BUSINESS STUDIES Class XII UNIT 2

CLASS XII
BUSINESS STUDIES
Concepts by BHARAT SIR
[B.A.(H) ECONOMICS from DU, Pursuing M.A. ECONOMICS]
[4 YEARS of Teaching Experience]

“WHERE YOU LEARN TODAY AND LEAD TOMORROW”

CONTACT – bharatdhingra642@gmail.com [8700823727, 7838603296]

ਜੇ ਲੋ ੜਹਿ ਚੰਗਾ ਆਪਣਾ ਕਹਿ ਪੁੰਨਿੁ ਨੀਚੁ ਸਦਾਈਐ ॥

If you yearn for goodness, then perform good deeds and feel humble.
- ਸ਼੍ਰੀ ਗੁ ਿੂ ਗਰੰਥ ਸਾਹਿਬ ਜੀ

UNIT 2 – PRINCIPLES OF MANAGEMENT

What are Principles of Management?
A principle is a fundamental truth or proposition that serves as the foundation for a system of belief for a
chain of reasoning stating cause & effect relationship.

“Principles of management are broad and general guidelines for managerial decision-making and
behaviour.”

Management Principles v/s Science Principles

Management Principles Scientific Principles

Very Flexible. They are totally rigid.
They are applied with creativity. They are applied in absolute and static manner.
These principles have to keep pace with these These principles can never be changed over
changes. time.

Nature/Features/Characteristics of Management Principles

1. Universal Application/Pervasive: The principles of management can be applied to all types of organisations
irrespective of their size and nature. Their results may vary and application may be modified but these
are suitable for all kinds of organisations. For example, the principle of division of labour can be applied
to all the organisations like hospitals, schools, government organisations etc. Even Agricultural sector
requires the application of principles as same as Industrial sector requires to do so.

2. General Guidelines: Management principles are not static or absolute statements. These cannot be applied
blindly in all the situations. The applicability of management principles depends on conditions and nature
of organisation. The manager must apply these principles according to the size and nature of organisation
keeping in mind the requirements of the organisations. A management principle gives guidelines to solve
the problems these principles do not provide readymade solution for all the problems. For example, the

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principle of fair remuneration insists on fair or adequate salary to employee but what amount of salary is
fair depends upon the nature, size and financial capacity of the company. Fair may mean rupees 50,000
p.m. to a multinational company and it may mean rupees 5000 p.m. to a small company. So, principles do
not specify the absolute amount to be paid but there is relativity depending upon paying capacity of the
different companies.

3. Evolutionary/Formed by Practice & Experiments: The management principles are developed only after
deep and thorough research work. They are not developed overnight or they are not the personal feelings
of any person. Proper observations and experiments are conducted before developing them. These are
the expressions of deep experiences of the leaders of management thoughts. Therefore, they are
evolutionary in nature.

4. Flexibility: Management principles can be applied differently under different conditions. Some changes
can be made in application of principles according to the requirement of the company. These are not set
of rigid statements. These can be modified by the managers who are using them. For example, the
principle of centralisation insists on concentration of power and authority at top level but the extent and
degree of centralisation may vary according to nature of organisation and centralisation does not mean
total centralisation, there can be use of decentralisation at lower level if organisation demands it.

5. Behavioural in Nature: Management principles are formed to guide and influence the behaviour of
employees. These principles insist on improving relationship between superior, subordinates and all the
members of organisation. They also establish relations between human and material resources. For
example, principle of Discipline improves commitment of employees towards the organisation and
principle of Esprit de Corps mould the behaviour of employees towards team spirit.

6. Based On Cause-And-Effect Relationship: Management Principles are based on cause and effect that means
these principles tell us if a particular principle is applied in a situation, what might be the effect. Although
these principles cannot state perfectly absolute result because these are applied on human being but it
helps in knowing some idea about the effect. When principles are applied in similar situation in different
organisations then their effects can be known with more perfection.

7. Contingent: Management Principles are contingent or dependent upon the situations prevailing in
organisation. Their application and effect depend upon the nature of organisation. The application of
principle has to be changed according to the nature, size and type of organisation.

