Accounts receivable is the amount owed to a company resulting from the company providing goods and/or services on credit. The term trade receivable is also used in place of accounts receivable.

The amount that the company is owed is recorded in its general ledger account entitled Accounts Receivable. The unpaid balance in this account is reported as part of the current assets listed on the company’s balance sheet.

When goods are sold on credit, the seller is likely to be an unsecured creditor of its customer. Therefore, the seller should be cautious when selling goods on credit.

Good accounting requires that an estimate should be made for any amount in Accounts Receivable that is unlikely to be collected. The estimated amount is reported as a credit balance in a contra-receivable account such as Allowance for Doubtful Accounts. This credit balance will cause the amount of accounts receivable reported on the balance sheet to be reduced. Any adjustment to the Allowance account will also affect Uncollectible Accounts Expense, which is reported on the income statement.

Example of Accounts Receivable

A manufacturer will record an account receivable when it delivers a truckload of goods to a customer on June 1 and the customer is allowed to pay in 30 days. From June 1 until the company receives the money, the company will have an account receivable (and the customer will have an account payable).

Cost of Maintaining Receivables

Maintaining receivables bears cost. It includes cost of investment in receivables, bad debt losses, collection expenses and cash discount. Costs related with receivables and their calculation are as follows:

1. Cost Of Investment In Receivables

This is the opportunity cost of funds being tied up in receivables, which would otherwise have not been incurred if all sales were in cash. The cost of investment in receivable is calculated as:

Cost of receivables = Investment in receivables X Opportunity costs

Here,

investment in receivables = (FC+ VC)/Days in year) X DSO

Where, FC = Fixed Cost, VC = Variable Cost and DSO = Days sales outstanding.

2. Bad Debt Losses

This is the loss due to default customers. Extension of credit to low quality-rate customers results into increase in bad debt losses. Bad debt losses are calculated as a percentage on sales as shown in equation below:

Bad debt losses = Annual credit sales X Percentage default customer

3. Collection Expenses

This is the cost incurred for operating and managing the collection and credit department of a firm. This includes the administrative cost of credit department, salary and commission paid to collection staff, cost paid for telephone and communication and so on.

4. Cash Discount

It is the cost incurred to induce the customer for early payments of their accounts. A firm can offer cash discount to its customers to reduce the average collection period, bad debt losses, and the cost of investment in receivables. The discount cost is calculated as cash discount percentage multiplied by sales to discount customers as given below:

Discount Cost = Annual credit sales X Percentage discount customer X Percentage cash discount

Objectives of Receivables Management

Following are the objectives of receivables management which will help us to understand the purpose of receivables:

1. To optimize the amount of sales
   2. To minimize cost of credit
   3. To optimize investment in receivables.
   4. To increase credit sales.

Therefore, the main objective of receivable management is to create a balance between profitability and cost.

Accounts receivable recorded in the financial statements

Usually, the businesses expect to receive money in the future, so it is to be added to the assets in the financial statement of the business. The accurate record keeping of this money that is receivable (accounts receivable) in the books of accounts are required to avoid any default in the payment due.

Few pointers connected to recording accounts receivable are as follows :

a. Establishing the practice of credit transactions:

The business may establish a practice of providing a credit policy to its buyers. This credit can be extended for a specified time period and any default in this payment usually attracts penalty. This practice of credit facility requires two parties to come to an agreement on the terms and conditions for such credit transactions. The provider of this facility should also verify the paying ability of the customer before agreeing to any terms and conditions.to prevent loss of cash inflow.

b. Generating invoices for the customer:

The businesses are required to generate invoices of the sales made or services delivered. The invoice should have details of the cost of goods and services sold to the customers. This generating of invoice ensures the recording of the credit transaction clearly in the accounts of the business. Further, a copy of the invoice is given to the customer to make the payment as per the agreed terms.

c. Tracking the payments received and the payment that is due to be received:

An accountant is required to track the payments received or due from the customers. The details of the method of payment and date of receiving payment have to be recorded in the customer’s ledger account. This ensures correctness of accounting of the credit amount. The businesses shall also generate timely reminders for dues pending to the customers.

d. Accounting for the accounts receivable

The accountant or the person responsible for taking due care of the account’s receivables must record all the due dates of the payments to be received. The timely and prompt recording of the accounts receivable leads to receiving the payments on time from the customers. Once the account receivable is recorded and payment is received, the account for the said party can be settled for good.

The important dimensions of a firm’s credit policy are credit standards, credit period, cash discount and collection effort. These variables are related and have a bearing on the level of sales, bad debt loss, discounts taken by customers, and collection expenses.

i) Credit standards:

A firm has a wide range of choice in this respect. At one and of the spectrum, it may decide not to extend credit to any customer, however strong his credit rating may be. At the other end, it may decide to grand credit to all customers irrespective of their credit rating. Between these two extreme positions lie several positions, often the more practical ones.

In general, liberal credit standards tend to push sales up by attracting more customers. This is, however, accompanied by a higher incidence of bad debt loss, a larger investment in receivables, and a higher cost of collection. Stiff-credit standards have opposite effects. They tend to depress sales, reduce the incidence of bad debt loss, decrease the investment in receivables, and lower the collection cost.

ii) Credit period:

The credit period refers to the length of time customers are allowed to pay for their purchases. It generally varies from 15 days to 60 days. When a firm does not extend any credit, the credit period would obviously be zero. If a firm allows 30 days, say, of credit, with no discount to induce early payments, its credit terms are stated as “net 30”.

Lengthening of the credit period pushes sales up by inducing existing customers to purchase more and attracting additional customers. This is, however, accompanied by a larger investment in receivables and a higher incidence of bad debt loss. Shortening of the credit period would have opposite influences: It tends to lower sales, decrease investment in receivables, and reduce the incidence of bad debt loss.

iii) Cash discount:

Firms generally offer cash discounts to induce customers to made prompt payments. The percentage discount and the period during which it is available are reflected in the credit terms. For example, credit terms of 2/10, net 30 mean that a discount of 2 per cent is offered if the payment is made by the tenth day; otherwise the full payment is due by the thirtieth day.

Liberalizing the cash discount policy may mean that the discount percentage is increased and/or the discount period are lengthened. Such an action tends to enhance sales (because the discount is regarded as price reduction), reduce the average collection period (as customers pay promptly), and increase the cost of discount.

iv) Collection Effort:

The collection programmed of the firm, aimed at timely collection of receivables consisting of monitoring the state of receivables, dispatch of letters to customers whose due date is approaching, telegraphic and telephonic advice to customers around the due date, threat of legal action to overdue accounts and legal action against overdue accounts.

Credit Analysis

Credit analysis is a process of drawing conclusions from available data (both quantitative and qualitative) regarding the credit worthiness of an entity, and making recommendations regarding the perceived needs, and risks.

The 5 c’s of credit analysis

Character

• This is the part where the general impression of the protective borrower is analysed. The lender forms a very subjective opinion about the trust worthiness of the entity to repay the loan. Discrete enquires, background, experience level, market opinion, and various other sources can be a way to collect qualitative information and then an opinion can be formed, whereby he can take a decision about the character of the entity.

Capacity

• Capacity refers to the ability of the borrower to service the loan from the profits generated by his investments. This is perhaps the most important of the five factors. The lender will calculate exactly how the repayment is supposed to take place, cash flow from the business, timing of repayment, probability of successful repayment of the loan, payment history and such factors, are considered to arrive at the probable capacity of the entity to repay the loan.

