
Intermediate
range
Long -range
Use Single-use plans
Programs
Projects
Budgets
Standing plans
Policies
Procedures
Rules
Breadth or Strategic plans
scope Tactical plans

3.5. Principles of Planning

Corporate planning depends on the production technology, human, financial and
physical resources, work environment of the organization and its environmental
forces. Nevertheless, certain principles underlie sound planning. They are: -

1. Principle of contribution to objectives.

The basic purpose of planning for the future is to ensure the effective and
efficient achievement of corporate objectives. In fact, plans are a means
for their accomplishment. The soundness of plans depends on the extent
to which they contribute to these objectives. Objectives are the basic
criteria underlying the formulation of plans, and also for evaluating the
results of operating plans.

2. Principle of sound and consistent premising

Premises are the assumptions regarding the environment that would

prevail during the period of the implementation of plans. These
environmental forces include general economic conditions, market
conditions, social, political, legal and cultural forces, technological
conditions, actions of competitors and so forth.

Plans are made on the basis of premises about the future state of these
environments, and their soundness depends on the extent of accuracy of
these premises. In fact, coordination and integration among the various
segmental plans cannot be achieved without agreement on planning
premises. Development and use of sound and consistent premises based

Abnet Agegnehu 41
Addis Ababa Commercial College
Introduction to Management

on forecasts of the future conditions is, therefore, vital for the formulation
of sound and realistic plans.

3. Principle of limiting factors.

The limiting factors are those elements in a company’s internal or external

situation, which should be removed or modified if plans are to be
formulated for the achievement of its objectives. These limiting factors
may be the shortage of capital funds, lack of motivated employees,
shortage of trained personnel, or government policy of price regulation.
Obviously, some of these limiting factors are within the control of the
origination, and some, like government policy, are uncontrollable factors.
A company should modify or remove the controllable limiting factors, and
adjust its objectives and plans to the uncontrollable factors.

4. Principle of commitment.

The principle of commitment relates to the time period of planning, and

provides the criterion for the period to be covered by the long-range plans.
According to this principle, the planning period should encompass the
period during which the resources expended on the implementation of
plans are fully recovered.

For example, the planning period for product diversification should

encompass the estimated time period during which the entire investment
on it is fully recovered.

5. Principle of coordinated planning.

This principle of planning advocates that all the plans of the company
should be coordinated with one another so as to produce an integrated
plan. Thus, long and short-range plans should be coordinated with one
another. This can be achieved if short-range plans are derived from long-
range plans, and implementation of the former is regarded as contributing
to the implementation of the later.

Various functional plans of the company including production, marketing,

financial plants etc. should intermesh with one another in such away that
the implementation of each of them should contribute to all others. This
can be achieved if various plans are consistent with one another and are
viewed as parts of an integrated corporate plan. Instruments of planning
including strategies, policies, rules, procedures, programs, projects and
budgets should be mutually consistent, and lead to coordinated effort
toward the effective implementation of plans.

6. Principle of Timing.

Abnet Agegnehu 42
Addis Ababa Commercial College
Introduction to Management

Since corporate plans consist of a number of major and derivative plans, it

is important that all these plans should be synchronized as to the timing of
their implementation.

For instance, a plan for product diversification may consist of derivative

plans for purchase of plant and equipment, plant construction, tooling,
foundry work, building, establishment of distributions channels, and so
forth. Some of these plans will be required to be implemented
sequentially, while others simultaneously. All these plans should,
therefore, be arranged in a time hierarchy, and the timing of initiation and
completion of each derived plan should be determined, and form part of
the total plan.

7. Principle of efficiency.

Plans require the expenditure of human, physical and financial resources

for their formulation as well as implementation. All these resources
constitute the cost of planning. Plans should aim at minimizing the cost
and there by achieve the most efficient utilization of scarce resources.

In any case, the cost of plan formulation and implementation should not
exceed the monetary value of their output. While calculating the cost and
benefits of planning, consideration should also be given to intangible
factors such as employee morale, satisfaction and development, and
social standing of the company.

8. Principle of flexibility.

Plans should have an in built flexibility so that they do not become in

operational or outmoded when actual environment turns out to be different
from predictions. Plans, which may be put into operation in response to
prevailing situations, would be more effective.

9. Principle of Navigational change.

Since future seldom turns out exactly as predicted, and in-built plan
flexibility has its limitations, plans should be reviewed periodically as to
their premises in relation to actual operating environment and future
expectations, and as to their results in relation to the planned goals.

Their review may require changes in objectives, strategies, policies and

programs. The manager’s role in relation to plan implementation is the
same as that of the captain of the ship who adjusts the speed and
direction of his ship in response to changes in the direction and velocity of
wind, currents, and tides, while at the same time moving a head toward

Abnet Agegnehu 43
Addis Ababa Commercial College
Introduction to Management

the destination. Even when he stops or turns back the ship, he does so as
mamoeuvre with the objective of reaching his destination. An effective
planner makes similar moves and manoeuvres, but never loses sight of
the ultimate objectives of the enterprise.

10. Principle of Acceptance.

Since the successful implementation of plans requires the willing and

cooperative efforts of all the employees, it is essential that plans should be
understood and accepted by them. This will be facilitated to the extent
they are involved in the process of plan formulation. This focuses on the
need of “grass-root planning” which implies that plans are formulated
initially at the lowest level, and higher level plans are an integration of the
lower level plans. Communication also plays a crucial role in gaining the
employee understanding and acceptance of the plans. It can be used as
an effective instrument for removing their doubts and misunderstanding
about the plans, and their apprehensions and anxieties about
consequences of plans for their personal goal achievement.

3.6. Limitations of Planning

Planning is a difficult and complex process; which it self is its limitation. External
and internal forces often adversely affect the management’s ability to plan
effectively. It can, however, improve planning effectiveness by recognizing its
limitations.

Major limitations of planning are: -

i. Uncertainties of the future. Planning is based on an estimate
of the future conditions in and outside the company. Since
future cannot be predicted accurately, the forecasts and
premises underlying the plans are subject to error. Long-range
planning based on forecasts of a relatively more distant future
specially suffers from this limitation, because the more distant
the future the hazier it seems. Even in the short period, many
events may occur which are beyond human ability to foresee.

But these are no reasons for not planning; in fact,

uncertainties of the future are all the more reason for
planning because some estimate is better than no estimate.

ii. Premium on the present. Present is more real then the future,
and present problems seem to be more urgent than the future
problems. Many of us are inclined to take care of today and
hope that tomorrow will take care of itself. This is normal

Abnet Agegnehu 44
Addis Ababa Commercial College
Introduction to Management

human tendency, but in fact we have to take care of today as

well as tomorrow.

iii. Past Decisions. Past decisions act as a barrier to future

planning. Particularly, decisions involving commitment of
substantial financial resources in fixed assets like buildings,
plant etc., impose serious limitations on planning. Scrapping a
whole plant in response to a significant technological change
may have not only financial but also psychological limitations.
Policies, strategies, procedures, methods and standards also
tend to be sticky and difficult to change.

iv. Administrative Problems. Administrative problems of planning

center around the creation of an environment conducive to
planning. Some executives seem to think that planning is
useless because the future cannot be predicted accurately.
Planning also requires abstract thinking and analysis which
busy flamboyant executives find it difficult to do. Conflict
between staff planning specialists and line executives is not an
uncommon phenomenon, which further complicates the process
of planning.

Planning also involves the need of an appropriate management

philosophy and leadership style. It requires a participative style
of management which would encourage involvement of
managers and non-managers.

v. Externally imposed conditions. External conditions often,

impose serious limitations on planning. Government
interventions, taxation laws, licensing policy – constitute serous
constraints on managerial freedom of action. Trade unions,
particularly if they happen to be politicalised and hostile, further
inhibit management’s ability to introduce major technological
changes, or even changes in methods of operation through
rationalization and work simplification.

vi. Human Problems. Planning implies changes and change is

often resented. It tends to disrupt the existing patterns of
relationships, communication flows and methods of doing the
work. Resistance to planned change can, however, be reduced
of various methods including effective communication,
involvement of those affected by change in the process of
planning and introduction of change, sharing the benefits of
change with them, and making the change as little disruptive as
possible.

Abnet Agegnehu 45
Addis Ababa Commercial College
Introduction to Management

vii. Rapid change. Rapid changes in technology, and consumer

tastes and preferences are further limitations to planning.
Planning in aircraft, chemical, electronic and information
industries is specially complicated due to exceptionally complex
and rapidly changing production technology. But some
industries, especially textiles, sugar, shoes, etc. are not subject
to such rapid change.

viii. Expenses and Time. Planning involves expenditure of

financial, physical and human resources as well as time. These
limitations especially impinge on small industries which cannot
afford to employ a whole army of specialists. Even large
companies have to balance the cost of planning against its
benefits.

Time is another factor that puts constraints on comprehensive

planning. Search for information, location of alternative plans,
and their comparative evaluation in terms of net benefit can be
an almost unlimited process. Moreover, planners cannot wait
until all the information is available. It requires excessive
judgment to decide when to stop search for information and
alternative plans, and start planning.

The above limitation of planning point out the complexities and problems involved
in the planning process. They do not by any means diminish the importance or
need of planning for organizational effectiveness. Reorganization of these
limitations will help managers in more careful and systematic planning.

Abnet Agegnehu 46
Addis Ababa Commercial College
Introduction to Management

3.7. THE DECISION MAKING PROCESS

Each day of our lives we make hundreds of decisions: What to wear, what to eat,
where to go, and what to do are all decisions that must be made. But decision-
making is more than just attending to the details of every day life. It is a vital and
unique kind of activity, for it is through decision-making that people define the
boundaries of their lives. Management is also a unique human activity. Many
management writers feel that management is decision-making. They argue that
it is only by making decisions (about planning, organizing, and controlling) that
people manage to do anything.

Decision-making can be defined as making a choice among alternative courses

of action. This definition implies that mangers are faced with a problem or
opportunity, alternative courses of actions are proposed and analyzed, and a
choice is made that is likely to move the organization in the direction of its goals.

TYPES OF DECISIONS
Organizational decisions can be categorized into three categories based up on
the subject involved: technical, managerial and institutional decisions. In such
categorization, not only are these decisions different in kind, but they are also
typically made by different individuals within the organization.

TECHNICAL DECISIONS
Technical decisions concern the process by which inputs are changed into
outputs by the organization. Such inputs may be people, information, or products.
Decisions made about the core activities of the organization, those activities
relating directly to the “work “ of the organization, are the essence of technical
decision.

MANAGERIAL DECSIOSNS
Managerial decisions are related to the coordination and support of the core
activities of the organizations. Different departments and work units do exist in
organizations. Decisions made to integrate or coordinate these different units is
the primary focus of managerial decisions. Managerial decision-making is also
concerned with regulating the relationship between the organization and its
immediate environment. In order to produce maximum efficiency of its core
activities, management must insure that these activities are not disturbed by
short-term changes in the environment. For this reason many organizations will
stockpile raw materials and finished goods in inventory. Maintenance and control
of these inventories and forecasting of short-term changes in supply and demand
conditions are all part of managerial decision making.

Abnet Agegnehu 47
Addis Ababa Commercial College
Introduction to Management

INSTITUTIONAL DECISIONS
Institutional decisions involve long-term planning and policy formulation. They
concern such issues as diversification of activities, large scale capital expansion
and other critical organizational choices.

