Year: 2020

Management Notes

Sound Motivation system

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Motivation denotes securing the fullest co-operation of each individual worker for the realisation of the economic goal of the enterprise. Inducing subordinates to work with zeal and gusto for achieving the objective of the organisation is called motivation. Motivation of worker is intended to peak performances.

A sound motivational system should have the following features:

(a) It should provide financial opportunities.

(b) It should provide growth in stature and responsibility.

(c) It should keep high morale and helps in discipline.

(d) It should set examples for subordinates.

Management Notes

Maslow theory of Motivation

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The Hierarchy of Needs theory, proposed by psychologist Abraham Maslow in 1943, remains one of the most influential frameworks for understanding human motivation and behavior. Maslow suggested that human needs can be arranged in a hierarchical order, with lower-level needs requiring fulfillment before higher-level needs become motivating factors. In essence, individuals strive to fulfill their basic needs before advancing to higher levels of psychological development and fulfillment.

  • Physiological Needs:

At the base of Maslow’s hierarchy are physiological needs, which are fundamental for human survival. These include air, water, food, shelter, sleep, and reproduction. Without satisfying these basic needs, individuals cannot progress to higher levels of development. For instance, if someone lacks food or water, their primary focus will be on obtaining these necessities rather than pursuing personal growth or self-actualization.

  • Safety Needs:

Once physiological needs are met, individuals seek safety and security. This includes physical safety, financial security, health, and protection from harm. People desire stability and predictability in their lives, and they strive to create environments that provide these assurances. For example, having a stable job, a safe neighborhood, or access to healthcare satisfies safety needs.

  • Love and Belongingness Needs:

Once safety needs are satisfied, individuals seek social connections and a sense of belonging. This includes the need for love, affection, friendship, and acceptance within relationships, families, and communities. Humans are inherently social beings, and fulfilling this need fosters emotional well-being and a sense of connectedness. Building and maintaining relationships, both intimate and platonic, are crucial for meeting this need.

  • Esteem Needs:

After fulfilling the lower-order needs, individuals strive for esteem and recognition. There are two types of esteem needs: internal (self-esteem) and external (esteem from others). Self-esteem involves feeling confident, capable, and worthy, while external esteem pertains to receiving respect, recognition, and admiration from others. Achieving success, gaining recognition, mastering skills, and receiving positive feedback all contribute to fulfilling esteem needs.

  • Self-Actualization:

At the peak of Maslow’s hierarchy lies the concept of self-actualization, which represents the realization of one’s full potential and personal growth. Self-actualized individuals are characterized by creativity, spontaneity, problem-solving abilities, and a deep sense of fulfillment. They have a clear sense of purpose and are driven by intrinsic motivation rather than external rewards. Self-actualization involves pursuing meaningful goals, embracing personal values, and experiencing profound moments of insight and creativity.

Criticisms and Extensions:

While Maslow’s hierarchy provides valuable insights into human motivation, it has faced criticism and has been subject to various modifications and extensions over time. Critics argue that the hierarchy’s rigid structure may not apply universally across cultures and individuals. Additionally, some psychologists have proposed alternative models that include additional needs or reorder Maslow’s hierarchy.

Management Notes

Herzberg Theory of Motivation

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Frederick Herzberg, a renowned psychologist, introduced his Two-Factor Theory of motivation in the 1950s, revolutionizing our understanding of workplace motivation and job satisfaction. Herzberg’s theory posits that job satisfaction and dissatisfaction are influenced by separate sets of factors, which he termed “Motivators” and “Hygiene factors.”

Background:

Herzberg conducted a seminal study in the 1950s, known as the “Motivation–Hygiene” or “Two-Factor” theory, based on interviews with 203 accountants and engineers. Through this study, Herzberg sought to understand the factors that contribute to employee satisfaction and dissatisfaction in the workplace.

Two-Factor Theory:

  1. Hygiene Factors:

Hygiene factors, also referred to as maintenance factors or extrinsic factors, are aspects of the work environment that, when inadequate, can lead to dissatisfaction but, when sufficient, do not necessarily result in satisfaction. These factors are related to the context in which individuals perform their work:

  • Salary and Benefits:

Fair compensation and benefits are essential for meeting employees’ basic needs and ensuring financial security.