Capital

• Capital is the borrower’s own skin in the business. This is seen as a proof of the borrower’s commitment to the business. This is an indicator of how much the borrower is at risk if the business fails. Lenders expect a decent contribution from the borrower’s own assets and personal financial guarantee to establish that they have committed their own funds before asking for any funding. Good capital goes on to strengthen the trust between the lender and borrower.

Collateral (or guarantees)

• Collateral are form of security that the borrower provides to the lender, to appropriate the loan in case it is not repaid from the returns as established at the time of availing the facility. Guarantees on the other hand are documents promising the repayment of the loan from someone else (generally family member or friends), if the borrower fails to repay the loan. Getting adequate collateral or guarantees as may deem fit to cover partly or wholly the loan amount bears huge significance. This is a way to mitigate the default risk. Many times, Collateral security is also used to offset any distasteful factors that may have come to the fore-front during the assessment process.

Conditions

• Conditions describe the purpose of the loan as well as the terms under which the facility is sanctioned. Purposes can be Working capital, purchase of additional equipment, inventory, or for long term investment. The lender considers various factors, such as macroeconomic conditions, currency positions, and industry health before putting forth the conditions for the facility.

Credit Standards

Credit standards are the criteria a company uses to screen credit applicants in order to determine which of its customers should be offered credit and how much. The process of setting credit standards allows the firm to exercise a degree of control over the “quality” of accounts accepted. The quality of credit extended to customers is a multidimensional concept involving the following:

• The time a customer takes to repay the credit obligation, given that it is repaid
• The probability that a customer will fail to repay the credit extended to it

The average collection period serves as one measure of the promptness with which customers repay their credit obligations. It indicates the average number of days a company must wait after making a credit sale before receiving the customer’s cash payment. Obviously, the longer the average collection period, the higher a company’s receivables investment and, by extension, its cost of extending credit to customers. The likelihood that a customer will fail to repay the credit extended to it is sometimes referred to as default risk. The bad-debt loss ratio, which is the proportion of the total receivables volume a company never collects, serves as an overall, or aggregate, measure of this risk. A business can estimate its loss ratio by examining losses on credit that has been extended to similar types of customers in the past. The higher a firm’s loss ratio, the greater the cost of extending credit.

Credit Period

The length of a company’s credit period (the amount of time a credit customer has to pay the account in full) is frequently determined by industry customs, and thus it tends to vary among different industries. The credit period may be as short as seven days or as long as six months. Variation appears to be positively related to the length of time the merchandise is in the purchaser’s inventory. For example, manufacturers of goods having relatively low inventory turnover periods, such as jewellery, tend to offer retailers longer credit periods than distributors of goods having higher inventory turnover periods, such as food products.

A company’s credit terms can affect its sales. For example, if the demand for a particular product depends in part on its credit terms, the company may consider lengthening the credit period to stimulate sales. For example, IBM apparently tried to stimulate declining sales of its PCjr home computer by extending the length of the credit period in which dealers had to pay for the computers. In making this type of decision, however, a company must also consider its closest competitors. If they lengthen their credit periods, too, every company in the industry may end up having about the same level of sales, a much higher level of receivables investments and costs, and a lower rate of return.

Credit Terms

A company’s credit terms, or terms of sale, specify the conditions under which the customer is required to pay for the credit extended to it. These conditions include the length of the credit period and the cash discount (if any) given for prompt payment plus any special terms, such as seasonal datings. For example, credit terms of “net 30” mean that the customer has 30 days from the invoice date within which to pay the bill and that no discount is offered for early payment.

Credit Scoring

A credit rating is an assessment of the creditworthiness of a borrower in general terms or with respect to a particular debt or financial obligation. A credit rating can be assigned to any entity that seeks to borrow money an individual, corporation, state or provincial authority, or sovereign government.

Credit assessment and evaluation for companies and governments is generally done by a credit rating agency such as Standard & Poor’s (S&P), Moody’s, or Fitch. These rating agencies are paid by the entity that is seeking a credit rating for itself or for one of its debt issues.

Why Credit Ratings Are Important?

Credit ratings for borrowers are based on substantial due diligence conducted by the rating agencies. While a borrowing entity will strive to have the highest possible credit rating since it has a major impact on interest rates charged by lenders, the rating agencies must take a balanced and objective view of the borrower’s financial situation and capacity to service/repay the debt.

A credit rating not only determines whether or not a borrower will be approved for a loan, but also determines the interest rate at which the loan will need to be repaid. Since companies depend on loans for many start-up and other expenses, being denied a loan could spell disaster, and a high interest rate is much more difficult to pay back. Credit ratings also play a large role in a potential investor’s determining whether or not to purchase bonds. A poor credit rating is a risky investment; it indicates a larger probability that the company will be unable to make its bond payments.

It is important for a borrower to remain diligent in maintaining a high credit rating. Credit ratings are never static, in fact, they change all the time based on the newest data, and one negative debt will bring down even the best score. Credit also takes time to build up. An entity with good credit but a short credit history is not seen as positively as another entity with the same quality of credit but a longer history. Debtors want to know a borrower can maintain good credit consistently over time.

Factors Affecting Credit Ratings and Credit Scores

There are a few factors credit agencies take into consideration when assigning a credit rating to an organization. First, the agency considers the entity’s past history of borrowing and paying off debts. Any missed payments or defaults on loans negatively impact the rating. The agency also looks at the entity’s future economic potential. If the economic future looks bright, the credit rating tends to be higher; if the borrower does not have a positive economic outlook, the credit rating will fall.

For individuals, the credit rating is conveyed by means of a numerical credit score that is maintained by Equifax, Experian, and other credit-reporting agencies. A high credit score indicates a stronger credit profile and will generally result in lower interest rates charged by lenders. There are a number of factors that are taken into account for an individual’s credit score including payment history, amounts owed, length of credit history, new credit, and types of credit. Some of these factors have greater weight than others. Details on each credit factor can be found in a credit repo rt, which typically accompanies a credit score.

Short-Term vs. Long-Term Credit Ratings

A short-term credit rating reflects the likelihood of the borrower defaulting within the year. This type of credit rating has become the norm in recent years, whereas, in the past, long-term credit ratings were more heavily considered. Long-term credit ratings predict the borrower’s likelihood of defaulting at any given time in the extended future.

1. Ratio Analysis for Control of Receivables:

The analysis of receivables can be done with the help of ratios given below for efficient management of debtors balances:

(a) Debtors Turnover Ratio:

Credit Sales / Average Debtors

(b) Average Credit Period (in days):

(Average Debtors / Credit Sales) * 365

(c) Debtors to Current Assets Debtors:

(Debtors / Current Assets) * 100

(d) Debtors to Total Assets Debtors:

(Debtors / Total Assets) * 100

(e) Bad Debts to Sales:

(Bad Debts / Sales) * 100

(f) Bad Debts to Debtors:

(Bad Debts / Debtors) * 100

The above formulae can be used to analyze the efficiency in management of receivables and to analyze the trend over a period of time.

Ageing Schedule:

The ageing schedule of debtors is prepared basing on the collection pattern. The total debtors balances are classified according to their age i.e. the outstanding period for which the amount is uncollected. The ageing schedule provides useful information for assessing the company’s liquidity position, efficiency of credit control department, efficiency in collection of receivables, comparison with previous ageing schedules etc.

The age analysis of debtors may be used to help decide what action to take about older debts. For better control on collection of receivables, ageing schedule is prepared and analyzed for identifying the overdue amounts. Ageing schedule of receivables is prepared according their period of outstanding, for example, less than 30 days, 31-45 days, 46 – 60 days, 61-75 days, 76-90 days, above 90 days etc.

The ageing schedule of debtors can be prepared manually or by computer. Preparation of the schedule requires to go back to the date on which invoice is raised. The schedule is used for identifying the quality accounts, overdue accounts and trouble some accounts. The age schedule can also incorporate the details of individual accounts, region wise accounts, industry sector wise accounts etc.

2. ABC Analysis of Receivables:

The ABC analysis technique mainly framed for effective control of inventory. The application of the same technique to manage the debtor’s balances will also give good results for the firm with huge number of accounts.

It is seen from the above table that only 20% of the total accounts represents the 70% of total debtors balance and a close scrutiny of these accounts and realization of dues in time will cost only moderately and improves the efficiency of debtors collection and also improve the liquidity of the firm and avoids unnecessary blockage of funds in debtors balances which can be invested elsewhere to obtain the opportunity cost of funds. To large extent it avoids the administration costs also.

Category B debtors balances needs moderate control and Category C balances, though large in number, but are very less in amount to the proportion of total debtors and the managerial attention should not be diverted to these balances. However, it also requires moderate attention for efficient management of debtors.

3. Discriminate Analysis and Credit Scoring:

Discriminate Analysis:

It is an important tool used for discriminating between good and bad accounts taking into account the readily available information from financial data relating to size of firm, acid test ratio, creditors payment period etc.

Credit Scoring:

It is a technique used in discriminating between good and bad accounts based on past repayment and default experience relating a particular customer. The credit scoring is given for each such customer and credit facility is extend if he exceeds the cut-off score.

4. Credit Utilization Report:

The total limit of credit offered to each customer and the extent to which it is utilized will be reviewed on periodical basis to observe the extent to which total limits being utilized. All this information is presented in a report form called ‘credit utilization report’.

An example of the report is given below:

This report will also contain the other information, such as day sales outstanding and so on. This report will reveal the following:

(a) The number of customers who might want more credit.

(b) The extent to which the company is exposed to debtors.

(c) The tightness of the credit policy.

(d) The degree of exposure to different customers.

5. Cost-Benefit Analysis of Collection Expenses:

A firm has to incur some routine costs like sending reminders, telephone expenses, expenses incurred for personal visits to customers’ places, commission and fees payable to collection agencies, legal expenses etc.

When the firm incurs more costs on collection of debts, there is likely to be less amount of debts turn into bad debts and vice versa. If the firm goes on increasing the cost of collection of debts, after- some point, there would not be further decrease of bad debts. The point is called ‘saturation point’ as shown in figure 16.1, if the firm incurs collection expenses beyond this point, cannot benefit the firm in reducing its bad-debt losses.

6. Measuring Day’s Sales in Terms of Debtors:

The total debtor represented by day’s sales is calculated in the following three ways:

Debtors Turnover Method:

The days sales in debtors ratio represents the length of the credit period taken by customers.

Count Back Method:

This method is based on the assumption that the debtors balance relating to the most current period sales.

Partial Month Period:

This method analyses each months sales and the unpaid portion. These are aggregated together to get days sales of debtors.

The partial month method not only provides the overall debtors ageing figure but also provides month-wise debtors outstanding.

Organization

Organization as two or more individuals who are interacting with each other within a deliberately structured set up and working in an interdependent way to achieve some common objective/s. Organizations play a major role in pur lives. We possibly cannot think of a single moment in our lives when we are not depending on organizations in some form or the other. Right from the public transport that you use to come to your institute, the institutes   itself,   the   class   you   are   attending   at   this   moment,   are   all examples   of organizations.

What is Behavior?

It is the behavior of the people working in an organization to achieve common goals or objectives. Organization comprises of people with different attitudes, cultures, beliefs, norms and values.

So let us understand organizational behavior and what it exactly it means. “Organizational Behavior” can be defined as the study of what people think, feel, and do in and around organizations. The study of Organizational Behavior facilitates the process of explaining, understanding)   predicting,   maintaining,   and   changing   employee   behavior   in   an organizational setting. The value of organizational behavior is that: it isolates important aspects of the

manager’s job and offers specific perspective on the human side of management:

• People as organizations
• People as resources
• People as people

In other words, it involves the understanding, prediction and control of human behavior and factors affecting their performance and interaction among the organizational members. And because organizational behavior is concerned specifically with employment – related situations, you should not be surprised to find that it emphasizes behavior as related- to concerns such as jobs, work, absenteeism, employment turnover, productivity, human performance and management.

Historical Development of Organization Behavior

Management Thought and Classical Administration Theory

Though the practice of management can definitely be traced back to ancient time say, during the era of building huge structures like pyramids in Egypt or temples in India or the churches, but the formal discipline of management as we find it today evolved only during the later part of nineteenth century.

• Scientific management
• Classical administration
• The human relations approach
• The systems approach
• The contingency approach

1. Scientific Management Frederick Taylor (1865-1915)

Frederick Taylor (1865-1915) was among the first to argue that management should be based on the following principle instead of depending on more or less hazy ideas: Well-matched

• Clearly defined
• Fixed principles

He pioneered the “scientific management’7 movement which suggested that systematic analysis could indicate “accurate” methods, standards and timings for each operation in an organization’s activities. The duty of management was to select, train and help workers to perform their jobs properly. The responsibility, of workers was simply to accept the new methods and perform accordingly. The practical application of this approach was to break each job down into its smallest and simplest component pans or “motions”. Each single motion in effect became a separate, specialized-job to be allocated -to a separate worker. Workers were selected and trained to perform such Jobs in the most efficient way possible, eliminating all wasted motions or unnecessary physical movement. A summary of scientific management, in Taylor’s own words, might be as follows.

(a) The man who is fit to work at any particular’ trade is unable to understand the science of that trade without the kind help and co-operation of men of a totally different type of education.

(b) It is one of the principles of scientific management to ask men to do things in the right way, to learn something new, to change their ways in accordance with the science and in return to receive an increase of from 30% to 100% in pay.

An Appraisal of Scientific Management Today

Alterations to pnor wnrV  mpthndn  nnd   inpffirinnl   mimPnts are  used today,   both to increase productivity and to reduce physical strain on workers. However, it has now been recognized that performing only one ‘motion’ within a job is profoundly unsatisfying to workers: operations need to be re-integrated into whole Jobs. It has also been recognized that workers can and should take more responsibility for planning and decision-making in connection with their work.

Looking back on scientific management as an approach, Hicks writes: “by the end of the scientific management period, the worker had been reduced to the role of an impersonal cog in the machine of production. His work became more and more narrowly specialized until he had little appreciation for his contribution to the total product… Although very significant technological advances were made… the serious weakness of the scientific approach of management was that it de-humanized the organizational member who became a person without emotion and capable of being scientifically manipulated, just like machines.

Frederic Taylor’s Five Principles of Management

• Develop a science for each element of an individual’s work
• Scientifically select, train and develop the worker
• Heartily cooperate with the workers
• Divide work & responsibility equally between managers & workers
• Improve production efficiency through work studies, tools, economic incentives

2. Classical Administration Theory of Management

Henri Fayol (1941-1925) was a French industrialist who put forward and popularized the concept of the “universality of management principles.” In other words, he advocated that all organizations could be structured and managed according to certain rational principles. Fayol himself recognized that applying such principles in practice was not simple: “Seldom do we have to apply the same principles twice in identical conditions; Contribution must be made for different changing circumstances.” Among his principles of rational organization, however, were the following influential ideas.    *.

