Organisational Development Meaning, Features, Evolution, Components, Objectives, Benefit, Process

Organizational Development (OD) is a systematic approach to improving an organization’s effectiveness by enhancing its ability to adapt to changes, solve problems, and achieve its goals. OD involves planned interventions in the organization’s processes, culture, structure, and people, aiming for continuous improvement. It seeks to foster a healthy and productive work environment that can support the organization’s growth and ensure the alignment of its objectives with employee well-being and organizational success.

OD focuses on improving organizational effectiveness through interventions that involve employees at all levels. The core of OD lies in enhancing the organization’s capacity for continuous learning, collaboration, and adaptation to changes in the external and internal environment.

Features of Organizational Development:

  • Systemic Approach:

OD is a holistic, integrated approach to improving organizational processes. It considers the organization as a whole, recognizing that changes in one area can affect others. The aim is to create harmony among various departments, processes, and individuals for the overall success of the organization.

  • Focus on People:

The central theme of OD is the development of people. It aims to improve interpersonal relationships, leadership practices, and communication processes, enabling individuals to work together more effectively and align with organizational goals.

  • Planned Change:

OD interventions are deliberately designed and implemented to bring about changes. These changes are strategic and are aimed at enhancing the overall performance of the organization.

  • Participation and Involvement:

OD encourages active involvement of employees at all levels in the change process. Employees are seen as critical stakeholders who can contribute to problem-solving, decision-making, and implementing new strategies.

  • Collaboration and Teamwork:

OD promotes collaboration among employees, teams, and departments, recognizing the importance of teamwork in achieving organizational success. It fosters a collaborative environment that drives collective problem-solving and innovation.

  • Focus on Organizational Culture:

OD emphasizes aligning organizational culture with business goals. It aims to create a culture that values learning, trust, innovation, and adaptability, supporting both employee and organizational growth.

  • Continuous Improvement:

OD is not a one-time intervention but an ongoing process of improvement. Organizations engage in continuous feedback, assessment, and learning to ensure they stay adaptable and relevant in a dynamic environment.

Evolution of Organizational Development:

  • The Early Days (1940s-1950s):

OD emerged in the 1940s, largely influenced by the human relations movement and systems theory. The focus during this period was on improving human behavior in organizations, emphasizing employee satisfaction, motivation, and interpersonal relationships.

  • The 1960s-1970s – Focus on Action Research:

In the 1960s, OD became more structured with the introduction of Action Research as a key methodology. Action research involves collecting data on an organization’s current state, analyzing it, and then implementing changes to address the issues identified. During this phase, OD interventions became more systematic and involved higher participation from employees.

  • The 1980s-1990s – Organizational Culture and Empowerment:

In the 1980s and 1990s, OD practitioners began focusing more on organizational culture, leadership development, and creating systems that empowered employees. The emphasis was on creating adaptive organizations capable of thriving in changing business environments.

  • The 21st Century – Globalization and Technology:

The role of OD has expanded in recent decades to include the effects of globalization, technology, and the digital transformation. Organizations are now focusing on creating a culture of innovation, agility, and resilience to cope with fast-paced changes in the global market.

Components of Organizational Development:

  • Organizational Culture:

The set of shared beliefs, values, and norms that define how things are done in an organization. A healthy culture supports collaboration, accountability, and a commitment to achieving organizational goals.

  • Leadership Development:

Leadership is critical in OD. Developing leaders who can drive change, inspire teams, and effectively communicate organizational goals is essential. Leadership development ensures the organization has capable leaders who can guide others through transformation.

  • Team Development:

OD involves building strong, high-performing teams. This includes promoting collaboration, improving team dynamics, and ensuring teams are aligned with organizational objectives.

  • Communication Processes:

Effective communication is essential for the success of OD. Transparent and open communication allows for feedback, encourages participation, and ensures that everyone in the organization is aligned with the overall goals.

  • Training and Development:

Employees need the right skills and knowledge to perform their roles effectively. OD emphasizes continuous learning and professional development to ensure that employees are capable of adapting to changes and contributing to organizational success.

  • Change Management:

OD includes structured approaches to manage organizational change, ensuring that transitions are smooth and that employees embrace the change process. This involves using strategies to minimize resistance and facilitate the adoption of new behaviors, processes, or technologies.

  • Feedback and Evaluation:

OD emphasizes the importance of continuous feedback and evaluation of processes. Regular assessments of organizational performance and employee satisfaction help identify areas of improvement and measure the success of interventions.

Objectives of Organizational Development

  • Improving Organizational Effectiveness:

OD aims to enhance the performance and efficiency of the organization, ensuring that it meets its goals and objectives. It focuses on improving processes, decision-making, and overall productivity.

  • Increasing Employee Satisfaction and Engagement:

A key goal of OD is to create an environment where employees feel valued, engaged, and motivated. Improving job satisfaction and fostering a sense of belonging leads to higher retention and productivity.

  • Facilitating Change and Adaptation:

OD helps organizations respond to internal and external changes. By building a culture of adaptability, OD ensures that organizations can respond proactively to market shifts, technological advancements, and other challenges.

  • Enhancing Leadership and Management:

OD aims to develop strong leaders who can guide the organization through change, inspire employees, and align teams with organizational goals. Effective leadership is seen as essential for long-term success.

  • Fostering Innovation and Creativity:

OD encourages a culture of innovation by creating an environment where employees feel empowered to suggest new ideas, experiment with different approaches, and collaborate with others.

  • Building Teamwork and Collaboration:

OD focuses on improving teamwork and collaboration across departments, ensuring that all employees work together toward common goals. Team development is a key objective, as collaboration drives organizational success.

Benefits of Organizational Development:

  • Improved Organizational Performance:

OD leads to better alignment between organizational goals and individual performance, driving efficiency and productivity. Organizations that engage in OD interventions typically see improvements in their operations and bottom line.

  • Employee Motivation and Satisfaction:

By focusing on employee involvement, training, and development, OD boosts morale and job satisfaction. Employees feel more engaged and motivated when they see opportunities for growth and when their contributions are valued.

  • Better Adaptability to Change:

OD helps organizations become more flexible and resilient in the face of change. Employees learn to embrace new processes, technologies, and strategies, making the organization more adaptable to external pressures.