Significance/Importance of Principles of Management

1. Providing Managers with Useful Insights into Reality: Principles of management guide managers with
useful insights into real world situations, adherence to these principles will improve their knowledge,
ability and understanding of various managerial situations and circumstances. The effects of these
principles help the managers from their past mistakes and facilitate to take right decision in future.

2. Optimum Utilisation of Resources & Effective Administration: The resources with the company are limited.
Management principles equip the managers to see the cause and effect of their decisions and actions and
thus reduce wastage. Optimum utilization of resources means maximum benefit with minimum cost. For
example, scientific principles suggest to cut down the wasteful movements and setting up of standard
time to complete a task.
Effective administration can be set up implementing the principles of Unity of command, unity of
direction, Scalar Chain etc.

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3. Scientific Decisions: Decisions must be based on facts, thoughtful and justifiable in terms of intended
purpose. Management principles enable the managers to approach various problem and handle them
systematically as principles are free from bias and prejudice.
For example, Taylor’s principles always insisted of replacement of rule of thumb.

4. Meeting Changing Environment Requirements: Change is the rule of nature. Management principles train
the managers to implement changes in the right direction at the right level according to the changes in
the business environment.
Management principles are effective and dynamic and thus help the organization to meet the changing
requirements of the environment.

5. Fulfilling Social Responsibility: Due to the increased awareness of the public forces all companies are
required to fulfil social responsibilities. Principles of management not only help in achieving
organizational goals but also guide managers in performing social responsibilities.
For example, principles of remuneration insist on adequate salary to employees & takes care of interest
of employees also.

6. Management Training, Education & Research: Management principles are the core of management and are
helpful in increasing knowledge, which forms the basis for management training and research.
Management principles stress on scientific judgements and logical thinking and hence it helps in
development of management studies. Management courses like BBA & MBA also keep these principles as
a part of their curriculum.

Providing managers with

useful insights into reality
Significance of Principles of Management

Optimum utilisation of
resources and effective
administration

Scientific decisions

Meeting changing
environment requirements

Fulfilling social
responsibility

Management training,
education and research

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Fayol’s Background
• Henry Fayol (1841-1925) got degree in Mining Engineering and joined French Mining Company in
1860 as an Engineer.
• He rose to the position of Managing Director in 1988.
• When the company was on the verge of bankruptcy. He accepted the challenge and by using rich and
broad administrative experience, he turned the fortune of the company.
• When he retired after 30 years, the company was a leading coal-steel company with strong financial
background.
• For his contributions, he is well known as the “Father of General Management”. His contributions are:
He made a distinction between technical skills and managerial skills. He developed 14 principles of
management and defined five major functions of management.

Fayol’s Principles of Management

1. DIVISION OF WORK: This principle states that every work should be divided into the smallest possible
part and each such part is to be performed by an individual person (labour).
• Instead of assigning the whole work to an individual, it’s better to assign one task to one person.
• Before assigning the task to anyone it must be assured that he possesses the required knowledge, skill,
capability and will to perform the task effectively and efficiently.
• If the same task is performed by a person again and again, he gains specialization in that task and can
perform with greater ease and minimizes wastage of resources and time.

Positive impacts of this principle

Specialization, Minimization of wastage, Improved efficiency.

Consequences of violation of this principle

Overburden on a single employee, Conflicting situations, Wastage of time and resources, Chaos and
confusion.

2. AUTHORITY AND RESPONSIBILITY: Authority means power to take decision. Responsibility means
obligation to complete the job assigned on time.
According to this principle there must be balance or parity between the authority and responsibility.
• Excess of authority without matching responsibility may bring negative results and excess of
responsibility without matching authority will not allow the worker to complete his job on time.
• There is need to bring parity between both for best results.
• For example, if a person is given responsibility to produce 100 units in one week time but he is not
given authority to purchase the raw materials. If there is no raw material available in the store-room
as a result he could not complete the target of producing 100 units on time. The worker cannot be
blamed for not completing on time because he was given only the responsibility and not the matching
authority to carry on the work. Excess of responsibility with less authority results in non-completion
of job.