  • Work Conditions:

Factors such as workplace safety, cleanliness, and comfort contribute to employees’ physical well-being and job satisfaction.

  • Company Policies:

Clear and consistent organizational policies and procedures help establish a sense of fairness, predictability, and orderliness in the workplace.

  • Interpersonal Relations:

Positive relationships with colleagues, supervisors, and management contribute to a supportive work environment and enhance job satisfaction.

  • Supervision:

Effective leadership and supervision provide guidance, support, and feedback to employees, fostering a sense of direction and motivation.

Herzberg argued that while hygiene factors are necessary for preventing dissatisfaction, they do not lead to long-term motivation or job satisfaction. Instead, they serve to maintain a baseline level of contentment and prevent employee dissatisfaction.

  1. Motivators:

Motivators, also known as intrinsic factors or satisfiers, are aspects of the work itself that lead to satisfaction and motivation when present but do not necessarily result in dissatisfaction when absent. These factors are related to the content of the work and the intrinsic rewards derived from performing it.

  • Achievement:

The sense of accomplishment and mastery derived from completing challenging tasks and achieving meaningful goals.

  • Recognition:

Acknowledgment and appreciation for one’s contributions and accomplishments from colleagues, supervisors, and the organization.

  • Responsibility:

Opportunities for autonomy, decision-making authority, and ownership over one’s work, leading to a sense of empowerment and fulfillment.

  • Advancement:

Opportunities for career growth, development, and advancement within the organization, providing a clear path for progression and personal development.

  • The Work Itself:

The nature of the work, including its intrinsic interest, complexity, and variety, can be inherently rewarding and motivating.

According to Herzberg, motivators are the primary drivers of job satisfaction and employee motivation. They tap into individuals’ intrinsic needs for personal growth, fulfillment, and self-actualization, leading to higher levels of engagement, productivity, and job satisfaction.

Implications of Herzberg’s Theory:

  1. Focus on Intrinsic Motivation:

Herzberg’s theory highlights the importance of intrinsic motivators such as achievement, recognition, and responsibility in fostering job satisfaction and motivation. Organizations should design jobs that provide opportunities for employees to experience these intrinsic rewards, rather than relying solely on external rewards or incentives.

  1. Addressing Hygiene Factors:

While hygiene factors may not directly lead to motivation, they are necessary for preventing employee dissatisfaction. Organizations should ensure that basic needs such as fair compensation, safe working conditions, and supportive supervision are met to create a conducive work environment.

  1. Job Enrichment and Redesign:

Herzberg advocated for job enrichment, which involves redesigning jobs to incorporate elements that increase intrinsic motivation, such as autonomy, skill variety, and task significance. By providing employees with meaningful and challenging work, organizations can enhance job satisfaction and motivation.

  1. Recognition and Feedback:

Recognizing employees’ achievements and providing regular feedback on performance are essential for fostering motivation and job satisfaction. Positive reinforcement and acknowledgment of employees’ contributions help reinforce desired behaviors and enhance their sense of value and worth.

Criticisms and Limitations:

  1. Limited Empirical Support:

Herzberg’s Two-Factor Theory has faced criticism for its lack of empirical support and methodological limitations. Some research findings have failed to replicate Herzberg’s findings, leading to questions about the validity and generalizability of his theory.

  1. Overemphasis on Job Content:

Critics argue that Herzberg’s theory places too much emphasis on job content and fails to consider contextual factors such as organizational culture, leadership style, and individual differences in motivation.

  1. Complexity of Human Motivation:

Human motivation is a complex phenomenon influenced by various factors, including individual differences, social dynamics, and organizational culture. Herzberg’s theory oversimplifies the multifaceted nature of motivation by dichotomizing factors into motivators and hygiene factors.

Management Notes

McGregor Theory X and Theory Y

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Douglas McGregor, an American social psychologist, introduced his Theory X and Theory Y in the 1960s as contrasting views on employee motivation and management philosophy. These theories provide insights into how managers perceive and approach their employees, shaping organizational culture and practices.

Theory X:

Theory X represents a traditional, authoritarian view of management, characterized by a pessimistic view of human nature and motivation. According to Theory X, managers believe that:

  • Employees Dislike Work:

Theory X assumes that individuals inherently dislike work and will avoid it whenever possible. Employees are seen as inherently lazy, lacking ambition, and requiring close supervision to ensure productivity.

