Disadvantages of Management by Exception

§      This concept is based on the existence of a budget against which actual results are compared. If the budget was not well formulated, there may be a large number of variances, many of which are irrelevant, and which will waste the time of anyone investigating them.

§     The concept requires the use of financial analysts who prepare variance summaries and present this information to management. Thus, extra people are required to prepare the report. Also, an incompetent analyst might not recognize a potentially serious issue.

§    This concept is based on the command-and-control system, where conditions are monitored and decisions made by a central group of senior managers. A decentralized organizational structure could be better, where local managers could monitor conditions on a daily basis.

Advantages of Management by Exception

Advantages of Management by Exception

 It reduces the amount of financial and operational results that management must review.

 This method allows employees to follow their own approaches to achieving the results mandated in the company's budget. Management will only step in if exception conditions exist.

Authority and Power

Authority and Power

Power is a broader concept, and it is the ability of individuals or groups to induce or influence the beliefs or actions of other people of groups.  In the corporate environment, power is often expressed as upward or downward. With downward power, a company's superior influences subordinates. When a company exerts upward power, it is the subordinates who influence the decisions of the leaders.

Authority in an organization is the right to exercise the power in making decisions that may affect others. Authority is one type of power, but a power in the organizational setting. It is the legitimate or acceptable use of power.

Leadership Styles

Leadership Styles

Leadership style deals with the way leaders influence the followers. It can be boss centered, subordinate centered or relations centered. The leadership styles affects job performance. Some of the leadership styles are:

1. Autocratic Leadership
2. Democratic Leadership
3. Free Rein Leadership

1. Autocratic Leadership

Under the autocratic leadership, power and decision making are totally under the control of the leader. Some of the features of autocratic leadership are:

-          Leaders make all the decisions, they order what to do and how to do and who to do it. Subordinates are not consulted

-          Leaders have position based authority. They demand total obedience from the subordinates.

-          Leaders may give reward and punishment as they like. Information is controlled by the leader

Advantages of Autocratic Leadership

-          Effective in crisis and emergency situations.

-          Chain of command is clear

-          Discipline is maintained in the organization

Disadvantages of Autocratic Leadership

-          Subordinate participation is ignored.

-          Motivation to employees is absent as subordinates work by fear of punishment

-          It does not consider situational needs

2. Democratic Leadership

Also known as participative leadership, democratic leadership has power and decision making decentralized, where discussion, consultation and participation among subordinate is encouraged. Some of the features of democratic leadership are

-          Leaders consult with their subordinates for decisions. Subordinates willingly cooperate with the leader.

-          Authority is delegated to the subordinates and influence flows both ways from leader to follower and follower to leader

-          Performance is based on reward and punishment

-          Information is shared between leader and subordinates

Advantages of democratic leadership

-          Subordinates are involved in decision making and it promotes participation

-          Effective style of leadership for an organization where team work is necessary

-          Results high morale and productivity. People feel committed to goals

-          Motivates subordinates and provides opportunities for development and growth

-          Creativity is encouraged

Disadvantages of democratic leadership

-          It is time consuming, and can result in indiscipline

-          Leaders may avoid responsibilities

3. Free Rein Leadership

Also known as Laissez-Faire Style, free rein leadership is the style where power and decision making is entrusted to the subordinates. In this style, leaders use very little power and control. They serve only as an information center. Subordinates have complete freedom to make decisions with decentralized authority and responsibilities. They have high degree of independence in decision making and influence flows in all directions. Subordinates set their own goals and their potential is fully utilized.

Advantages of Free Rein Leadership

-          Subordinates have freedom and autonomy to work. They set their own goals

-          Effective for research oriented and creative jobs

-          Employee morale is high

Disadvantages of Free Rein Leadership

-          Subordinates lack focus towards goal achievement

-          Productivity may be less and responsibility may be avoided

-          Coordination may be poor among the subordinates

Leadership

Leadership is an important aspect of management. A manager should have some leadership skills to effectively manage an organization. Leadership and motivation are closely connected. To motivate some people there should be leaders.