Positive impacts of this principle

No misuse of authority, Helps in meeting responsibilities on time without any delay.

Consequences of violation of this principle

Delay in work or in completion of work due to less authority, Misuse of authority due to excess authority,
Overburden with work with excess responsibility.

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3. DISCIPLINE: Discipline means obedience, respect for authority, and observance of established rules.
• Fayol has emphasized that a sense of discipline should be present in all employees of the organization
at all level so that the organization can perform and achieve its objectives in the best possible way.
• For maintaining discipline in the organization managers should consider: ·
Clear explanation of the rules, Effective supervision, Reward system on better obedience, Possible
provision for penalty on non-obedience.

Positive impacts of this principle

Helpful in achieving organizational objectives, Improved efficiency, Cordial relation between
management and employees, Better working environment in the organization, Minimization of wastage.

Consequences of violation of this principle

Height of disorders, Confusion and chaos, Wastage of time and resources, Conflicting situations

4. UNITY OF COMMAND: According to this principle an employee should receive orders from one boss only
because if he is receiving orders from more than one boss then he will get confused and will not be able to
understand that whose orders must be executed first.
• On the other hand, if employee is receiving orders from more bosses, he gets chance to give excuses
by saying that he was busy in executing the orders of other boss.
• To avoid confusion and to give no chance of excuse to employee, the orders must come from one boss
only.
• If there are more bosses it can create problem of ego-clash among the superiors as every superior
wants his order to be executed by the employee.

Positive impacts of this principle

Prevents dual subordination, Easy to fix responsibility to an individual, Harmonious and cordial relation
among the management and the employees, Performance of the employees will increase.

Consequences of violation of this principle

Reduces efficiency of subordinates, creates confused situation for the subordinates, Subordinates can
easily escape from their responsibility and duties, Ego clash between managers, overlapping of orders
and instructions, Hard to maintain discipline in the organization.

5. UNITY OF DIRECTION: According to this principle “ONE UNIT MEANS ONE PLAN”, that is the efforts of all
the members and employees of organisation must be directed towards one direction that is the achievement
of common goal.
• If this principle is applied it leads to coordination. Each department and a group having common
objective must have one head and one plan only.

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• For example, if an organisation is producing different lines of products — cosmetics, medicines and
confectionery item each product has its own market and its own business environment. Each division
must plan its target and every employee of that division must put his efforts towards the achievement
of plan of their division under the direction of one head only.

Positive impacts of this principle

Efficient achievement of organizational objective, Better coordination among the employees, Efforts of
employees are directed in a better way, Systematic working environment is developed in the
organization.

Consequences of violation of this principle

Decrease in organizational efficiency, Lack of coordination, Wastage of resources, Difficulty in
achievement of organizational objective, Duplication of activities.

Unity of Command v/s Unity of Direction

6. SUBORDINATION OF INDIVIDUAL INTEREST TO GENERAL INTEREST: According to this principle the

interest of organisation must supersede the interest of individuals or employees.
• The objectives of both the groups are in different directions then manager must try to reconcile
individual interest with organisational goal and if it is not possible then individual goal must be
sacrificed for achieving organisational goal.
• The goal of organisation must not be sacrificed because individuals will be able to achieve their
objectives only when organisation prospers.
• For example, if individual’s objective is to earn more remuneration and organisation is going through
the situation of financial crisis and has the objective of cutting down the expenses. In this situation the

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individual must sacrifice his interest as when organisation will come out from financial crisis then he
can achieve his objective.

Positive impacts of this principle

Achievement of organizational objective, Coordination between individual and organizational goal,
Harmony in the organization, Increases employee’s respect for the organization.

Consequences of violation of this principle

Difficulty in achievement of organizational goal, Conflicting situations in the organization, Wastage of
efforts, time and resources, Delay in work.