RELATIONS BETWEEN TYPES OF DECISIONS AND THE MANAGEMENT

HIERARCHY

Top Institut-
ional
Middle
Managerial
Supervisory
Technical
Management Hierarchy
Types of Decisions
- Institutional decisions are most often made at the top management level,
while technical decisions are more predominant at the supervisory level.
- While the figure provides an indication of the relative number of each type
of decision made at each level in the organization, the categories are by
no means exclusive.
The production vise president of a heavy equipment manufacturer
might be engaged primarily in technical decisions, while a member
of the legal staff might be involved solely in institutional matters.
HOW GOOD Should THE DECISION BE?

For more then 200 years, many economists have accepted the description of a
decision maker proposed by Adam Smith, the so-called economic man. The
economic man is a decision maker who obtains information concerning all
possible alternatives and chose the best solution designed to achieve a particular
goal. The chosen alternative is that choice which will maximize profit or some
other value. Herbert Simon, after conducting extensive investigation, concluded
that modern mangers are not economic man.

In too many instances managers are forced to make decisions with incomplete
information. They rarely consider all possible alternatives to the solution of a
problem but instead examine a few alternatives that appear to be likely solutions.
According to Simon, instead of attempting to maximize, the modern manager
‘satisfices’.

‘Satisfycing’ is a term used to describe the way modern managers must,

necessarily, make decisions with incomplete information, by choosing
from among a minimum of likely alternatives.

Abnet Agegnehu 48
Addis Ababa Commercial College
Introduction to Management

The modern manager examines the five or six most likely alternatives and makes
a choice from among them, rather than investing the time necessary to examine
thoroughly all-possible alternatives. Today’s manager is acting within what
Simon called bounded rationality. Bounded rationality is Herbert Simon’s term
for boundaries or limits that exist in any problem situation that necessarily restrict
the manager’s picture of the world and so his or her ability to make decisions.

Such boundaries include individual limits to any manager’s knowledge of all

alternatives as well as such elements as policies, costs, and technology that
cannot be changed by the decision maker. As a result the manager seldom
seeks the optimum solution but realistically attempts to reach a satisfactory
solution to the problem at hand.

Simon’s view of the modern manger presents a realistic picture of a decision

maker subject to both internal and external constraints.
Internal constraints: - Include the individual’s intellectual ability, training and
experience, personality, attitudes and motivation.
External Constraints: - Refer to the influence exerted by members of the
organization and groups outside it.

While this view does not mean that managers do not attempt to make effective
decisions, it does recognize that often the decision maker will decide that the
quality of a decision must be balanced with the time and cost of making it.

Perception of the Environment

Problem Formulation

Identification of resources
Feed back And constraints

Development of alternatives

Evaluation of alternatives
And selection of courses of action

Implementation of solution

THE DECISION MAKING PROCESS

Abnet Agegnehu 49
Addis Ababa Commercial College
Introduction to Management

STEPS IN DECISION MAKING.

Summary
1. Problem identification
 Collection of all relevant date
 Diagnosis and analysis of the problem
 Finding the root cause of the problem

2. Identification of resources and constraints

 Development of criteria (for successful solution)
3. Generation and development of alternatives
4. Evaluation of alternatives and selecting an alternative
5. Implementation of the solution
6. Monitoring and feedback.

1. Problem Identification
Perception of the deviation and defining the problem.
- First, the decision maker must become aware of and be sensitive to the
environment.
- This sensitivity results from two points.

i. Specific information of relevance to the decision maker.

(Quality control reports, quarterly sales reports)
ii. More general, impressionistic information about conditions
and operations. (The manager’s “feel” for the situation)

Monitoring the environment helps the manager to be alert for any

deviation i.e. a discrepancy between the desired and the actual state of
affairs, which is the performance gap.

- The grater this deviation, the more serous the problem is.
- This deviation must be perceived as it is correctly, since any solution to a
wrong problem will be the wrong solution.
- Then the problem must be defined and formulated. Problem formulation is
perhaps the most neglected aspect of the decisions making process.

A major problem is that it is psychologically uncomfortable to think about

problems. Often, managers simply do not allow themselves sufficient time
to consider the situation and do an effective job of problem formulation

Abnet Agegnehu 50
Addis Ababa Commercial College
Introduction to Management

- A written problem statement should be developed, describing as

specifically as possible

 The nature and extent of the symptoms of the problem

 When and where they occurred
 What the underlying causes are thought to be

Advantages of a written problem

1. If forces decision makers to clarify their thinking

2. More people can work on the problem at the same time
3. Provides historical documentation of the decision making process.

COLLECTION OF RELEVANT DATA

In order to determine the scope and the root cause of the problem, some
information relevant to the problem must be gathered.

- This data can be gathered either from internal or external sources

depending upon whether the external factors are responsible for the
problem or internal factors or both.
- After all this relevant data is collected, it is stored, sorted out and
interpreted so that it is presented to the decision maker in the form of
information.
- This information should be relevant and adequate
- Excessive information requires time and effort, which is costly.
Inadequate information results in less than optimal decisions.

DIAGNOSIS AND ANALYSIS OF THE PROBLEM

The collected information is subjected to a systematic in-depth study.

- The quality and preciseness of information would determine the quality of

the decision
- The information about the problem must be as accurate as possible
- The information can be classified into four categories.

a. Facts
- Are parts of the information that can be sensed by our senses and can be
related to objective reality as we know.
- Are considered to be totally accurate information and hence highly
dependable for decision making purposes.

b. Inference
- A deduction about a situation based upon circumstantial evidence.
E.g. Sample study.

Abnet Agegnehu 51
Addis Ababa Commercial College
Introduction to Management

c. Speculation
- Is subjective in nature and can only be constructed on the basis of certain
clues
- The speculation conclusions are not necessarily verifiable.

d. Assumptions
- Are the least reliable as for as the factual basis of information is
concerned.
- Are entirely subjective in nature and are mostly based upon personal lines
of reasoning.
E.g. You may assume that a person who is habitually late for work has
some family problems. It may or may not be true. It is possible that the
person involved does not get any motivation from the work environment.

The decision maker must sort out information into these four categories.
The degree of reliability of information reduces as we move from facts to
assumptions with facts being the most reliable and assumptions being the
least reliable.

However, when the facts and inferences are not easily available or when
these are very costly to gather, the assumptions and speculations can be
very useful pieces of information.

FINDING THE ROOT CAUSE OF THE PROBLEM

- Finding the very cause of the problem is the most important aspect of
understanding the problem.
- The process is highly complex, for the actual cause may be hidden into
many interdependent variables, which are in fact symptoms (indications of
the existence of a problem).

E.g. A person might feel a headache. Most of the time a headache is a

symptom for other diseases.

2. IDENTIFCATION OF RESOURCES AND

CONSTRANINTS
By definition anything that can be used to help in solving a problem is a
resource. Resources include time, money, personnel, expertise, equipment,
raw materials, and information. Sometimes they are called five Ms of
management, Management skills, manpower, materials, money, and
machinery.

Abnet Agegnehu 52
Addis Ababa Commercial College
Introduction to Management

Constraints are factors that impale problem solution or limit managers in their
effort to solve a problem. Lack of adequate resources might prove to be
significant constraint.

The decision maker should develop a brief but explicit listing of the major
resources and constraints (relevant) to a given problem. Such a listing of
resources allows the decision maker to budget organization assets in order to
maximize their usefulness. The listing of constraints alerts the decision
maker to the important stumbling blocks affecting a solution so that they can
be avoided.

DEVLOPMENT OF CRITERIA FOR SUCCESSFUL

SOLUTION

 Criteria are developed to compare alternatives against a set standard.

 They should be established as early in the decision-making process as
possible, so that alternatives that do not measure up can be discarded.
There are two types of criteria “MUST” and “WANT”
 Must criteria or (objective) must be satisfied before any other alternative
can be considered. E.g. Cost
 Want criteria is desirable and must be accommodated as much as
possible. E.g. Acceptance by workers

3. GENERATION AND DEVELOPMENT OF

ALTERNATIVES
In searching for alternatives some of the resources that can be drawn upon
are as follows: -
a. The past experience of the decision maker.

- If there is similarity between the current problem and previous problems

encountered and successfully solved.

b. Drawing on the experience of experts in the technical aspects of the

problem, both inside the organization as well as outside consultants. For
example, a production problem can better be solved by experts who have
engineering and production back ground.

c. Considering the responses of the people who will be affected by the

decision.
E.g. for a marketing problem the opinion of consumers have to be taken
into consideration.

Abnet Agegnehu 53
Addis Ababa Commercial College
Introduction to Management

4. EVALUATING ALTERNATIVES AND SELECTION

Choosing the best alternative with the most advantages is the most critical
part of the decision making process. Finding the optimal solution (choice)
requires the consideration of the possible impact of all alternatives to be
made in such a manner so that the chosen course of action will not only meet
the requirements of the objectives but also eliminate the root cause of the
problem.

 The alternatives should be evaluated in terms of the following criteria.

a. A solution should be of quality.
- It should be satisfactory to meet organizational objective

b. In terms of the anticipated response to it. The solution must be acceptable

to those affected by it and to those who must implement it.

c. The choice of the solution should focus on present alternatives that would
affect the future of the organization.
d. The risk of each alternative should be considered
e. Multiple solutions should be arranged in proper sequence. This means
that the results of the first decision may assist in evaluating the second decision
and so on.

There are a number of criteria that can be setup for the purpose of evaluating the
alternatives.
- Some of these can be quantified, but others are qualitative and non-
monitory in nature.
E.g. consumer attitude related to the sale of the product
- To evaluate the effectiveness of the marketing and promotional efforts the
market share can be considered as a criterion.
- High moral and lack of absenteeism can be another criteria for social and
psychological decisions.
* Some of the monetary criteria are: -
a. Cost benefit criteria
The bottom line in decision criteria is the benefit derived from it in financial
terms. Analysis must be made as to what is gained and what is given up
in accepting one or the other alternative courses of action.

When the potential gains and losses can be measured accurately in

strictly monetary terms, then the net profit can be effectively used as a
criterion.

Abnet Agegnehu 54
Addis Ababa Commercial College
Introduction to Management

b. Cost effectiveness criteria

It measures the degree of achievement of a given objective rather than net
profit. So for a given cost, the alternative with a greater degree of
achievement of objective will be selected. And for a set level of
achievement, the alternative with a lower cost will be accepted.

 Along with these criteria other criteria may be considered. However, all
these criteria may not be of equal importance. Hence, each criteria must
be given a weight, proportionate to its importance in the decision making
process.

5. IMPLEMENTATION OF THE DECISION

- This stage requires putting the selected alternative into action and seeing
it through to its completion.
- The process starts with assigning responsibilities to persons who will be
involved in carrying out the decision.

The implementation becomes easier if the persons implementing it were also

involved in the decision-making process and if they have some stake,
financial or otherwise, in the success of the solution.

It is essential to communicate the details of the decision and procedures for

implementation to the workers, clearly, in detail and in a manner that would
invite commitment and dedication.

6. MONITORING AND FEEDBACK

Feedback provides the means of determining the effectives of the
implemented decision. A mechanism should be built into the process, which
would give periodic reports on the success of the implementation.

Making a decision is not the end of the decision making process, but really a
beginning. Implementation of the decision and the results obtained are the
true barometer of the quality of the decision.

After duties are assigned with deadlines being set, evaluation process must
be established.

Reference:
1. J S Chandan, Management-theory and practice, Vikas Publishing House Ltd.,
New Delhi,1987.
2. Terry and Franklin, Principles of Management, A.I.T.B.S. Publishers and
Distributors, Delhi, 1999.
3. Ivancevich, Management-Quality and Competitiveness, Richardo D. Irwin, Inc.,
1994.