Leadership is the process of social influence in which one person can enlist the aid and support of others in the accomplishment of a common task. It is the ability to get people to do what they don’t want to do and what they don’t like it. It is the influence, so that people follow willingly and enthusiastically towards the achievement of goals.

According to Stephen Robbins “Leadership is the ability to influence a group toward the achievement of goals.”

MacGregor’s Theory X-Y (Theories of Motivation)

MacGregor’s Theory X-Y

Theory X and Y are the theories of motivation, created and developed by Douglas MacGregor in 1960s.They describe two contrasting models of workforce motivation.

Theory X

In this theory, management assumes employees are lazy and will avoid work if they can and that they always dislike work. As a result of this, management believes that workers need to be closely supervised and comprehensive systems of control should be developed. According to this theory, employees will show little ambition without an incentive program and will avoid responsibility whenever they can. It believes that the employees are only focusses on the lower order needs (physiological and security). If the organizational goals are to be met, Theory X managers rely heavily on threat and forceful decisions to gain their employees' support. Beliefs of this theory lead to mistrust, highly restrictive supervision and a punishment atmosphere. The Theory X manager tends to believe that everything must end in blaming someone. He or she thinks all prospective employees are only out for themselves. Usually these managers feel the sole purpose of the employee's interest in the job is money. They will blame the person first in most situations, without questioning whether it may be the system, policy, or lack of training that deserves the blame. A Theory X manager believes that his or her employees do not really want to work, that they would rather avoid responsibility and that it is the manager's job to structure the work and energize the employee.

Theory Y

In this theory, management assumes employees may be ambitious, self-motivated and exercise self-control. It is believed that employees enjoy their mental and physical work duties. According to them work is as natural as play. They possess the ability for creative problem solving, but their talents are underused in most organizations. Given the proper conditions, Theory Y managers believe that employees will learn to seek out and accept responsibility, exercise self-control and self-direction in accomplishing objectives to which they are committed. A Theory Y manager believes that, given the right conditions, most people will want to do well at work. They believe that the satisfaction of doing a good job is a strong motivation. Many people interpret Theory Y as a positive set of beliefs about workers. It is believed that Theory Y managers are more likely than Theory X managers to develop the climate of trust with employees that is required for employee development. It's employee development that is a crucial aspect of any organization. This would include managers communicating openly with subordinates, minimizing the difference between superior-subordinate relationships, creating a comfortable environment in which subordinates can develop and use their abilities. This environment would include sharing of decision making so that subordinates have some suggestions in decisions that influence them.

McClelland’s Theory of Learned Needs (Theories of Motivation)

McClelland’s Theory of Learned Needs

David C McClelland proposed the theory of learned needs (also called the need theory) in 1960, which states an individual’s specific needs are acquired over time and are shaped by one’s life experiences. His theory of motivation identifies three types of basic needs:

1. The need for power (n/PWR)
2. The need for affiliation (n/AFF)
3. The need for achievement (n/ACH)

Research has shown that all three needs are of particular importance to management as all must be recognized for all individuals for an organization to work well.

1.       The need for power

McClelland’s theory suggest that people with high need for power have a greater concern for exercising influence and control. Such people generally are seeking positions of leadership, are good speakers, often argumentative, forceful, outspoken, hardheaded, and demanding and often enjoy teaching and public speaking.

2.       The need for affiliation

People with a high need for affiliation usually derive pleasure from being loved and tend to avoid the pain of being rejected by a social group. They are likely to be concerned with maintaining pleasant social relationship, enjoy a sense of intimacy, are ready to console and help others in trouble and enjoy friendly interaction with others.

3.       The need for achievement

People with high need for achievement have desire for success and equal fear of failure. They want to be challenged and set goals for themselves. They take realistic approach to risk, analyze and assess the problems and take personal responsibility for getting the job done, and like prompt feedback on how they are doing. They tend to be restless, like to work long hours, and do not worry about failure.