7. REMUNERATION OF EMPLOYEES: According to this principle employees in the organisation must be

paid fairly or adequately to give them maximum satisfaction.
• The remuneration must be just and fair because if employees are underpaid, they will not be satisfied
and an unsatisfied person can never contribute his maximum.
• Dissatisfaction will lead to increase in employee’s turn-over.
• So, to have stability in Organisation and to get maximum efforts from employees, the employees must
be paid fairly. The fair wage is determined according to
a) Financial capacity of the concern
b) By keeping in mind, the Minimum Wage Act of Govt.
c) The wages and salaries paid by the competitors.

For example, if in a particular year the organisation has earned more profit than apart from giving extra
profit to shareholders and owners, some part of profit must be given to employees also in the form of
bonus. This will encourage and motivate to put more efforts and increase the profit of the company.

Positive impacts of this principle

Employees get motivated, Devotion and commitment of employees improves.

Consequences of violation of this principle

Increase in turnover of employees, Dissatisfaction and demotivation of employees.

8. CENTRALISATION AND DECENTRALISATION: Centralisation refers to concentration of authority or

power in few hands at the top level. Decentralisation means evenly distribution of power at every level of
management.
According to Fayol a company must not be completely centralised or completely decentralised but there
must be combination of both depending upon the nature and size of the organisation.
For example, the major decisions and activities of setting up organisational goals, plans, policies, and
strategies can be centralised but there can be policy of decentralisation for the activities of routine work
such as purchase of raw materials, fixing targets of workers etc.

Positive impacts of this principle

Benefits of centralisation as well as decentralisation, Fast decisions at operational level and strict control
by top level.

Consequences of violation of this principle

Complete centralisation will result in delay in decision, Complete decentralisation will result in misuse of
authority.

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9. SCALAR CHAIN: The formal lines of authority from highest to lowest ranks are known as scalar chain.
According to Fayol, “Organisations should have a chain of authority and communication that runs from top
to bottom and should be followed by managers and the subordinates.”
• Let us consider a situation where there is one head ‘A’ who has two lines of authority under her/ him.
One line consists of B-C-D-E-F. Another line of authority under ‘A’ is L-M-N-O-P.
• If ‘E’ has to communicate with ‘O’ who is at the same level of authority then she/he has to traverse the
route E-D-C-B-A-L-M-N-O.
• This is due to the principle of scalar chain being followed in this situation.
• According to Fayol, this chain should not be violated in the normal course of formal communication.
• However, if there is an emergency then ‘E’ can directly contact ‘O’ through ‘Gang Plank’ as shown in
the diagram. This is a shorter route and has been provided so that communication is not delayed.

Positive impacts of this principle

Systematic flow of information, No communication gap in the organisation.

Consequences of violation of this principle

There may be communication gap, No clarity in authority-responsibility relationship.

10.ORDER: In this principle order does not mean command but it refers to orderly arrangement of men and
material that is a fixed place for everything and everyone in the organisation.
• Fayol insists that there must be a fixed place to keep every material and thing used in the organisation
and fixed place or seat or cabin for every employee of the organisation so that no time and energy is
wasted in search of any material or any person.
• For example, if a worker is in need of a tool he must know in which box or tool-room it will be found
and if he needs guidance from supervisor, he must know the fixed cabin of supervisor.
• If no fixed place is given then worker will waste his time and energy in search of tools or supervisor.

Positive impacts of this principle

No wastage of time in search of men or material, Smooth and systematic working of organisation.

Consequences of violation of this principle

Wastage of time and energy in search of men and material, Not able to contact the people at the right time.

11.EQUITY: While dealing with the employees a manager should use kindliness and justice towards employees
equally. Equity is a combination of kindness and justice.

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• It creates loyalty and devotion in the employees toward the organization.
• The equity principle suggests that the managers must be kind as well as equally fair to the
subordinates.
• Employees will put their maximum efforts only when they are treated with kindness and justice.
• If a manager is biased in dealing with employees, then employees will get dissatisfied and will not
contribute to their maximum capacity.
• Equity does not mean equal salary to a peon and supervisor but equity means application of same
disciplinary rules, leave rules in the same way irrespective of their grade, position and gender.
• For example, the roles for granting medical leave to an employee should be same irrespective of their
position, grade or gender.