  • Employees Lack Ambition:

Theory X managers believe that employees are inherently unmotivated and lack ambition or initiative. They are viewed as seeking security and stability in their jobs, preferring to follow rather than lead.

  • Employees Require Direction and Control:

Managers adopting Theory X tend to exert tight control and authority over their employees. They believe that strict supervision, rules, and punishments are necessary to ensure compliance and performance.

  • Employees Prefer to Be Coerced:

Theory X managers rely on extrinsic rewards and punishments to motivate employees. They believe that individuals are primarily motivated by fear of punishment or desire for rewards rather than intrinsic satisfaction or fulfillment.

Implications of Theory X:

  • Authoritarian Leadership:

Theory X managers adopt an authoritarian leadership style, characterized by top-down decision-making, micromanagement, and limited employee participation in decision-making processes.

  • Limited Employee Development:

Theory X assumptions may lead to limited opportunities for employee development and growth. Managers may be reluctant to delegate tasks or provide autonomy, hindering employees’ ability to develop new skills or take on challenging assignments.

  • Low Job Satisfaction:

Employees working under a Theory X management approach may experience low job satisfaction, as they perceive their contributions as undervalued and their autonomy restricted.

  • High Turnover and Resistance:

Theory X management practices may result in high turnover rates and employee resistance. Employees may feel disengaged, demotivated, and inclined to leave the organization in search of more fulfilling opportunities.

Theory Y:

In contrast to Theory X, Theory Y represents a more progressive and participative approach to management, based on a positive view of human nature and motivation. According to Theory Y, managers believe that:

  • Employees Seek Meaningful Work:

Theory Y assumes that individuals inherently seek meaning and fulfillment in their work. Employees are seen as capable of finding satisfaction and enjoyment in their tasks when given the opportunity.

  • Employees Are Self-Motivated:

Theory Y managers believe that employees are inherently motivated and capable of taking initiative and responsibility for their work. They are viewed as having the potential for creativity, innovation, and self-direction.

  • Employees Can Be Trusted:

Managers adopting Theory Y trust their employees to make sound decisions and perform effectively without constant supervision. They believe in delegating authority and empowering employees to take ownership of their roles.

  • Employees Are Capable of Growth:

Theory Y managers recognize the potential for employee growth and development. They provide opportunities for learning, skill development, and career advancement, encouraging employees to reach their full potential.

Implications of Theory Y:

  • Participative Leadership:

Theory Y managers adopt a participative leadership style, involving employees in decision-making processes, delegating authority, and encouraging collaboration and teamwork.

  • Employee Empowerment:

Theory Y managers empower employees by providing autonomy, flexibility, and opportunities for self-expression and creativity. They encourage open communication, feedback, and idea-sharing.

  • High Job Satisfaction:

Employees working under a Theory Y management approach experience higher levels of job satisfaction, as they feel valued, respected, and trusted by their managers. They are more likely to be engaged and committed to their work.

  • Increased Productivity and Innovation:

Theory Y management practices foster a culture of innovation, adaptability, and continuous improvement. Employees are encouraged to experiment, take calculated risks, and explore new ideas, leading to increased productivity and innovation.

Criticisms and Limitations:

While McGregor’s Theory X and Theory Y provide valuable insights into management philosophy and employee motivation, they have been subject to criticism and limitations:

  • Simplistic Dichotomy:

Critics argue that McGregor’s dichotomous view of management styles oversimplifies the complexities of organizational behavior and human motivation. In reality, management approaches often fall along a continuum between Theory X and Theory Y.

  • Cultural Differences:

McGregor’s theories were developed in the context of Western industrialized societies and may not fully account for cultural variations in management practices and employee attitudes towards work.

  • Contextual Factors:

The effectiveness of Theory X or Theory Y management approaches may vary depending on organizational culture, industry, and situational factors. What works in one context may not necessarily apply to another.

Management Notes

Victor Vroom motivation Theory

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Vroom’s Expectancy Theory was proposed by Victor. H. Vroom, who believed that people are motivated to perform activities to achieve some goal to the extent they expect that certain actions on their part would help them to achieve the goal.

Vroom’s Expectancy Theory is based on the assumption that an individual’s behavior results from the choices made by him with respect to the alternative course of action, which is related to the psychological events occurring simultaneously with the behavior. This means an individual selects a certain behavior over the other behaviors with an expectation of getting results, the one desired for.