Alderfer’s ERG Theory of Motivation

The ERG theory was forwarded by Clayton Alderfer in 1969 and this theory is similar to Maslow’s Theory of hierarchy of needs. The ERG theory forwards the motivation needs as per the three categories:

-          Existence Needs (similar to Maslow’s Physiological and Safety Needs)

-          Relatedness Needs (similar to Maslow’s social needs)

-          Growth Needs (similar to Maslow’s esteem and self-actualization needs)

Alderfer suggests that a person may be motivated by needs on several levels at the same time. For example a person may go to work to make a living (existence need satisfaction) and at the same time he/she may be motivated by good relations with his/her coworkers (relatedness need satisfaction). Alderfer also suggest that when people experience frustration on one level, they may focus on the needs at the lower level need category.

Theories of Motivation (Maslow’s Theory of Hierarchy of needs)

The theory of hierarchy of needs is the most popular motivation theory forwarded by psychologist Abraham Maslow, in 1943. The theory views the human needs in the form of a hierarchy, ascending from the lowest to the highest, and once one set of needs is satisfied, this kind of need stops to be a motivator.

Maslow’s theory views the personal needs in the form of a hierarchy and the needs are the progressive principle of motivation. The basic needs are

1. Physiological needs
2. Safety Needs
3. Social Needs
4. Esteem Needs
5. Self-Actualization Needs

fig: Maslow’s Hierarchy of Needs

1.       Physiological Needs: These are the basic human needs for sustaining the life itself, such as food, water, shelter, sleep, clothing, warmth etc. These are the lowest order needs and until these needs are satisfied to the degree necessary to maintain life, other needs will not motivate people. In an organization, salary satisfies the physiological needs of an individual.

2.       Security or Safety Needs: These are also the low order need and are the needs to be free of physical danger and the fear of losing a job, property, food, shelter, etc. These consists of needs for protection from physical and emotional harm. In an organization, provident fund, pension plans and health insurance satisfy the safety needs.

3.       Social Needs: Since people are social beings, they need to belong, and be accepted by others. These needs are also known as affiliation or acceptance needs and are high order needs. They consist the needs for affection, belongingness, friendship and social acceptance. In an organization, these needs are satisfied by informal groups, friends, clubs etc.

4.       Esteem Needs: Once people begin to satisfy their social needs, they want to be respected both by themselves and by others. This kind of need produces satisfactions like power, prestige, status and self-confidence. These needs can be for status, recognition, praise and pride. In an organization, position titles (Manager, HOD, CEO), posh and lavish office, luxury cars satisfy such needs.

5.       Self-Actualization Needs: These are the highest order needs and consists of needs for achievement, growth, self-development, creativity, talent utilization, and self-fulfillment. It is the desire to become what one is capable of becoming, to maximize one’s potential and to accomplish something. In organizations, higher authority may satisfy these needs by accepting challenging jobs, taking part in decision making, writing poems and biography etc.

Importance of Motivation

The importance of motivation in an organization can be justified by the following

1.       To understand individual behavior

-          Motivation gives purpose and direction to behavior. Managers can understand why people behave like they do.

2.       Productivity

-          Motivation always improve productivity as motivated employees work well to increase productivity and performance.Rewards may be necessary for employees who perform well.

3.       Quality Improvement

-          Motivated employees are quality oriented and are always looking for better ways of doing the job.

-          They can minimize the waste and may improve efficiency at workplace.Total Quality Management (TQM) is also facilitated by motivation

4.       Employee Retention

-          Motivation helps the retention of competent employees and they may remain for longer time in an organization. Employees can become a strategic resource for the organization and they can feel pride in staying in the organization

5.       Creativity Promotion

-          Motivated Employees are creative and innovative and they can easily adapt to changing technologies and environmental forces

-          Motivation can facilitate change management and can promote creativity as well

6.       Employee Commitment

-          Motivation is important for employee commitment. It leads to

o   Reduced absenteeism

o   Reduced accident rates

o   Better employee discipline

o   Reduced employee complaints

o   Increased employee loyalty

Characteristics of Motivation

1. Psychological Process: Motivation is a psychological process that drives individual needs, desires and motives. It is an internal state that guides the individual behavior.