Positive impacts of this principle

Employees get satisfied, Motivate the employees and boost up the morale of the employees.

Consequences of violation of this principle

Dissatisfaction in employees, Increase in turnover, Unhealthy relation between superior and
subordinates.

12.STABILITY OF PERSONNEL: It refers to no frequent termination and transfer. According to this principle
the management must provide the feeling of job security among the employees because with the feeling of
insecurity for the job, the employees cannot contribute their maximum.
• Frequent turnover of employees is bad for organisation and such decision must be taken when they
are almost unavoidable.
• Not only turnover but frequent transfer or rotation should also be avoided because it takes some time
to a person to learn and get settled on a job and by the time he gets settled and he receives transfer
order then it will be wastage of resources and employee will not be able to contribute his best for
organisation.

Positive impacts of this principle

Improves efficiency level of employees. 2. No wastage of time and resources.

Consequences of violation of this principle

Wastage of resources in learning the new job, Frustration and dissatisfaction among employees.

13.INITIATIVE: Fayol suggested that employees in the organisation must be given an opportunity to take some
initiative in making and executing a plan.
• It gives immense satisfaction to employees. So, managers must welcome the suggestions and ideas of
employees before framing the plan.
• The initiative does not mean disobedience, i.e., once decisions are taken by management then every
employee must follow it whether it is according to employee’s suggestion or not.
• For example, before setting up of plan the manager must welcome the suggestions and ideas of
employees to allow their maximum participation. But once the plan is made every employee must
follow it and implement it.

Positive impacts of this principle

Develops feeling of belongingness in employees, Employees achieve the target on time if they are set up
with their consultation.

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Consequences of violation of this principle

Employees will not work to the best of their ability, Demotivation among employees.

14.ESPRIT DE CORPS: Esprit De Corps means union is strength. Company should avoid dividing and rule
policy.
Fayol emphasised on the team work. He suggested that every employee in the organisation must consider
him as a part or member of a team and try to achieve the team goal because team contribution is always
better and more than individual contribution.
• Management must develop a feeling of belongingness among the employees as they must feel
themselves as members of organisation’s team and contribute maximum to achieve team’s goal.
• For example, if the production manager assigned a target of manufacturing 100 units to a group of 10
members, divided the target among themselves to produce 10 units each, principle of team spirit says
that each member of the group should not concentrate only on achieving his individual target of 10
units but they must concentrate on achieving group target of 100 units so if two workers of that group
fall sick, then the other eight members must divide their individual target among themselves and try
to achieve the target of their group.

Positive impacts of this principle

Develops team spirit, Achievement of group goal.

Consequences of violation of this principle

Team goal may not be achieved, No team spirit and more stress on individualism.

Taylor’s Scientific Management

• Fredrick Winslow Taylor (1856-1915) was a person who within a very short duration (1878-1884)
rose from ranks of an ordinary apprentice to chief engineer in Midvale Steel Company, U.S.A.
• In 1874, he became an apprentice mechanist, learning factory conditions at the grass roots level. He
earned a degree in mechanical engineering. He was one of the intellectual leaders of the efficiency
movement and was highly influential in reshaping the factory system of production.
• Taylor conducted a number of experiments and came to conclusion that workers were producing
much less than the targeted standard task.
• Also, both the parties – Management and workers are hostile towards each other.
• He gave a number of suggestions to solve this problem and correctly propounded the theory of
scientific management to emphasize the use of scientific approach in managing an enterprise instead
of hit and trial method.
• For his contributions, he is well known as the “Father of the Scientific Management”.
• Scientific Management attempts to eliminate wastes to ensure maximum production at minimum cost.
• Scientific Management aims to replace the rule of thumb (decisions must be taken on the basis of will)
and rather there must be a logic behind each and every decision that is being taken in the business.
• In the words of Taylor, “Scientific management means knowing exactly what you want men to do and
seeing that they do it in the best and cheapest way”.