Abnet Agegnehu 55
Addis Ababa Commercial College
Introduction to Management

Chapter Four
ORGANIZING
4.1. Meaning and importance of organizing
The organizing function of management is concerned with developing a
framework where the total work is divided into manageable components in order
to facilitate the accomplishment of objectives. The organization can be defined
as two or more people working together in a coordinated manner to achieve the
common goals. The organization has set objectives, the relative management of
people and physical resources, a set of rules and regulations and a hierarchical
structure of authority with formal lines of communication.

Organization has been formally defined in a number of different ways. For

instance, Ralf C. Davis defines organization in terms of people.
“Organization is a group of people, who are cooperating under the
direction of leadership for accomplishment of a common end.”

Oliver Sheldon, however, defined it in terms of activities.

“Organization is the process of so combining the work, which individuals
or groups have to perform with the facilities necessary for its execution,
that the duties so performed provide the best channels for the efficient,
systematic, positive the vest channels for the efficient, systematic, positive
and coordinated application of the available effort.”

The organization structure is designed both from mechanistic and humanistic

point of view. It is not only a mechanical structure of duties, activities and
relationships, but also a web of human interactions within social groups with
attitudes and aspirations. Accordingly, a right organization would adequately
recognize the human contribution along with work accomplishments or simply
duties performed. Such as organization is a necessary foundation; without it, the
best performance in all other areas of management will be ineffectual and
frustrated.

Benefits of a good organization

1. In a good organization, the conflict between individuals over
jurisdiction is kept to minimum.

Each individual in the organization is assigned a role, responsibility

and necessary authority. Each person must know his position, his
role and his relationship with others. He is further responsible for
execution of his role and duties and is given the authority to do so.
Since each person is assigned a particular job to perform, the

Abnet Agegnehu 56
Addis Ababa Commercial College
Introduction to Management

responsibility of performing that job rests solely with him. Hence,

the interdependency is reduced to a minimum.

2. A good organization facilitates attainment of objectives through

proper coordination of all activities.
The activities of all individuals are coordinated and integrated into a
common pattern in order to achieve the organizational objectives.
Organization is needed for the purpose of integration of diverse
activities in a cohesive manner. In addition it has a built-in system
of “checks and balances” so that the progress towards the
attainment of objectives is evaluated along the may and any new
decisions required are taken.

3. It eliminates overlapping and duplication of work.

Duplication of work exists when the work distribution is not clearly
identified and the work is performed in a haphazard and disorganized way.
Since a good organization demands that the duties be clearly assigned,
such duplication of work is eliminated.

4. It decreases likelihood of “run-arounds.”

The “run-arounds”. Occur when we do not know who is
responsible for what and we are sent to the wrong people for
getting some work done. However, in a well-organized company
where the responsibilities are clearly established, this does not
occur.

5. It facilitates promotion
Since the organizational chart clearly pinpoints the positions of all
individuals relative to one another, it is easier to know as to which
level is reached. Since each job is well described in terms of
qualifications and duties the promotional stages can be more
clearly established.

6. It aids in wage and salary administration.

A fair and equitable wage and salary schedule is based on the
premises that jobs with similar requirements should have similar
benefits. If these be clearly established and the yearly increments
or cost of living increments for each type of job is properly
understood then compensation administration policies are easier to
apply.

7. Communication is easier at all levels of the organizational hierarchy.

Since the lines of communication and the flow of authority are quite
clear in the organizational chart, the intercommunication is both
clearer and easier and it eliminates ambiguity.

Abnet Agegnehu 57
Addis Ababa Commercial College
Introduction to Management

4.2. Process and Principles of organization

Process:

1. Determination, identification and enumeration of activities

Once the goals and objectives of the organization have been established, the
activities required to achieve those objectives are spelled out. These activities
are broken down into sub-activities as far down the hierarchy as possible so
that each individual knows what part of the activity he is responsible for. Care
must be taken so that all necessary cativities are taken into account and any
activity that is unnecessary is taken out.

2. Grouping and assigning of activities

All similar activities are grouped together and assigned on the basis of
divisions and departments. These sets of activities may further be sub-divided
into sections or units. These groupings may be done on the basis of primary
functions such as production, fianance, sales, personnel etc., or it may be
done on derivative basis, such as type of customers, geographical areas, etc.
These activities are tehn assigned to personnel, as heads of the departments,
such as production managers, marketing managers etc. They inturn deligate
and distribute jobs to their subordinates. Care should be taken that the
personnel and their jobs are well matched.

3. Delegation of authority
Since the persons who are assigned particular activities are responsible for
performing these duties to the best of their abilities, they must be given
corresponding authority to discharge their obligation. Responsibility and
authority are tied in together. Responsibility is the accountability of authority.

Principles:
There are some principles common to all organizations that are established in a
classical form. The classical form means an organizational structure where there
is a hierarch of power and responsibility and it flows from the top management to
the lower level of workers through its different ranks.

1. The lines of authority should be clearly stated and should run from
the top to bottom of the organization.
This principle is known as the scalar principle, and this line of
command is referred to as chain of command. The major decisions
are made and policies formulated at the top and they filter down
through the various management levels to the workers. The line of
authority should be clearly established so that each person in this
chain known his authority.

Abnet Agegnehu 58
Addis Ababa Commercial College
Introduction to Management

2. Principle of objective
An organization needs to have specific and well-defined objectives
to keep it going. When formulated they can be broad, general,
overall statements of the organization. But, it must be reduced to
specific narrow statements about individual’s activities for their
implementation. Thus, before the manager try to design an
organization structure, he must be clear about what is to be
accomplished.

3. Each person in the organization should report to only one boss.

This is the principle of “unity of command” and each person should
know whom he reports to and who reports to him. This process
eliminates ambiguity and confusion that can be caused, when a
person has to report to more than one superior.

4. The responsibility and authority of each supervisor should be

established clearly and in writing.
This will clarify the exact role of the supervisor as to limits to his
authority. Authority is defined as “the formal right to require action
from others.” Responsibility is the accountability of that authority.
With clearly defined authority and responsibilities, it will be easier
for the supervisor to trace and handle problems and make quick
decisions when necessary.

5. The higher authorities are responsibilities are responsible for the

acts of their subordinates.
The executive cannot dissociate himself from the acts of his
subordinates. Hence he must be accountable for the acts of his
subordinates.

6. The authority and responsibility should be delegated as for down the

hierarchical line as objectively possible.
This will place the decision making power near the actual
operations. This gives the top management more free time to
devote into planning and overall policymaking. This is especially
necessary in large complex organizations. This is known as
decentralization of power as against centralized power where all
decisions are made at the top.

7. The number of levels of authority should be as few as possible.

This would make the communication easier and clear and the
decision making faster. A longer chain of command generally
results in “run around”.

Abnet Agegnehu 59
Addis Ababa Commercial College
Introduction to Management

8. The principle of specialization should be applied wherever possible.

Precise division of work facilitates specialization. Every person
should be assigned a single function whenever possible. This rule
applies to individual as well as the departments. The specialization
work will lead to efficiency and quality. However, each area of
specialization must be inter-related to the total integrated system by
mans of coordination of all activities of all departments.

9. The line functions and the staff functions should be kept separate.
The line functions are those that are directly involved with the
operations that result in the achievement of company objectives.
Staff functions are auxiliary to the line functions and offer
assistance and advise. For example, legal and public relations and
promotional functions are all staff functions. Proper relative
emphasis should be put on all these functions and all these
functions should be coordinated wherever necessary.

10. The span of control should be reasonable and well established.

The “span of control” determined the number of positional that can
be coordinated by a single executive. The span of control should
be narrow, which means that there are relatively few individuals
who report to the same manager or this span of control should be
wide where many individuals are under the supervision of the same
manger.

11. The organization should be simple and flexible.

It should be simple because it is easier to mange and flexible
because it can quickly adopt to changing conditions. It should be
such that it can easily be expanded or reduced as the times
demand. Simplicity would make the communication much easier.

4.3. Basic Concepts of Organizing

4.3.1 Division of Labor

One of the manager’s major decisions is determining how specialized jobs will be.
Most organizations consist, to some degree, of specialized jobs, with workers
performing different tasks. By dividing tasks into narrow specialties, managers
gain the benefits derived from division of labor.

Adam smith, a British economist and author of Wealth of Nations (published in

1776), recognized and stated the principle of division of labor. In his book, smith

Abnet Agegnehu 60
Addis Ababa Commercial College
Introduction to Management

discusses three basic economic advantages resulting from the division of labor:
development of a skill or a dexterity when a single task is performed repetitively;
a saving of time normally lost in changing over from one activity to the next; and
invention of machines or tools that seem normally to follow when people
specialize their efforts on tasks of restricted scope.

4.3.2. Departmentation
Departmentation refers to the formal structure of the organization, composed of
various departments and managerial positions and their relationship to each
other.

Departmentation involves grouping of people or activities with similar

characteristics into a single department or unit. This facilitates communication,
coordination and control, thus contributing to organizational success. It creates
semi-autonomous units with independent responsibilities, providing satisfaction
to the managers, which in turn improves efficiency and effectiveness. Additionally
it facilitates control and supervision.

Basis of departmentation

Departmentation results from the division of work and the desire to obtain
organization units of manageable size and to utilize managerial ability.

The chief means of departmentation are by:

1. Function
2. Product
3. Territory
4. Customer
5. Process
6. Time
7. Task force
8. Matrix

1. Departmentation by Function

This is the process of uniting people with similar activities to perform. It is the
most common form of departmentation and is based on specialized functions
such as production, marketing, finance and personnel.
Advantages:
d. Promotes specialization and operational efficiency.
e. Assigns performance responsibility to functional heads.
f. Reflects the basic functions involved in the achievement of
enterprise goals.
g. Provides a means of effective coordination and control; and
h. Provides unity of direction to intimately related activities.

Abnet Agegnehu 61
Addis Ababa Commercial College
Introduction to Management

Disadvantages

a. Functional departments cannot be assigned profit responsibility.

b. It creates problems of horizontal coordination among functions
c. It causes inter-departmental conflicts
d. It tends to lead to empire building; and
e. It inhibits development of managers with abilities to occupy top
managerial positions.

2. Departmentation by Product

In this case, the units are formed according to the type of product and is more
useful in multi-line corporations where product expansion and diversification
and manufacturing and marketing characteristics of products are of primary
concern.
This method places all the resources and authority under one manager to get
a produce produced and marketed. The departments are regarded as ‘profit
centers’ and functions as semiautonomous units with decentralized
operations and centralized controls.

Advantages
a. Specialization of production facilities;
b. Assignment of full responsibility for the division’s performance on its
head;
c. Development of top managers;
d. Overcoming diseconomies of large size;
e. Effective coordination;
f. Greater organizational flexibility and adaptability
g. Benefits of decentralized operations with centralized control.
Disadvantages
a. Tendency of divisional managers to become too-division centered.
b. Pressure on the need for a large number of top managers.
c. Increase in overhead costs; and
d. Difficulties in coordinating interdivisional operations.

3. Departmentation by Territory (area)

If an organization serves different geographical areas, the division may be

based on geographical basis. It is especially useful for large-scale enterprises
which are geographically spread out such as banks, insurance, chain
stores…
Advantages
1. It allows units to adapt to local situations and customer needs
2. It takes advantage of local legal, political and cultural differences.