Thus, Vroom’s Expectancy Theory has its roots in the cognitive concept, i.e. how an individual processes the different elements of motivation. This theory is built around the concept of valence, instrumentality, and Expectancy and, therefore, is often called as VIE theory.

The algebraic representation of Vroom’s Expectancy theory is:

Motivation (force) = ∑Valence x Expectancy

Valence: It refers to the value that an individual places on a particular outcome or a strength of an individual’s preference for the expected rewards of the outcome. To have a positive valence, one should prefer attaining the outcome to not attaining it. For example, if an employee gets motivated by promotions, then he might not value offers of increased incentives. The valence is zero if an individual prefers not attaining outcomes to attaining it. In the above example, an employee agrees with the increased incentives.

Instrumentality: Another major input into the valence is the instrumentality of first level outcome in obtaining the second level outcome, i.e. a degree to which the first level leads to the second level outcome. For example, suppose an employee desires promotion and he feel that superior performance is a key factor to achieve the goal. Thus, his first level outcomes are superior, average and poor performance and the second level outcome is the promotion.

Hence, the first level outcome of high performance acquires the positive valence so as to have the expected relationship with the second level outcome of the promotion. Thus, an employee will be motivated to perform efficiently with a desire to get promoted.

Expectancy: Expectancy, another factor that determines the motivation, refers to the probability that a particular action will lead to the desired outcome. The expectancy is different from the instrumentality in the sense; it relates efforts to the first level outcome, whereas the instrumentality relates to first and second-level outcomes to each other. Thus, expectancy is the probability that a particular action will lead to a particular first-level outcome.

Management Notes

Management control

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The management function of implementation of strategies is termed as ‘Management Control’. It is defined as “the process by which managers influence the members of the organisation to implement the organisation strategies”.

Features of Management Control:

  1. Management Control Activities:

Management control function is carried through various managerial activities which are grouped as:

  1. Behavioural Consideration:

Management control aims at influencing people for implementation of strategies by goal congruence. Goal Congruence means that when individual members of organisation seek their personal goals they help to attain the organisation’s goals.

The performance appraisal of managers by results, contributions to goal achievement, development of optimum compensation plans and other incentives are important considerations for promoting goal congruence.

  1. Financial and Non-Financial Performance:

Financial and Non-financial performance measures are developed to compare the actual performance against the plans, as overemphasis on financial performance alone may not contribute to the organisation’s long term goals.

Management Control System:

Management Control Structure:

The organisation is sub-divided into various sub-units. Each sub-unit is designated as a Responsibility Centre (RC), whose head is called Responsibility Centre Manager.

The Management Control Structure may comprise hierarchy of RCs shown below:

Each RC Manager is responsible for obtaining the optimum relationship between input and output. Each RC is evaluated in terms of efficiency and effectiveness. In some situations the relationship is direct and casual e.g. production department, while in some departments it is difficult to measure the input-output relationship e.g. R&D department, Accounts department etc.

Management Notes

Nature and Process of control

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Horngreen, Datar and Foster define management control system “as a means of gathering and using information to aid and coordinate the process of making planning and control decisions through- out the organisation and to guide the behaviour of its managers and employees. The goal of management control system is to improve the collective decisions within an organisation in an economically feasible way.”

Different managers perform different responsibilities in an organisation and therefore different kinds of information are needed by them to manage the activities in their respective areas. Management control system should be able to develop, gather and communicate information to management at different levels in the organisation. Also, management control system should aim to provide financial as well as non-financial information as needed by different managers.

Some examples of financial information are material costs, labour costs, net profit, investments made etc. Non-financial data are those which are not in monetary terms such as production units per worker, labour hours, machine hours, time taken to comply with the customer’s orders, absenteeism. Some information gathered under management control system may emerge from internal data maintained within the firm.

Some other information required by managers may be gathered from external sources such as information about competitors’ product. As stated earlier, different types of information are needed by persons working at different levels in the organisation. For example, top managers may require internal as well as external financial and non-financial data as their responsibilities relate to total organisation. However, a production manager would be more interested in internally generated financial and non-financial data.

Management Control

Broadly, management control refers to the design, installation and operation of management planning and control.