  • Stronger Organizational Culture:

OD interventions lead to a stronger and more positive organizational culture. By improving communication, trust, and collaboration, OD helps create an environment where employees can thrive.

  • Enhanced Leadership Capacity:

Through leadership development programs, OD ensures that the organization has strong leaders capable of guiding teams through change and driving performance. Effective leadership improves decision-making, employee relations, and organizational success.

Process of Organizational Development:

  • Diagnosis:

The first step in OD is diagnosing the current state of the organization. This involves collecting data through surveys, interviews, and assessments to understand the challenges and areas of improvement.

  • Action Planning:

Based on the diagnosis, a comprehensive action plan is developed. The plan outlines the goals, strategies, and interventions needed to address identified issues. It includes timelines, resource allocation, and metrics for success.

  • Intervention:

Interventions are implemented to address specific issues within the organization. These may include leadership development programs, team-building activities, communication training, or changes in organizational structure or processes.

  • Evaluation:

After the intervention, the effectiveness of the changes is evaluated. Feedback from employees, performance metrics, and organizational outcomes are assessed to determine whether the desired results have been achieved.

  • Sustainability:

OD is an ongoing process. The organization must ensure that the changes are sustained and that continuous improvement is incorporated into the culture. This involves regular assessments, feedback loops, and further training as necessary.

Areas covered by HR Audit: Pre-employment Requirements, Hiring Process, New-hire Orientation Process, Workplace policies and Practices

(1) Planning:

Planning is one of the major areas where human resource audit can be conducted. Planning of HR requirement and effectiveness of forecasting and scheduling can be ascertained through HR audit. It is to be seen whether the needs of HR were identified in time or not. If there is an indication through audit about inaccurate forecast, the efforts can be made to improve the forecasting techniques for accurate results in future. Through audit management knows whether there is surplus or shortage of manpower.

A review of recruitment and selection practices can be made to meet the future HR requirements. Better programmes and procedure can be adopted by way of cost benefit, budgets. The training programmes can be reviewed in terms of results obtained. Motivation of employees at all levels is the key aspect in HRM. Evaluation of employee motivation will show whether they feel at ease at work and have better prospect if they work hard.

HR auditors should evaluate the communication in the organisation which is one of the major criteria of failure or success. HR auditors should find out the causes of absenteeism, rate of accidents, labour turnover and can make suggestion to improve them. In respect of all these appropriate policies can be formulated by the management.

(2) Staffing and Development:

Staffing and development is yet another are a need to be evaluated with reference to results obtained, programmes and procedures adopted and policies framed. Staffing is done through recruitment and selection. Here the HR auditors need to evaluate the sources of recruitment and the number of persons hired by the organisation. The success of these programmes depends upon the contributions made by the hired persons in the achievement of organisational objectives.

Auditors have to see whether committed workforce is procured through recruitment and selection programmes. They can then make appraisal of recruitment and selection policies, practices and results. As for results are concerned they depend upon the effectiveness of H.R. policies and practices adopted by the enterprise. For conducting the audit of results the HR auditors need to adopt the methods such as questionnaires, checklists, personal data, and attitude and morale surveys productivity data, and costs, time.

The auditors should thoroughly check the records and statistics and should stress on their accurate maintenance. The information in respect of disciplinary actions, absentees, transfers and promotions are available in records. HR auditors have to examine the procedure and programmes adopted in respect of career and succession planning. The policy for staffing should be formulated in to achieve organisational goals. In this case cream should get due consideration that too without any discrimination.

As for training and development, proper policies need to be formulated by making the SWOT analysis of the existing staff and training and development programmes should be prepared to meet the organisational needs. The cost of training is increasing day by day.

Hence there must be evaluation of specified training and development programme. Auditors should see whether the best practice is adopted or not. They should evaluate the training results in terms of cost per trainee hour, average training hours per employee and revenues per employee per year etc. They can obtain the feedback from reports and records available in the organisation.

Another main element of conducting an HR audit needs to include the effectiveness of the HR department’s people management activities. Areas for auditing under people management include staff performance and employee morale, department organization, responsiveness to employees, day-to-day HR operations, the department’s HR strategies and more.

(3) Organizing:

Organisational structures are meant for facilitating coordination, communication and collaboration. HR auditors have to evaluate effectiveness of organisation structure in attaining the results. They can obtain feedback from the employees and from reports and records. They can check the jobs assigned to the individual employees, authority delegated to the subordinates, special task forces etc. H.R. auditors can also evaluate the policy formulated for encouraging employees to accept change. They can also verify effectiveness of three way communication.

(4) Commitment:

Enterprise wants committed employees. Efforts are taken by the management in this respect for motivating individual and groups of employees. HR auditors have to examine the results of motivation through increase in productivity, improvement in performance and costs. They also have to examine the programmes and procedures followed for job enrichment, wage and salary administration, fringe benefits, morale of employees. They have to verify the satisfaction level of employees through the HR policies adopted by the organisation. A satisfied employee is committed to the work.

(5) Administration:

HR auditors have to examine the style of leadership adopted by the management in dealing with the subordinates. Leadership may be authoritative or participative should be evaluated. One of the benchmark in this respect is delegation of authority.

Delegation is more in participative style. Auditors can assess the results of style of leadership adopted in getting the things done through others by inviting suggestion, going through grievances of the staff, disciplinary actions taken against the subordinates etc. Leadership results can also be visualized if auditors examine the union management relationship and the employees getting promotions.

The auditors also have to examine the position of collective bargaining and its procedure to assess the effectiveness of administration in the organisation. They have to look at the policy of the management in respect of collective bargaining and employee participation in decision making.

(6) Research and Innovation:

Research and innovation is yet another area of HR audit. Here several experiments are conducted and theories are put to test by the experts relating to quality design, marketing etc. Results obtained through this Endeavour can be evaluated on the basis of changes brought about, experiments made and reports and other similar publications.

Auditors can evaluate the results. They can also examine the programmes and procedures adopted for R and D efforts. The management’s policy in respect of R & D efforts can be examined by the auditors and necessary suggestions can be made by them in this regard.