Abnet Agegnehu 62
Addis Ababa Commercial College
Introduction to Management

3. It takes advantage of locational factors such as availability of raw material,

labor, market..
4. Cost savings and better market coverage.
5. It provides ground for training to managers.
Disadvantages
1. It requires large number of managers.
2. It leads to duplication of staff.
3. Problems may arise in between top-level management and territorial
managers.
4. Continuous training is required for all managers.

4. Departmentation by Customer

Groups jobs that are associated with customers categories. An enterprise

may be divided into a number of departments on the basis of the customers
that is services. For example, an electronics firm may have separate
departments for military, industrial and consumer customers. This method is
basically market-oriented.

Advantages:
6. Ensures full attention to major customer groups and this helps the
company to earn goodwill.
7. It focuses on customer needs, satisfying each segmented group
customers who have different purchase behavior, payment schedule and
demand pattern.
Disadvantages:
1. It may result underutilization of resources.
2. Coordination between sales and other functional areas become difficult
because this method can be followed only in marketing department.
3. Increase difficulty in establishing uniform company wide production. The
firm, hence, can not utilize economies of scale.
4. Employees are being victim of product myopia.

5. Departmentation by Process

Economics and technological considerations are the foremost reasons for the
adoption of process departmentation. It is mostly found in production area. It
arranges organizational tasks in groups following specific processes needed
to produce a given product such as cutting, assembling, painting, etc. in a
furniture manufacture company.

Advantages
a. Facilitates coordination
b. Provides for more effective utilization of specialized equipment.

Abnet Agegnehu 63
Addis Ababa Commercial College
Introduction to Management

c. Puts full responsibility for completed operation at each stage on the

process departmental head; and
d. Is simple and widely used.
Disadvantages
a. Narrow focusing of visions
b. Lack of profit responsibility of process departments
c. Duplication of general purpose equipment

6. Departmentation by Time

Activities are grouped on the basis of timing of their performance. A good

example is the use of shifts in production department. It, however, has the
following limitations:
 Accidental occurrences, such as machinery breakdown when
carried over from one shift to another affect the production of the
following shift too.
 Workers of one shift generally develop a tendency to pass on some
portion of their incomplete work to the workers of the next shift.
 Correct measurement of performance of a certain department
becomes difficult when the performance of that department does
not remain confined to one-shift period but extends to the next shift.
7. Departmentation by taskforce (Project Organization)

This arrangement involves assigning a team or taskforce to a definite project

or block of work, which extends from the beginning to the completion of a
wanted and definite type and quantity of work. A task force is usually small in
number and it exists for the life of the project and is then disbanded.

8. Departmentation by Matrix

Matrix organization was introduced in the early 1960’s in response to the

growing complexity and size of technically oriented enterprises, which needed
more flexibility.

Matrix organization is the concept of project structure but much more complex
and comparatively more permanent. It is known for flexibility and coordination.

The major project is assigned to a project general manager and he is given a

team of needed specialists from different disciplines and asked to complete
the project.

Since the matrix structure integrates the efforts of functional and project
authority, the vertical and horizontal lines of authority are combined and the
authority flows both down and across. The vertical pattern is brought about by
the typical line structure, where the authority flows down from superior to
subordinate. The project authority flows across because the authority is really

Abnet Agegnehu 64
Addis Ababa Commercial College
Introduction to Management

assigned for coordinating efforts, which is a horizontal function rather than

giving orders.

The structure violates the unity of command and the scalar chain principle of
a classical organization, since each person working on the project has two
bosses, the project manager and the functional manager.

4.3.3. Centralization Vs. Decentralization

Considerable debate has taken place over the years over the issue of
“centralization” which means that the authority for most decisions is
concentrated at the top of the managerial hierarchy versus “decentralization”
which requires such authority to be dispersed by extension and delegation
throughout all levels of management. There are advantages and
disadvantages of both types of structures and pure form of centralization is
not practical except in small companies and pure form of decentralization
almost never exists. However, the organizational would determine the degree
of centralization or the degree of decentralization.
Some variables are primary in determining the need for a centralized or
decentralized structure. Some of these variables are:

1. Mission, goals, and objectives of the organization. Certain types of

organizations like universities and hospitals have a democratic power
sharing structure and hence a decentralized form on the other hand, the
goals and purposes of small businesses and small scale industries would
require a more centralized structure.
2. Size and complexity of the organization
Large organizations with diverse product line and conglomerates with
companies involved in different fields would find decentralization to be
more effective due to limitations in managerial expertise as well as
increased executive workload.
3. Location of target market: If the customers of and organization are
located geographically far apart, decentralization would be more
appropriate since in this case the appropriate management resources
would be placed close to the customers allowing quicker decisions and
faster customer service.
4. Competency of top level management: If the top level managers are more
knowledgeable and highly experienced as compared to lower level
subordinators, then the tendency of the organization would be towards
consolidation of decision making power at the central management level.
5. Competency of subordinates: The pre-requested of effective
decentralization are the availability of trained, experienced and
knowledgeable subordinates who can be entrusted to evaluate the
situation objectively and make necessary decisions. If subordinates were
not sufficiently trained in this area then decentralization would not be
advisable.

Abnet Agegnehu 65
Addis Ababa Commercial College
Introduction to Management

6. Desirability of creativity in the organization: Decentralization gives the

subordinates freedom to be innovative and find better ways of doing things.
This freedom is a highly motivational factor which encourages creativity.
7. The time frame for decisions: The time frame for making decisions is
different in different situations. For example, an airline Pilot has to make
decisions in a much shorter time frame than a committee establishing long
range planning policies. Where quick on-the-spot decisions must be make,
the authority to make them must be delegated encouraging
decentralization. It is understood that such subordinates must be trained
to make such decisions before the authority is assigned (delegated). In
addition the significant of the decision is equally an important
consideration, major policy decisions may have to be referred to the
central management even if the time frame is very short. Fore example,
allowing a hostile airplane for emergency landing may have to be checked
with the superiors and may or may not be within the authority of the air
controllers.
8. Adequacy of communication system: If the communication system
provides for speedy and accurate transfer of information on which
decisions are based then centralization could be more effective. The
introduction of computers and electronic data processing has created a
feasibility of making quick on-the-spot decisions and a hence an argument
for centralization.
9. Types of tasks: Certain tasks require so much coordination and precise
integration that is more effective if done from the central point, as in
production control or central purchasing. Other tasks tend to be more
independent, such as selling, and these can be decentralized.
10. Existence of standing plans: If a description of clear-cut goals and
objectives and prices structured procedures, and plans for solving routine
problems and making certain situational and operational decisions exists,
then the out come of the subordinate’s decisions can be easily predicted
and hence decentralization could be more effective.
11. External factors: Certain policies and activities that deal with the external
environment must remain the prospective of central management. These
policies relate to dealing with labor unions, communities officials, lobbying
in the government or matters relating to defense contracts etc. These
factors necessitate centralization.

4.3.4. Span-of- control

The span of management has been defined as the number of
subordinates under one manager. It is also known as “span of management”. In
a wider span of control, a manager has many subordinates who report to him. In
a narrow span of control, a manager has fewer subordinates. The number of
subordinates that can be effectively managed for supervision and delegation of
authority would depend upon a number of factors. Some of these factors are

Abnet Agegnehu 66
Addis Ababa Commercial College
Introduction to Management

1. Similarity of functions

If the subordinates are involved in the same or similar activities, then it is

possible for the manager to supervise more subordinates. Since the
problems that may arise would be similar in nature, these would be easier to
handle. Conversely, if these subordinates are doing diversified operations,
the situation would be more complex and hence the span pf control should be
narrow.

2. Complexity of functions
If the operations that the employees are performing are sophisticated and
complex and require constant supervision, then it would be more difficult for
the manager to manage too may employees.

3. Geographical closeness of employees

The closer the subordinates are in a physical location, the easier it will be for
the supervisor to manage more employees.

4. Direction and co-ordination

The span of control would also be determined by the degree of coordination
required, both within the unit and with other units of other divisions. If the unit
needs continuous directions and extra time of the manager in coordinating the
activities then fewer subordinates will be better supervised.

5. Capacity of subordinates
Subordinates who are trained, developed and experienced, need little
supervision in discharging their duties. In such situation, more subordinates
can be effectively supervised. These subordinates can further be assisted by
repetitive action and recurring problems, requiring less direct supervisory
assistance.

6. The working staff of the manager

If the manager had supporting staff that is equally skilled in handling
situations then it would be possible to manage a wider span of control
because the responsibilities of supervision would be shared.

7. Planning
The effectiveness of supervision would also depend upon how much time
managers spend upon planning activities. If the managers spend too much
time in system planning then they will not have time to supervise the activities
of too many subordinates.

4.3.5. Delegation of Authority: Authority and Responsibility

(A) Authority

Abnet Agegnehu 67
Addis Ababa Commercial College
Introduction to Management

Authority had been defined as the right to command. According to Henry

Fayol, “Authority is the right to give orders and the power to exact
obedience.” The authority gives the management the power to enforce
obedience. It is the power to give orders and make sure that these orders
are obeyed. A policeman, for example, directing the traffic has the
authority to direct the driver of an automobile to go in a particular direction
and the driver is expected to obey these orders.

Authority can be retained by the control management, which makes

policies and decisions, and then it is passed on to lower levels through
hierarchical structure for action. Authority can be delegated to proper
subordinates who can make decisions relative to their operations. This
process is known as decentralization.

There are basically the following types of authority:

1. Legal authority

This authority is based upon the rank or the position of the person and this
authority may be given by law or by social rules and regulations protected by
law. For example, law has granted a policeman authority to arrest anyone
who has committed a crime. Similarly, the president of a company has the
right to fire an employee because that is how the rules of the company have
been established. This type of authority is similar to power, which is the
capacity to secure dominance of one’s goals and beliefs. This authority has
been called formal authority which has been legalized through social
institutions. Which attain and enforce group purpose through a maze of laws,
codes, cultures and ethics.

This type of authority is embedded in the bureaucracy where the authority is

bestowed upon contractually hired and appointed officials. For example, the
shareholders of an organization give the authority to board of directories, who
in turn passes it on to the chief executive and so on. While bureaucracy is
the purest form of legal authority, other forms may comprise rotating office
holders, elected officers or office holders, chosen by lot. They have similar
authority since they must follow the same rules and regulations which govern
their positions and define the limits of their authority. Examples are, all
elected officials like the president of the country or a member of parliament or
committee leaders.

2. The traditional authority

The traditional authority has evolved from a social order and communal
relationships, in the form of ruling “Lord” and obedient “Subjects.” The
obedience results on the premises of traditional “piety” and traditional respect
and dignity of the “Lord” or the king or the tribal chief. This authority is

Abnet Agegnehu 68
Addis Ababa Commercial College
Introduction to Management

passed from father to son. The traditional chief rules at his own pleasure and
makes arbitrary decisions. However, there decisions are generally based on
considerations like ethical equity and justice, even though “subjects” have
been treated like “slaves” in the old kingdoms. The father in the family, in his
patriarchal rule exercises his traditional authority over the family. This type of
authority is highly visible in family style of religious societies and in many
economically underprivileged countries.

In this type of authority, there is no formal law or structured discipline and the
inter-relation ships are determined by personal relations and privileged and
governed by personal loyalty and faithfulness rather than the functional duties
of the office or respect for rules and regulations.

3. Charismatic authority

The charismatic authority rests on personal charisma of a leader who

commands respect of his followers by his personality and his personal traits
such as good looks, intelligence and integrity. This is especially true of
religious and political leaders. Obedience to the leader is shown due to his
person rather than his enacted position. The followers become highly
attached to the leader, partly because the leader’s goal seems consistent with
their own need.

A charismatic leader is a forceful orator and generally has a hypnotic effect on

his followers who accept his command and authority. People are willing to lay
their lives at the very command of their leader. The charismatic authority and
phenomenon extends to war heroes and movie idols. During periods of
nation emergencies, many actors and actresses and signers have raised
large sums of money form people, mostly because of their charismatic
authority. This could not have been raised by other people, even though the
same need existed.

4. Acceptance theory of authority

The authority of the superior has no meaning unless it has been accepted by
the subordinates and is enforceable. Chester Barnard was the early
proponent of this approach and considered authority as “giving orders” and
these orders will only be carried out if they are within the subordinate’s “Zone
of acceptance” which will depend upon the employee’s motivation and
dedication. They highly motivated employee who is sufficiently dedicated to
accept organizational goals will have a wider range of acceptance. According
to Robert Teanenbawm “An individual will accept an exercise of authority if
the advantages accruing to him from accepting plus disadvantages accruing
to him from not accepting plus the disadvantages accruing to him from
accepting and vice versa.” This means that acceptance of the authority is a

Abnet Agegnehu 69
Addis Ababa Commercial College
Introduction to Management

function advantages obtained from it. Bernard maintains that a subordinate

will accept an order if:

1. He understands it well
2. He believes it to be consistent with the organizational goals.
3. He believes it to be compatible with his personal interests as a whole.
4. He is able mentally and physically to comply with it.

Some of the other reasons of accepting authority, according to Mathur are

a. Due to some cultural influences, some people learn acceptance of
authority from childhood, making it as a part of their lifestyle.
b. It may be accepted due to the subordinate’s confidence in the
supervisor’s ability and status.
c. It may be accepted because non-acceptance could invite sanctions
and other punishments and acceptance could result in rewards and
recognition.
d. It may be accepted because if it does not work out the blame can
be laid on the superior and the subordinate can avoid the necessity
for accepting responsibility.
The acceptance theory, though supporting the behavioral approach to
management, presents many logistic problems. It totally undermines the role
of the manager as defined by the organizational set up. It should that the
authority flows from the “bottom-up”. It is the subordinates who decide which
authority will be exercised. It is not technically feasible for management to
consult with the subordinates and seek their acceptance before any directions
can be followed. This is highly time-consuming and also it indicates that the
manger is following the subordinate rather than the other way around which
would be unconventional and a blow to managerial morale.

5. The competency theory of authority.

This is also known as “technical authority” and is implicit in a person’s special

knowledge or skill. This authority is not based upon position or title. When a
doctor advises you to rest, you accept his “order” not because he has any
legal right, but because you respect his knowledge and skill as a doctor.
Again, this order will not get results unless you accept and obey and in that
sense it rests on acceptance approach, but this acceptance is based on
knowledge rather than social structure.

Power and authority

Many scholars argue that the concepts of power and authority are
synonymous. While others contend that they are distinctly different.

Abnet Agegnehu 70
Addis Ababa Commercial College
Introduction to Management

Five bases or sources of power

1. Legitimate power:
Is derived from a person’s official position in an organization.

2. Coercive power:
Is derived from a person’s ability to create fear in another individual and is
based on the subordinate’s expectation that punishment will be received for
not agreeing or complying with the superior’s commands or beliefs. (i.e. no
raise or promotion or even being fired for non compliance)

3. Reward Power
Is the opposite of coercive power in that it is derived from the ability to grant
rewards for compliance with the superior’s wishes. (i.e. good grade, pick of
vacation time, big raise,)

4. Expert power
Is derived from the perception or belief of the subordinate that the superior
possesses outstanding skill, knowledge, and expertise in certain areas.
Therefore, the subordinate desires to fulfill the wished and directions of the
superior. (For example, subordinates will want to follow the directions if a
manager with an impressive track record of project successes, high
profitability and good communication skills)

5. Referent Power
Is based on the identification of an individual with a leader who is held in high
esteem, admired, and often imitated by the subordinate (often this leader is a
person who is older and is perceived as wise, hones and consistent)

Authority in the managerial context is usually identified with the

legitimate base of power. It may be defined as the legal right to command
action by others and to enforce compliance. A person, with authority
influences the activity or behavior of another individual or group. However,
a person can have this influence without having authority –that is, no official
or legal right to command and enforce action by others. We say such a
person has power.

Power is a broader concept than authority and can be intentional

or unintentional. Power can be thought of as a strong influence on the
direction of an individual’s behavior like authority, power should not be
permitted to concentrate in a single organizational unit; a delicate balance of
power is vital for an organization to be most effective.

B. Responsibility
Responsibility has been defined in various ways. Mostly it is considered
to be the “duty” to perform certain assigned tasks in a satisfactory manner.

Abnet Agegnehu 71
Addis Ababa Commercial College
Introduction to Management

It is the obligation of an individual to perform certain activities which are

assigned to him. the source of responsibility lies within the individual. If
the accepts a job or “responsibility”, he should see that the job is
completed to the best of his ability. It is governed by contractual as well
as moral obligations. Contractual obligations ensure that the job is done
and morality ensured that it is done honestly and efficiently. Since
responsibility is an obligation that a person accepts, it cannot be delegated
to the activity is performed by the subordinate. Responsibility in a sense
is accountability for authority.

Personal factors as Barriers to Delegation

Even though delegation of authority has some definite advantages and is even
necessary for optimal organizational operations, some managers are very
reluctant to delegate authority and many subordinates avoid taking on the
responsibility and authority. The causes for such reluctance are based upon
certain beliefs and attitudes which are personal and behavioral in nature.

(A) Reluctance of executive

1. An executive may believe that he can do his work better than his
subordinates. He might believe that his subordinates are not capable
enough. Delegation may take a lot of time in explaining the responsibility
to the subordinate and the manger may not have the patience to explain,
supervise, and correct any mistakes.
2. Lack of confidence and trust in subordinates since the manger is
responsible for the actions of his subordinates, he may not be willing to
“take chances” with the subordinates, in case the job is not done right.
3. Some mangers lack the ability to direct their subordinates. They may not
be good in organizing their thoughts as well as activities and thus may not
know what to do after delegation in order to help the subordinates
complete the task.
4. Sense of insecurity: Some mangers feel very insecure in delegating
authority, especially when the subordinate is capable of doing the job
better. The manager in such a situation may fear his loss of power and
competition from the subordinates.
5. A manager may fear being known as “lazy” if the delegates most of his
tasks. Since every body wants to at least “look busy” it will be difficult for
mangers to do so if they do not leave much to do themselves due to
delegation. Accordingly, they may be reluctant to do “less” themselves,
and thus be not known as “hared working executives.”

(B) Reluctance of subordinates

While delegation of authority can be a highly motivating factor for some
subordinates, others may be reluctant to take it for the following reasons:

Abnet Agegnehu 72
Addis Ababa Commercial College
Introduction to Management

1. Fear of making mistakes:- Many subordinators are reluctant to accept

authority and make decisions for fear that they would be criticized or
dismissed for making wrong decisions. This is especially true in situations
where a subordinate had made a mistake earlier.
2. Lack of motivation:- The subordinates may not be given sufficient
incentives for assuming extra responsibility which could mean working
harder under pressure. Accordingly, in the absence of adequate
compensation in the form of higher salary or promotional opportunities, a
subordinate may avoid additional authority.
3. Lack of self-confidence:-The subordinates may lack self-confidence in
doing the job and may fear that the supervisor will not be available for
guidance once the delegation is made and this makes them feel
uncomfortable with additional responsibility.
4. Some subordinates hesitate to accept new and added assignment when
there is a lack of necessary information and when the available resources
are not adequate or proper.
5. Unclear delegation:- Subordinates feel reluctant to accept authority when
delegation is so broad that they do not know what precisely they are
expected to do and how much authority they can use for making decisions.
Delegation to be effective should be specific without being rigid.

Principles of Delegation

1. Delegation should be commensurate with responsibility: - It should

be adequate-nether more nor less than adequate- to enable him to
make all those decisions and take all those actions that are
required for effective job performance.
2. Interference should be minimum: - Once an executive has
delegated authority to his subordinate to make certain decisions, he
should resist the temptation of telling him what, when and how to
do. If a decision turns out to be too complex to be handled by the
subordinate the superior must help and guide him, or even himself
make the decision if its consequences appear to be more far-
reaching than what had been visualized earlier.
3. Tolerance of mistakes: - Even if the subordinate may at times make
sub-optimal or even wrong decisions, he should not be subjected to
strong disapproval, since he may refrain from making decisions
himself in the future. Minor mistakes should be ignored, and serious
mistakes turned into learning experience.
4. Adequate controls should be established: - Since an executive can
delegate authority but not responsibility (since he is still responsible
for his superiors, be it top management or owners), it becomes
necessary for him to establish adequate controls to ensure that his
subordinates exercise authority properly and achieve

Abnet Agegnehu 73
Addis Ababa Commercial College
Introduction to Management

predetermined goals. But controls should not be detailed and so

frequent as to inhibit the subordinates’ initiative.
5. Goals should be predetermined: - it is essential that the jobs of
subordinates should be clearly defined and performance goals
established. This will provide direction to the efforts of subordinates
and enable the superior to decide the kind and extent of delegation.
6. Policies, rules, and procedures should be established to guide
decisions: - To insure that the subordinate uses his authority
judiciously and that his decisions are consistent with the broad
policies of organization, define guidelines for decision making in the
form of policies, rules and procedures should be established. These
will provide the subordinates a framework for decision-making and
serve as standards for testing the appropriateness of their
decisions.
7. Delegation should be rewarded: - In order to encourage executives
to delegate adequately and effectively, organizations should
establish a policy of rewarding delegation. This can be done by
making delegation as one of the criteria of performance evaluation.

Abnet Agegnehu 74
Addis Ababa Commercial College
Introduction to Management

4.4. TYPE OF ORGANZATIONAL STRUCTURE

(A) Line Organization

This is the simplest type of organization where the authority is embedded in

the hierarchical structure and it flows in a direct line from the top of the
managerial hierarch down to different levels of mangers and subordinates
and down to the operative level of workers. It clearly identifies authority,
responsibility and accountability at each level. These relationships in the
hierarch connect the position and tasks of each level with those above and
below it. There is clear unity of command so that a person at each level is
independent of any other man at the same level but only is responsible to the
person above him. The line personnel are directly involved in achieving the
objectives of the company.

This type of organizational structure is especially useful when the company is

small in size and the employees have a sense of belonging and they become
involved. Also, the decision making process is easier and quicker.

President

Production manager

Plant manager

Foreman A Foreman B Forman C

Workers Workers Workers

The line organization can be a pure line or departmental line type. In the pure
line type set-up, all similar activities are performed at any one level. Each
group of activities is self-contained and independent of other units, and is able
to perform the assigned duties without the assistance of others. In a
departmental line organization, the respective workers and supervisors are
grouped on a functional basis such as finance, engineering, personnel, and
sales….

Advantages
2. It is simple to understand and simple to operate it.
3. Responsibility, and accountability are all clear-cut, easily assigned and
traceable
4. Communication is fast and easy and feedback can be acted upon faster.
5. Due to small structural size, discipline among all can be maintained easily
and effective control can be easily exercised.