The term ‘management control’ emphasises on two distinct, but highly interrelated and sometimes indistinguishable, subdivisions of controls systems:

(i) Structure or organisation structure or relationships among the units in the organisation, more specifically the responsibility centres, the relationship among responsibility centres, performance measures and the information that flows among these responsibility centres.

(ii) Process or set of activities, or steps or decisions that are taken by an organisation or managers to establish purposes, allocate resources and achieve organizational purposes.

The process consists of interrelated phases of programming (programme selection), budgeting, execution, measurement and evaluation of actual performance.

The structure of a management control system indicates what the system “is” and process of a management control system indicates what the system “does.” The management control systems knits the organisation together so that each part, by exercising the autonomy given to it, fulfills a purpose that is consistent with and contributes to the fulfillment of the overall purpose of the organisation.

Nature of Management Control

(i) Management control systems should be closely aligned to an organization’s strategies and goals.

(ii) Management control systems should be designed to fit the organization’s structure and the decision-making responsibility of individual managers.

(iii) Effective management control systems should motivate managers and employees to exert efforts toward attaining organisation goals through a variety of rewards tied to the achievement of those goals.

Purpose of Management Control

A management control  is a business tool that can give an indication of how well an organization is performing in accordance with its objectives.

A management control is:

  • A way managers can document their organization’s objectives
  • A way managers can document their organizational strategies or policies
  • A way to assess the performance of internal corporate processes
  • A way to show performance in relation to declared objectives and policies

Process

An effective organization is one where managers understand how to manage and control. The objective of control as a concept and process is to help motivate and direct employees in their roles. Understanding managerial control process and systems is essential for the long- term effectiveness of an organization.

Without enough control systems in place, confusion and chaos can overwhelm an organization. However, if control systems are “choking” an organization, the organization will suffer from erosion of innovation and entrepreneurship.

Concept of Controlling

The term controlling has different connotations depending upon the context of the use of the term. In manufacturing it refers to a Device or mechanism installed or instituted to guide or regulates the activities or operation of an apparatus, machine, person, or system; in law it refers to controlling interest and in management as an authority to order and manage the workings and management of an entity.

Control is a management process to aim at achieving defined goals within an established timetable, and comprises of three components:

(i) Setting standards

(ii) Measuring actual performance

(iii) Taking corrective action.

Process of Controlling

Following are the steps involved into the process of control:

  1. Establish the Standards

Within an organization’s overall strategic plan, managers define goals for organizational departments in specific, precise, operational terms that include standards of performance to compare with organizational activities. However, for some of the activities the standards cannot be specific and precise.

Standards, against which actual performance will be compared, may be derived from past experience, statistical methods and benchmarking (based upon best industry practices). As far as possible, the standards are developed bilaterally rather than top management deciding unilaterally, keeping in view the organization’s goals.

Standards may be tangible (clear, concrete, specific, and generally measurable) – numerical standards, monetary, physical, and time standards; and intangible (relating to human characteristics) – desirable attitudes, high morale, ethics, and cooperation.

  1. Measure Actual Performance

Most organizations prepare formal reports of performance measurements both quantitative and qualitative (where quantification is not possible) that the managers review regularly. These measurements should be related to the standards set in the first step of the control process.

For example, if sales growth is a target, the organization should have a means of gathering and reporting sales data. Data can be collected through personal observation (through management by walking around the place where things are happening), statistical reports (made possible by computers), oral reporting (through conferencing, one-to-one meeting, or telephone calls), written reporting (comprehensive and concise, accounting information normally a combination of all. To be of use, the information flow should be regular and timely.

  1. Compare Performance with the Standards

This step compares actual activities to performance standards. When managers read computer reports or walk through their plants, they identify whether actual performance meets, exceeds, or falls short of standards.

Typically, performance reports simplify such comparison by placing the performance standards for the reporting period alongside the actual performance for the same period and by computing the variance—that is, the difference between each actual amount and the associated standard.

The manager must know of the standard permitted variation (both positive and negative). Management by exception is most appropriate and practical to keep insignificant deviations away. Timetable for the comparison depends upon many factors including importance and complexity attached with importance and complexity.

  1. Take Corrective Action and Reinforcement of Successes

When performance deviates from standards, managers must determine what changes, if any, are necessary and how to apply them. In the productivity and quality-centered environment, workers and managers are often empowered to evaluate their own work. After the evaluator determines the cause or causes of deviation, he or she can take the fourth step corrective action.

