Principles of ManagementClass 12 Business Studies Part 1 Notes

Principles of Management: The Concept

Management principles are broad and general guidelines that help managers make decisions and behave in certain ways within an organization. Think of them not as strict rules, but as helpful advice based on what has worked for others. They provide a framework for action but don't offer ready-made solutions for every problem.

It's important to understand what management principles are not:

• They are not like principles of pure science. Scientific principles (like gravity) are rigid and universally true. Management principles deal with human behavior, which is complex and ever-changing. Therefore, they must be applied creatively to fit the specific situation.
• They are not techniques. Techniques are specific procedures or methods with a series of steps to achieve a goal. Principles are the guidelines you follow while using those techniques.
• They are not values. Values are personal beliefs about what is right, desirable, or has moral importance. Principles are basic truths or guidelines for behavior in work situations. While business decisions should not neglect values, principles are more technical in nature, formed through research and experience in the workplace.

Nature of Principles of Management

The characteristics of management principles help us understand how they work and why they are important.

• Universal applicability: These principles can be applied to all types of organizations—business, non-profit, large, small, public, or private. However, how they are applied will change depending on the organization's size, nature, and activities.
• General guidelines: Principles are not strict rules. They are flexible guides to action. Business situations are complex, so a principle offers a starting point, but the manager must adapt it to the specific problem.
• Formed by practice and experimentation: These principles have been developed over a long time through the shared experiences of managers and through controlled experiments. They are the result of collective wisdom and research.
• Flexible: Management principles are not set in stone. Managers can modify them to suit the demands of a situation. For example, the degree of centralization (concentration of authority) in a company can be adjusted based on its needs.
• Mainly behavioural: Since management is about coordinating human effort, these principles are designed to influence the behavior of people. They help us understand the relationship between human and material resources to achieve organizational goals.
• Cause and effect relationships: The principles aim to show the likely outcome (effect) if a certain principle (cause) is applied in a situation. While they can't predict outcomes with perfect accuracy because they involve human behavior, they help managers understand the potential consequences of their decisions.
• Contingent: The application of a management principle is dependent, or contingent, on the situation at a particular time. What works in one scenario may not work in another. For instance, what is considered "fair remuneration" for an employee depends on their contribution, the company's ability to pay, and the prevailing wage rates.

Significance of Principles of Management

Understanding and applying management principles is crucial for effective management. Their significance comes from their utility in real-world situations.

• Providing managers with useful insights into reality: Principles equip managers with a better understanding of business situations. By following them, managers can learn from past mistakes, solve recurring problems more quickly, and improve their overall efficiency.
• Optimum utilisation of resources and effective administration: Resources, both human and material, are limited. Principles help managers use these resources to get the maximum benefit with minimum cost by helping them foresee the cause-and-effect relationships of their decisions. This reduces the waste associated with trial-and-error methods.
• Scientific decisions: Management principles encourage managers to make decisions based on logic, facts, and objective assessment rather than blind faith or personal bias. This leads to more thoughtful and justifiable actions.
• Meeting changing environment requirements: Business environments are dynamic. The principles are flexible and can be modified to help managers adapt to these changes. [!example] The principle of "division of work" has evolved. Today, companies specialize in their core competencies and outsource non-core activities like advertising or customer service (BPO), extending the principle to the entire business.
• Fulfilling social responsibility: Modern businesses are expected to fulfill social responsibilities. Management principles have evolved to include these demands. For example, the principle of equity today includes not just fair wages but also providing value to customers and caring for the environment. [!example] Shri Mahila Griha Udyog Lijjat Papad is a successful organization that combines business with social responsibility by providing self-reliant employment to over 45,000 women.
• Management training, education and research: Principles form the core of management theory and are the foundation for management training and education in courses like MBA and BBA. They also provide a framework for research, leading to the development of new management techniques like 'Just in Time' and 'Kaizen'.

Taylor's Scientific Management

During the Industrial Revolution, factory management often relied on personal judgment or "rule of thumb," which was inconsistent and inefficient. Fredrick Winslow Taylor, an American mechanical engineer, emerged as the 'Father of Scientific Management'. He argued for replacing the rule of thumb with methods based on scientific study and analysis to find the "one best way" of doing a job.

Scientific Management means knowing exactly what you want people to do and ensuring they do it in the best and cheapest way. Taylor's approach focused on increasing productivity by making work more efficient at the shop-floor level.

Principles of Scientific Management

1. Science, Not Rule of Thumb: Taylor believed that every job could be scientifically analyzed to determine the most efficient method. This "one best method" should then be standardized and used throughout the organization, replacing old, inefficient habits. This involves studying traditional methods, combining the best practices, and developing a new standard.
2. Harmony, Not Discord: Taylor emphasized that there should be complete harmony and cooperation between management and workers. He recognized that conflict between the two groups helps no one. To achieve this, he called for a Mental Revolution—a complete change in the attitude of both management and workers. They should see each other as partners, working together for the prosperity of the company, which in turn benefits both. [!example] In many Japanese companies, a paternalistic style of management is practiced where there is complete openness between management and workers. They see their interests as one and the same.
3. Cooperation, Not Individualism: This principle is an extension of 'Harmony, Not Discord'. It stresses the importance of cooperation over competition between workers and management. Management should listen to and reward employees for constructive suggestions, and workers should avoid strikes or making unreasonable demands.
4. Development of Each and Every Person to His or Her Greatest Efficiency and Prosperity: Taylor believed that industrial efficiency depends on the skills of the workers. Therefore, employees should be scientifically selected for jobs that suit their physical, mental, and intellectual abilities. They should then receive training to learn the "best method," which allows them to produce more, earn more, and achieve their full potential.

Techniques of Scientific Management

Taylor developed several techniques to put his principles into practice.