Division of work Dividing the work into small convenient components and giving each component to one employee. It encourages employees for continuous improvement in skills

The development of improvements  in methods.     

• Authority: The right to give orders and the power to exact obedience.
• Discipline: No slacking, bending of rules.
• Unity of command: Each employee has one and only one boss.
• Unity of direction: A single mind generates a single plan and all play their part in that plan.
• Subordination of individual interests: When at work, only work things should be pursued or thought about.
• Remuneration: Employees receive fair payment for services, not what the company can getaway with.
• Centralization: Consolidation of management functions. Decisions are made from the lop.
• Scalar chain (line of authority): Formal chain of command running from top to bottom of the organization, like military
• Order: All materials and personnel have a prescribed place, and they must remain there.
• Equity: Equality of treatment (but not necessarily identical treatment)
• Personnel tenure: Limited turnover of personnel. Lifetime employment for good workers’
• Initiative: Thinking out a plan and do what it takes to make it happen.
• Esprit de corps: Harmony, cohesion among personnel.

Out of the these, the most important elements are specialization, unity of command, scalar chain, and, coordination by managers (an amalgamation of authority and unity of direction).

Art appraisal of classical administration

Many organizations continued to be managed on the rational lines of classical theory. But such organizations have certain drawbacks. An organization structured on classical lines   is   often  identified   as   a   “bureaucracy.”   While   its   formality,   rationality   and  impersonality make it very stable and efficient in some respects, it has proved dysfunctional in other areas. A bureaucracy is stable partly because of its rigid adherence to its rules and procedures and the chain of command, but this rigidity also makes it:

• Very slow to respond to customer/consumer demands
• Very slow to respond to change in its business environment in terms of technology, competitors, new market trends.
• Very slow to learn from its mistakes Human Relations Movement

Human Relations Movement is a place where we will study the human relations school of management which was established after scientific management school. The fast-changing business environment of the late 20th century made it very difficult for classical organizations to compete. Flexibility and innovation began to challenge stability; diversity began to challenge “universal”, “one-size-fits-all” principles of Management, multi-skilled project teams were seen to be more responsive to consumer demands than specialized, one-man-one-boss structures; the scalar chain of command was decimated by ‘delayering’ in response to economic recession and other forces.

Nevertheless, classical thinking allowed practicing managers to step back and analyze their experience in order to produce principles and techniques for greater efficiency and effectiveness. This emphasis resulted from a famous set of experiments (the Hawthorne Studies) carried out by Mayo and his colleagues for the Western Electric Company in the USA.

The company was using a group of girls as “guinea pigs” to assess the affect of lighting on productivity. They were amazed to find that productivity shot up, whatever they did with the lighting. Their conclusion was that /’Management,- by consultation with the girl workers, by clear explanation of the proposed experiments and the reasons for them, by accepting the workers verdict in several instances, unwittingly scored a success in two most important human matters – the girls became a self-governing team, and a learn that cooperated whole heartedly with management.”

3. Human Relations Movement and Behaviorist Schools of Management

The human relations movements actually started with the series of experiments conducted )Y George Elton Mayo, professor of Industrial Research at the Harvard Graduate School of Business and his colleagues at the Hawthorne plant of Western Electric Company. This company was a manufacturer of equipment for the Bell telephone system and at the time of the experiments, there was an acute problem of employee dissatisfaction at the plant. It was also quite evident that the employees were not producing up to their fullest capability. This happened in spite of the fact that it was one of the most progressive companies with pension schemes, sickness benefit schemes, and numerous other facilities offered   to   its   employees.   The   earlier   attempts   of   the   efficiency   experts   produced inconclusive findings. So the company sought help from the group of university professors to find a solution to the problem. The study continued for an extended period of time and had gone’ through various phases, which is briefly described here.

• Phase I: Illumination Experiments
• Phase II: Relay Assembly Test Room
• Phase III: Interviewing Program
• Phase IV: Bank Wiring Test Room °

Phase I: illumination Experiments

In order to test the traditional belief that better illumination will lead to higher level of productivity, two groups of employees were selected. In one, the control group, the illumination remained unchanged throughout • the  experiment whilein the other the illumination was increased. As had been expected, the productivity went up in the latter or what was known as the experimental group, but what baffled the experimenters was the fact that the output of the control group also went up. As the lighting in the formal group was not altered, the result was naturally puzzling and difficult to explain. The investigators then started to reduce the illumination for the test group. But in this case as well the output shoot up again. Thus the researchers had to conclude that illumination affected production only marginally and there must be some factor which produced this result.

Phase II: Relay Assembly Test Room

In this phase, apart from illumination, possible effects of other factors such as length of the working day, rest pauses and their duration and. frequency and other physical conditions; were probed. The researcher who was continuously present with the group to observe the functioning of the group acted as their friend and guide. Surprisingly, here also the researchers found that the production of’ the group had no relation with the working conditions. The outcome of the group went increasing at an all-time high even when all the improvements in the working conditions were withdrawn. Nobody in the group could suggest why this was so. Researchers then attributed this phenomenon to the following:

• Feeling of perceived importance among the group members as they were chosen to participate in the experiment.
• Good relationship among the group
• High group cohesion.

Phase III: Interviewing Program

From the Relay Assembly Test Room, the researchers for the first time became aware about the existence of informal groups and the importance of social context of the organizational life. To probe deeper into this area in order to identify the factors responsible for human behavior, they interviewed more than 20,000 employees. The direct questioning was later replaced by non-directive type of interviewing. The study revealed that the workers’ social relationship inside the organizations has a significant influence on their attitude and behavior. It was also found that merely giving a person an opportunity to talk and air his grievances has a beneficial effect on his morale.

Phase IV: Bank Wiring Test Room

It had been discovered that social groups in an organization have considerable influence on the functioning of the individual members. Observers noted that in certain departments, output had been restricted by the workers in complete disregard to the financial incentives offered by the organization. Mayo decided to investigate one such department which was known as the bank wiring room where there were fourteen men working on an assembly line.

 Thus the Hawthorne study pointed out the following:

• The business organization is essentially a socio-technical entity where the process of social interactions among its members is also extremely important.
• There is not necessarily a direct correspondence between working conditions and high production.
• Economic motives are not the only motive for an employee. One’s social needs can also significantly affect their behavior. Employee-centered leaders always tend to be more effective than the task-oriented leaders.

4. Systems Approach

The Systems Approach to OB views the organization as a united, purposeful system composed of interrelated parts.

This approach gives managers a way of looking at the organization as a whole, whole, person, whole group, and the whole social system.

In so doing, the systems approach tells us that the activity of any segment of an organization affects, in varying degrees the activity of every other segment. A systems view should be the concern of every person in an organization.

The clerk at a service counter, the machinist, and the manager all work with the people and thereby influence the behavioral quality of life in an organization and its inputs.

Managers, however, tend to have a larger responsibility, because they are the ones who make the majority are people oriented.

The role of managers, then, is to use organizational behavior to help build an organizational culture in which talents are utilized and further developed, people are motivated, teams become productive, organizations achieve their goals and society reaps the reward.

5. Contingency theory

The contingency approach to organization developed as a reaction to the idea that there nothing like “One best way” for designing organizations, motivating staff and so on. The basic tenet of contingency theory can be put essentially as follows?

Appropriate management approach   depends ‘ on   situational   factors   faced   by   an organization.

Newer research indicated that different forms of organizational structure could be equally successful that there was no inevitable-link between classical organization structures and effectiveness, and that there were a number of variables to be considered in the design of organizations and their style of management.

Essentially, “it all depends’ on the total strength and weakness of organization and opportunities and threats which lies out in the environment of each organization.” Managers have to find a “best fit’ between the demands of:

(a) The tasks

(b) The people

(c) The environment

In other word Manager should consider situation .We would note contingency approaches to various aspects of management as we proceed through this module.

An appraisal of the contingency approach

OB can touch every spectrum of business competitiveness by explaining, predicting, and influencing the behaviour of people.

1. Creates Sustainable Competitive Advantage

OB converts people in an organization into valuable, rare, inimitable, and non-substitutable through various OB practices aligned to achieve goals. For example, OB can create a culture of innovation, performance, knowledge sharing, and trust through a combination of individual development, team design, and leadership development.

Google would meet this bill and this is the reason why it is difficult to beat them. Though OB deals with developing people in the organization, its reverberations can be felt by the customers too. If the employees are not happy or do not behave appropriately with the customers, the result can be disastrous.

2. Individual Component

This illustrates that OB is important to accomplish the following:

• Identify the underlying reasons for poor or non-performance and enable change.
• Help a person to modify his/her behaviour to achieve full potential by identifying what motivates a person, how the person can learn and be more creative, and manage stress. In other words, OB can facilitate tak­ing a whole gamut of actions required for the person to contribute to competitiveness.

Example: Rajiv is not able to get results in sales and finds the job very stressful. His boss suspects his introvert nature. If we had a psychometric test before selecting him for the job, this situation could have been avoided. If we erred in selection, we can still confirm his personality trait and shift him to another job profile where he can succeed. A third alternative is to train him to change his behaviour.

3. Organizational Component

OB helps in designing, structuring, and changing culture to create a learning and innovative organization. It suggests ways to implant an organizational sub-culture within the overall culture.

For instance, although employees and organizations in Kerala respond to frequent ‘hartals’ (enforced stoppage of work as a method of protest adopted by political parties in India), employees of various organizations working in the Technopark in Trivandrum, the capital of Kerala, where the IT industries are located, do not participate in such hartals. It shows the existence of a sub-culture in companies located in the Technopark.

4. Controlling and predicting human behaviors

Organization behavior is a socio-science so it’s all concern with individuals and its behavior. It’s quite important to study OB to control the human behaviors. OB also helps us to control and predict the employee’s behavior in the different situation. For example: if the company has an order to complete on urgent base than it necessary to work extra hours. So in this situation, some employees can get angry and reject to work extra hours. OB helps in this type of situation. A person who studies the OB will easily manage that situation.

If the manager can interpret properly the human needs of an enterprise, it may paintings towards fulfilling those desires and also challenges new plans and incentives to satisfy the employees and boost them morals.

5. Company culture

OB helps to define the company culture like experience, rules, values and behavioral expectation of an industry.  Every organization has their own rules and regulation. Some have a liberal mind and some have conservative, so they make the values, rules according to them. OB tells you how the company culture can negatively and positively impact on employee’s behavior. And how company culture mediates to the employee in different ways, including mission, action, reward, and customs. An employee can learn how to behave by becoming socialized in an organization. Becoming socialized, the employee also gains to understand the company culture.

Affecting human behavior is another aspect of studying organizational behavior. It helps the management to evaluate the reaction of employees beforehand, prior to making any modifications in regulations or schemes.

6. Problem-solving

As in the workplace, the occurring problem is normal but how its solve it? Can impact on the employee. As we already discuss each employee differing from each other. So, it a little bit difficult to make a strong connection between them and solving the problem according to each behavior. For solving the problems in an industry, it’s important to consider social and psychological aspect to design solution tools and techniques to solve industrial issues.

7. Improving industrial relation

It’s very important to manage and improve the industrial relationship because the organization is based on the positive relationship between management and employee. We can develop the positive relationship by encouraging and rewarding the employee. By encouraging and rewarding, the employee self-actualization or moral can also be developed. This would be a good impact on the work environment. OB helps to find the root causes of the problems that occur during work and control its negative outcomes.

Cross culture in the business world refers to a company’s efforts to ensure that its people interact effectively with professionals from backgrounds different from their own. Like the adjective cross-cultural, it implies a recognition of national, regional, and ethnic differences in manners and methods and a desire to bridge them.

A field of study, cross-cultural communication, has emerged to define and understand the many ways the different peoples of the world communicate with each other verbally and non-verbally.

The concept of cross culture is becoming critically important with the globalization of businesses. Many companies that seek to expand the markets for their products devote substantial resources to training employees on how to communicate and interact effectively with those from other cultures.

For example, when employees of an international company transfer to another country, they need to master the cross culture. They must not only learn the language but adapt to its social norms.

Today, cross culture education is considered imperative for employees acting in managerial capacities abroad. Failure to effectively communicate with subordinates or understand their actions can lead to cascading problems within the business.

The Disadvantages of Cross Culture

Every culture shapes how the most minute social, societal, and professional behaviors are interpreted, and that inevitably carries over into business. Some cultures view the association between a manager and a subordinate as a symbiotic relationship. In others, the manager is expected to rule as a bureaucrat.

 In some cultures, casual touching is common, while in others it would be viewed as disrespectful or worse.

Cross culture extends to body language, physical contact, and perceptions of personal space. In cultures that adhere to strict religious standards, interactions between members of the opposite sex, even in the business sphere, may be complicated.

Body language such as hand gestures may be frowned upon or, worse yet, may have meanings that were entirely unintended. In some cultures, casual touching is common, while in others it is viewed as rude, disrespectful, or worse.

Examples of Cross Culture

Accepting a business card from a Japanese businessperson is not a casual action. The person presenting the card will bow and present it with both hands. The recipient takes it with both hands, indicating respect.

In China, giving a direct “yes” or “no” answer, or demanding one of anyone else, is considered very rude. Meetings are for talking things over, not announcing decisions.

In Mexico, business is done primarily among friends and family. Visiting business people often seek an introduction through an intermediary with local connections.

Cross Cultural Competencies

Cross-cultural competencies refers to the knowledge, skills, and affect/motivation that enable individuals to adapt effectively in cross-cultural environment. Reference US Army document

Cross-cultural motivation

You are curious about new surroundings and cultures and actively seek out learning opportunities. You demonstrate cross-cultural motivation when you:

• Welcome the opportunity to learn more about the geography and culture of your work term city, region and country
• Take initiative to explore your environment
• Actively network with people from different cultures
• Take interest in current events in your work term country
• Engage with people in your employer organization and community

Cross-cultural knowledge

You have a good understanding of different cultures and apply this knowledge in your daily life. You demonstrate cross-cultural knowledge when you:

• Recognize and respect cultural diversity
• Learn appropriate, effective ways to communicate with people from different cultural backgrounds
• Know how to be diplomatic and sensitive to the dynamics of a cross-cultural workplace
• Understand how to communicate with people who speak or write a different language
• Know how to be adept in a new environment
• Understand ways to cope with constant change

The culture of a company influences the moral judgment of employees and stakeholders. Companies that work to create a strong ethical culture motivate everyone to speak and act with honesty and integrity. Companies that portray strong ethics attract customers to their products and services.

Customers are happy and confident in knowing they’re dealing with an honest company. Ethical companies also retain the bulk of their employees for the long-term which reduces costs associated with turnover. Investors have peace of mind when they invest in companies that display good ethics because they feel assured that their funds are protected. Good ethics keep share prices high and protect businesses from takeovers.

Creating an ethical organizational culture is possible for any company by taking the following 5 steps:

1. Top Management Leads Ethics by Example

One of the most noticeable ways that companies can demonstrate their commitment to creating an ethical organizational culture is to ensure that top managers and leaders lead by example. Employees look to the behavior of top management as an example of the type of behavior that the company finds acceptable in the workplace. Actions speak louder than words, so when top executives display ethical behavior, it sends a positive message to employees. Senior leaders need to be mindful of the fact that they’re being watched and be sure to practice what they preach.

Research backs up the notion of leading by example. Stanford psychologist, Al Bandura is known for his research on observational learning. Bandura’s stages of observational learning are:

• Attention
• Retention
• Reproduction
• Motivation

The stages suggest that people pay attention to the behavior of others and retain thoughts about it. Then they reproduce the behavior. After repeated times of having a good experience with behavior, people are motivated to repeat it.

2. Communicate Clear Expectations of Good Ethics

Companies that create and disseminate an official code of ethics send a clear message of the expectations for their employees. A code of ethics or code of conduct clearly outlines the organization’s primary values and ethical rules that they expect everyone to follow. The code should indicate that it applies to attire, attitudes, and behavior. Cultural norms and expectations are also inferred and are easily detected by observing the environment.

While it’s good to have a written record of the code of ethics, means nothing if top management fails to model ethical behavior. Employees are observant. They take note of whether the company is adhering to the ethical principles that it set or whether they are merely paying lip service.

3. Offer Formal Ethics Training

A formal ethics training program sends a strong message about a company’s ethical stance. Seminars, workshops, and other ethical training programs reinforce the organization’s standards of conduct and clarify the types of behaviors that the company deems permissible or out of bounds. Situational examples help to address how to handle possible ethical dilemmas. Workshops can help employees to work on their problem-solving skills. Trainings may include consultations from peers or mentors.

4. Reinforce Behavior You Want, and Don’t Reinforce Behavior You Don’t Want

Corporate culture always begins at the top. Managers should be evaluated on their ethical behavior as part of their annual performance appraisals. Their appraisals should include specific questions about how their decisions measure up against the code of ethics. Top executives should also be evaluated on the means they take to achieve their ethical goals as well as how the means lead to the ends.

Once again, research supports ethical principles. The principle of operant conditioning, by B.F. Skinner, represents that it’s possible to reinforce the behavior you want to see in others. The principle of operant conditioning also shows that companies shouldn’t reinforce behavior they don’t want to see in others.

People who act ethically should be noticeably rewarded for their behavior and those who fail to act and behave ethically should have consequences for unethical behavior. Rather than fire good employees who demonstrate a single ethics violation, the company may choose to provide correct feedback for the behavior along with a short probationary period. Correction should be conducted in the spirit of collaboration and education rather than punishment or chastisement.

This step should encourage companies to offer their employees opportunities for rewards, recognition, and social reinforcements. Rewards and recognition should be thoughtfully considered taking care to deliver it with attention to detail to avoid unintended consequences.

5. Provide Protection for Employees

Most employees will want to do the right thing especially if they work for a company that has high moral and ethical standards. It can be difficult for anyone to report unethical behavior that they witness in other people at the company. Shy or introverted employees may find it particularly challenging to report unethical behavior. Almost anyone would feel intimidated if they felt the need to report the unethical behavior of one of their superiors or someone in a senior management position.

There are several ways that companies can assure their employees that they can safely report unethical behavior without fear of losing their jobs or getting some sort of punishment or consequence. An objective third party such as an ethics counselor, ethics officer, ombudsman, or ethics consultant can be helpful in these situations. An ombudsman can get the tools and resources to help with a consultation or investigation of a complaint about ethical behavior.

Using Technology to Support Creating an Ethical Organizational Culture

In the best-case scenario, your company will never have to deal with an infraction of your Code of Ethics policy. Unfortunately, that’s not the reality for many companies. Here’s where it pays to take a modern approach to creating an ethical organizational culture. BoardEffect offers the perfect electronic platform for securely storing your code of conduct policies, reports, investigations, and the outcome of investigative results.  It provides a secure, confidential online space where a team can investigate, communicate, and collaborate about ethical reports that have the potential to harm the company’s reputation. In the event that an incident takes a legal turn, attorneys have quick access to the company’s code and all other documentation regarding the incident. The board administrator has the ability to limit the users who can participate in such discussions.

Organizational behavior is the study of both group and individual performance and action within an enterprise. This field of study scans human behavior in the working atmosphere.

It determines its effect on job structure, performance, communication, motivation, leadership, decision making abilities etc. The way an individual behaves and behavior as a group have two perspectives internal and external.

Behavior Analysis at Different Levels

Behavior as an individual or in a group is always analyzed by everyone in the organization. It is analyzed at three different levels:

• Individual level of analysis
• Group level of analysis
• Organizational level of analysis

1. Individual Level of Analysis

Organizational behavior, at this level of analysis massively draws upon psychology, engineering, and medicine. At the individual level of analysis, organizational behavior includes the study of learning, perception, creativity, motivation, and personality.

In addition, it also includes the study of turnover, task performance and evaluation, coordinated behavior, deviant work behavior, ethics, and cognition.

For example − Ram joins a company as an intern and is very open to learning new things but as time passes and he gets promoted his attitude towards his interns becomes rude. This is a fine example of individual level of analysis.

2. Group Level of Analysis

Organizational behavior, at this level of analysis, draws upon the sociological and socio-psychological discipline. At the group level of analysis, organizational behavior includes the study of group gesture, intra-group and intergroup dispute and attachment.

It is further extended to the study of leadership, power, norms, interpersonal communication, networks, and roles.

An example of this level of analysis: Board of directors of company X decide to give bonus to their workers as they have really worked hard on a certain project.

3. Organizational Level of Analysis

Organizational behavior, at this level of analysis draws upon sociology and political science. At this level of analysis, organizational behavior includes the study of organizational culture, structure, cultural diversity, inter-organizational cooperation and coordination.

It further includes the study of dispute, change, technology, and external environmental forces. Some other fields of study that adds to the interest of organizational behavior are ergonomics, statistics, and psychometrics.

To have a clear understanding on the topic and avoid any kind of confusion let’s look at an example at different levels and try to analyze it.

Individual Behavior

Individual behavior can be defined as a mix of responses to external and internal stimuli. It is the way a person reacts in different situations and the way someone expresses different emotions like anger, happiness, love, etc.

To get a brief idea about the individual behavior let us learn about the individual behavior framework and other key elements related to it.

Individual Behavior Framework

On the basis of these elements, psychologist Kurt Lewin stated the Field theory and outlined the behavior framework. This psychological theory studies the patterns of interaction between an individual and the environment. The theory is expressed using the formula

B = F(P,E)

where, B: Behavior, F: Behavior Function, P: Person, and E: Environment around the person.

Say for example, a well payed person who loses his job in recession may behave differently when unemployed.

Causes of Individual Behavior

Certain individual characteristics are responsible for the way a person behaves in daily life situations as well as reacts to any emergency situations. These characteristics are categorized as:

(a) Inherited Characteristics

The features individuals acquire from their parents or from our forefathers are the inherited characteristics. In other words, the gifted features an individual possesses by birth is considered as inherited characteristics.

Following features are considered as inherited characteristics:

• Color of a person’s eye
• Religion/Race of a person
• Shape of the nose
• Shape of earlobes

(b) Learned Characteristics

Nobody learns everything by birth. First our school is our home, then our society followed by our educational institutions. The characteristics an individual acquires by observing, practicing and learning from others and the surroundings is known as learned characteristics.

It consists of the following features:

• Perception: Result of different senses like feeling, hearing etc.
• Values: Influences perception of a situation, decision making process.
• Personality: Patterns of thinking, feeling, understanding and behaving.
• Attitude: Positive or negative attitude like expressing one’s thought.

Factors Influencing Individual Behavior

The way an individual addresses a situation single-handedly or say in a group is influenced by many factors. The key factors influencing an individual’s attitude in personal as well as social life are:

• Abilities
• Gender
• Race and culture
• Attribution
• Perception
• Attitude

Group Behavior

A group can be defined as two or more interacting and interdependent individuals who come together to achieve particular objectives. A group behavior can be stated as a course of action a group takes as a family. For example: Strike.

Types of Groups

There are two types of groups individuals form. They are formal groups and informal groups. Let us know about these groups.

1. Formal Groups

These are the type of work groups created by the organization and have designated work assignments and rooted tasks. The behavior of such groups is directed toward achieving organizational goals.

Formal groups can be further classified into two sub-groups:

• Command Group: It is a group consisting of individuals who report directly to the manager.
• Interest Group: It is a group formed by individuals working together to achieve a specific objective.

2. Informal Groups

These groups are formed with friendships and common interests.

These can be further classified into two sub-groups:

• Task group: Those working together to finish a job or task is known as a task group.
• Friendship group: Those brought together because of their shared interests or common characteristics is known as friendship group.

For example: A group of workers working on a project and reporting to the same manager is considered as command group, while a group of friends chilling out together is considered as an interest group or say members of a club.

Group Roles

The concept of roles is applicable to all employees within an organization as well as to their life outside the organization. A role is a set of expected behavior patterns attributed to the one who occupies the position demanded by the social unit.

Individuals play multiple roles at the same time. Employees attempt to understand what kind of behavior is expected from them. An individual when presented by divergent role expectations experiences role conflict.

Group Behavior: Example

Let us understand group behavior with the help of an example.

To work on a specific project, we make a group of four members: Rohit, Raj, Sid, and Rahul. It is not possible for anyone of them to complete the project individually, as it may be time-consuming as well as not all the members as individuals have mastered the skills required to complete the project. This indicates the need to come together as a group.

Moving ahead, now let us specify their roles. Rohit is the initiator as he proposes the idea of the project. Raj collects all the information and resources required for the project and becomes the informer. Sid is the clarifier as he interprets the data and saves refined information, while Rahul is the summarizer as he concludes the result of project stating what is to be achieved by the end of the project. These are the task-oriented roles.

When a group of people come together and present their ideas there is a fair chance of collision. Rohit tries to resolve all the disagreements and disputes in the first place and acts as a harmonizer, Sid makes sure that everybody is giving their full support and effort in the project and acts as a gate keeper, Raj is the one encouraging everyone and motivating them when they fail to try harder to complete the project and is the encourager, and Rahul tests the project at each stage and examines the major decision to be made and is acts as the consensus tester. These are the relationship-oriented roles of each member.

Individually each of them have different tasks to fulfill. Rohit tries to be the group leader and impose his ideas on others and we consider him as the dominator, Rahul is always up with excuses to avoid the task given to him and acts as a voider, Raj is the one who opposes everything but is never up with some new idea and becomes the blocker and Sid takes part in every group activity in a non-productive way and becomes the cavalier.

Models are the techniques which help us to understand complex things and ideas in a clear manner.

Models are frameworks or possible explanations why do people behave as they do at work. There are so many models as many are organizations. Varying results across the organizations are substantially caused by differences in the models of organizational behaviour. All the models of organizational behaviour are broadly classified into four types: autocratic, custodial, supportive and collegial. We discuss these four models beginning with the autocratic. O.B. is the study of human behaviour in organizations, the interface between human behaviour and the organization and the organization itself. The following figures shows, this interrelationship clearly.

The Autocratic Model

The basis of this model is power with a managerial orientation of authority. The employees in turn are oriented towards obedience and dependence on the boss. The employee need that is met is subsistence. The performance result is minimal.

In case of an autocratic model, the managerial orientation is doctorial. The managers exercise their commands over employees. The managers give orders and the employees have to obey the orders. Thus, the employees orientation towards the managers/bosses is obedience. Under autocratic conditions, employees give higher performance either because of their achievement drive or their personal liking to the boss or because of some other factor.

Evidences such as the industrial civilization of the United States and organizational crises do suggest that the autocratic model produced results. However, its principal weakness is its high human cost. The combination of emerging knowledge about the needs of the employees and ever changing societal values and norms suggested managers to adopt alternative and better ways to manage people at work. This gave genesis to the second type of models or organizational behaviour.

The Custodial Model

The basis of this model is economic resources with a managerial orientation of money. The employees in turn are oriented towards security and benefits and dependence on the organization. The employee need that is met is security. The performance result is passive cooperation.

While studying the employees, the managers realized and recognized that although the employees managed under autocratic style do not talk back to their boss they certainly think back about the system. Such employees filled with frustration and aggression vent them on their co-workers, families and neighbors. This made the managers think how to develop better employee satisfaction and security. It was realized that this can be done by dispelling employees’ insecurities, frustration and aggression. This called for introduction of welfare programmers to satisfy security needs of employees. Provision for an on site day-care centre for quality child care is an example of welfare programme meant for employees. Welfare programmes lead to employee dependence on the organization. Stating more accurately, employees having dependence on organization may not afford to quit even there seem greener pastures around. The welfare programmes for employees started by the Indira Gandhi National Open University (IGNOU), New Delhi are worth citing in this context, IGNOU, in the beginning provided its employees facilities like house-lease facility, subsidized transport facility, day-time child care centre in the campus, etc. These made employees dependent on IGNOU which, in turn, became custodian of its employees.

The basis of this model is partnership with a managerial orientation of teamwork. The employees in turn are oriented towards responsible behavior and self-discipline.

Although the custodian approach brings security and satisfaction, it suffers from certain flaws also. Employees produce anywhere near their capacities. They are also not motivated to increase their capacities of which they are capable. Though the employees are satisfied, still they do not feel motivated or fulfilled in their work they do. This is in conformity with the research finding that the happy employees are not necessarily most productive employees. Consequently managers and researchers started to address yet another question. “Is there better approach/way to manage people?” The quest for a better way provided a foundation for evolvement to the supportive type of model of organizational behaviour.

The Supportive Model

The basis of this model is leadership with a managerial orientation of support. The employees in turn are oriented towards job performance and participation. The employee need that is met is status and recognition. The performance result is awakened drives.

The supportive model is founded on leadership, not on money or authority. In fact, it is the managerial leadership style that provides an atmosphere to help employees grow and accomplish their tasks successfully. The managers recognize that the workers are not by nature passive and disinterested to organizational needs, but they are made so by an inappropriate leadership style. The managers believe that given due and appropriate changes, the workers become ready to share responsibility, develop a drive to contribute their mite and improve themselves. Thus, under supportive approach, the management’s orientation is to support the employee’s job performance for meeting both organizational and individual goals.

However, the supportive model of organizational behaviour is found more useful and effective in developed nations and less effective in developing nations like ours because of employee’s more awakening in the former and less one in the latter nations.

The Collegial Model

The collegial model is an extension of the supportive model. As the literal meaning of the work ‘college’ means a group of persons having the common purpose, the collegial model relates to a team work/concept. The basic foundation of the collegial model lies on management’s building a feeling of partnership with employee. Under collegial approach, employees feel needed and useful. They consider managers as joint contributors to organizational success rather than as bosses.

Its greatest benefit is that the employee becomes self-discipline. Feeling responsible backed by self-discipline creates a feeling of team work just like what the members of a football team feel. The research studies report that compared to traditional management model, the more open, participative, collegial managerial approach produced improved results in situations where it is appropriate.

Although there are four separate models, almost no organization operates exclusively in one. There will usually be a predominate one, with one or more areas overlapping in the other models.

The first model, autocratic, had its roots in the industrial revolution. The managers of this type of organization operate out of McGregor’s Theory X. The next three models begin to build on McGregor’s Theory Y. They have each evolved over a period of time and there is no one “best” model. The collegial model should not be thought as the last or best model, but the beginning of a new model or paradigm.

Now, the sum and substances of these four models of organizational behaviour are summarized in Table.

Interpretation of Different Models : Various conclusions may be drawn from the study of different models as follows :

(i) As soon as the understanding of human behaviour develops or social conditions change, the model is bound to change. No one model is best for all times.

(ii) Models or organizational behaviour are related to hierarchy of human needs. As society advances on the need hierarchy, new models are developed to serve the higher order needs that is paramount at that time.

(iii) Present tendency towards more democratic models of organizational behaviour will continue to develop for long run.

(iv) Different models will remain in use though new model predominates as most appropriate for general use at any given time as task conditions differ from time to time and organization to organization.

Fig. A-B-Cs of Orgnizational Behaviour Modification

Challenges and Opportunities for Organizational Behaviour

• The Creation of a Global Village
• Adapting to Different People
• Improving Quality and Productivity
• Improving People’s Skills
• Management Control to Empowerment
• Stability to Flexibility
• Improving Ethical Behavior

Environmental Challenges: Globalization, Information Technology, Total Quality, Diversity and Ethics are like comparative advantage of labor in the market. Like Nokia Finland recruits employees from India, China, BMW and Mercedes build their cars outside their native places like their plants are mainly in South Africa. Another opportunity is through increased foreign assignments. Challenges like workforce diversity, cross cultural leadership, decision making, communication, dual career couple, stimulating innovation and change in the organization.

It is important to upgrade various types of technical and managerial skills to remain competitive in business environment, to manage workforce diversity and to implement ways of improving ethical behaviour within the organization at all levels.

The managers are posed with many challenges and opportunities to use “Organizational Behavior” concepts to enhance the overall effectiveness of individuals, groups and organization.

Some of the issues which need support from behavioural science and other interdisciplinary fields to offer creditable solutions are:

Improving People’s Skills

The employees and executives are really in need of a boost up to be equipped with the required skills relevant to the technological changes, structural changes, environmental changes which are accelerated at a fast pace. In absence of the fastback possession, the targeted goals can’t be achieved in time.

Main skills on focus are

Managerial skills which include listening, motivating, planning, organizing, leading, problem solving, decision making.

Technical skills.

To enhance these skills seminars, training and development session, career development programmes, induction and socialization and many more tools and techniques are adopted.

Designing an effective performance appraisal system with built-in training modules to help lower level cadres to upgrade their skill sets (conceptual, relational etc.) would be a remarkable.

Improving Quality and Productivity

Quality is a parameter which makes a product or service best or worst for the customers and users. It is a measure of expectation. A student expects the pen, she/he just bought, to write. The failure of the pen to write will express the failure of the product to meet the customer’s expectation.

“Deming” defined quality as a predictable degree of uniformity and dependability at low cost and suited to the market.

The key dimensions of quality are:

1. Performance

Primary/Perceptual characteristics of a product as signal, coverage, display quality etc. which are visible.

2. Features

Secondary characteristics, added features such as alarm clock added in mobile phones.

3. Conformance

To meet specifications according to industry standards.

4. Reliability

Probability of a product’s failure within a specific period of time.

5. Durability

Measure of product’s life having both economic and technical dimensions.

6. Services

Resolution of problems and complaints.

7. Response

Human-Human interface, such as courtesy of the dealer.

8. Aesthetics

Sensory characteristics such as exterior finish.

9. Reputation

Past performance and other intangibles such as being awarded rank first.

Managers confront the challenges of fulfilling the specific requirements of a customer. Implementing total quality management and re-engineering products to improve productivity and quality.

Responding to Globalization

With mostly market driven business, whenever the demand exists irrespective of distance, location, climatic conditions, the business operations are expanded to gain their market share and remain top ranked. Making maximum use of mass communication, internet, faster transportation, products and services are spreading across nations.

Example of such globalization is “more than 95% of Nokia cell phones are being sold outside of their home country Finland”.

Globalization affects a manager in

• A manager has to manage a diversified workforce that is likely to have very different needs, aspirations and attitudes from the ones that they are used to manage in their home country.
• Understanding culture of local people in order to adapt appropriate management style for the success the operations. It is important for the manager to show tolerance to sensitivity to various individual in the workforce.

Empowering People

The main concern is to delegate power and responsibility to lower level workforce and assigning more freedom to make choices about their schedules, operations, procedures and method of solving their work related problems.

The implementation of empowerment concept brings around reshaping of relationship between the manager and the employees where the manager works as a coach, advisor, sponsor, facilitator and a guide.

The manager must learn how to give up control and employees must learn how to take responsibility for their work and make better decision. This in many cases brings change in leadership style.

Coping with Temporariness

The product life cycles are slimming up and thus the methods of operations are improving and fashions are changing very fast. This rapid changing era brings a temporariness feel among the organization’s environment. The very long periods of stability is lost in the recent years due to competitiveness in providing better experience.

Actual jobs that workers perform are in a permanent state of flux so they need to upgrade their knowledge and skill sets.

Stimulating Innovation and Change

Today’s successful organizations must foster innovation and be proficient in the art of change, else they will become extinct in due course of time and vanish from business. Flexibility needs to be maintained at all times along with continually improving their quality and handle constant competition. The managers need to stimulate employee’s creativity and tolerance for change.

Emergence of E-Organization

Some important aspects that need to be discussed here are:

(i) E-Commerce

This refers to the business operations involving electronic mode of transactions encompassing presenting products on websites and filling order. Online shopping is a point of focus for media.

(ii) E-Business

It refers to the full breadth of activities included in a successful Internet-based enterprise. E-Commerce is a subset of e-business which includes developing strategies for running Internet-based companies, creating integrated supply chains, collaborating with partners to electronically coordinate design and production, identifying a different kind of leader to run a ‘virtual’ business, finding skilled people to build and operate intranets and websites and running the administrative side.

(iii) Growth rate of e-business

The application of internet operations are initially covers a small part of the business. A popular application of e-business is merely using the internet to better manage an ongoing business. E-business applications are also helping in improving communications with internal and external stakeholders and to better perform traditional business functions.

This is even becoming a government concern to use it for providing utility services through internet.

Improving Ethical Behaviour

The complexity of business operations is forcing workforce to face ethical dilemmas, where they are required to define right and wrong conduct in order to complete their assigned activities. The ground rules governing the constituents of good ethical behaviour has not been clearly defined. Blurring out of differentiation between right things from wrong behaviour becomes a dent in an organization.

The managers must evolve code of ethics to guide employees through ethical dilemmas. Organizing workshops, seminars, training programs help improving behavior of employees.

It is the duty of every individual to keep the climate within an organization healthy in terms of ethics and principals and maintain minimal degree of ambiguity