The corrective action may be to maintain status quo (reinforcing successes), correcting the deviation, or changing standards. The most effective course may be prescribed by policies or may be best left up to employees’ judgment and initiative. The corrective action may be immediate or basic (modifying the standards themselves).

Management Notes

Techniques of Management Control

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Management Control refers to the process through which organizations ensure that their goals and objectives are being met effectively and efficiently. It involves measuring performance, comparing it with the planned goals, and taking corrective actions to ensure that activities align with organizational objectives. Various management control techniques can be used to monitor performance, identify discrepancies, and guide decision-making processes.

1. Budgetary Control

Budgetary control is one of the most commonly used management control techniques. It involves the preparation of budgets that specify the expected financial resources required to achieve specific goals. These budgets are then compared with actual performance, and any deviations are analyzed.

  • Process:

Managers establish budgets for revenues, expenses, capital, or other financial aspects of the organization. Monthly, quarterly, or annual reports are used to compare actual outcomes with budgeted amounts.

  • Purpose:

Budgetary control helps in identifying cost overruns, inefficiencies, and areas where the organization may need to improve its performance.

  • Advantage:

It provides clear benchmarks against which actual performance can be measured and managed.

2. Standard Costing

Standard costing involves setting predetermined costs for materials, labor, and overhead. These standard costs are then compared with actual costs, and any variances are analyzed to identify the reasons for discrepancies.

  • Process:

For each unit of output, standard costs for various components are set, such as material cost, labor cost, and overhead cost. After the production process, the actual costs are compared with these standards.

  • Purpose:

This technique helps managers identify inefficiencies in the use of resources and take corrective actions to control costs.

  • Advantage:

It offers a detailed analysis of cost variances, enabling management to focus on specific areas requiring attention.

3. Variance Analysis

Variance analysis involves comparing the budgeted or standard performance with actual performance and calculating the differences, or variances, in order to take corrective actions. It can be applied to various performance indicators, including costs, revenues, and profit margins.

  • Process:

Variances are classified into favorable and unfavorable categories. A favorable variance indicates that actual performance exceeds expectations, while an unfavorable variance suggests that actual performance falls short.

  • Purpose:

It provides insight into areas where the organization is not performing as expected and where adjustments are needed.

  • Advantage:

This technique helps managers to quickly identify and address discrepancies and improve overall performance.

4. Key Performance Indicators (KPIs)

KPIs are specific, measurable metrics used to track the performance of various aspects of the business, such as sales, productivity, and customer satisfaction. KPIs align with strategic goals and provide a clear picture of performance.

  • Process:

Managers identify key indicators relevant to their business objectives, such as revenue growth, market share, customer retention, and operational efficiency.

  • Purpose:

KPIs help organizations monitor progress toward their strategic objectives and make necessary adjustments to improve performance.

  • Advantage:

They provide actionable data and insights that facilitate better decision-making.

5. Management by Objectives (MBO)

Management by Objectives (MBO) is a technique that involves setting clear, specific, and measurable objectives for individual employees or teams. The progress towards these objectives is regularly monitored and evaluated, with corrective actions taken when necessary.

  • Process:

Managers and employees collaboratively set objectives that are aligned with the company’s goals. Regular progress reviews and performance appraisals are conducted to ensure that these objectives are being met.

  • Purpose:

MBO ensures that employees are aligned with the organization’s goals, fostering motivation and improving performance.

  • Advantage:

It promotes a sense of ownership and accountability among employees, resulting in higher productivity and morale.

6. Balanced Scorecard

Balanced Scorecard is a strategic planning and management tool that views performance from four perspectives: financial, customer, internal business processes, and learning and growth. It aims to provide a comprehensive view of an organization’s performance and align individual and departmental objectives with the overall strategy.

  • Process:

Organizations define specific goals in each of the four areas. These goals are then tracked through KPIs to assess progress.

  • Purpose:

Balanced Scorecard ensures that performance is not evaluated solely on financial outcomes but also on customer satisfaction, internal efficiency, and the ability to innovate and learn.

  • Advantage:

It aligns the organization’s day-to-day activities with its long-term strategy and provides a more holistic view of performance.

7. Performance Appraisal Systems

Performance appraisals are periodic evaluations of employee performance, based on predefined objectives, key responsibilities, and behaviors. Appraisal systems help in assessing individual and team contributions to organizational success.