Abnet Agegnehu 75
Addis Ababa Commercial College
Introduction to Management

Disadvantages
1. It is a rigid and inflexible form of organization and there is a tendency for
line authority to become dictatorial.
2. As the firm grows larger and the executives become overburdened with
many duties, a purely line type of organization becomes less effective.
3. Line officers being too involved in day-to-day operations have little time for
systematic and strategic planning.
4. Due to strict accountability, different departments may be more interested
in their self interests, rather than overall organizational interests and
welfare
5. There is no provision for specialists and specialization which is essential
for growth and optimization.

2. Line and staff organization

In this type of organization, the functional specialists are added to the line,
giving the line the advantage of specialists. This type of organization is
most common in our business economy and especially among large
enterprises. Staff is basically advisory in nature and usually does not
posses any command authority over line managers. The staff consists of
two types.

a. General Staff
This group has a general background which is usually similar to
executives and serves as assistants to top management. They are
not specialists and have generally no authority or responsibility of
their own. They may be known as special Assistants, Assistant
Managers or deputy chairperson.
b. Specialized Staff
Unlike the general staff, who assist only one line executive, the
specialized staff provides expert staff advice and service to all on a
company wide basis. This group has a specialized background in
some functional areas and it could serve in any of the following
capacities.
i. Advisory capacity: The primary purpose of this group is to
render specialized advice and assistance to management when
needed. Some typical areas covered by advisory staff are legal,
public relations and economic development areas.
ii. Service capacity: this group provides a service which is useful
to the organization as a whole and not to any specific division or
function. An example would be the personnel department
serving the enterprise by procuring and training the needed
personnel for all departments. Other areas of service include
research and development, purchasing, statistical analysis,
insurance.

Abnet Agegnehu 76
Addis Ababa Commercial College
Introduction to Management

iii. Control capacity: This includes quality control staff who may
have the authority to control the quality and enforce standards.

This type of organization uses the expertise of specialists with out diluting unity of
command. With this advice, the line managers also become more scientific and
tend to develop a sense of objective analysis of business problems.

The line and staff organization is widely used and is advantageous to the extent
that the specialized advice improved the quality of the decisions resulting in
operational economics. Also since line managers are generally occupied with
their day-to-day current operations, they do not have the time or the background
for future planning and policymaking. Staff specialists are conceptually oriented
towards looking ahead and have the time to do programme and strategic
planning and analyze the possible effects of expected future events. Its main
disadvantages are the confusion and conflict that arise between line and staff,
the high cost that is associated with it, and the tendency of staff personnel to
build their own image and worth at the cost of undermining the authority and
responsibility of the line executives.

President

Legal counsel Public Relations

(Staff) (Staff)

Vice President

Engineering Personnel
(Staff) (staff)

Plant Manager

Supervisor Supervisor
Machine shop Assembly

Workers Workers

Abnet Agegnehu 77
Addis Ababa Commercial College
Introduction to Management

3. Functional Organization
One of the disadvantages of the line organization is that line executives
lack specialization. Additionally, a line manager cannot be a specialist in
all areas. In the line and staff type of organization, the staff specialist
does not have the authority to enforce his recommendations.

The functional organization concept, originated with Fredrick W. Taylor,

permits a specialist in a given area to enforce his directive within the
clearly defined scope of his authority. A functional manager can make
decisions and issue orders to the persons in divisions other that his own,
with a right to in force his advice. E.g.: - quality control, safety and labor
relations.

This means that every worker in a functional organization receives

instructions from a group of specialists, which means that each worker is
answerable, not to one superior but to many bosses. Although the need
for functionalization is recognized, it violets a fundamental principle of
classic organization which is unity of command. The chain of command of
line authority is broken resulting in multiple accountability causing conflict
and confusion. Also when responsibility is divided, it is difficult to maintain
discipline.

Abnet Agegnehu 78
Addis Ababa Commercial College
 Introduction to Management

4.5. Human Resource Management

4.5.1. Human Resource Planning
Human resource planning is a two-step process that involves forecasting future human resource needs
and then planning how to adequately fulfill and manage these needs. Or it can be described in a four-
step process as
a. Forecasting future human resource requirement
b. Taking inventory as to how many workers are available now, and make some adjustment as to how
much would still be available during the forecast period, say after 10 years.
c. Identify the gap.
d. Take personnel action. For instance, if future supply is greater than future demand, the right action
may be firing some employees or expand our objective so that the excess workers will have
something fruitful to do. On the other hand if demand is expected to be greater than supply, we can
start recruitment and training in advance or even change the company objectives, as lack of human
resources will prevent them from being achieved in any case. Realistic objectives may need to be
based on the manpower that is, and is forecast to be, available.

4.5.2. Recruitment
Whenever human resources must be expended or replenished, a recruitment plan must be established
or set in motion.

Meaning
Recruiting is the set of activities an organization uses to attract job candidates who have the abilities
and attitudes needed to help the organization achieve its objectives.

Sources of Recruitment
Once the organization has decided it needs additional employees, it is faced with two recruiting
decisions: where to search (sources) and how to notify applicants of the positions (methods).

Two sources of applicants can be used: Internal and External.

Internal Sources
Internal sources include present employees who become candidates for promotion, transfers,
job rotation, as well as ex-employees, who are available for rehires and recalls.

Advantages
 Motivation- Morale of promotee as well as others increase because they are given priority
than external sources and the company is giving attention to their growth.
 Familiarity with employees: The company is familiar with the employees’ character and
qualities as well as their limitations. This reduces selection activities.

Abnet Agegnehu 79
Addis Ababa Commercial College
Introduction to Management

 Familiarity with the company: Employees are familiar with the people, procedures,
policies, and special characteristics of the organization in which they are performing. This
reduces orientation efforts and the need to change their culture.

Disadvantages
 In breading-lack of varied perspectives and interests.
 “Political” infighting for promotions
Sources
1. Promotions: moving people to a higher position with a potential or real increase in
salary and status.
2. Transfers: Another way to recruit internally is by transferring current employees
without promotion.
3. Rehires and recalls: The rehire of former employees or employees temporarily laid
off is relatively inexpensive and effective method of internal recruiting. Unlike new
job candidates, the organization already has information about the performance,
attendance, and safety records of these employees. Because they are already
familiar with job responsibilities, rehires may be better performers than recruits
from other sources. Additionally, they tend to stay on the job longer and have
better attendance records.

External Sources
Recruiting internally doesn’t always produce enough qualified applicants. This is especially true
for rapidly growing organizations or those with a large demand for high-talent professional,
skilled, and managerial employees. Therefore organizations need external sources.

Advantages

 Bring in people with new ideas.

 Less costly-it is often cheaper and easier to hire an already professional.
Disadvantage

 Costly- Since applicants are not familiar with the company (and the reverse) the
selection process is elongated and need for orientation increases.
 Discourages internal employees having the necessary skill.

Sources

1. Walk-ins: This is especially prevalent for clerical and service job applicants.
Individuals become applicants by walking into an organization’s employment office.

2. Employment agencies: Public and private employment agencies are a good source
of temporary employees- and an excellent source for permanent ones.

Abnet Agegnehu 80
Addis Ababa Commercial College
 Introduction to Management

3. Trade associations and Unions: The associations’ newsletters and annual

conferences often provide notice-of-employment opportunities. Annual conferences can
also give employers and potential job applicants an opportunity to meet.

4. Colleges and universities: If an organization is recruiting for managerial, technical,

or professional applicants, then college and universities are the most important source.

5. Employee referral program: Is word-of-mouth advertisements in which current

employees refer applicants from out-side the organization. It blends internal with external
recruitment and is a low cost-per hire means of recruiting.

4.5.3.Selection
Meaning
Selection is the process by which an organization chooses from a list of applicants the person(s) who
best meet the selection criteria for the position available, at the least cost.

According to the definition selection should be effective (getting the best person) and efficient (at the
least cost)

The basic objective of selection is to obtain the employees most likely to meet the organization’s
standards of performance.

The Selection Process

The selection decision is usually perceived as a series of steps through which applicants pass. At each
step, a few more applicants are screened out by the organization.

Step One: Preliminary Screening Interview

The organization develops some rough guidelines to be applied in order to reduce the time and
expense of actual selection. They could specify minimum education.

Step two: Completion of Application Blank/Biodata form

Applicants are requested to complete an application blank.

Step Three: Employment Interview

Establish Rapport: Greet the candidates and take steps to put the person at ease.
Ask Questions: There are a number of employment interviews including structured, semi structured and
unstructured.

Abnet Agegnehu 81
Addis Ababa Commercial College
 Introduction to Management

In the structured employment interview, the interviewer prepares a list of questions in advance and
doesn’t deviate from it.
In the semi-structured interview only the major questions to be asked are prepared in advance. Though
the interviewer may also prepare some probing questions in areas of inquiry.
The unstructured interview involves little preparation. The interviewer prepares a list of possible topics
to be covered and sometimes doesn’t even do it.

Close the interview: There should be time to answer any questions the candidate may have, and if
appropriate to advocate your firm to the candidate.

Review the interview: After the candidate leaves, you should review your notes of the interview, fill in
the structured interview guide and review the interview while it is still fresh in your mind.

Step Four: Employment Tests

An employment test is a mechanism that attempts to measure certain characteristics of individuals,

such as manual dexterity.

Step Five: Reference Checks and Recommendations

Applicants are required to submit references or recommendation letters.

Step Six: Physical Examinations

Some organizations require that those most likely to be selected for a position complete a medical
questionnaire or take a physical examination. The reasons for such a requirement include:
 In case of later workers’ compensation claims, physical condition at the time of hiring should be
known.
 It may be necessary to determine whether the applicant is physically capable of performing the
job in question.

Reference:
1. J S Chandan, Management-theory and practice, Vikas Publishing House Ltd.,
New Delhi,1987.
2. Terry and Franklin, Principles of Management, A.I.T.B.S. Publishers and
Distributors, Delhi, 1999.
3. Ivancevich, Management-Quality and Competitiveness, Richardo D. Irwin,
Inc., 1994.

Abnet Agegnehu 82
Addis Ababa Commercial College
Introduction to Management

Abnet Agegnehu 83
Addis Ababa Commercial College
Introduction to Management

Chapter Five
The Directing Function
Meaning and Importance of directing
Directing and leading comprise the managerial function of guiding, overseeing
and leading people. The primary element in this function is the human element
and deals in personnel relationships. This area is primarily geared towards
leadership, motivation and communication.

5.2. Elements of directing

5.2.1. Leadership

Leadership may be defined as the art of influencing and inspiring subordinates to

perform their duties willingly, competently and enthusiastically for achievement of
group objectives. Most management writers agree that ‘leadership is the process
of influencing the activities of an individual or a group in efforts towards goal
achievement in a given situation.

It is important to add the element of “willingness” in the above definition. This

element differentiates successful and effective leaders from the ‘common run of
the managers.” Motivating and influencing people to move towards a common
goal, are all essential elements of management, but the “willingness’ of the
followers to be led highlights a special quality that puts a leader high above
others. Based on these elements, a leadership function may be defined as:

L = F (f, g, w, s)

Where leadership (L) is a function (F):

F = followers
G =goal
W = a measure of willingness on the part of subordinates, and
S = a given situation

Abnet Agegnehu 84
Addis Ababa Commercial College
Introduction to Management

Theories of leadership
The major leadership theories are:
a. The Trait theory
b. Behavior theory
c. Contingency theory
d. The path-goal theory

1. The Trait theory

The traditional approach has been to describe leadership in terms of personal

traits and special characteristics of leaders. As has been discussed in chapter
two. Ghazi tried to identify traits of leaders in 900 a.d. These traits are not
acquired, but are inherent personal qualities.
The trait theory emphasizes that leaders are born and not made. Some of the in-
born traits include:
 Intelligence
 Understanding
 Perception
 High-motivation
 Socio-economic status
 Self-assurance.
This traditional approach focused on the personal trait of leaders and attempted
to identify a set of individual characteristics or traits that distinguished leaders
from followers and successful leaders from unsuccessful leaders.