Method of conducting HR Audit: Interview, Workshop, Observation, Questionnaire

The purpose of the audit is to reveal the strengths and weaknesses in the organization’s human resources system, and any issues needing resolution. The audit works best when the focus is on analyzing and improving the HR function in the organization. The HR audit itself is a diagnostic tool, not a prescriptive instrument.

It is most useful when an organization is ready to act on the findings, and to evolve its HR function to a level where it’s full potential to support the organization’s mission and objectives can be realized.

An organisation has tended to grow bigger, so have the staff departments along with line functions. A time comes when each of them becomes so big that one does not get a fair idea of how they are doing unless special effort is made and studies are undertaken. For the line functions, some indices are available.

In production, for instance, performance can be judged by how much was produced, to what extent schedules were adhered to, at what cost manufacturing was done, what was the unit cost, etc. These figures in themselves are important and they take added meaning when they are compared with, say previous year or years or with the planned and budgeted figures.

Similarly, marketing departments efficiency can be judged by the quantum of sales, sales vis-a-vis competitor’s sales, cost of sales, territories covered, new customers explored, old customers retained, etc.

In case of departments like HR such yardsticks are not readily available. Essentially they have to be evolved according to an organisation’s requirements. Today personnel departments have become big and employ sizable staff and specialists. As such, some kind of audit needs to be undertaken to secret in the functioning of the department. Hence, HR audit comes in the picture.

Method

HR audit is a tool to measure the level of human resources development system.

  1. Interview Method:

Top management and senior management (Line managers and employees) are interviewed by the HRD auditor. It is a structured interview designed to solicit information on the perspectives of respondents on the future growth plans and goals of the organization, organization culture, working style, career development, work flow system, leadership style, morale, motivation, vision, mission etc. In view of the time and resources constraints, HRD auditor uses sampling techniques to interview the employees.

  1. Questionnaire Method:

HRD auditor designs and administers structured questionnaire to assess the various dimensions of HR development. It is usual practice to test the reliability and validity of the instrument using appropriate statistical technique by conducting a pilot study. Then he has to choose the proper sample size. The questionnaire should accommodate questions reflecting the objectives of HRD audit. It is given to the sample respondents who have to record appropriate response.

  1. Observation Method:

HRD manager observes the employees in their natural environment i.e., workplace, canteen, training camps, residential colony to assess the suitability and conduciveness of environment for human resource development.

  1. Desk Research Method:

HRD manager collects and uses details relating to performance appraisal report, ethical practices, achievement records, welfare measures, suggestion scheme, career development, frequency of training programmes, feedback of participant trainees, methods used to ascertain training needs, safety practices, accident prevention, incentive and compensation system, etc. He analyses the facts and figures relating to aforesaid areas and arrives at appropriate findings.

This method does not involve interviewing the respondents through a questionnaire or an interview schedule. The entire information is gleaned from the relevant records of the organization.

  1. Workshop Method:

Employees are selected either through a sampling technique or through some other norms, for participation in a workshop conducted exclusively for HRD audit purpose. All the participants selected are divided into groups. Different dimensions of HRD are assigned to different groups for SWOT analysis. Then each group is required to prepare a report and make presentation on the themes assigned. The outcomes of the report of each group are deliberated deeply and suggestions are made to the organization. The whole exercise is moderated by the HRD auditor.

  1. Task Force Method:

A task force comprising different experts from various domains in the organization is constituted to identify, evaluate and recommend an appropriate solution to the HRD problems identified. HRD manager can work on the accepted recommendations for further development.

Cost of Human Resource: Acquisition cost, Training and Development cost and additional cost

Measuring Human Resource costs (HR costs, also called Human Resource costing), is a key component of HR accounting. In this article, we’ll explain what Human Resource costing is, why you should measure costs, how to do it and why just measuring Human Resource costs is not enough.

Reasons

  • Predict future costs
  • Monitor departmental costs
  • Calculate a return of investment (ROI)
  • Measure impact and overall success

Remuneration: Remuneration costs include basic pay, dearness allowance, city compensatory allowance, house rent allowance, conveyance allowance, etc. However, these are paid remuneration costs. Organizations are also required to cater for deferred benefits to employees. Certain statutory payments to employees are also accounted under this head, like, contribution to provident fund, pension fund, medical benefits, payment for holiday, sickness, bonus, etc. To retain and attract talent, organizations may also give various fringe benefits to their employees. Even the latest practice to provide stock options to employees involves certain opportunity cost to the organization. The best practice is to delineate such cost elements and arrange the same in the form of a spread sheet. Element-wise cost trends then can be studied over the years and also can be bench-marked with other comparable organizations to understand the nature of variance and to enforce control, wherever necessary.

Recruitment: Recruitment cost is also another major cost head for HR. Right from developing job specifications to describing job requirements, it includes costs of  recruitment, promotion (through advertising), head hunting, evaluation, interviewing, induction and orientation. A well defined job specification minimizes the search for the right fit and consequent costs. If recruitment plans are to meet short-tern-requirements, it may be better to outsource than go in for direct recruitment. There are many specialized manpower agencies, which make people with required skill sets available on contractual terms. Similarly, internal hiring also needs to be explored vis-a-vis external hiring. Internal hiring involves restructuring and relocation costs, a clear policy on ‘promotion from within’ (wherever recruitment is made for the higher posts), etc. A detailed study on cost of hiring is necessary to explore an alternative recruitment process.

Training Costs: Training costs include, cost for induction period, cost of remuneration for the trainee and trainer, cost of travel for the trainee and the trainer, if any, cost of training materials, imputed cost of machines and equipments, used during the training, cost for development of training modules, cost of training evaluation, cost of material wastage during training, if any, cost of production loss for the trainee and the trainer (if he is within the organization, for in-house training), etc. To accurately ascertain cost of training, it is necessary to develop a checklist or a worksheet, delineating all direct and indirect costs of training. There are various methods of training delivery, which we have discussed in previous posts: Different employee training & development methods. Relative benefits and costs of each such method also need to be weighed to understand the most cost-efficient system. Any training on skill renewal needs to be weighed in terms of expanded skill cycle of the trainees. If the trainees are in the higher age bracket or due to retire within a short span, then offering them voluntary retirement (VR) may be more cost effective than putting them on training for skill renewal and skill change.