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Principles of Scientific Management

1. Science, Not Rule of Thumb: In order to increase organisational efficiency, the ‘Rule of Thumb’ method
should be substituted by the methods developed through scientific analysis of work.
• Rule of Thumb means decisions taken by manager as per their personal judgments.
• According to Taylor, even a small production activity like loading iron sheets into box cars can be
scientifically planned.
• This will help in saving time as well as human energy.
• Decisions should be based on scientific enquiry with cause-and-effect relationships.
• This principle is concerned with selecting the best way of performing a job through the application of
scientific analysis and not by intuition or hit and trial methods.
• The work assigned to any employee should be observed and analysed with respect to each element
and the time involved therein so as to decide the best way of performing that the work and to
determine the standard output for same.
• This aims to get the maximum output at a very low cost.

2. Harmony, Not Discord: Taylor emphasized that there should be complete harmony between the
workers and the management since if there is any conflict between the two, it will not be beneficial either
for the workers or the management.
• Both the management and the workers should realize the importance of each other.
• Taylor recognised that conflict will be of no use. Hence, there should be a spirit of togetherness
between workers and management.
• In order to achieve this state, Taylor suggested complete MENTAL REVOLUTION on the part of both
management and workers.
• Mental Revolution means that there should be complete change in the attitude and outlook of workers
and management towards each other.
• Both should realize the importance of each other and should work with full cooperation.
• Management as well as the workers should aim to increase the profits of the organisation.
• For this the workers should put in their best efforts so that the company makes profit and on the other
hand management should share part of profits with the workers.
• It becomes possible by (a) sharing a part of surplus with workers (b) training of employees, (c)
division of work (d) team spirit (e) positive attitude (f) sense of discipline (g) sincerity etc.
• This principle requires that there should be perfect understanding between the management and
workers and both should feel that they are part of same family.

3. Cooperation, Not Individualism: This principle is an extension of principle of ‘Harmony, not discord’
and lays stress on mutual cooperation between workers and the management.
• Cooperation, mutual confidence, sense of goodwill should prevail among both, managers as well as
workers.
• The intention is to replace internal competition with cooperation.
• Workers should be considered as part of management and should be allowed to take part in decision
making process of the management.
• Management should always welcome their suggestions and should also reward them if their
suggestions prove to be beneficial for the organisation viz. reduction of costs or increase in production
etc.
• At the same time, workers should also resist from going on strike or making unnecessary demands
from management.

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• Both of them should visualize themselves as two pillars whose soundness alone can ensure
achievement of common goals of the organisation.
• Management should always guide, encourage and help the workers.

4. Development of Each & Every Person To His or Her Greatest Efficiency & Prosperity: Efficiency
of any organisation also depends on the skills and capabilities of its employees to a great extent.
• Thus, providing training to the workers was considered essential in order to learn the best method
developed through the use of scientific approach.
• To attain the efficiency, steps should be taken right from the process of selection of employees.
• Employees should be scientifically selected. The work assigned to each employee should suit his/her
physical, mental and intellectual capabilities.
• Efficient employees produce more to earn more. This ultimately helps to attain efficiency and
prosperity for both organisation and the employees.

Techniques of Scientific Management

Functional
Foremanship
Method Study
Standardization and
Simplification of work
Motion Study
Techniques Of
Scientific Work Study
Management
Time study
Differential Piece
Wage System
Fatigue study

Mental Revolution

1. FUNCTIONAL FOREMANSHIP: Functional foremanship is a form, of organisation which involves

supervision of a worker by several specialist foremen.
• Taylor suggested that to improve efficiency and effectiveness of the operational activities the
managers must possess specific skills like leadership, intelligence, tactical skills, knowledge,
judgement, education, experience, honesty, good health and energy.
• He realized that no single person could have all of these qualities. Therefore, he came up with the idea
that the managerial activities should be divided into two parts, i.e., planning and production.

