Lecture 1: Fundamental of Business Management

Overview

In this lecture students, will learn about the concept of management in the context of
managing a business, and its characteristics, nature, importance, functions and the
general principles guiding managerial actions in the management process.

Learning Objectives

By the end of this lecture students, will be able to:

▪ Explain the concept management;
▪ Identify the characteristics of management;
▪ Explain the importance of management;
▪ Describe management as an activity, process and discipline;
▪ Identify the various levels of management;
▪ Describe the functions of management; and
▪ Explain the principles of management.

Discussion

Introduction

Consider a business enterprise, it may be an industry or it may be a trading concern. In

both the cases, to start and run the business some amount of money is needed, some
materials, few machines and some men are required, and some processes are involved.
All these are considered the inputs for a business that result in output in terms of products
or services. However, with same amount of money, raw materials, machines and men,
and following the same processes, the output may not be same in all cases. For example,
with same amount of money, men, machines and materials, if you and Ramesh start a
similar business independently, the result may not be the same for both of you. You may
do well whereas Ramesh may not. But this is because the inputs do not become output
by themselves. Various activities are required and these need to be properly directed,
coordinated and integrated so that the inputs produce good results. This process of using
various resources (inputs) to produce some results (outputs) is known as management,
and the degree of success varies according to the efficiency with which the resources are
managed. Thus, management refers to the process of using men, money, machines,
material and processes through proper direction, coordination and integration of several
activities so as to produce desired results and attain predetermined goals. In other words,
management consists of a series of activities classified into various functions like
planning, organizing, staffing, directing and controlling.

Characteristics of Management
The various characteristics of management are:
(a) Management is universal: It means that management is required for every type of
organization. It may be a business organization or social or political. It may be a small
firm or a large one. Management is required by a school or a college or university or a
hospital or a big firm like Reliance Industries Limited or a small variety store in your
locality. Thus, it is a universal phenomenon and is common and essential element in all
organizations.
(b) Management is goal directed: Every organization is created to achieve certain goals.
For example, for a business firm it may be to make maximum profit and/or to provide
quality products and services. Management of an organization is always aimed at
achievement of the organizational goals. Success of management is determined by the
extent to which these goals are achieved.
(c) Management is a continuous process: Management is an ongoing process. It continues
as long as the organization exists. No activity can take place without management. To
perform all activities like production, sale, storage, operation etc. management is
required. So, as long as these activities continue the process of management also
continues to operate.
(d) Management is an integrating process: All the functions, activities, processes and
operations are intermixed among themselves. It is the task of management to bring them
together and proceed in a coordinated manner to achieve desired result. In fact, without
integration of men, machine and material and coordination of individual efforts to
contribute successfully as a team, it will be difficult to achieve organizational goals.
(e) Management is intangible: Management is not a place like a graphic showing Board
meeting or a graphic showing a school Principal at her office desk which can be seen. It
is an unseen force and you can feel its presence in the form of rules, regulation, output,
work climate, etc.
(f) Management is multi-disciplinary: Management of an organization requires wide
knowledge about various disciplines as it covers handling of man, machine, and material
and looking after production, distribution, accounting and many other functions. Thus,
we find the principles and techniques of management are mostly drawn from almost all
fields of study like – Engineering, Economics, Sociology, Psychology, Anthropology,
Mathematics, Statistics etc.
(g) Management is a social process: The most important aspect of management is
handling people organized in work groups. This involves developing and motivating
people at work and taking care of their satisfaction as social beings. All managerial
actions are primarily concerned with relations between people and so it is treated as a
social process.
(h) Management is situational: The success of management depends on, and varies from,
situation to situation. There is no best way of managing. The techniques and principles
of management are relative, and do not hold good for all situations to come.
Importance of Management
The existence and success of any organization largely depends on the kind of
management it has. No amount of quality resources is going to help unless they are put
to productive use by efficient management. It is because of this reason that management
is studied as a subject in almost every discipline of study. In today’s scenario with
globalization, job specialization, changing technologies, new responsibilities of business,
consumerism, competition and emphasis on research and development, the role of
management has grown multifold. Its importance is reflected in the positive result that
the organization can get in respect of the following.
(a) Attainment of Goals: Every organization has a goal to achieve and each employee in
the organization also has his own goals that he wants to achieve. Even at operational level
each department, each unit or even each group has a goal that it wants to achieve. It is
only through proper management – by well thought of planning, good direction and
proper coordination and control that effectiveness to the efforts of each group to achieve
given goals can be ensured.
(b) Stability and Growth: Management strives to utilize the available resources of the
organization effectively and efficiently. It controls the activities and operations, integrates
the functions, motivates the employees, and maintains the health of the organization in
the ever changing environment. It thus, ensures stability to the working of the
organization and contributes to its growth.
(c) Change and Development Management keeps itself in touch with the changes in the
environment and foresees development in the future. Accordingly, plans are made to
keep the organization ready to meet the challenges, the technologies, operations, process
as human factors are developed on a continuous basis keeping an eye on the future.
(d) Efficiency and Effectiveness By proper planning, staffing, organizing, coordinating,
directing, and its controlling activities, the management helps in achieving efficiency and
effectiveness to human efforts and operations.

Nature of Management

The nature of management can be better appreciated by looking at it as a:

▪ Process
▪ Discipline
▪ Group of individuals
▪ Profession, and
▪ Science as well as an art.
(a) Management as a Process Management consists of a series of inter-related activities of
planning, organizing and controlling. All activities are undertaken in a proper sequence
with a systematic approach so as to ensure that all actions are directed towards
achievement of common goals. Thus, it is regarded as a process of organizing and
employing resources to accomplish the predetermined objectives.
(b) Management as a Discipline Management is a systematized body of knowledge that
has developed, grown and evolved over the years through practice and research. The
knowledge so cumulated is disseminated to successive generations of managers and used
by them in performing their jobs. Thus, it has become a separate field of study with its
own principles and practices and thus, evolved as an independent discipline with its own
techniques and approaches.
(c) Management as a Group Management normally refers to a group of managers
working in an organization. It includes the top executive as well as the first line
supervisors. These managers perform their functions jointly as a group. The success of
business does not depend on the efficiency of one, but of all manages taken together.
Managers work as a team so that objectives of the business are fully achieved. However,
in every organization there are certain levels of management with varying degree of the
nature of authority and responsibilities. You will learn about these later in this lesson.
(d) Management as a Science as well as an Art Management is regarded as a science as
well as an art. Science refers to a systematic body of knowledge with reference to
understanding of some phenomenon or subject or object of study. It establishes a cause
and effect relationship between variables. It is based on systematic explanation,
experimental analysis, critical evaluation and logical consistency. In science we learn the
‘why’ of a phenomenon. For example, two molecules/atoms of hydrogen and one
molecule/atom of oxygen makes water (H2O). Similarly we can say earth moves round
the sun. Any subject of study to be called a science should have the following
characteristics:
• There must be a systematized body of knowledge that includes concepts,
people and theories.
• We should be able to establish a cause and effect relationship.
• Its principles should be verifiable.
• It should ensure predictable results.
• It should have universal application.
Management as a subject of study fulfils almost all the above characteristics. Theories and
techniques like scientific management, PERT and CPM, break even analysis, budgeting
etc. are all scientific in nature. However, since it deals with human beings, we cannot
predict a definite cause - effect relationships. Hence management is not treated as a pure
or full-fledged science. As for the art, you know that it refers to bringing about the desired
result through application of skill. It is a personalized process and states that there is no
best way of doing a thing. Thus, it is creative and it improves by practice. In art we learn
about the ‘how’ of a phenomenon. For example, take the case of painting. There is nothing
called the best way of painting. More one paints, the more he improves and learns how
to paint. Now look at management. Here also we apply a lot of skill (like technical,
conceptual, human etc.) and it is also creative in nature. Nobody can say that this is the
best way of managing. It varies from one manager to another. The more one manages,
the more experienced and expert he becomes. Thus, management is a combination of both
science and art.
(e) Management as Profession In the first lesson you had learnt that profession is an
occupation. To be precise, any occupation that satisfies the following requirements is
called a profession.
 ▪ It must be an organized and systematized body of knowledge. Take for
example professions like engineering or chartered accountancy. These require
a specialized knowledge.
▪ There is always a formal method of acquisition of such knowledge. In other
words, individuals, to pursue a specific profession, must acquire the
specialized knowledge through some formal institutions. For example, you
need to get a degree in law or engineering to pursue the profession of a lawyer
or engineer.
▪ There exists an association to devise certain code of conduct for the
professionals. This code of conduct lays down norms to be observed by the
professionals while doing their job. Violation of the prescribed code can lead
to derecognizing the professional to practice.
▪ A profession is no doubt an occupation to earn one’s livelihood but the
financial reward is not the main measure of their success.
The professional use their specialized knowledge to serve the long-run interests of the
society and are also conscious of their social responsibility. Though management may not
meet all the requirements of a profession in strict sense of the term, but it meets most of
the above requirements and is, now a days, regarded a full-fledged profession. A number
of institutions have come up to teach management in a formal way and train future
managers. Various associations like American Management Association in USA, All
India Management Association in India have been functioning as representative bodies
of managers and have duly devised codes of conduct for managers. Many more
organizations have come up in the specialized fields of management.