  • Process:

Employees are evaluated against specific performance metrics, and feedback is provided on areas of improvement and strengths. Appraisals are often linked to rewards, promotions, or development plans.

  • Purpose:

It serves as a tool for measuring employee performance, providing feedback, and identifying development needs.

  • Advantage:

It promotes accountability, encourages professional growth, and can be used to align individual goals with organizational objectives.

8. Management Information System (MIS)

An MIS is a computerized system used to collect, process, and analyze data for management decision-making. It provides real-time information on various aspects of the business, from finance to operations, and allows for timely monitoring and control.

  • Process:

Data is collected from various sources within the organization and compiled into reports for analysis. These reports provide managers with insights into key areas such as sales, inventory levels, and customer satisfaction.

  • Purpose:

MIS enables managers to make informed decisions by providing accurate, up-to-date information.

  • Advantage:

It improves decision-making by reducing the reliance on manual processes and increasing the speed and accuracy of information.

Management Notes

Effective management control system

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Controls at every level focus on inputs, processes and outputs. It is very important to have effective controls at each of these three stages.

Effective control systems tend to have certain common characteristics. The importance of these characteristics varies with the situation, but in general effective control systems have following characteristics.

  1. Accuracy:

Effective controls generate accurate data and information. Accurate information is essential for effective managerial decisions. Inaccurate controls would divert management efforts and energies on problems that do not exist or have a low priority and would fail to alert managers to serious problems that do require attention.

  1. Timeliness:

There are many problems that require immediate attention. If information about such problems does not reach management in a timely manner, then such information may become useless and damage may occur. Accordingly controls must ensure that information reaches the decision makers when they need it so that a meaningful response can follow.

  1. Flexibility:

The business and economic environment is highly dynamic in nature. Technological changes occur very fast. A rigid control system would not be suitable for a changing environment. These changes highlight the need for flexibility in planning as well as in control.

Strategic planning must allow for adjustments for unanticipated threats and opportunities. Similarly, managers must make modifications in controlling methods, techniques and systems as they become necessary. An effective control system is one that can be updated quickly as the need arises.

  1. Acceptability:

Controls should be such that all people who are affected by it are able to understand them fully and accept them. A control system that is difficult to understand can cause unnecessary mistakes and frustration and may be resented by workers.

Accordingly, employees must agree that such controls are necessary and appropriate and will not have any negative effects on their efforts to achieve their personal as well as organizational goals.

  1. Integration:

When the controls are consistent with corporate values and culture, they work in harmony with organizational policies and hence are easier to enforce. These controls become an integrated part of the organizational environment and thus become effective.

  1. Economic feasibility:

The cost of a control system must be balanced against its benefits. The system must be economically feasible and reasonable to operate. For example, a high security system to safeguard nuclear secrets may be justified but the same system to safeguard office supplies in a store would not be economically justified. Accordingly the benefits received must outweigh the cost of implementing a control system.

  1. Strategic placement:

Effective controls should be placed and emphasized at such critical and strategic control points where failures cannot be tolerated and where time and money costs of failures are greatest.

The objective is to apply controls to the essential aspect of a business where a deviation from the expected standards will do the greatest harm. These control areas include production, sales, finance and customer service.

  1. Corrective action:

An effective control system not only checks for and identifies deviation but also is programmed to suggest solutions to correct such a deviation. For example, a computer keeping a record of inventories can be programmed to establish “if-then” guidelines. For example, if inventory of a particular item drops below five percent of maximum inventory at hand, then the computer will signal for replenishment for such items.

  1. Emphasis on exception:

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, management does not have to bother with activities that are running smoothly. This will ensure that managerial attention is directed towards error and not towards conformity. This would eliminate unnecessary and uneconomic supervision, marginally beneficial reporting and a waste of managerial time.

Management Notes

Key differences between Formal Organisation and Informal Organisation

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Formal organisation is a deliberately structured framework established by management to achieve predefined objectives. It is characterized by clearly defined roles, responsibilities, hierarchies, and official rules governing operations. Relationships within this structure are task-oriented and follow a prescribed chain of command. Examples include organizational charts, job descriptions, and standard operating procedures. Formal organisations ensure efficiency, accountability, and coordination by minimizing ambiguity in authority and communication. While rigid, they provide stability and predictability, essential for large-scale operations. However, they may limit flexibility and creativity compared to informal structures.