2. Complex and Unpredictable: Motivating an individual is a complex process and it is also difficult to predict behavior due to individual differences.

3. Continuous process: Motivating individuals is a continuous process. Once an individual is motivated, another one emerges.

4. Situational: Motivation depends on the situation and may differ from person to person and time to time.

5. Pervasive: Motivation is the task of all levels of managers. They need to motivate subordinates for higher productivity.

6. Goal Oriented: Motivation always leads to action. It involves effort to achieve goals.

7. Positive or Negative: Motivation can be positive as well as negative. Positive motivation is based on incentives and reward for better performance. Negative motivation is based on punishment for poor performance.

8. Intrinsic or Extrinsic: Motivation is intrinsic if it is self-generated. It is extrinsic if generated by external incentives such as money or generated by external influences.

Concept of Motivation and Incentive

Motivation is used to explain human behavior and it is the scientific word used to represent the reasons for our actions, our desires, and our needs. Motivation is also an inducement for better performance towards goal achievement.

Human behavior is goal directed and the behavior should be motivated with the interaction between the individual, job and the situation. Motivation in organization makes employees to give more effort in work and activates their willingness to increase productivity.

According to Ricky Griffin “Motivation is the set of forces that cause people to behave in certain ways”

According to Fred Luthans “Motivation is a process that starts with a physiological or psychological deficiency or need that activates behavior or a drive that is aimed at a goal or incentive.”

The key elements in motivation are

1.       Effort: It energizes behavior and motivated people always try hard.

2.       Goals: Goals also direct the individual behavior.

3.       Needs: People have their needs. Motivation is a need satisfying process and need satisfaction enhances behavior.

An incentive is something that motivates an individual to perform an action. Incentive is central to the study of all economic activities both in terms of individual decision-making and in terms of co-operation and competition within an organizational structure. Economic analysis and the differences between societies, amounts to characterizing the differences in incentive structures faced by individuals involved in these collective efforts. Ultimately, incentives aim to provide value for money and contribute to organizational success.

Types of Organization Structure

 Line
A line organization is an organizational structure in which authority rests with the top management and flows in a chain of command to the last person in the organizational hierarchy. It is sometimes called the traditional organizational structure. In a line organization, top management has complete control, and the chain of command is clear and simple. Examples of line organizations are small businesses in which the top manager, often the owner, is positioned at the top of the organizational structure and has clear "lines" of distinction between him and his subordinates.

A line position is directly involved in the day-to-day operations of the organization, such as producing or selling a product or service. Line positions are occupied by line personnel and line managers. Line personnel carry out the primary activities of a business and are considered essential to the basic functioning of the organization.

 Line and Staff
A "staff function" supports the organization with specialized advisory and support functions. For example, human resources,accounting, public relations and the legal department are generally considered to be staff functions.Staff positions serve the organization by indirectly supporting line functions. Staff positions consist of staff personnel and staff managers. Staff personnel use their technical expertise to assist line personnel and aid top management in various business activities. Staff managers provide support, advice, and knowledge to other individuals in the chain of command.
The line-and-staff organization combines the line organization with staff departments that support and advise line departments. Most medium and large-sized firms uses line-and-staff organizational structures. The distinguishing characteristic between simple line organizations and line-and-staff organizations is the multiple layers of management within line-and-staff organizations.

An advantage of a line-and-staff organization is the availability of technical specialists. Staff experts in specific areas are incorporated into the formal chain of command. A disadvantage of a line-and-staff organization is conflict between line and staff personnel.
 Functional

A functional organizational structure is a structure that consists of activities such as coordination, supervision and task allocation. The organizational structure determines how the organization performs or operates. The term organizational structure refers to how the people in an organization are grouped and to whom they report. One traditional way of organizing people is by function. Some common functions within an organization include production, marketing, human resources, and accounting.