Relocation Costs: Many organizations have their policies on periodic relocation of employees as part of their restructuring exercise. This is more appropriate for those who have their units in multiple locations. Such decisions from organizational point of view, involve cost related to disturbance allowance, cost of possible litigation, cost of housing, cost of travel, etc. Many departmental undertakings and public sector units thoughtlessly relocate their employees adding costs to the exchequer. Hence relocation decisions must be cost effective or else this will defeat the purpose, straining organizational viability.

Separation Costs: Relocation also induces separation. There may be other reasons for separation, which may be either for organizational initiative or for individual employees’ reasons. Since separation requires replacement, immediate cost effect is on loss of production. Other costs of separation are redundancy benefits (if separation is organization induced), ex-gratia payments (if any), etc. Since separation follows immediate liquidation of fringe benefits, savings of the organization on this course also need to be considered to compute the actual costs.

Personal Overhead Costs: Personnel overhead costs spread over personnel record keeping, costs for maintaining Human Resources Information Systems (HRIS), cost of personnel decisions and overall costs for maintaining personnel department (salary of the people working in this department). Outsourcing personnel services to a great extent can reduce such cost burden. However, its relative merits and demerits need to be studied.

Support Costs: Some of the employee support services are statutory, while others are offered voluntarily by the organizations. For computing support costs, therefore, it is necessary to distribute these under two different heads and then study their impact. Medical welfare, canteens, safety, security, insurance (medi-claim, etc.), death benefits, parking space costs, etc. are some of the statutory costs for employee support services. While house journal, club membership, music at workplace, long service awards, suggestion schemes, library services, holiday homes, etc., are examples of voluntary support services for employees. Since, employee support services have direct effect on employee motivation, cost curtailment decisions must have reference to this aspect.

Diversity and Recruitment

Diversity hiring is hiring based on merit with special care taken to ensure procedures have reduced biases related to a candidate’s age, race, gender, religion, sexual orientation, and other personal characteristics that are unrelated to their job performance.

A diversity recruitment strategy defines goals, accountabilities, action items and success measures for attracting, engaging, assessing and hiring diverse talent to drive business success. It is often part of a larger diversity and inclusion strategy, developed to ensure a workforce reflects a company’s customer base and the communities where it operates, and to capitalize on the benefits that can come from a diverse range of backgrounds, experiences and perspectives.

Confusion over diversity hiring sometimes lies in the mistaken perception that the goal of diversity recruitment is to increase workplace diversity for the sake of diversity.

The goal of diversity hiring is to identify and reduce potential biases in sourcing, screening, and shortlisting candidates that may be ignoring, turning off, or accidentally discriminating against qualified, diverse candidates.

Businesses have started to recognize diversity in the workplace as a business strategy that maximizes productivity, creativity and loyalty of employees while meeting the needs of their clients or customers. If a company is only as good as their employees, then it stands to reason that a great deal of energy should be devoted to hiring the most talented individuals. By branching out to a diverse workforce, employers have access to a greater pool of candidates thereby improving the odds of hiring the best person. In a competitive marketplace, an organization that puts people first regardless of their race, religion, gender, age, sexual preference, or physical disability has an advantage over the other players.

There are more job openings than people looking for work, companies are facing the tightest labor market in almost 50 years, and workforce demographics are changing fast. Employers are stepping up their game to compete and win valued talent, but it’s a candidate’s market and their demands are high when it comes to workplace diversity.

Goals might look something like this:

  • Drive and measure the impact diversity and inclusion has on business results.
  • Increase diversity at every level of our organization to better reflect our customer base and the communities we serve.
  • Recognize, maximize and reward behaviors that foster a diverse and inclusive culture.

Reconsider Job Requirements

Job specifications may include equal employment opportunity statements, but people who write them often don’t think about factors that influence the chances of certain candidates applying.

Bias at the Sourcing Stage

Bias can enter the search and sourcing process whether you’re male or female, white or black, Latino or Asian, European or American. Case in point: Campbell said an analysis of data from the estimated 80,000 recruiters worldwide who use his platform found that when recruiters search for candidates on LinkedIn, regardless of role, they’re more likely to look at male profiles.

In every profession and at every level of seniority, Campbell said, recruiters end up looking at twice as many male as female profiles.

Train to Spot Bias in Screening

Screening is arguably where most bias comes into play, Campbell said. Unconscious bias training can help. Research has shown that hiring managers, whether male or female, rate male candidates as more competent and hirable than identical female candidates for STEM positions.

Work to Ensure a More Balanced Slate

Whether the priority is more diversity based on race, gender, ethnicity or some other dimension, it pays to have a diverse interview slate. A company looking to hire more women may not want to bring in the top four candidates if they’re all men, but swap the top two out for women.

There are several steps that organizations can and should take to promote a diverse work environment:

Create a diversity policy and publicize it.

Your policy should set formal goals and strategies pertaining to creating an equal opportunity environment. Once your policy is in place it should be made public both internally and externally.

Write job descriptions as to not exclude anyone.

Your job description should clearly be written for all types of applicants and should in no way discriminate.

Publicize job openings in different venues to attract a diverse workforce.

Look beyond obvious recruitment methods and venues for good people. There are many sites online that help facilitate equal opportunity employment and include: Yahoo!, En Espanol, Diversity Inc, America’s Job Bank, The Society of Hispanic Professional Engineers, the Society of Women Engineers, the National Society of Black Engineers, and the Black Executive Exchange program.

Be aware of current legislation.

Staying current on the latest discrimination legislation will help you avoid potential litigation.

Once the appropriate steps are taken, learning how to manage the diverse workforce will take some time. It requires education, sensitivity and awareness of how individuals from different cultures handle communication, business etiquette, and relate to management. Promoting workforce diversity requires HR recruitment of competent and qualified employees and the accommodation of individual needs within the context of the work team and the organization.

Get more diversity into your hiring funnel

When hiring managers are pressuring your recruiters to hire critical positions as quickly as possible, it can be easy to forget about adding diversity in your funnel. A data-driven recruiter continuously monitors the funnel to see whether diversity increases or decreases as candidates move through the pipeline.