Moreover, there should be four different clerks under each of the incharge, i.e., the planning incharge and
production incharge.
They hold expertise in their respective areas and supervise the performance of each worker.

Let us now see the hierarchy under the functional foremanship as suggested by F.W. Taylor:

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In the factory system, the foreman represents the managerial figure with whom the workers are in face-
to-face contact on a daily basis.
Foreman/Factory manager is the lowest ranking manager and the highest-ranking worker.
A workman is a labour or the worker at the operational level of the organization which is responsible for
actually performing the given task.
Each worker is supervised and monitored by the eight different clerks, as mentioned above.

Therefore, we can also interpret that the functional foremanship is the only scientific management
technique, which is ‘contrary to the principle of unity of command’.

PLANNING INCHARGE: A planning incharge is responsible for the formulation of policies, strategies and
procedures of the operational activities.
To simplify the work, following four clerks are appointed under the planning incharge:
a) Instruction Card Clerk: The instruction card clerk will determine and direct how the work has to be
performed.
b) Route Clerk: A route clerk will decide what all is to be done and the steps which are to be taken to
perform a particular task.
c) Time and Cost Clerk: The person who determines the time limit in which the work is to be completed
and the cost involved in carrying out each task is known as a time and cost clerk.
d) Disciplinarian: A disciplinarian is a clerk who ensures discipline, following rules and regulations and
code of conduct in the organization.

PRODUCTION INCHARGE: A production incharge needs to take care of all the operational and production
activities.
The four clerks assigned under a production incharge are as follows:
a) Speed Boss: The speed boss is responsible for getting the work done on time.
b) Gang Boss: The person who looks after the availability of all the equipment, tools and accessories is a
gang boss.
c) Repairs Boss: The repairs boss has to take care of the repairs, maintenance and overhauling of the tools
and machinery used for production.
d) Inspector: The inspector is responsible for ensuring that all activities are being carried out in a planned
manner. He also checks whether the quality of the products is as per the standards or not.

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2. STANDARDIZATION AND SIMPLIFICATION OF WORK: Standardisation refers to the process of setting
standards for every business activity.
It can be standardisation of process, raw material, time, product, machinery, methods or working
conditions. This is to save the time and cost and bring specialization in the organization.
These standards are the benchmarks, which must be adhered to during production.
The objectives of standardisation are:
(i) To reduce a given line or product to fixed types, sizes and characteristics.
(ii) To establish interchange ability of manufactured parts and products.
(iii) To establish standards of excellence and quality in materials.
(iv) To establish standards of performance of men and machines.

Simplification aims at eliminating unnecessary diversity of products.

It results in savings of cost of labour, machines and tools. It implies reduced inventories, fuller utilisation
of equipment and increasing turnover.

Simplification aims at eliminating superfluous varieties, sizes and dimensions while standardisation implies
devising new varieties instead of the existing ones.
Most large companies like Toyota and Microsoft, etc. have successfully implemented standardisation and
simplification. This is evident from their large share in their respective markets.
This can be done through work-study techniques which include time study, motion study, fatigue study
and method study.

3. WORK-STUDY: Taylor emphasized on examining and analysing the working at the operational level of
the organization.
• It develops a systematic course of action and resolves the problems faced by the labours and workers
who are responsible for accomplishing the given task and duties.
• Under the technique of work-study, there are following four significant concerns of the organization:

METHOD STUDY
The objective of method study is to find out one best way of doing the job.
• There are various methods of doing the job. To determine the best way there are several parameters.
The managers come across numerous ways of performing a particular task or carrying out the
production of goods or services.
• Out of all these possible methods, selection of the most appropriate way, which is cost-effective and
also increases the production is considered a method study.
• The objective of the whole exercise is to minimise the cost of production and maximise the quality and
satisfaction of the customer.
• Example: For designing a car, the assembly line production would entail deciding the sequence of
operations, place for men, machines and raw materials etc. All this is part of method study.