Levels of Management

As stated earlier, there are certain levels of management with varying degree of authority
and responsibilities. Some managers decide about the objectives of the business as a
whole; some managers perform functions to achieve these objectives in different
departments, like production, sales, etc, and some of the managers are concerned with
the supervision of day-to-day activities of workers. Managers performing different types
of duties may, thus, be divided into three categories:
• Top-Level Management
• Middle-Level Management
• Lower-Level Management
The top level management includes Board of Directors and the Chief Executive. The chief
executive may have the designation of Chairman, Managing Director, President,
Executive Director or General Manager. This level determines the objectives of the
business as a whole and lays down policies to achieve these objectives (making of policy
means providing guidelines for actions and decision). The top management also exercises
an overall control over the organization. The middle-level management includes heads
of various departments, e.g., production, sales, etc., and other departmental managers.
Sometimes senior departmental heads are included in the top management team. The
objectives of the business as a whole are translated into departmental objectives for the
middle level management. The heads of the departments then work out their own
strategies so as to achieve these objectives. Middle level managers are particularly
concerned with the activities of their respective departments. The lower-level
management consists of foremen and supervisors who look after the operative workers,
and ensure that the work is carried out properly and on time. Thus, they have the primary
responsibility for the actual production of goods and services in the organization. These
three levels of management taken together form the ‘hierarchy of management’. It
indicates the ranks and positions of managers in the hierarchy. It shows that the middle
level management is subordinate to the top-level and that the lower-level is subordinate
to the middle-level management. Carefully see the figure shown above once again. You
will see that the number of people at each level increases as one move from top to bottom.
Workers including crafts persons, manual laborers, engineers, scientists, etc. form the
bulk of the organization membership. Within the managerial ranks, the number of
managers at each level decreases as one move from lower-level to top-level management.
At the top of the organization, there is usually one person.

Functions of Management

In every organization, the managers perform certain basic functions. These are broadly
divided into six categories viz., planning, organizing, staffing, directing, coordinating
and controlling. These are discussed basically hereunder. You will learn about all these
functions in detail in the lessons to follow
(a) Planning: Planning is deciding in advance what is to be done, when it is to be done,
how it is to be done. It is basically concerned with the selection of goals to be achieved
and determining the effective course of action from among the various alternatives. This
involves forecasting, establishing targets, developing the policies and programming and
scheduling the action, procedure, etc., Thus, planning requires decisions to be made on
what should be done, how it should be done, who will do it, where it will be done, and
why it is to be done. The essential part of planning consists of setting goals and
programmes of activities.
(b) Organizing: After the plans have been drawn, management has to organize the
activities and physical resources of the firm to carry out the selected programmes
successfully. It also involves determining the authority and responsibility relationships
among functions, departments and personnel at various levels to ensure smooth and
effective function together in accomplishing the objective. Thus, the organizing function
of management is primarily concerned with identifying the tasks involved and grouping
them into units and departments, and defining the duties and responsibilities of people
in different positions within each department for well coordinated and cooperative effort
in the organization.
(c) Staffing: Staffing is concerned with employing people for the various activities to be
performed. The objective of staffing is to ensure that suitable people have been appointed
for different positions. It includes the functions of recruitment, training and development,
placement and remuneration, and performance appraisal of the employees.
(d) Directing: The directing function of management includes guiding the subordinates,
supervising their performance, communicating effectively and motivating them. A
manager should be a good leader. He should be able to command and issue instruction
without arousing any resentment among the subordinates. He should keep a watch on
the performance of his subordinates and help them out whenever they come across any
difficulty. The communication system, i.e., exchange of information should take place
regularly for building common understanding and clarity. The managers should also
understand the needs of subordinates and inspire them to do their best and encourage
initiative and creativity.
(e) Controlling: This function of management consists of the steps taken to ensure that
the performance of work is in accordance with the plans. It involves establishing
performance standards and measuring the actual performance with the standards set. If
differences are noticed, corrective steps are taken which may include revision of
standards, regulate operations, remove deficiencies and improve performance.
(f) Co-coordinating: Management has to ensure that all the activities contribute to the
achievement of the objectives of the business as a whole. This requires integration of
activities and synchronization of efforts. The heads of different departments should not
treat each other as competitors but should work as organs of one body. As the proper
functioning of every organ of a human body is important for a healthy body, the work of
every department is important for the organization as a whole. Managers should,
therefore, see that everybody in the organization understands its objectives and works in
co-operation with others to achieve these objectives.

Concept of Scientific Management

F.W. Taylor, well-known management expert, worked as an apprentice, machinist, and

foreman and ultimately as the chief engineer of a steel company in U.S.A. Taylor
suggested a new approach to management early in the twentieth century. This is known
as ‘Scientific Management’. The basic principles developed by Taylor as principles of
scientific management were: 1. Development of a true scientific approach to management
replacing the old rule of thumb method, which would enable managers, among other
things, to determine the best method of performing each task;
2. Scientific selection and placement of workers so that each worker could be assigned
the task for which he is best suited;
3. Scientific training and development of workers so as to achieve the highest level of
efficiency; and
4. Close co-operation between management and labor to ensure that work is carried out
in accordance with the scientific principles which are developed.
3 Business Management A number of techniques like time study, motion study,
standardisation of equipment and working conditions, and differential piece rate of
wages were also developed to facilitate scientific management.
General Principles of Management

Scientific management was primarily concerned with increasing the efficiency of

individual workers at the shop floor. It did not give adequate attention to role of
managers and their functions. However, around the same time Henry Foyal, Director of
a coal mining company in France made a systematic analysis of the process of
management. He strongly felt that managers should be guided by certain principles, and
evolved 14 general principles of management which are still considered important in
management. These are: 1. Division of Work: This principle suggests that work should be
assigned to a person for whom he is best suited. Work should be divided into compact
jobs to be assigned to individuals. This facilitates specialization and improves efficiency.
2. Authority and Responsibility: Responsibility means the work assigned to any person,
and authority means rights that are given to him to manage people and things to ensure
performance. In other words, authority should go hand in hand with the responsibility
for effective results.
3. Discipline: This principle emphasises that subordinates should respect their superiors
and obey their orders. On the other hand, superiors’ behavior should be such that they
make subordinates obedient. If such discipline is observed, there will be no problem of
industrial disputes.
4. Unity of Command: A subordinate should work under the supervision of one superior
only from whom he gets instructions and to whom he is accountable. It avoids confusion
in authority and instructions.
5. Unity of Direction: Each group of activities having the same objective must have one
head and one plan of action. Otherwise, there may be wastage, over expenditure and
useless rivalry among the managers.
6. Subordination of Individual Interest to General Interest: While taking any decision, the
collective good and collective interest of the organization as a whole should be preferred
to individual interests. The individual’s interest should be subordinated to the overall
interest of the organization. This ensures welfare of the organization as well as its
individual members.
7. Remuneration: Management should try to give fair wages to the employees so as to
ensure reasonable satisfaction of workers and productivity for the organization.
8. Centralization: When a single person controls the affairs of an organization, it is said
to be complete centralization. In small concerns, a single manager can supervise the work
of the subordinates easily, while in a big organization, control is divided among a number
of persons to facilitate operational decision making at various levels. Fayol’s opinion was
that there should be a proper balance between centralization and delegation of authority
in an organization.
9. Scalar Chain: This is the chain of authority relationship from the highest to the lowest
ranks. This implies that subordinates report to their immediate supervisors who, in turn,
report directly to their own boss. The order of this chain should be maintained when
some instructions are to be passed on or enquiries are to be made.
10. Order: Placement of men and materials should be properly made. Proper space should
be made available where materials can be kept safely. Each man should be provided the
work for which he is best suited.
11. Equity: This principle requires the managers to be kind and just to workers. This
promotes a friendly atmosphere between superiors and subordinates and motivates them
to perform their duties efficiently.
12. Stability of Tenure: Employees should be provided stability and continuity of their
tenure of employment. There should not be frequent termination of employees. This
could be achieved through attractive remuneration and honourable treatment of
personnel.
13. Initiative: This implies encouraging initiative among its personnel to chalking out and
execution of a plan to achieve the desired results.
14. Esprit de Corps: These French words mean team spirit. Managers should infuse the
spirit of team work and cooperation among the employees. It helps in developing an
atmosphere of mutual trust and a sense of unity. Fayol made it clear that these principles
can be applied to most organizations, but these are not absolute principles. Organizations
are at liberty to adopt those which suit them or to delete a few according to their needs.