Stogdill’s trait factor

Ralph Stogdill surveyed more than 5000 leadership studies and concluded that
there are no consistent patterns of traits that characterize leaders in all situations.
However, he did reach some general conclusions in the following five areas:
e. Intelligence and scholarship: Leaders are more intelligent, perform
better at academic tasks, and possess superior judgment and
decision-making abilities than followers.
f. Physical trait: Results were extremely contradictory in rating height,
weight, age, strength, and attractiveness to effective leadership
style. Some people apparently still believe that male leaders are tall,
dark, and handsome and female leaders are slender and beautiful.
g. Personality: Many leaders appear to have a personality
characterized by self-confidence, honesty, integrity, creativity, and
initiative.
h. Social status: Leaders appear to possess good personal interaction
skills and are able to inspire and motivate team effort. Leaders are
more educated and that higher socioeconomic status can be an
advantage to leadership status.

Abnet Agegnehu 85
Addis Ababa Commercial College
Introduction to Management

i. Task orientation: Leaders appear to be characterized by a high

need for assuming responsibility and achieving specific tasks; they
are highly motivated to set goals and reach them consistently.

2. Behavior theory

This theory studies leadership by looking at leaders in terms of what they do. The
leader effectiveness is judged in terms of individual subordinate outcome.

The behavioral theorists contend that a leader’s style is oriented toward either an
employee-centered or a job-centered emphasis.

In the employee-centered orientation, the leader emphasizes developing friendly,

open relationships with employees and is very sensitive to their personal and
social needs.

A job orientation is one in which the leader emphasizes getting the job done by
planning, organizing, delegating, making decisions, evaluating performance, and
exercising close management control.

3. Contingency theory

This theory states that an analysis of leadership involves not only the individual
trait and behavior but also a focus on the situation. The effectiveness of the
leader behavior is contingent upon the demands imposed by the situation.

The situational theorists insist that their leadership research support the thesis
that successful leadership depends on the relationship between the
organizational situation and the leader’s style. The organizational situation can
include such variables as the climate; managers’ and subordinates’ values,
attributes, and experience; and the nature of the particular work to be
accomplished, including time and money.

The goal of the situational leader theorists is to predict the most effective
leadership style under varying circumstances.

4. The path-Goal theory

The path-goal model of leadership behavior has been propounded by Robert

J.House. This model emphasizes that the leader behavior be such as to
complement the group work setting and aspirations.

The essence of the theory is that it is the leader‘s job to assist his or her followers
in attaining their goals and provide the necessary direction and/or support to
ensure that their goals are compatible with the overall objectives of the group or

Abnet Agegnehu 86
Addis Ababa Commercial College
Introduction to Management

organization. The term “path-goal” is derived from the belief that effective leaders
clarify the path to help their followers get from where they are to the achievement
of their work goals and make the journey along the path easier by reducing
roadblocks and pitfalls.

Robert House and Terence Mitchell proposed that leadership effectiveness is

contingent upon two basic propositions. The first is that leadership effectiveness
is determined by the extent subordinates believe leader behavior will immediately
or in the future be a source of satisfaction. The second proposition is that
leadership behavior will positively effect subordinates’ output if it provides ample
coaching, support, guidance, and rewards for performance.

In their model the strategic functions of a leader consist of the following:

1. Recognizing and/or arousing subordinates’ needs for outcomes over
which the leader has some control.
2. Increasing personal payoffs to subordinates for goal attainment.
3. Making the path to those payoffs easier to travel by coaching and directing.
4. Helping subordinates clarify expectancies.
5. Reducing frustrating barriers.
6. Increasing the opportunities for personal satisfaction contingent on
effective performance.

Leadership Styles

The leadership styles can be classified according to the philosophy of the leaders.
But first let us see the assumption of managers towards their subordinates
regarding their attitude towards work. This perception often forces to adopt one
or the other style.

Assumptions about people

McGregor theorized that every person has certain basic assumptions about other
people’s attitude toward work and organizations. He labeled these set of
assumptions about human behavior Theory x and theory Y.

Theory X- assume the following

a. People basically dislike work, are lazy, and will avoid work
if possible.
b. Because of their laziness and dislike for work, people must
be coerced, threatened, and closely directed and controlled
(managed) to ensure their minimum performance.
c. Most people like to be managed with policies, rules, and
close control by someone in an authoritative position.
d. Most people are passive, low risk takers, and therefore
prefer job security to any other element of work life.

Abnet Agegnehu 87
Addis Ababa Commercial College
Introduction to Management

Theory Y-
1. People don’t avoid work because they like it. Work is as natural as eating,
sleeping, and playing.
2. Given the proper environment, people will seek responsibility and be very
creative in their work.
3. When organizational objectives are congruent with personal goals, people
will be highly motivated to work and exercise substantial self-direction and
control.
4. People’s commitment to the organizational objectives is a function of the
rewards they receive for achievement.

It is easy to see how the predominance of an X and Y assumptions about people

in general will affect one’s attitude, behavior, and “leading” of individuals.

Numerous authors have conceptualized Theory Z, which suggests that both

assumptions are correct at different times with different people-thus mandating
different leadership approaches depending on certain variables in the
organization.

Styles
1. Autocratic or Dictatorial leadership

Autocratic leaders keep the decision-making authority and control in their own
hands. They structure the entire work situation in their own way and expect
the workers to follow their orders and tolerate no deviation from their orders.

The autocratic leader believes that his leadership is based upon the authority
conferred upon him by some source, such as his position, knowledge,
strength or the power to punish and reward.

2. Participative or Democratic leadership

Here, the subordinates are consulted and their feedback is taken into the
decision making process. The leader’s job is primarily of a moderator, even
though he makes the final decision and he alone is responsible for the results.
The group members are encouraged to demonstrate initiative and creativity
and take interest in setting plans and policies and have maximum
participation in decision-making.

This ensures better management-labor relations, higher morale and greater

job satisfaction. This type of leadership is specially effective when the work
force is experienced and dedicated and is able to work independently with
least directives.

3. Laissez-faire or Free-reign leadership

Abnet Agegnehu 88
Addis Ababa Commercial College
Introduction to Management

In this type of leadership, the leader is just a figurehead and doesn’t give any
direction. He acts principally as a liaison between the group and the outside
elements and supplies necessary materials and provides information to group
members.

He lets the subordinates plan and organize and develop their own techniques
for accomplishing goals within the generalized organizational policies and
objectives. He doesn’t attempt to intervene or regulate or control and there is
complete group or individual freedom in decision-making.

This type of leadership is highly effective when the group members are highly
intelligent and are fully aware of their role and responsibilities and have the
knowledge and skills to accomplish these tasks without direct supervision.

Abnet Agegnehu 89
Addis Ababa Commercial College
Introduction to Management

5.2.2. Motivation
The force of motivation is a dynamic force setting a person into motion or action.
The word motivation is derived from motive, which is an active form of a desire,
craving or need, which must be satisfied.

Viteles has defined motivation as follows:

Motivation represents an unsatisfied need which creates a state of tension or

disequilbrium, causing the individual to move in a goal directed pattern towards
resorting a state of equilibrium by satisfying the need.

The level of performance of an employee is a function of his ability and his

motivation. The first determines what he “can” do and the latter determines what
he “will” do.

The major motivation theories are content theory and process theory.

Content theory

Maslow’s Model
(Universal Theory)
Abraham Maslow developed his model of human motivation in 1943. His theory
is based on two assumptions. First, that human beings have many needs that are
different in nature ranging from biological needs at the lower level to
psychological needs at the upper extreme.
Second, that these needs occur in an order of hierarchy so that lower level needs
must be satisfied before higher level needs arise or become motivations.

Self-actualization.

Esteem / Ego

Social/love

Security

Physiological

1. Physiological needs: These primarily are the needs arising out of

physiological or biological tension. They include the basic needs for food,
shelter…

Abnet Agegnehu 90
Addis Ababa Commercial College
Introduction to Management

2. Safety needs: This is the need for self-preservation. They are provisions
against deprivation in the future. It also involves a sense of protection
against danger and threats.
3. Love and social needs: These needs are for love, friendship and social
interaction. We look for an environment where we are understood,
respected and wanted.
4. Esteem needs: This is a need to attain recognition from others. It is an
urge for achievement, prestige, status and power.
5. Self-actualization: This is the need to develop fully and to realize one’s
capacities and potentials to the fullest extent possible.

Herzberg’s Two-factor theory of motivation

(Environmental Theory)
It emphasizes factors in the environment that contribute to the environment.
This theory assumes that one group of factors, motivators, accounts for high levels of motivation.
Another group of factors, hygiene, or maintenance, factors, can cause discontent with work.

The implication of Herzberg’s research for management is that although managers must
carefully consider hygiene factors in order to avoid employee dissatisfaction, even if all these
maintenance needs are addressed, people may not be motivated to work harder. Only
motivators cause employees to exert more effort and there by attain more productivity, and
this theory suggests that managers should use the motivators as tools to enhance employee
performance.

Motivational factors:
These factors are related to the nature of work itself (job content), and an intrinsic to the job
itself. These factors have a positive influence on morale, satisfaction, efficiency, and higher
productivity.
Motivators include: -
 Achievement
 Recognition
 Work itself
 Responsibility
 Advancement

Hygiene factors:
They don’t motivate people. They simply prevent dissatisfaction and maintain statuesque.
They produce no growth but prevent loss. The absence of these factors leads to job
dissatisfaction. The elimination of dissatisfaction doesn’t mean satisfaction and these factors
simply maintain a “zero level of motivation.” These factors are primarily extrinsic in nature
and environment-oriented and relate to a job context rather than job content.
Hygiene factors include: -
 Interpersonal Relations
 Company policy and administration
 Supervision

Abnet Agegnehu 91
Addis Ababa Commercial College
Introduction to Management

 Salary
 Working conditions

Process Theories of motivation

Vroom’s Expectancy theory

At the heart of expectancy theory are the perception that individuals have of effort, performance,
and rewards. This model is based upon the assumption that the man is a rational being and will
try to maximize his payoff. This approach assumes that motivation to work is strongly determine
by an individual’s perception that a certain type of behavior will lead to a certain type of outcome
and his personal preference for that type of outcome.

For motivated behavior to occur three elements are important:

1. Effort-Performance expectancy: In this context expectancy is the probability that if the
employee puts forth more effort, it will lead to performance. For example, if a student
works hard during the semester, he expects to do well in the final examination.
2. Performance- reward Instrumentality: The relationship between performance and reward
is described by instrumentality, which is the probability that high performance will lead to
desired rewards, like raise in pay or promotion. If employees believe that high
performance will not be rewarded sufficiently, then they may not be motivated to perform
at a higher level. That is the problem with automatic pay raise in which all employees get
the same percentage increase, regardless of level of performance.
3. Valence: It is the strength of individual’s valuation of the reward. The valence of an
outcome of reward is not the reward itself; rather, it describes the individual’s internal
desire or need for the reward and the individual’s perception of the reward as more
desirable or less desirable.

Abnet Agegnehu 92
Addis Ababa Commercial College
Introduction to Management

5.2.3. Communication
Communication is defined as the exchange of information between a sender
(source) and a receiver (audience). If meaning is not shared, communication has
not taken place.

The Communication Process

Communication can be described as a process in which a message is encoded
and transmitted through some medium to a receiver who decodes the message
and then transmits some sort of response back to the sender.

Communication Process Model

Decoding
Sender Encoding Comm. Receiver
Channel
ChChannel

1. Sender: - The communication process begins with a ‘sender’- the person

who transmits messages. This is the source of the information or the
initiator of communication. This source may want to communicate his
ideas, needs, intentions or other pieces of information.

2. Encoding: - The sender must choose certain words or other symbols to

express an idea. Encoding is the process inside the human mind in the
form of motor skills, muscle system or sensory skills that encode the ideas
to be conveyed into a series of symbols or gestures or some other format
of expression. The words that a speaker chooses to deliver a message
can make tremendous difference in how that message is received.

3. Message: - The ‘physical form’ of the thoughts or ideas which can be

experienced and understood by one or more senses of the receiver. It
could be in the form of hearing, reading or other physical gestures.

A signal is the means the sender uses to transmit the intended meaning.
Written words, spoken words, and non-verbal signs, including sign
languages, gestures, facial expressions, and other physical movements,
are all signals.

4. Channel of communication: - It is the vehicle or method used for the

transmission of the message. It is a medium carrier and bridges the gap
between the sender and the receiver. One can choose to put his message
in writing as a letter or memo; he can deliver it electronically via computer

Abnet Agegnehu 93
Addis Ababa Commercial College
Introduction to Management

link up, like Internet. Or, he can communicate it orally, either over the
phone or in person.

5. Receiver: - The message is received by the person for whom it was

meant. At this stage several problems may occur. The message may
never get to the receiver. It might be delivered but lie buried under a
mountain of papers on the recipient’s desk. If the message is oral, the
listener may forget it. Even worse, a message intended for one receiver
might be intercepted by someone else.

6. Decoding: - Even if a message does arrive intact as its intended receiver,

there is no guarantee that it will be understood as the sender intended it to
be. The receiver must still decode it, making sense out of the words or
other symbols. Decoding is done in the same manner as encoding by
motor skills, muscle system or sensory skills.

7. Feedback: - Feedback determines whether the message was clearly

understood and the required action taken. The feedback to the sender
completes the process of communication.

Organizational Communication
Individuals and groups must communicate effectively for organizations to be
successful. Managers must understand the forms of organizational
communication: formal and informal.

Formal Channels of Communication

Formal channels of communication are the official paths prescribed by
management. They follow the organization’s chain of command. Information
can be communicated downward, upward, or horizontally.

a. Downward communication: Information flows down the organizational

hierarchy from managers to subordinates through downward communication.
It generally involves job instructions, policy statements, etc. It is important
because lack of communication from superiors can leave workers
misinformed, feeling disconnected, and less satisfied with their jobs.

b. Upward Communication: Information that flows up the organization from

subordinates to managers is called upward communication. This type of
communication is necessary for managers to evaluate the effectiveness of
downward communication. It also enables workers to feel they are a
meaningful part of the organization. Many types of messages are
communicated upward, including suggestions for improvements, feelings
about the job or the organization, problems or grievances, requests, and
responses to downward communication.

Abnet Agegnehu 94
Addis Ababa Commercial College
Introduction to Management

c. Horizontal Communication: Messages flow between persons at the same

level of the organization through horizontal communication. This includes staff
meetings, face-to-face interactions, and sharing of information through
memos and reports. Horizontal communication is needed to coordinate the
activities of diverse but independent units or departments.

Informal Channels of Communication

Not all organizational communication follows the official chain of command.

One informal channel of communication is the grapevine. The grapevine cuts
across formal channels of communication and carries a variety of facts,
opinions, rumors, and other information.

Managers must not try to eliminate informal communication. Even if they

wish they can’t achieve it. Hence, it is better to understand it try to get the
best out of it.

Reference:
1. J S Chandan, Management-theory and practice,
Vikas Publishing House Ltd., New Delhi,1987.
2. Terry and Franklin, Principles of Management,
A.I.T.B.S. Publishers and Distributors, Delhi, 1999.
3. Ivancevich, Management-Quality and
Competitiveness, Richardo D. Irwin, Inc., 1994.

Abnet Agegnehu 95
Addis Ababa Commercial College
Introduction to Management

Chapter Six
Controlling
6.1. Concepts and Characteristics of controlling

Anthony has defined controlling as

It is the process by which managers assure that resources are obtained and
used effectively and efficiently in the accomplishment of the organization’s
objectives.

Controlling is determining what is being accomplished-that is, evaluating the

performance and, if necessary, applying corrective measures so that the
performance takes place according to plans. Controlling can be viewed as
detecting and correcting significant variations in the results obtained from
planned activities.

Characteristics for effective control systems

Effective controls have certain common characteristics. Some of them are:

1. Controls must provide useful and understandable information. The control
system format must be simple, clear, and unambiguous so that irrelevant
information is excluded and only useful and necessary data is utilized.
This would make it easier for the people who are responsible for
monitoring operations. The information should also be accurate and
should cover all aspects of business so that no aspect that needs to be
controlled is overlooked.
2. Controls should report deviations quickly so as to minimize the ill effects of
these deviations. A well-designed control system should be capable of
identifying potential problem areas before they arise so that corrective
action can be taken before the problem becomes serious and
unmanageable.
3. Controls must be designed so that the right people monitor the activities of
their own fields. The sales manager, for example, should be concerned
with only sales activities including output of sales representatives, product
sales by territories, etc. Similarly, the production manager must control the
output as well as the quality of the output etc.
4. The focus should be on strategic control points. The control systems must
refelect and support the organization’s established overall priorities so that
the activities of strategic significance where deviations would lead to
greater harm, receive the immediate corrective action and minor activities
get lower priority for control purposes.

Abnet Agegnehu 96
Addis Ababa Commercial College
Introduction to Management

5. Controls should focus on results. The ultimate aim of the control process
is to attain objectives. Gathering information, setting standards, identifying
problems, measuring deviations and reports are simply means to the end.
6. Controls should be economically realistic. A control system must be worth
the expense. The cost of implementing the control system must be less
than the benefits derived from the control system.
7. Controls should be flexible enough to absorb change. Since organizations
operate under dynamic and changing environments, a rigid set of controls
would not be appropriate. Flexible controls can adjust for the uncertainties
of the situation.
8. Controls should not only indicate deviations, but should also lead to
corrective action. Simply uncovering and measuring deviations is not
enough, so the control system must lead to corrective action quickly. The
system must also disclose where the problem areas are and what factors
are responsible for them so that management can take immediate action.
9. Controls should be simple, but difficult to manipulate. Simple controls
absorb less effort and are more economical. Excessive complexity leads
to confusion. It must be designed in accordance with the needs and
abilities of the people who implement it, but it should not be subject to
misrepresentation or distortions which can be manipulated to suit
somebody’s purpose, or to sabotage the operation.
10. Controls should be acceptable to organization’s members. Too rigid
controls might cause resentment resulting in lower morale and inefficient
performance. Effective controls require- support of top management,
participation of all managers in setting up the control system, acceptance
and understanding of the control process by all workers, and information
and feedback on actual performance must be timely and accurate.
11. The exception principle. A good system of control should work on the
exception principle, so that only important deviations are brought to the
attention of management. In other words, the management doesn’t have
to bother with activities that are running smoothly. It would eliminate
unnecessary and uneconomic supervision, reporting and a waste of
managerial time.

Abnet Agegnehu 97
Addis Ababa Commercial College
Introduction to Management

6.2. The control process

a. Predetermined Goals
It is a part of the planning process and involves setting a
standard of expected performance. The goal must be clearly
specified and understood with out ambiguity.

b. Measuring Performance
This involves monitoring and measuring actual performance.
The measurement of actual performance (which requires
collection of data) must be in the units similar to those of pre-
determined criterion. The units or the yardstick thus chosen
should be clear, well defined and easily identified and should
be uniform and homogeneous throughout the measurement
process.

c. Comparison-
Comparing actual performance with the expected performance
This comparison tells us if anything has gone wrong.

There are three possible outcomes: a positive deviation, zero

deviation and negative deviation. One probably can do nothing
in case one of the first two occur. The manger doe not need to
concern himself with situations where performance equals or
is above the expected results. The third, however, calls for an
action. Even in this case judgment is frequently required to
assess its significance. Again the manager should not worry if
performance approximates the expected results. This brings
up the managerial principle of exception: Controlling is
expedited by concentrating on the exceptions, or outstanding
variations, from the expected result or standard. However, to
establish a rigid absolute variation or even a range for what is
satisfactory is appropriate. It varies from company to company
and from product to product. Managers performing the
controlling work must therefore analyze, evaluate, and judge
the results.

d. Taking Corrective Action

Once the deviations have been established the decisions must
be taken as to what corrective actions are needed or
necessary to remedy the situation and to force events to
prescribe to prearranged plans.

Abnet Agegnehu 98
Addis Ababa Commercial College
Introduction to Management

6.3. Types of control methods

1. Pre-controls/Preliminary control
These are sometimes called “feed-forward” controls and are preventive in
nature. They are designed to eliminate the cause of any deviation that might
occur later and are established before the activity takes place. Preliminary
control focuses on preventing deviations in the quality and quantity of
resources used in the organization. Here, we check whether we have the
necessary raw material, labor with the necessary quantity and skill.
Preliminary control procedures include all managerial efforts to increase the
probability that actual results compare favorably with planned results.

Management needs to be concerned with preliminary control of processes in

four areas: human resources, materials, capital, and financial resources.

2. Concurrent control
Concurrent control is the heart of any operating control system. It can assist
in guaranteeing that the plan will be carried out at the specified time and
under required conditions.

Concurrent control monitors ongoing operations to ensure that objectives are

pursued. The standards guiding ongoing activity are derived from job
descriptions and from policies resulting from the planning function.

Concurrent control is implemented primarily by the supervisory activity of

managers. Through personal, on-the-spot supervision, managers determine
whether the work of others is proceeding in the manner defined by policies
and procedures. How do supervisors effect concurrent control? It is either
when they actually see deviations or through periodical supervision.

a. Steering controls
The key feature of this control is the capability to take corrective
action when the deviation has taken place but the task has not
been completed. E.g. steering the car into the lane when it is off the
lane (road).

b. Yes/no controls
These controls are designed to check at each checkpoint whether
the activity should be allowed to proceed further or not.
These controls are necessary and useful where a product passes
sequentially from one point to another with improvements added at
each step, along the way.

These controls stop errors from being compounded.

Abnet Agegnehu 99
Addis Ababa Commercial College
Introduction to Management

3. Post-action controls
They measure the results from completed actions, focusing on end results.
The result of the completed activity is compared with predetermined
standards and if there are any deviations, corrective action can be taken for
future activities. Corrective action is directed at improving either the resource
acquisition process or the actual operations.

These controls are known as “feedback” controls.

Reference:
1. J S Chandan, Management-theory and practice, Vikas Publishing House
Ltd., New Delhi,1987.
2. Terry and Franklin, Principles of Management, A.I.T.B.S. Publishers and
Distributors, Delhi, 1999.
4 Ivancevich, Management-Quality and Competitiveness, Richardo D. Irwin,
Inc., 1994.

Abnet Agegnehu 100

Addis Ababa Commercial College