Keep track of your post-hire data

How your diverse hires fare long-term at your organization reveals important insights about your hiring practices. How long these employees stay at the company, how they perform, and how soon they receive promotions can tell you about the quality of your diverse hires.

Deductive and inductive approach in theory formulation

Induction is a reasoning method by which a law or a general principle would be inferred via observing specific cases. The inductive approach emphasizes on observation and deriving conclusions through observation. It generally moves from specific to general, since the researcher generalizes his limited observations of specific circumstances to general conditions. In accounting, the inductive approach begins by observing the financial information of the companies and progresses towards constructing accounting generalizations and principles out of those observations and reoccurring relations.

In deductive approach, in order to achieve a consensus, the structure of logical reasoning needs to be quite formal. However, in inductive approach, the accounting practice can turn into accounting principles. Accounting standard setters, extracted the conceptual framework via the best practices which in turn have been identified based on the assumed objectives of financial reporting. At the same time, attention was paid to the conceptual integrity, because the framework has been developed descriptively, although the objective was to make an imperative framework for providing guidelines to set and interpret accounting standards.

Deductive Approach

This approach involves developing a theory from elementary proposals, premises and assumptions which results in accounting principles that are reasonable conclusions about the subject. The theory is verified by determining whether its results are acceptable in practice. Edwards and Bell are deductive theorists and historical cost accounting was also derived from a deductive approach.

The deductive approach constitutes developing of an assumption based on the existing theories and forming a research plan to test the assumption (Wilson, 2010). The deductive approach can be explained using the assumption driven from theory. In other words, the deductive approach includes deducing the results from the premises. When a deductive method is applied for a research project, the author formulates a set of hypotheses that need to be tested and next, using a relevant methodology, tests the hypothesis. Deductive reasoning has specific characteristics that needs be understood. If the premises of deductive reasoning are accepted, then, the conclusion must necessarily be accepted. In a deductive reasoning, the contents of the result are implicitly stated in the premises, making such argument a non-ampliative one. If new premises are added to the argument, then the conclusion must still follow. A deductive argument is either valid or invalid and there is no degree of validity. There is no choice or decision in applying such argument and no judgment is necessary for getting the result and conclusion.

Inductive Approach

For this approach we start with observed phenomena and move towards generalized conclusions. The approach requires experimental testing, i.e. the theory must be supported by sufficient illustrations/observations that support the derived conclusions. Fairly often the logical and inductive approaches are mixed as researchers use their knowledge of accounting practices. As Riahi-Belkaoui states: General propositions are formulated through an inductive process, but the principles and techniques are derived by a deductive approach. He also observes that when an inductive theorist, collaborates with a deductive theorist, a hybrid results showing compromise between the two approaches.

Inductive approach begins with specific observations and the conclusions are generalized. In inductive approach, after selecting a number of observations correctly, one can generalize the conclusion to all or groups of similar conditions and situations. These generalizations need to be tested, some of which might be verified and some rejected. Accordingly, all of the principles which are derived based on inductive reasoning are theoretically falsifiable. In the induction process, the researcher as an observer, should honestly, without any prejudgments and biases, and with an impartial mind, register what they observe. Then these observations form a basis on which theories and laws are constructed which make up the scientific knowledge. Inductive researchers also believe that one can logically generalize the observations into general and inclusive rules and the scientific assumptions get verified and ratified.

According to the inductive approach, at the end of research and as a result of observations, theories are constructed. The inductive approach includes looking for a pattern based on the observations and developing a theory for those patterns through hypotheses. In inductive research, no theory is applied at the beginning of the research and the researcher enjoys complete freedom in terms of determining the course of research. Particularly, there is no assumption at the early stages of research and the researcher is not sure about the kind and the nature of findings as research is not finished yet. In inductive reasoning the researcher uses the observations in order to construct an abstract or to describe the circumstances being.

The main advantage of the inductive method is that there is no necessity for any pre-fabricated framework or model. Obviously, while principles are generalized they should be verified through a logical method (deductive approach). The inductive approach towards science has been criticized concerning some aspects. The main issue of the inductive method can be the researchers’ being influenced by their limited knowledge of the relations and the data of the research. Some claim that induction as a principle is falsifiable because it is based on human observations.

Internal Control structure and Management philosophy

An effective internal control structure includes a company’s plan of organization and all the procedures and actions it takes to:

  • Ensure compliance with company policies and federal law.
  • Protect its assets against theft and waste.
  • Ensure accurate and reliable operating data and accounting reports.
  • Evaluate the performance of all personnel to promote efficient operations.

Companies protect their assets by:

Segregation of employee duties Segregation of duties requires that someone other than the employee responsible for safeguarding an asset must maintain the accounting records for that asset. Also, employees share responsibility for related transactions so that one employee’s work serves as a check on the work of other employees.

Assignment of specific duties to each employee When the responsibility for a particular work function is assigned to one employee, that employee is accountable for specific tasks. Should a problem occur, the company can quickly identify the responsible employee.

Rotation of employee job assignments Some companies rotate job assignments to discourage employees from engaging in long-term schemes to steal from them. Employees realize that if they steal from the company, the next employees assigned to their positions may discover the theft.

Use of mechanical devices Companies use several mechanical devices to help protect their assets. Check protectors (machines that perforate the check amount into the check), cash registers, and time clocks make it difficult for employees to alter certain company documents and records.

Record Keeping. Companies should maintain complete and accurate accounting records. One or more business documents support most accounting transactions. These source documents are an integral part of the internal control structure. For optimal control, source documents should be serially numbered.

Employees. Internal control policies are effective only when employees follow them. To ensure that they carry out its internal control policies, a company must hire competent and trustworthy employees. Thus, the execution of effective internal control begins with the time and effort a company expends in hiring employees. Once the company hires the employees, it must train those employees and clearly communicate to them company policies, such as obtaining proper authorization before making a cash disbursement. Frequently, written job descriptions establish the responsibilities and duties of employees. The initial training of employees should include a clear explanation of their duties and how to perform them.

Legal requirements. In publicly held corporations, the company’s internal control structure must satisfy the requirements of govt. law.

The components of internal control are:

Risk assessment. After the entity sets objectives, the risks (such as theft and waste of assets) from external and internal sources must be assessed. Examining the risks associated with each objective allows management to develop the means to control these risks.

Control environment. The control environment is the basis for all other elements of the internal control structure. The control environment includes many factors such as ethical values, management’s philosophy, the integrity of the employees of the corporation, and the guidance provided by management or the board of directors.

Control activities. To address the risks associated with each objective, management establishes control activities. These activities include procedures that employees must follow. Examples include procedures to protect the assets through segregation of employee duties and the other means we discussed earlier.

Monitoring. After the internal control structure is in place, the firm should monitor its effectiveness so that it can make changes before serious problems arise. In testing components of the internal control structure, companies base their thoroughness on the risk assigned to those components.

Information and communication. Information relevant to decision making must be collected and reported in a timely manner. The events that yield these data may come from internal or external sources. Communication throughout the entity is important to achieve management’s goals. Employees must understand what is expected of them and how their responsibilities relate to the work of others. Communication with external parties such as suppliers and shareholders are also important.

The internal control environment includes five factors.

Competence of the entity’s people: Competence is the knowledge and skills necessary for particular functions. So does an organization set up the tone of hiring only competent employees? First, management determines the knowledge and skills required for each position, then establishes the job descriptions for these positions. Furthermore, there is a well-designed hiring process and performance review process to ensure that new hires and employees are competent to perform their assigned tasks and assist the organization in achieving their objectives.

Integrity and ethical value: Many organizations seek a high level of integrity and ethical value. But how do organizations obtain them? Usually, those organizations have a clear Code of Conduct and/or Conflict of Interests policies. They periodically communicate these polices to employees to promote honesty and integrity. In addition, some organizations adopt business best practices and emphasize internal controls, which is also clear evidence that the organizations are striving to integrate the integrity and ethical value into the daily business operations.

Management’s Philosophy and Operating style: Management may not achieve its business objectives if it does not introduce and maintain a philosophy and operating style that supports the business objectives and strategies. Management’s philosophy and operating style include management’s attitudes towards the organization objectives, the approaches to minimize the business risks and attitude toward internal controls over financial reporting. For example, if management sets up an unrealistic financial goal and aggressively persuades employees to achieve the goal, what will happen? The chance of misstatement in financial statements becomes higher.

Direction provided by the board of directors: An effective Board of Directors and Audit Committee provide an important oversight function and, because of management’s ability to override controls, they play an important role in the control environment, helping to set a positive tone at the top. For private companies, often there is no Audit Committee. However, to have the Board of Directors is very important for private companies as well. It oversees the organization’s plans and performance, provides management directions with experiences, and oversees the organization’s internal control function.

Authority and Responsibility: The control environment is greatly influenced by the extent to which individuals recognize that they will be held accountable. Accountability plays a critical role in carrying out internal controls in an organization. Sections 302 and 404 of the Sarbanes-Oxley Act (SOX) hold management in an organization accountable for financial reporting to ensure financial reporting is accurate and timely. In the organization, management holds employees accountable for all activities and business practices to ensure the organization is in compliance with SOX. To have an accurate, effective and timely financial reporting system, management must ensure that adequate reporting relationships and authorization hierarchies are in place.

Approaches to Stress Management

Individual level planning to manage stress focuses on developing individual behaviour that helps in the elimination of sources of stress. It helps in developing a perspective to view things that enables the person to cope with stress in a more effective manner.

Above all ‘can’ and ‘positive’ attitude matter the most in managing stress. It has been rightly said ‘They can because they think they can’.

Developing a Positive Attitude towards Life:

Adopting a positive attitude towards life goes a long way in dealing with stress. It helps the individual to deal better with the problems of daily life. Positive orientation and attitude towards life bring optimism in responding to the situations and help in overcoming worry and anxiety.

Having a positive attitude helps us in seeing the bright side of life and expecting the best to happen. It is basically a state of mind worth developing as it prepares and enables us to handle, cope with, and manage stress. An individual should learn to enjoy life and recollect happy memories. One should understand that obsession with difficulties or indulging in self-pity does not help.

Physical and Psychological Withdrawal:

Scheduling of activities has another advantage. The worker is able to keep some time away from the workplace to relax and be with oneself. This time may be spent in relaxation, with family and friends, recreational activities, hobbies, travelling, or simply introspecting.

Employees who keep some time aside to physically and psychologically withdraw from work- related responsibilities are able to tackle work with renewed vigour the next day. Annual vacations and weekly offs are ways in which organizations aid the worker in withdrawing from work. Apart from that, many companies organize vacations and picnics exclusively for their staff; not only to reward them for their year round hard work but also to entertain and rejuvenate them.

Developing a Psychological Support System:

It helps in effectively managing stress. Similarly, expanding social support network and finding an emphatic listener to hear and suggest an objective and broader perspective about the problem situation is beneficial. If the issue is work related, then an organizational solution is required to help the individual.

Some of the strategies that the management may consider are scientific and involves improving personnel selection and placement process, training, realistic goal setting, redesigning jobs, increasing employee involvement, improving organizational communication, offering employees vacation allowances, extending sabbaticals, and setting up corporate employee welfare programme departments.

Maintaining Good Physical Health:

Regular physical exercises, such as aerobics, walking, jogging, swimming, cycling, etc., help in dealing with excessive stress. Regular sleep, and timely and healthy eating habits also help the individual to tackle stress better.

Today, yoga is fast gaining popularity not only as a stress reliever, but also as an exercise that can balance the individual’s physical, psychological, and emotional being. These physical exercises help in building heart capacity, lowering the at-rest heart rate, providing mental diversion from work pressure, and offering a means to ‘let off steam’. While exercising, the body releases a hormone known as end morphine that makes one feel good about the self.

Accepting Your Mistakes:

Mistakes are a part of human life and work. In fact an individual’s mistakes are stepping stones to success. An individual can avoid considerable amount of stress by avoiding egoistic behaviour and owning up to errors in actions and decisions, as and when applicable. The world need not be always as the individual expects it to be.

In an organization, employees may clash over technology, skills, methods, and knowledge. Excessive worry or adamant behaviour not only causes stress, but is also viewed by others as immature behaviour. An intelligent employee not only accepts mistakes but is also open and receptive to change.

This attitude is relevant to the top-level management as it is their openness to change that directs the organization towards new avenues. Hopeless cases are rare. One should never lose faith in the possibility of change.

Time Management:

It contributes a great deal in handling stress. The individual should firstly avoid the superhuman urge to do more than what he/she is capable of. They should learn to say ‘no’ to tasks that are beyond their capacities of time and energy.

Scheduling meetings and prioritizing tasks leads to the completion of tasks, both simple and complex, within a given time frame. However, the individual has to be disciplined and needs to stick to the daily, weekly, or monthly agenda so as to achieve the target goals. This not only reduces stress but also ensures that targets are met on time.

Practising Relaxation:

Techniques such as meditation, hypnosis, and bio-feedback reduce tension. As per Forbes and Pekala (1993), the objective of practising relaxation techniques is to feel physically relaxed, somewhat detached from the immediate environment and from body sensation.

Practising transcendental meditation, yoga, ego-void activity an activity without the sense of doership such as voluntary work in an NGO or religious place, having faith in a higher power, reading, and practising spirituality can also reduce stress to considerable levels.

Actors in Industrial Relation

Industrial Relations refer to the relationship between employers, employees, trade unions, and the government in regulating workplace conditions, labor laws, and dispute resolution. Various actors play a key role in shaping industrial relations.

  • Employers

Employers are business owners or managers responsible for hiring, managing, and compensating workers. They establish work policies, negotiate wages, and ensure productivity. Employers also play a crucial role in industrial relations by adhering to labor laws, maintaining workplace harmony, and engaging in collective bargaining with employees or trade unions.

  • Employees

Employees are the workforce that contributes to organizational productivity. They demand fair wages, job security, and safe working conditions. Employees participate in industrial relations through feedback, collective bargaining, and union membership. Their grievances and expectations influence labor policies and employer-employee relationships, shaping workplace harmony and dispute resolution mechanisms.

  • Trade Unions

Trade unions represent employees in negotiations with employers regarding wages, benefits, and working conditions. They advocate for workers’ rights, ensure fair treatment, and resolve labor disputes through collective bargaining. Unions also engage in strikes and protests if employers fail to meet labor demands, influencing industrial relations significantly.

  • Employers’ Associations

Employers’ associations are organizations formed by employers to represent their collective interests in industrial relations. They negotiate with trade unions, provide legal support, and influence labor laws. These associations help businesses set employment policies, resolve disputes, and maintain a stable industrial environment through collective bargaining and consultations with government bodies.

  • Government

The government regulates industrial relations through labor laws, policies, and dispute resolution mechanisms. It ensures fair treatment of workers, prevents labor exploitation, and balances employer-employee interests. Government agencies oversee minimum wages, working hours, occupational safety, and industrial dispute settlements, creating a structured and lawful work environment.

  • Labor Courts and Tribunals

Labor courts and tribunals resolve industrial disputes between employers and employees. They interpret labor laws, handle cases related to unfair labor practices, wage disputes, and wrongful termination. By providing a legal platform for dispute resolution, these courts ensure industrial harmony and the enforcement of fair labor practices.

  • International Labor Organizations (ILO)

The International Labour Organization (ILO) sets global labor standards, promotes fair wages, and ensures worker rights. It advises governments and industries on best labor practices, occupational health, and fair working conditions. ILO also mediates in industrial disputes and fosters international cooperation on labor policies.

  • Media

Media plays a vital role in industrial relations by reporting labor issues, strikes, and employer practices. It shapes public opinion, influences labor laws, and exposes unfair treatment of workers. Through investigative journalism and labor news coverage, media acts as a watchdog for workplace rights and employer accountability.

  • Legal Professionals and Consultants

Legal professionals and labor consultants assist employers and employees in understanding labor laws and rights. They provide legal advice, represent parties in labor disputes, and draft employment contracts. Their expertise ensures compliance with labor laws, preventing industrial conflicts and facilitating smoother employer-employee relationships.

  • Civil Society and NGOs

Non-governmental organizations (NGOs) and civil society groups advocate for labor rights, workplace safety, and social justice. They intervene in labor disputes, provide legal aid to workers, and push for labor law reforms. These organizations play a crucial role in ensuring ethical labor practices and worker empowerment.

Promotion: Meaning, Definitions, Features, Objectives, Nature, Basis of Promotion

Promotion refers to the upward movement of an employee within an organization to a position with greater responsibilities, higher status, and better compensation. It serves as a recognition of the employee’s performance, skills, and potential to handle more complex tasks. Promotions are typically linked to improved job satisfaction, motivation, and retention, as they provide employees with a sense of achievement and career advancement. Organizations benefit from promotions by fostering loyalty, enhancing productivity, and ensuring leadership continuity. A well-structured promotion policy supports fair growth and skill development across the workforce.

Edwin B. Flippo, “A promotion involves a change from one job to another that is better in terms of status and responsibilities.”

Scott & Spriegal, “A promotion is the transfer of an employee to a job that pays more money or that enjoys some better status.”

Paul Pigors and Charles Myers, “Promotion is an advancement of an employee to a better job, better in terms of greater responsibilities, more prestige or status, greater skill and specially increased rate of pay or salary”.

Dr. L.D. White, “means an appointment from a given position to a more difficult type of work and greater responsibility accompanied by change of title and usually an increase in pay.” Real promotion means rising to a higher post carrying a higher grade.

Features of Promotion:

  • Advancement in Position

Promotion entails an upward movement in the organizational hierarchy. Employees are moved to higher-level positions, which usually come with increased responsibilities, decision-making authority, and job complexity. This advancement reflects an individual’s growth within the company.

  • Reward for Performance and Merit

Promotion often serves as a reward for consistent and exceptional performance. Organizations promote employees who have demonstrated their capability, loyalty, and commitment. It acknowledges their contributions and encourages others to improve their performance.

  • Increase in Responsibilities

With promotion comes increased responsibilities and accountability. Employees are required to take on more complex tasks, lead teams, and contribute to strategic goals. This expansion of duties helps develop managerial and leadership skills.

  • Higher Compensation and Benefits

Promotions typically result in better financial rewards, including higher salaries, bonuses, and additional benefits. These incentives serve as motivation for employees to strive for career advancement and improve their productivity.

  • Based on Merit, Seniority, or Both

Organizations may base promotions on merit, seniority, or a combination of both. Merit-based promotions focus on an employee’s skills, performance, and achievements, while seniority-based promotions consider the length of service. A balanced approach ensures fairness and transparency.

  • Career Growth Opportunity

Promotion provides employees with opportunities for personal and professional growth. By moving to higher-level positions, employees can enhance their skills, gain diverse experiences, and prepare for future leadership roles.

  • Enhances Employee Morale and Motivation

A well-implemented promotion policy boosts employee morale by recognizing their hard work and dedication. When employees see a clear path for advancement, they remain motivated, engaged, and committed to achieving organizational goals.

  • Alignment with Organizational Goals

Promotion policies are designed to align with the organization’s strategic objectives. By placing competent employees in key roles, organizations ensure efficient decision-making, better leadership, and overall growth.

Objectives of Promotion:

  • To create product and Brand Awareness:

Several sales promotion techniques are highly effective in exposing customers to products and brands for the first time and can serve as key promotional components in the early stages of new product and brand introduction. This awareness is the basis for all other future promotional activities. Promotional activities motivate the customers to try new products and brand and the dealers also to push the new products and brands.

  • To create Interest:

Sales promotions are very effective in creating interest in a product. In fact, creating interest is often considered the most important use of sales promotion. In the retail industry an appealing sales promotion can significantly create customer interest.

  • To provide information:

Promotional activities provide substantial information about the product to the customers. This goes a long way in converting interest into actual sales.

  • To stimulate Demand:

Effective promotional activities can stimulate demand for the product by convincing the customers to buy the products.

  • To reinforce the Brand:

Promotion can be used to reinforce or strengthen the brand in the minds of the customers. This will ensure repeat sales of the product in the long run.

  • To attract new Customers:

Sales promotion measures also play an important role in attracting new customers for an organization. Usually, new customers are those persons that are loyal to other brands. Samples, gifts, prizes, etc. are used to encourage consumers to try a new brand or shift their patronage to new dealers.

  • To induce existing Customers to buy more:

Promotion activities can increase the purchases made by the existing customers by making them consume more quantity or consume on more occasions.

  • To help the firm to remain Competitive:

Companies undertake sales promotion activities in order to remain competitive in the market. Therefore, in the modern competitive world no firm can escape sales promotion activities.

  • To increase sales in off-seasons:

Sales of the products naturally reduce during the off-season. Therefore, promotional activities can be implemented during the off-season to maintain or even increase the sales. Techniques such as off-season discounts, off-season offers can achieve this.

  • To add to the stock of the Dealers:

Dealers like wholesalers and retailers usually deal with a variety of goods. Their selling activity becomes easier when the manufacturer supplements their efforts by sales promotion measures. When a product or service is well supported by sales promotion, dealers are automatically induced to have more of such items.

  • To Keep Existing Customers:

A sales promotion can be geared toward keeping existing customers, especially if a new competitor is likely to enter the market.

  • To clear Inventory:

Promotional techniques can be effectively used to clear unsold inventory by giving effective offers.

Nature of Promotion:

  • Induces Action:

The ultimate goal of all marketing activities is to make a sale. An effective promotional strategy will grab the attention of the would-be consumers, create interest in their minds, provide enough information about the product to help them in taking the purchase decision and finally induce them to take action, i.e. purchase the product.

  • Creates Interest:

It is not enough to get the attention of the customer. The aim of promotion is to make the potential customers interested in knowing more about the product. Customers will be interested only in those products that they actually need, so the promotional messages should emphasise on how the featured product can fulfill their needs.

  • Creates Awareness:

Promotional activities expose an adequate number of target consumers to the messages and create awareness about the product. For this purpose, such promotion media is chosen which will reach adequate numbers of target consumers. Print, electronic, outside or online media can be used as per nature of the product and target audience.

  • Informative:

The target markets need to know about the functions and characteristics of the product so that they can relate their needs with it. Promotion is done to provide the necessary information and details to the prospective buyers of the product. The information given to the customers should also enable them to differentiate the product from those of competitors.

  • Attention Grabbing:

The promotional campaigns draw the potential customer’s attention towards the product. The customers are not aware about the new product and it is only through promotional activities that they can be informed about the product, its features and utility.

Basis of Promotion

1. Merit-Based Promotion

Merit-based promotion focuses on an employee’s performance, skills, and competencies. Employees who consistently exceed expectations, deliver outstanding results, and demonstrate leadership potential are rewarded with promotions. This approach ensures that talented and high-performing individuals rise within the organization, fostering a competitive and efficient work environment.

Advantages

  • Encourages hard work and high performance.
  • Helps retain talented employees.
  • Drives innovation and productivity.

Disadvantages

  • May lead to dissatisfaction among senior employees.
  • Can result in bias or favoritism if not managed properly.

2. Seniority-Based Promotion

In seniority-based promotion, employees are promoted based on their length of service in the organization. This approach values experience and loyalty, ensuring that long-serving employees are rewarded for their dedication.

Advantages

  • Reduces conflicts and competition among employees.
  • Provides a clear and predictable promotion path.
  • Encourages employee retention and long-term commitment.

Disadvantages

  • May lead to the promotion of less competent employees.
  • Can demotivate younger, high-performing employees.

3. Merit-Cum-Seniority Promotion

A balanced approach, merit-cum-seniority promotion considers both an employee’s performance and their tenure. This method ensures that promotions are fair, rewarding both competency and experience. Organizations often use this approach to avoid conflicts and maintain morale while promoting deserving employees.

Advantages

  • Combines the strengths of both merit and seniority-based promotion.
  • Ensures fairness while maintaining efficiency.
  • Balances organizational growth with employee satisfaction.

Disadvantages

  • Requires a robust performance evaluation system.
  • Can be complex to implement consistently.

4. Vacancy-Based Promotion

This type of promotion occurs when a vacancy arises in a higher position, and the best-suited employee is selected to fill it. It may follow merit, seniority, or a combination of both, depending on the organization’s policy. Vacancy-based promotion ensures that only necessary promotions are made, based on organizational needs.

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