Features of Formal Organisation:

(1) The formal organisational structure is created intentionally by the process of organising.

(2) The purpose of formal organisation structure is achievement of organisational goal.

(3) In formal organisational structure each individual is assigned a specific job.

(4) In formal organisation every individual is assigned a fixed authority or decision-making power.

(5) Formal organisational structure results in creation of superior-subordinate relations.

(6) Formal organisational structure creates a scalar chain of communication in the organisation.

Advantages of Formal Organisation:

  1. Systematic Working:

Formal organisation structure results in systematic and smooth functioning of an organisation.

  1. Achievement of Organisational Objectives:

Formal organisational structure is established to achieve organisational objectives.

  1. No Overlapping of Work:

In formal organisation structure work is systematically divided among various departments and employees. So there is no chance of duplication or overlapping of work.

  1. Co-ordination:

Formal organisational structure results in coordinating the activities of various departments.

  1. Creation of Chain of Command:

Formal organisational structure clearly defines superior subordinate relationship, i.e., who reports to whom.

  1. More Emphasis on Work:

Formal organisational structure lays more emphasis on work than interpersonal relations.

Disadvantages of Formal Organisation:

  1. Delay in Action:

While following scalar chain and chain of command actions get delayed in formal structure.

  1. Ignores Social Needs of Employees:

Formal organisational structure does not give importance to psychological and social need of employees which may lead to demotivation of employees.

  1. Emphasis on Work Only:

Formal organisational structure gives importance to work only; it ignores human relations, creativity, talents, etc.

Informal Organisation:

In the formal organisational structure individuals are assigned various job positions. While working at those job positions, the individuals interact with each other and develop some social and friendly groups in the organisation. This network of social and friendly groups forms another structure in the organisation which is called informal organisational structure.

The informal organisational structure gets created automatically and the main purpose of such structure is getting psychological satisfaction. The existence of informal structure depends upon the formal structure because people working at different job positions interact with each other to form informal structure and the job positions are created in formal structure. So, if there is no formal structure, there will be no job position, there will be no people working at job positions and there will be no informal structure.

Features of informal Organisation:

(1) Informal organisational structure gets created automatically without any intended efforts of managers.

(2) Informal organisational structure is formed by the employees to get psychological satisfaction.

(3) Informal organisational structure does not follow any fixed path of flow of authority or communication.

(4) Source of information cannot be known under informal structure as any person can communicate with anyone in the organisation.

(5) The existence of informal organisational structure depends on the formal organisation structure.

Advantages of Informal Organisation:

  1. Fast Communication:

Informal structure does not follow scalar chain so there can be faster spread of communication.

  1. Fulfills Social Needs:

Informal communication gives due importance to psychological and social need of employees which motivate the employees.

  1. Correct Feedback:

Through informal structure the top level managers can know the real feedback of employees on various policies and plans.

Strategic Use of Informal Organisation. Informal organisation can be used to get benefits in the formal organisation in the following way:

  1. The knowledge of informal group can be used to gather support of employees and improve their performance.
  2. Through grapevine important information can be transmitted quickly.
  3. By cooperating with the informal groups the managers can skillfully take the advantage of both formal and informal organisations.

Disadvantages of Informal Organisation:

  1. Spread Rumours:

According to a survey 70% of information spread through informal organisational structure are rumors which may mislead the employees.

  1. No Systematic Working:

Informal structure does not form a structure for smooth working of an organisation.

  1. May Bring Negative Results:

If informal organisation opposes the policies and changes of management, then it becomes very difficult to implement them in organisation.

  1. More Emphasis to Individual Interest:

Informal structure gives more importance to satisfaction of individual interest as compared to organisational interest.

Key differences between Formal Organisation and Informal Organisation

Aspect Formal Organisation Informal Organisation
 Basis Rules Personal relations
Formation Deliberate Spontaneous
Structure Hierarchical Flat
Purpose Organizational goals Social satisfaction
Authority Delegated Emergent
Communication Official Informal
Leadership Appointed Emerged
Behavior Regulated Flexible
Stability Stable Unstable
Rules Written Unwritten
Control Formal control Social control
 Membership Compulsory Voluntary
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