MOTION STUDY
Motion study refers to the study of movements like lifting, putting objects, sitting and changing positions,
etc., which are undertaken while doing a typical job.
• Unnecessary movements are to be eliminated so that it takes less time to complete the job efficiently.
• For example, Taylor was able to reduce motions in brick layering from 18 to just 5. Taylor
demonstrated that productivity increased to about four times by this process.
• On close examination of body motions, for example, it is possible to find out:

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(i) Motions which are productive
(ii) Motions which are incidental (e.g., going to stores)
(iii) Motions which are unproductive.

• Taylor used stopwatches and various symbols and colours to identify different motions.
• The examining of every movement of the workers during the working hours to find out the
unproductive task and activities comes under motion study.
• The actions and movements which do not generate any output should be eliminated to simplify the
work.

TIME STUDY
It determines the standard time taken to perform a well-defined job.
• Time measuring devices are used for each element of task. The standard time is fixed for the whole of
the task by taking several readings.
• The objective of time study is to determine the number of workers to be employed; frame suitable
incentive schemes and determine labour costs.
• For example, on the basis of several observations it is determined that standard time taken by the
worker to make one cardboard box is 20 minutes. So, in one hour he will make 3 boxes. Assuming
that a worker has to put in 8 hours of work in a shift and deducting one hour for rest and lunch, it is
determined that in 7 hours a worker makes 21 boxes @ 3 boxes per hour.
• Now this is the standard task a worker has to do. Wages can be decided accordingly.
• If an activity takes more time than the defined standard, it may lead to delay and decline in
productivity. And if a task is accomplished much before the given time, it may lack efficiency.

FATIGUE STUDY
Fatigue study seeks to determine the amount and frequency of rest intervals in completing a task.
• A person is bound to feel tired physically and mentally if he does not rest while working.
• The rest intervals will help one to regain stamina and work again with the same capacity. This will
result in increased productivity.
• For example, normally in a plant, work takes place in three shifts of eight hours each. Even in a single
shift a worker has to be given some rest interval to take his lunch etc.
• If the work involves heavy manual labour, then small pauses have to be frequently given to the worker
so that he can recharge his energy level for optimum contribution.
• According to Taylor, the task can be accomplished effectively and efficiently only if the worker is
allowed to take the required amount of rest during the working hours.
• Under the fatigue study, the organization needs to plan for the following:
 The number of rest intervals: The organization needs to decide the number of times, for which rest
is allowed to the labours in a day.
 Frequency of rest intervals: The time interval after which the employee’s rest time is scheduled is
termed as the frequency of the rest intervals.
 Duration of each rest interval: The organization also determine the period of each rest interval.
Such that the worker neither remains exhausted nor moves into a state of laziness.

4. DIFFERENTIAL PIECE WAGE SYSTEM: It is a method of wage payment whereby after tests have set a
standard time for a task the worker receives a high piece rate for doing the job in task time and a lower piece
rate for taking longer than task time.
• Taylor suggested the ideas of performance-based remuneration and incentive-based motivation

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 BUSINESS STUDIES Class XII UNIT 2
• Through this, one can differentiate between efficient and inefficient workers. The workers can then
be classified as efficient or inefficient on the basis of these standards.
• Efficient workers can be rewarded through different rate of wage payment for those who performed
above standard and Inefficient worker can be provided with less wages.
• For example, it is determined that standard output per worker per day is 10 units and those who made
standard or more than standard will get ₹ 50 per unit and those below will get ₹40 per unit. Now an
efficient worker making 11 units will get 11×50 = ₹ 550 per day whereas a worker who makes 9 units
will get 9×40 = ₹ 360 per day. According to Taylor, the difference of ₹ 190 should be enough for the
inefficient worker to be motivated to perform better.

5. MENTAL REVOLUTION: Mental revolution involves a change in the attitude of workers and management
towards one another from competition to cooperation.
• Both should realise that they require one another. Both should aim to increase the size of surplus. This
would eliminate the need for any agitation.
• Management should share a part of surplus with workers. Workers should also contribute their might
so that the company makes profits.
• This attitude will be good for both of them and also for the company.
• In the long run only worker’s well-being will ensure prosperity of the business.

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