This organizing of specialization leads to operational efficiency where employees become specialists within their own expertise. The most typical problem with a functional organizational structure is that communication within the company can be rather rigid, making the organization slow and inflexible. Therefore, lateral communication between functions become very important, so that information is disseminated, not only vertically, but also horizontally within the organization. Communication in organizations with functional organizational structures can be rigid because of the standardized ways of operation and the high degree of formalization.

As a whole, a functional organization is best suited as a producer of standardized goods and services at large volume and low cost. Coordination and specialization of tasks are centralized in a functional structure, which makes producing a limited amount of products or services efficient and predictable. Moreover, efficiencies can further be realized as functional organizations integrate their activities vertically so that products are sold and distributed quickly and at low cost. For instance, a small business could make components used in production of its products instead of buying them.

Even though functional units often perform with a high level of efficiency, their level of cooperation with each other is sometimes compromised. Such groups may have difficulty working well with each other as they may be territorial and unwilling to cooperate. The occurrence of infighting among units may cause delays, reduced commitment due to competing interests, and wasted time, making projects fall behind schedule. This ultimately can bring down production levels overall, and the company-wide employee commitment toward meeting organizational goals.

 Matrix Structure

The matrix structure groups employees by both function and product. A matrix organization frequently uses teams of employees to accomplish work, in order to take advantage of the strengths, as well as make up for the weaknesses, of functional and decentralized forms. An example would be a company that produces two products, "product a" and "product b". Using the matrix structure, this company would organize functions within the company as follows: "product a" sales department, "product a" customer service department, "product a" accounting, "product b" sales department, "product b" customer service department, "product b" accounting department.

Weak/Functional Matrix: A project manager with only limited authority is assigned to oversee the cross- functional aspects of the project. The functional managers maintain control over their resources and project areas.

Balanced/Functional Matrix: A project manager is assigned to oversee the project. Power is shared equally between the project manager and the functional managers. It brings the best aspects of functional and project-based organizations. However, this is the most difficult system to maintain as the sharing of power is a delicate proposition.

Strong Matrix: A project manager is primarily responsible for the project. Functional managers provide technical expertise and assign resources as needed.

Matrix management is more dynamic than functional management in that it is a combination of all the other structures and allows team members to share information more readily across task boundaries. It also allows for specialization that can increase depth of knowledge in a specific sector or segment.

Organization Chart

An organizational chart is a diagram that shows the structure of an organization and the relationships and relative ranks of its parts, positions and the jobs.

The organization chart is a diagram showing graphically the relation of one official to another, or others, of a company. It is also used to show the relation of one department to another, or of one function of an organization to another. This chart is valuable in that it enables one to visualize a complete organization, by means of the picture it presents.

A company's organizational chart typically illustrates relations between people within an organization. Such relations might include managers to sub-workers, directors to managing directors, chief executive officer to various departments, and so forth. When an organization chart grows too large it can be split into smaller charts for separate departments within the organization. The different types of organization charts include:

·         Hierarchical

·         Matrix

·         Flat

A hierarchical organization is an organizational structure where every entity in the organization, except one, is subordinate to a single other entity. This arrangement is a form of a hierarchy and in an organization, the hierarchy usually consists of a singular or group of power at the top with subsequent levels of power under them. This is the dominant mode of organization among large organizations; mostly corporations, governments, and business organizations are hierarchical organizations with different levels of management andauthority.

Matrix management is the practice of managing individuals with more than one reporting line, but it is also commonly used to describe managing cross functional, cross business group and other forms of working that cross the traditional vertical business units.

A flat organization (also known as horizontal organization) is an organization structure with few or no levels of middle managementbetween staff and executives. The idea is that well-trained workers will be more productive when they are more directly involved in the decision making process, rather than closely supervised by many layers of management.

Informal Organization

According to Chester Barnard “an informal organization is any joint activity without conscious joint purpose, even though contributes to joint results”. It is a network of personal and social relations not established or required by the formal organization but formed as people associate with one another.

Characteristics of Informal Organization

·         constantly evolving and diminishing

·         dynamic and responsive

·         excellent at motivating people

·         requires insider knowledge to be seen

·         treats people as per the individuals’ likes and capacities

·         collective decision making