• Functional Foremanship: Taylor observed that no single foreman could have all the required qualities to be an expert supervisor. He proposed a system where planning is separated from execution. Under this system, a worker receives orders from eight specialist foremen.
  • Under the Planning Incharge:
    1. Instruction Card Clerk: Drafts instructions for workers.
    2. Route Clerk: Specifies the route of production.
    3. Time and Cost Clerk: Prepares time and cost sheets.
    4. Disciplinarian: Ensures discipline.
  • Under the Production Incharge:
    1. Speed Boss: Ensures timely and accurate job completion.
    2. Gang Boss: Keeps machines and tools ready for work.
    3. Repair Boss: Ensures proper working condition of machines.
    4. Inspector: Checks the quality of work.
• Standardisation and Simplification of Work:
  • Standardisation is the process of setting standards for every business activity, from raw materials and processes to working conditions. These standards serve as benchmarks for quality and performance.
  • Simplification aims to eliminate unnecessary varieties, sizes, and dimensions of products. This saves costs, reduces inventory, and increases efficiency.
• Method Study: The goal of method study is to find the "one best way" of doing a job to minimize production costs and maximize quality. This involves analyzing the entire production process, from acquiring raw materials to delivering the final product.
• Motion Study: This involves studying the movements (like lifting, sitting, changing positions) a worker makes while performing a job. The aim is to eliminate unproductive and unnecessary movements, which saves time and increases efficiency. [!example] Taylor and his associate, Frank Gilbreth, reduced the number of motions in bricklaying from 18 to just 5, which quadrupled productivity.
• Time Study: This technique determines the standard time required to perform a well-defined job. By observing a task multiple times, a standard time is set. This helps determine the number of workers needed, create incentive schemes, and calculate labor costs.
• Fatigue Study: This study seeks to determine the amount and frequency of rest intervals needed to complete a task. A person gets tired if they work without rest, which reduces productivity. Proper rest intervals help workers regain stamina and work at full capacity.
• Differential Piece Wage System: Taylor advocated for a wage system that differentiates between efficient and inefficient workers. A standard output is determined through work studies. Workers who produce more than the standard are paid at a higher rate per piece, while those who produce less are paid at a lower rate. This strong incentive motivates workers to improve their performance.

Fayol's Principles of Management

While Taylor focused on the factory floor, Henri Fayol, a French mining engineer, focused on the functions of top-level managers. He is known as the 'Father of General Management'. Fayol was the first to identify the main functions of management: Plan, Organise, Command, Coordinate, and Control. Based on his experience, he developed 14 principles of management to improve overall administrative efficiency.

The 14 principles of management given by him are:

1. Division of Work: Work should be divided into small tasks, and each task should be performed by a trained specialist. This leads to specialization, which is the most efficient way to use human effort and results in more and better work.
2. Authority and Responsibility: Authority is the right to give orders, and responsibility is the obligation to perform the duties. Fayol stressed that there must be a balance between the two. A manager needs enough authority to carry out their responsibilities.
3. Discipline: This means obedience to organizational rules and the employment agreement. Fayol believed discipline requires good superiors at all levels, clear and fair agreements, and the judicious application of penalties.
4. Unity of Command: Every employee should receive orders from only one superior. If an employee has to report to two or more bosses, it creates confusion, undermines authority, and threatens stability.
5. Unity of Direction: All groups of activities with the same objective must have one head and one plan. This ensures that all efforts are directed towards the same goal and prevents the overlapping of activities. [!note] Unity of Command affects a single employee (one boss), while Unity of Direction affects the entire organization or a department (one plan).
6. Subordination of Individual Interest to General Interest: The interests of the organization as a whole must take priority over the interests of any individual employee. This is because the larger interests of all stakeholders are more important than one person's interest.
7. Remuneration of Employees: The pay and compensation for employees should be fair to both the employees and the organization. It should provide a reasonable standard of living for the employee and be within the paying capacity of the company.
8. Centralisation and Decentralisation: Centralisation refers to the concentration of decision-making authority at the top. Decentralisation is the dispersal of that authority among more levels of management. Fayol believed there should be a balance between the two, depending on the size and circumstances of the organization.
9. Scalar Chain: This is the formal line of authority from the highest to the lowest rank in an organization. Fayol stated that this chain of command and communication should be followed strictly in normal circumstances. However, in an emergency, a shorter route called a 'Gang Plank' can be used for direct communication between employees at the same level, provided their immediate superiors are kept informed.
10. Order: This principle states there should be a place for everything (and everyone) and everything (and everyone) should be in its place. This refers to both material order (tools and materials) and social order (people), ensuring a smooth workflow without hindrance.
11. Equity: Managers should be kind and just towards their subordinates. This ensures loyalty and devotion from employees. Equity does not mean no use of force; it means fair treatment for all, without discrimination.
12. Stability of Personnel: High employee turnover is inefficient and costly. Fayol advised that employees should be selected rigorously and then kept in their positions for a minimum fixed tenure to show results. This creates a sense of security and stability.
13. Initiative: Workers should be encouraged to develop and carry out their plans for improvement. Initiative means thinking out a plan and taking the first step with self-motivation. A good company should have an employee suggestion system to reward useful initiatives.
14. Esprit De Corps: This means "team spirit." Management should promote unity, harmony, and teamwork among employees. A manager should use "We" instead of "I" in conversations to foster a sense of mutual trust and belonging.

Fayol Versus Taylor—A Comparison

Both Henri Fayol and F.W. Taylor made immense contributions to management thought, and their work is complementary rather than contradictory. Taylor focused on improving worker efficiency on the shop floor, while Fayol focused on improving the overall administration by managers.

Here are the key differences in their approaches: