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Principles of Business Management - Motivation, Leadership and Management Control

Unit – 4: Motivation, Leadership and Management Control
Introduction: Motivation
The word motivation is derived from ‘motive', which means an active form of a desire, craving or need that must be satisfied. Motivation is the key to organisational effectiveness. The manager in general has to get the work done through others. These 'others' are human resources who need to be motivated to attain organisational objectives.
According to George R. Terry, "Motivation is the desire within an individual that stimulates him or her to action."
According to Berelson and Steiner “A motive is an inner state that energizes activates, or moves and directs or channels behavior goals".
According to Lills "It is the stimulation of any emotion or desire operating upon one's will and promoting or driving it to action".
According to Encyclopedia of Management  "Motivation refers to the degree of readiness of an organism to pursue some designated goals and implies the determination of the nature and locus of force inducing a degree of readiness."
Nature/Characteristics of Motivation
Motivation is a psychological phenomenon which generates within an individual. A person feels the lack of certain needs, to satisfy which he feels working more. The need satisfying ego motivates a person to do better than he normally does. From definitions given earlier the following inferences can be derived:
  1. Motivation is an inner psychological force, which activates and compels the person to behave in a particular manner.

  1. The motivation process is influenced by personality traits, learning abilities, perception and competence of an individual.

  1. A highly motivated employee works more efficiently and his level of production tends to be higher than others.
  2. Motivation originates from the-needs and wants of an individual. It is a tension of lacking something in his mind, which forces him to work more efficiently.

  1. Motivation is also a process of stimulating and channelizing the energy of an individual for achieving set goals.
  2. Motivation also plays a crucial role in determining the level of performance. Highly motivated employees get higher satisfaction, which may lead to higher efficiency.

  1. Motivating force and its degree, may differ from individual to individual depending on his personality, needs, competence and other factors.
  2. The process of Motivation helps the manager in analyzing and understanding human behavior and finding but how an individual can be inspired to produce desirable working behavior.
  3. Motivation may be positive as well as negative. Positive motivation includes incentives, rewards and other benefits while negative motivation implies some punishment, fear, use of force etc.
  4. The motivation procedure contributes to and boosts up the morale of the employees. A high degree of motivation may lead to high morale.
Importance of Motivation
  1. High Performance: - Motivated employee’s writ put maximum efforts for achieving organisational goals. The untapped reservoirs of physical and mental abilities are taped to the maximum. Better performance will also result in higher productivity. The cost of production can also be brought down if productivity is raised.
  2. Low employee Turnover and Absenteeism: -When the employees are not satisfied with their job then they will leave it whenever they get an alternative offer. The dissatisfaction among employees also increases absenteeism. The employment training of new employees costs dearly to the organisation.
  3. Better Organisational Images: -Those enterprises which offer better monetary and non-monetary facilities to their employees have a better image among them. Such concerns are successful in attracting better qualified and experienced persons. Since there is a better man-power to development programme, the employees will like to join such organisations. Motivational efforts will simplify personnel functions also.
  4. Better Industrial Relations: -A good motivational system will create job satisfaction among employees. The employment will offer them better service conditions and various other incentives. There will be an atmosphere of confidence among employers and employees. There will be no reason for conflict and cordial relations among both sides will create a healthy atmosphere. So motivation among employees will lead to better industrial relations.
  5. Acceptability to Change: -The changing social an industrial situations will require changes and improvements in the working of enterprises. There will be a need to introduce new and better methods of work from time to time. Generally employees resist changes for fear of an adverse effect on their employment.
a) Maslow's Hierarchy of Needs
Maslow Abraham proposed his theory in the 1940s. This theory, popularly known as the Hierarchy of Needs assumes that people are motivated to satisfy five levels of needs: physiological, security, belongingness, esteem and self-actualization needs. The figure 9.1 shows Maslow's hierarchy of needs

Maslow suggested that the five levels of needs are arranged in accordance with their importance, starting from the bottom of the hierarchy. An individual is motivated first and foremost to satisfy physiological needs. When these needs are satisfied, he is motivated and 'moves up' the hierarchy to satisfy security needs. This 'moving up process continues until the individual reaches the self-actualization level.
  1. Physiological needs: Physiological needs represent the basic issues of survival such as food, sex, water and air. In organisational settings, most physiological needs are satisfied by adequate wages and by the work environment itself, which provides employees with rest rooms, adequate lighting, comfortable temperatures and ventilation.

  1. Security or safety needs: Security or safety needs refer to the requirements for a secure physical and emotional environment. Examples include the desire for adequate housing and clothing, the need to be free from worry about money and job security and the desire for safe working conditions. Security needs are satisfied for people in the work place by job continuity, a grievance resolving system and an adequate insurance and retirement benefit package.

  1. Social needs: Belonging or social needs are related to the, social aspect of human life. They include the need for love and affection and the need to be accepted by one's peers. For most people these needs are satisfied by a combination of family and community relationships and friendships on the job. Managers can help ensure the 'satisfaction of these important needs by allowing social interaction and by making employees feel like part of a team or work group.

  1. Esteem needs: Esteem needs actually comprise of two different sets of needs:
  1. The need for a positive self-image and self-respect.
  2. The need for recognition and respect from others.
Organisations can help address esteem needs by providing a variety of external symbols of accomplishment such as job titles and spacious offices. At a more fundamental level, organisations can also help satisfy esteem needs by providing employees with challenging job assignments that can induce a sense of accomplishment.
  1. Self-actualization needs: At the top of the hierarchy are those needs, which Maslow defines the self-actualization needs. These needs involve realizing one's potential for continued: growth and individual development. Since these needs are highly individualized and personal, self-actualization needs are perhaps the most difficult for managers to address. Therefore, an employee should try to meet these needs on his own end.
However, an organisation can help his employee by creating a climate for fulfillment of self-actualization needs. For instance, an organisation can help in fulfillment of these needs by encouraging employee’s participation in decision-making process and by providing them with an opportunity to learn new things about their jobs and organisation. This process of contributing to actual organisational performance helps employees experience personal growth and development associated with self-actualizing.
Critical Analysis of Maslow’s Theory
A number of research studies have been undertaken to see the validity of hierarchy of needs. Lawler and Suttle collected data on 187 Managers in two different organisations for a period of six months to one year. No evidence was found to support Maslow's theory. They found there were two levels of needs-biological and other needs- and that other needs would emerge only when biological needs were reasonably satisfied. A survey conducted in India of 200 factory worker revealed that they give top priority to job security, earnings and personal benefits-all lower other needs.
It is generally seen that needs do not follow Maslow's hierarchy. The hierarchy is determined by individuals differently. They proceed to follow their own pattern of needs satisfaction. Some people may try for self-actuating needs rather than lower needs. For some persons esteem needs are more important than social needs.
There is no cause effect relation between and need and behavior. A particular need may cause behavior in different ways in different person. Similarly, one particular behavior may result due to different needs. It is said that higher needs motivate a person when lower needs are reasonably satisfied. The word 'reasonably satisfied' is a subjective matter. The level of satisfaction may be different for persons.
b) Herzberg theory of Motivation
Another popular need-based approach to motivation is the dual-structure approach developed by Frederick Herzberg. This is also known as Two-factor Theory. Herzberg developed this approach after interviewing 200 accountants and engineers in Pittsburg. He asked them to recall such occasions when they had been dissatisfied and less motivated. He found that entirely different sets of factors were associated with satisfaction and dissatisfaction. For instance, an individual who identified 'low pay' as causing dissatisfaction did not necessarily mention 'high pay' as a cause of satisfaction. Instead, several other factors, such as recognition or accomplishment, were cited as causing satisfaction.
This finding suggests that satisfaction and dissatisfaction are at opposite ends of a single scale. Employees would, therefore, be satisfied, dissatisfied or somewhere in between. Herzberg argued that attitudes and motivation consists of a dual structure. One structure involves a set of factors that result in feelings ranging from satisfaction to no satisfaction. The other structure involves a set of factors that result in feelings ranging from dissatisfaction to no satisfaction.
Herzberg identified two sets of factors responsible for causing either satisfaction or dissatisfaction. The factors influencing satisfaction are called motivation factors or motivators, which are related specifically to the job itself and the factors causing dissatisfaction, are called hygiene factors, which are related to the work environment in which the job is performed.
  1. Achievement
  2. Recognition
  3. Advancement
  4. The work itself
  5. The possibility of personal growth
  6. Responsibility        
Hygiene or Maintenance Factors
  1. Company policies
  2. Technical supervision
  3. Interpersonal relations with supervisor
  4. Interpersonal relations with peers
  5. Interpersonal relations with subordinates
  6. Salary
  7. Job security
  8. Personal life
  9. Work conditions
  10. Status
Based on these findings, Herzberg recommended that managers seeking to motivate employees should first make sure that hygiene factors are taken care of and that employees are not dissatisfied with pay, security and working conditions. Once a manager has eliminated employee dissatisfaction, Hertzberg recommends focusing on a different set of factors to increase motivation, by improving opportunities for advancement, recognition, advancement and growth. Specifically, he recommends job enrichment as a means of enhancing the availability of motivation factors.
Although widely accepted by managers, Hertzberg’s dual structure approach however suffers from certain drawbacks. Other researchers who measured satisfaction and dissatisfaction based on different aspects reached very different conclusions. They have also criticized Herzberg's theory for its inability to define the relationship between satisfaction and motivation and to pay enough attention to differences between individuals. Hence, at present Herzberg's theory is not held in high esteem by researchers in the field of motivation. The theory, however, had a major impact on managers and has played a key role in increasing their awareness of motivation and its importance in type work place.
Difference between Maslow’s Need Hierarchy theory and Herzberg’s motivation Hygiene Theory
1. Meaning:
Maslow's theory is based on the concept of human needs and their satisfaction.
Hertzberg's theory is based on the use of motivators which include achievement, recognition and opportunity for growth.
2. Basis of Theory:
Maslow's theory is based on the hierarchy of human needs. He identified five sets of human needs (on priority basis) and their satisfaction in motivating employees.
Hertzberg refers to hygiene factors and motivating factors in his theory. Hygiene factors are dissatisfies while motivating factors motivate subordinates. Hierarchical arrangement of needs is not given.
3. Nature of Theory:
Maslow's theory is rather simple and descriptive. The theory is based long experience about human needs.
Hertzberg's theory is more prescriptive. It suggests the motivating factors which can be used effectively. This theory is based on actual information collected by Hertzberg by interviewing 200 engineers and accountants.
4. Applicability of Theory:
Maslow's theory is most popular and widely cited theory of motivation and has wide applicability. It is mostly applicable to poor and developing countries where money is still a big motivating factor.
Herzberg's theory is an extension of Maslow's theory of motivation. Its applicability is narrow. It is applicable to rich and developed countries where money is less important motivating factor.
5. Descriptive or Prescriptive
Maslow's theory or model is descriptive in nature.
Herzberg's theory or model is prescriptive in nature.
6. Motivators
According to Maslow's model, any need can act as motivator provided it is not satisfied or relatively less satisfied.
In the dual factor model of Hertzberg, hygiene factors (lower level needs) do not act as motivators. Only the higher order needs (achievement, recognition, challenging work) act as motivators.
c) McGregor’s Theory X and Y
Doughlas McGregor introduced these two theories i.e., Theory X and Theory Y, based on two distinct views of human beings. He proposed, at opposite extremes, two pairs of assumptions about human beings which he thought were implied by the actions of the mangers. Theory X deals with one extreme, based on one set of assumptions and Theory y deals with another extreme based on another set of assumptions. These theories are not based on any research, but according to McGregor, these are intuitive deduction.
Theory X: -This theory is based on the traditional approach to human behavior. The assumptions generally, held by the managers in their theory are: -
  1. The average human beings inherently dislike work and will try to avoid it, whenever possible
  2. A the employee are lazy, they must be controlled, coerced, threatened with punishment to achieve goals, to which they are indifferent
  3. Average employee will try to avoid responsibility and seek formal directions whenever possible, because they have relatively little ambition.
Theory y: -This approach assumes that management by direction and control is questionable method for motivating such people whose physiological and social needs have been satisfied and whose social; esteem and self actualization needs are becoming more important. For such people, Theory Y seems to be applicable, which is the contrast of Theory X. This theory makes the following assumptions about people:
  1. The average human being does not inherently dislike work. He can view work as natural or enjoyable as rest or play
  2. Employees will exercise self direction and self control in the attainment of the objectives to which they are committed
  3. Given proper working conditions, average person can learn to accept and even to seek responsibility
  4. Commitment to objectives is a function of the rewards associated with their achievement
  5. All the people are capable of making innovative and creative decision and the decision making is not the sole province of the people in management position.
d) Vroom’s Expectancy  theory
Victor Vroom made an important contribution to the understanding of the concept of motivation and the decision process that people use to determine how much effort they will expend on their jobs. He said that a person’s motivation towards an action at any time would be determined by an individual’s perception that a certain type of action would lead to a specific outcome and his personal preference for this outcome. This model is based on the belief that motivation is determined by the nature of the reward expect to get an a result of their job performance. There are three variable in Vroom’s model given in the form of an equation. Since the model is a multiplier, all the three variable must have high positive value to imply motivated performance choices. If any of the variable is zero the probability of motivated performance tends to be zero.
All these three variable are explained as follows:
  1. Valence: Valence means the attraction (or repulsion) of an outcome to the individual. Whenever an individual has preference for a reward valence is the strength of that preference.
  2. Expectancy: Expectancy is also referred to as the Effort-Performance Probability. It refers to the extent to which the person believes his efforts will lead to the first level outcome i.e. completion of the task.
  3. Instrumentality (Performance-Reward Probability): Instrumentality refers to the probabilities attached by the individual to each possible performance-outcome alternative just as the individual previously assigned probabilities to various levels of effort leading to different levels of performance (expectancy).
The plus points of this theory are:
  1. The expectancy model is highly useful in understanding organizational behaviour. It can improve the relationship between the individual and the organizational goals. This model explains how individuals’ goals influence his efforts and like need-based models reveal that individual behaviour is goal oriented.
  2. The expectancy theory is a cognitive theory, which values human dignity. Individuals are considered rational human beings who can anticipate their future on the basis of their beliefs and expectations.
  3. This theory helps the managers in looking beyond what Maslow and Herzberg implied. According to him motivation does not mean satisfying the unsatisfied needs. The managers must make it possible for an employee to see that effort can result in appropriate need satisfying rewards.
Despite these plus points, there are some drawbacks of Vroom’s expectancy model as given below:
  1. Vroom’s theory is difficult to research and apply in practice. This is evident by the fact that there have been a very few research studies designed specifically to test Vroom’s theory.
  2. This theory assumes man to be a rational human being who makes all the decisions consciously. But there are numerous instances where decision are taken with no conscious thought. This is particularly true for routine jobs.
  3. Although, it is an important theory of motivation but it is quite complex. Many managers, in actual organizational situations, do not have the time or sources to use a complex system on the job.
Techniques of Motivation
Every management tries to spacing certain motivational techniques which can be employed for improving performance of its employees. Motivational techniques may be classified into two categories i.e. financial and non-financial. Both the categories of motivators are discussed as under:
  1. Financial Motivators: Financial motivators may be in the form of more wages and salaries, bonuses, profit-sharing, leave with pay, medical reimbursements, company paid insurance of any of the other things that may be given to employees for performance. The economists and most managers consider money and financial incentives as important motivators. Behavioural scientists, on the other hand, tend to place them low. Neither view is probably right.
  2. Non-financial Motivators: These motivators are in the nature of better status, recognition, participation, job security etc. Some of those motivators are discussed here:
  1. Recognition: Every person wants his work to be recognizes by his superiors. When he knows that his performance is known to his boss then he will try to improve it more and more.
  2. Participation: Participation has been considered a good technique for motivation. It implies physical and mental involvement of people in decision-making process.
  3. Statue: It refers to a social statue of a person and it satisfies egoistic needs. A management may create some statue symbols in the organization.
  4. Competition: In some organizations competitions is used as a motivator. Various persons are given certain objectives and everybody tries to achieve them ahead of others.
  5. Job Enrichment: Job enrichment has been recognized as an important motivator by various researches. The job is made more important and challenging for the workers, may be given wide latitude in deciding about their work methods.
Introduction to Leadership
Leadership is the ability to build up confidence and deal among people and to create an urge in them to be led. To be a successful leader, a manager must possess the qualities of foresight, drive, initiative, self-confidence and personal integrity. Different situations may demand different types of leadership.
Leadership means influencing the behaviour of the people at work towards realizing the specified goals. It is the ability to use non-coercive (no force) influence on the motivation, activities and goals (MAG) of others in order to achieve the objectives of the organisation.
Koontz and 0' Donnel “Leadership is the ability of a manager to induce subordinates to work with confidence and zeal”.
George R Terry “Leadership is the activity of influencing people to strive willingly for group objectives”.
Nature and Characteristics of Leadership:
An analysis of the definitions cited above reveals the following important characteristics of leadership.
  1. Leadership is a personal quality.
  2. It exists only with followers. If there are no followers, there is no leadership?
  3. It is the willingness of people to follow that makes a person a leader.
  4. Leadership is a process of influence. A leader must be able to influence the behaviour, attitude and beliefs of his subordinates.
  5. It exists only for the realization of common goals.
  6. It involves readiness to accept complete responsibility in all situations.
  7. Leadership is the function of stimulating the followers to strive willingly to attain organisational objectives.
  8. Leadership styles do change under different circumstances.
  9. Leadership is neither bossism nor synonymous with management.
Leadership Styles or Types of Leaders
  1. Autocratic or Authoritarian Style leader: An autocratic also known as authoritarian style of leadership implies wielding absolute power. Under this style, the leader expects complete obedience from his subordinates and all decision-making power is centralized in the leader. No suggestions or initiative from subordinates is entertained. The leader forces the subordinates to obey him without questioning. An autocratic leader is, in fact, no leader. He is merely the formal head of the organisation and is generally disliked by the subordinates who feel comfortable to depend completely on the leader.
  1. Reduced stress due to increased control
  2. A more productive group ‘while the leader is watching’
  3. Improved logistics of operations
  4. Faster decision making
  1. Short-termistic approach to management.
  2. Manager perceived as having poor leadership skills
  3. Increased workload for the manager
  4. People dislike being ordered around
  5. Teams become dependent upon their leader
  1. Laissez-faire or Free-rein Style Leader: Under this type of leadership, maximum freedom is allowed to subordinates. They are given free hand in deciding their own policies and methods and to make independent decisions. The leader provides help only when required by his subordinates otherwise he does not interfere in their work. The style of leadership creates self-confidence in the workers and provides them an opportunity to develop their talents. But it may not work under all situations with all the workers, may bring problems of indiscipline. Such leadership can be employed with success where workers are competent, sincere and self-disciplined.
  1. No work for the leader
  2. Frustration may force others into leadership roles
  3. Allows the visionary worker the opportunity to do what they want, free from interference
  4. Empowers the group
  1. It makes employees feel insecure at the unavailability of a manager.
  2. The manager cannot provide regular feedback to let employees know how well they are doing.
  3. Managers are unable to thank employees for their good work.
  4. The manager doesn’t understand his or her responsibilities and is hoping the employees can cover for him or her.
  1. Democratic or Participative Style leader: The democratic or participative style of leadership implies compromise between the two extremes of autocratic and laissez-fair style of leadership. Under this style, the supervisor acts according to the mutual consent and the decisions reached after consulting the subordinates. Subordinates are encouraged to make suggestions and take initiative. It provides necessary motivation to the workers by ensuring their participation and acceptance of work methods. Mutual trust and confidence is also created resulting in job satisfaction and improved morale of workers. It reduces the number of complaints, employee's grievances, industrial unrest and strikes. But this style of leadership may sometimes cause delay in decisions and lead to indiscipline in workers.
  1. Positive work environment
  2. Successful initiatives
  3. Creative thinking
  4. Reduction of friction and office politics
  5. Reduced employee turnover
  1. Takes long time to take decisions
  2. Danger of pseudo participation
  3. Like the other styles, the democratic style is not always appropriate. It is most successful
  4. when used with highly skilled or experienced employees or when implementing operational changes or resolving individual or group problems.
  1. Paternalistic Style leader: This style of leadership is based upon sentiments and emotions of people. A paternalistic leader is like a father to these subordinates. He looks after the subordinates like a father looks after his family. He helps guides and protects all of his subordinates but under him no one grows. The subordinates become dependent upon the leader.
Qualities of a Good Leader
  1. Patience: Patience is the capacity to face difficult situations, hardships or inconvenience without making a single complaint. A good leader must show patience while waiting for expected results, facing difficult situations and taking important decisions. He must avoid taking hasty decisions and actions.
  2. Good Personality: A good personality is a combination of physical, mental and social qualities. Good personality helps a leader to influence his followers. Attractive physique and good manners add an advantage to the leader's personality.
  3. Self-confidence: A good leader must have self confidence. This quality is necessary for facing challenging situations and for solving problems easily and effectively.
  4. Human Skills: A good leader must have essential social and human skills. That is, he must understand people. This quality is necessary for dealing with different types of persons and social groups.
  5. Judgment skills: A good leader should be able to examine problems in right perspective. His judgment and decision making abilities should be superior to others. He should be able to form opinions and judge based on facts and not be prejudiced
  6. Communication skills: A good leader should be able to communicate the goals and procedures of the organisation clearly, precisely and effectively to the subordinates. Only then will it be possible for him to convince, persuade and stimulate subordinates to action.
  7. Listening skills: People tend to avoid a leader who does not listen. Hence a good leader in one who can listen to other peoples problems. He should be able to create a culture whereby people can be frank with him and give him information and also give him feedback about himself, which can help him to improve himself.
  8. Inspiring skills: A good leader should be able to inspire people to deal with the “why” question. He should not just command and control but be able to lead the people and get them involved to work together as a team.
  9. Administrative Skills: A good leader must have an administrative ability. This means, he must be able to get the work done through his followers. He must know how to plan, organize and control the work of his followers.
  10. Discipline: A good leader must be a disciplined person. This means he must have respect for the rule and regulations of the organisation. This is because his followers will follow his example.
  11. Initiative: A good leader must always take an initiative. This means he should do the right thing at the right time without being told by others. He must be able to construct and implement his own plan.
  12. Intelligence: A good leader must be smart and intelligent. That is, he should have a good educational background and sound technical knowledge. He should be more intelligent than his followers. If not, his followers will not respect him. This will have a bad effect on his performance.
  13. Innovative:  A good leader must have an art of innovation. That is, he must have a good imagination and visualization skills. He must develop new ideas and tactics to solve problems. He must combine the new ideas with the old ideas.
Significance of Leadership
The importance of leadership are as follows:
  1. It improves motivation and morale: Through dynamic leadership managers can improve motivation and morale of their subordinates. A good leader influences the behaviour of an individual in such a manner that he voluntarily works towards the achievement of enterprise goals.
  2. It acts as a motive power to group efforts: Leadership serves as a motive power to group efforts. It leads the group to a higher level of performance through its persistent efforts and impact. On human relations.
  3. It acts as an aid of authority: The use of authority alone cannot always bring the desired results. Leadership acts as an aid to authority by influencing, inspiring, and initiating action.
  4. It is needed at all levels of management: Leadership plays a pivotal role at all levels of management because in the absence of effective leadership no management can achieve the desired results.
  5. It rectifies the imperfectness of the formal organizational relationships: No organizational structure can provide all types of relationships and people with common interest may work beyond the confines of formal relationships. Such informal relationships are more effective in controlling and regulating the behaviour of the subordinates. Effective leadership uses these informal relationships to accomplish the enterprise goals.
  6. It provides the basis of co-operations: Effective leadership increases the understanding between the subordinates and the management and promotes co-operation among them.
Introduction to Management Control
Control is one of the managerial functions. These functions start with planning and end at controlling. The other functions like organising, staffing, directing act as the connecting like between planning and controlling. Planning will be successful only if the progress planning and controlled, Planning involves setting up of goals and objectives while controlling seeks to ensure.
In the words of Koontz and O'Donnel, “The measurement and correction of the performance of activities of subordinates in order to make sure that enterprise objectives and plan devised to attain them are being accomplished." The accomplishment of organisational goals is the main aim of every management. The performance of subordinates should be constantly watched to ensure proper implementation of plans. Co-ordination is the channel through which goals can be achieved and necessary.
According to Henry Fayol, “In an undertaking, control consists in verifying whether everything occurs in conformity with the plan adopted, the instructions issued and principles established. It has to point out weakness and errors in order to rectify them and prevent recurrence”.
Thus, controlling implies determining and stating specifically what is to be accomplished, then checking performance against such standards prescribed with a view to supplying the corrective action required to achieve the planned objectives. The end objective of controlling is, therefore, to ensure that the people’s   effort   in   the   organisation   is   continuously   directed   towards   the attainment of the predetermined objectives.
Nature or Characteristics of Control
  1. Control is a function of management: It is, in fact, a follow-up action to the other functions of management. All the managers in the organisation to control the activities assigned to them perform this function.
  2. Control is a dynamic process: It involves continuous review of standards of performance and results in corrective action, which may lead to changes in other functions of management.
  3. Control is a continuous activity: It does not stop anywhere. According to : Koontz and O’Donnell, “Just as the navigator continually takes reading to a planned action, so should so should be the business s manager continually take reading to assure himself that his enterprise or : department is on course”.
  4. Control is forward looking: It is related to future, as past cannot be controlled. It is usually preventive as the presence of control systems leads to minimize wastages, losses, and deviations from standards. It should be noted that control does not curtail the rights of the individuals. It simply keeps a check on the performance of individuals.
  5. Planning and Controlling are closely related with each other: Managerial planning seeks consistent and integrated while managerial control seeks to compel events to conform to plans. As a matter of fact, planning is based on control and control is based on planning. The process of control uses certain standards for measuring performance, which are laid down by planning. The control process, in turn, may reveal the deficiency of planning and may lead to the revision of planning. It may also lead to setting of new goals, changing the organisational structure, improving staffing and making major changes in the techniques of directing.
Advantages (Importance) of Controlling:
(i) Accomplishing organisational goals: The controlling function measures progress towards the organisational goals and brings to light the deviations, if any, and indicates corrective action.
(ii) Judging accuracy of standards: A good control system enables management to verify whether the standards set are accurate or not. An efficient control system keeps a careful check on the changes taking place in the organisation and in the environment and helps to review and revise the standards in light of such changes.
(iii) Making efficient use of resources: By exercising control, a manager seeks to reduce wastage and spoilage of resources. This ensures that resources are used in the most effective and efficient manner.
(iv) Improving employee motivation: A good control system ensures that employees know well in advance what they are expected to do and what are the standards of performance on the basis of which they will be appreciated.
(v) Ensuring order and discipline: Controlling creates an atmosphere of order and discipline in the organisation. It helps to minimize dishonest behaviors on the part of the employees by keeping a close check on their activities.
(vi) Facilitating coordination in action: Controlling provides direction to all activities and efforts for achieving organisational goals.
Limitations of Controlling:
(i) Difficulty in setting quantitative standards: Control system loses some of its effectiveness when standards cannot be defined in quantitative terms. Employee morale, job satisfaction and human behaviors are such areas where this problem might arise.
(ii) Little control on external factors: Generally an enterprise cannot control external factors such as government policies, technological changes, competition etc.
(iii) Resistance from employees: Control is often resisted by employees. They see it as restriction on their freedom.
(iv) Costly affairs: Control is a costly affair as it involves a lot of expenditure, time and efforts.
Steps in Controlling Process
In order to perform his control functions, a manager follows three basic steps. First of all, he establishes the standards of performance to ensure that performance is in accordance with me plan. After this, the manager will appraise the performance and compare it with predetermined standards. This step will lead the manager to know whether the performance has come up to the expected standard or if there is any deviation. If the standards are not being met, the manager will take corrective actions, which is the final step in controlling.
  1. Establishing standards: A standard acts as a reference line or basic of comparison of actual performance. Standards should be set precisely and preferably in quantitative terms. It should be noted that setting standards is also closely linked with and is an integral part of the planning process. Different standards of performance are set up for various operations at the planning stage, which serve as the basis of any control system. Establishment of standards in terms of quantity, quality or time is necessary for effective control. Standards should be accurate, precise, acceptable and workable. Standards should be flexible, i.e., capable of being changed when the circumstances require so.
  2. Measurement of performance: This step involves measuring of actual performance of various individuals, groups or units and then comparing it with the standards, which have already been set up at the planning stage. The quantitative measurement should be done in cases where standards have been set in quantitative terms. In other cases, performance should be measured in terms of quantitative factors as in case of performance of industrial relations manager. Comparison of performance with standards is comparatively easier when the standards are expressed in quantitative terms.
  3. Comparison: This is the core of the control process. This phase of control process involves checking to determine whether the actual performance meets the predetermined or planned performance. Manager must constantly seek to answer, “How well are we doing?” When a production supervisor checks the actual output or performance of his department with the production schedule, he is performing comparison aspect of control. When-an executive calculates the performance of his subordinates once in six months or   annuity, he is performing comparison aspect of control. Checking return on in investment is a comparison phase of control.
  4. Taking corrective action: The final step in the control process is taking corrective actions so that deviations may not occur again and the objectives of the organisation are achieved. This will involve taking certain decision by the management like re-planning or redrawing of goals or standards, assignment of clarification of duties. It may also necessitate reforming the process of selection and the training of workers. Thus, control function may require change in all other managerial functions. If the standards are found to be defective, they will be modified in the light of the observations.
Techniques of Control or Methods of Establishing Control
A number of techniques or tools are used for the purpose of managerial control. Some of the techniques are used for the control of the overall performance of the organisation, and some are used for controlling specific areas or aspects like costs, sales, etc. The various techniques of control can be classified into categories, viz.,
(1) Traditional or Conventional techniques and
(2) Modern or Contemporary techniques.
Traditional Techniques
  1. Budgetary Control: According to J.A. Scott, “Budgetary control is the system of management control and accounting in which all operations are forecasted and so far as possible planned ahead, and the actual results compared with the forecasted and planned ones”.
  2. Standard Costing: According to the ICMA, England, “Standard cost is a pre-determined cost which is calculated from management’s standards of efficient operation and the relevant necessary expenditure”.
  3. Break-even Analysis or Cost-Volume-Profit Analysis: Cost-Volume-Profit Analysis or Break-even Analysis is the study of the interrelationship between the cost (i.e., cost of production), volume (i.e., the volume of production and sales), the prices and the sales value, and the profits. In other words, it is the study of the inter-relationship between the cost (i.e., cost of production), volume (i.e., volume of production and sales), prices (i.e., selling prices) and profits.
  4. Inventory Control: Inventory is the stock of raw materials, work-in-progress, finished goods, consumable stores and spare parts and components at any given point to time. So, inventory control means control over different items of inventory or stock. “It is defined as physical control of stock items and implementing the principles and policies relating thereto”.
  5. Internal Audit: Internal audit is a continuous and systematic review of the accounting, financial and other operations of a concern by the staff specially appointed by the management for the purpose. In other words, it is the auditing for the management conducted by the staff specially appointed for the purpose to ensure that the work of the concern is going on smoothly, efficiently and economically.
  6. Statistical Data Analysis: It is a technique under which statistical data of the past and the present relating to the important aspects of the business are used for managerial control. The statistical data are collected from books and registers of the concern and presented to the management in a systematic manner in the form of tables, charts, graphs, etc.,
  7. Personal Observation: Under the technique of personal observation, the managers keep a close personal observation of the employees. In other words, the manager observes whether the workers are doing what they are expected to do.
  8. Production Planning and Control: According to S. Elon, “Production planning and control may be defined as the direction and co-ordination of the firm’s material and physical facilities towards the attainment of pre-specified production goals in the most efficient and valuable way”.
Modern Techniques
  1. Financial Statement Analysis: Financial statements are a means of managerial control. They can be used by the management for measuring and controlling the profitability, liquidity and the financial position of the business. By comparing the financial statement of the current year with those of the previous years and also by comparing the financial statement of their concern with those of other concerns engaged in the same industry.
  2. Return on Investment Control: Profits are the measure of overall efficiency of business. Profit earned in relation to the capital employed in a business is an important control device. ROI is used to measure the overall efficiency of a concern. It reveals how well the resources of a concern are used, higher the return better are the results.
  3. Management Information System (MIS): Management Information System (MIS) is an approach of providing timely, adequate and accurate information to the right person in the organisation which helps in taking right decisions.
  4. Management Audit: Management audit is an investigation by an independent organisation to find out whether the management is carried out most effectively or not. In case there are drawbacks at any level then recommendations should be given to improve managerial efficiency.
  5. Zero-Base Budgeting (ZBB): In the words of Peter A Pyher, “Zero-base budgeting is a planning and budgeting process which requires each manager to justify his entire budget request in detail from scratch and shifts the burden of proof to each manager to justify why he should spend money at all. The approach requires that all activities be analysed in ‘decision packages’ which are evaluated by systematic analysis and ranked in order of importance”. From his definition, it is clear that Zero-base budgeting is a technique of preparing the budget in which the previous year is not taken as the base, and every year is taken as a new year for preparing the current year’s budget.
  6. Human Resources Accounting: The American Accounting Association has defined human resources accounting as “the process of identifying and measuring data about human resources and communicating this information to interested parties”.
  7. Responsibility Accounting: Responsibility Accounting is defined as “a system designed to accumulate and report costs by individual levels of responsibility. Each supervisory area is charged only with the cost for which it is responsible and over which it has control.”
Essentials of an Effective control system:
The following are the essentials or basic requirements of an effectively control system:
  1. Suitable: The control system must be suitable for the kind of activity intended to serve. Apart from differences in the systems of control in different business, they also vary from department to department and from one level in the organisation to the other. The manager must be sure that he is using the technique appropriate for control of the specific activity involved.
  2. Understandable: The system must be understandable, i.e., the control information supplied should be capable of being understood by those who use it. A control system that a manager cannot understand is bound to remain ineffective. The control information supplied should be such as will be used by the managers concerned. It is, therefore, the duty of the manager concerned to make sure that the control information supplied to him is of a nature that will serve his purpose.
  3. Economical: The system must be economical in operation, i.e., the cost of a control system should not exceed the possible savings from its use. The extent of control necessary should be decided by the standard of accuracy or quality required. A very high degree or standard of accuracy or quality may not really be-necessary.
  4. Flexible: The system of control must be flexible, i.e. workable even if the plans have to be changed. In case the control systems can work only on the basis of one specific plan, it becomes useless if the plan breaks down and another has to be substituted. A good control system would be sufficiently flexible to permit the changes so necessitated.
  5. Expeditious: Nothing can be done to correct deviations, which have already occurred. It is, therefore, important that the control system should report deviations from plans expeditious. The objective of the control system should be to correct deviations in the immediate future.
  6. Forward Looking: The control system must be forward looking, as the manager cannot control the past. In fact, the control system should be so designed so as to anticipate possible deviations, or problems. Thus deviations can be forecast so that corrections can be incorporated even before the problem occurs.
  7. Organisational Conformity: Since people carry on activities, and events must be controlled through people, it is necessary that the control data and system must conform to the organisational pattern. The control data must be so prepared that it is possible to fix responsibility for the deviations within the areas of accountability.
  8. Indicative of Exceptions at Critical Points: The management principle of exception should be used to show up not only deviations but the critical areas must also be fixed for most effective control.
  9. Objectivity: As far as possible the measurements used must have objectivity, particularly while appraising a subordinate's performance, the subjective element cannot be entirely removed.
  10. Suggestive Of Corrective Action: Finally, an adequate control system should not only detect failures must also disclose where they are occurring, who is responsible for them and what should be done to correct them. Overall summary information can cover up certain fault areas.
Relationship between Planning and Controlling
The relationship between planning and controlling can be divided into the following two parts.
(i) Interdependence between Planning and Controlling.
(ii) Difference between Planning and Controlling.
(i) Interdependence between Planning and Controlling. Planning is meaningless without controlling and controlling is blind without Planning. Both the aspects of the interdependence of planning and control have been discussed below:
(a) Planning is meaningless without Controlling: if the process of controlling is taken away from management no person working in the enterprise will take it seriously to work according to the plans and consequently, the plans will fail.
(b) Controlling is blind without Planning: Under the system of controlling actual work performance is compared with the standards. Hence, if the standards are not determined there is no justification left for control and the standards are determined under planning.
(ii) Difference between Planning and Controlling: Yes, planning and controlling are incomplete and ineffective without each other but it doesn’t mean that both are not independent. Reasons are:
(a) Planning is looking Ahead whereas Controlling is Looking Back: Plans are always formulated for future and determined the future course of action for the achievement of objectives laid down. On the contrary, controlling is looking back because under it a manager tries to find out, after the work is completed, whether it has been done according to the standards or not.
(b) Planning is the first function and Controlling is the last function of Managerial Process: the managerial process moves in a definite sequence- like planning, organising, staffing, directing and controlling happens to be the last step.
Meaning of Budget
A budget is the monetary or/and quantitative expansion of business plans and policies to be pursued in the future period of time. The term budgeting is used for preparing budgets and other procedures for planning, co-ordination and control of business enterprise. So a budget is a pre-determined statement of management policy during a given period which provides a standard for comparison with the results actually achieved.
Significance of Budget: Budgets act as a tool in the hands of management. They help in improving the efficiency of the business. The following are some of the advantages of budgeting:
  1. Improves Efficiency: Budgeting helps in improving efficiency in the organization. Every person gets a target for achievement.
  2. Co-ordination: The working of different departments and sectors is properly co-ordinated with the help of budgeting.
  3. Economy: The planning of expenditure will be systematic and there will be an economy in spending.
  4. Consciousness among Employees: Budgeting creates consciousness among employees. By fixing targets for the employees they are made conscious of their responsibility.
  5. Time Bound: The budgets are prepared for specific periods and the performance is judged at the end of these periods. The results of employees working can be known after a specified time.
Classification of Budgets: The budgets are usually classified according to their nature. The following are the types of budgets which are commonly used:
(i) Long Term Budget: Budgets which are prepared for periods longer than a year are called LongTerm Budgets. Such Budgets are helpful in business forecasting and forward planning. E.g: Capital Expenditure Budget and R&D Budget.
(ii) Short Term Budget: Budgets which are prepared for periods less than a year are known as ShortTerm Budgets. Such Budgets are prepared in cases where a specific action has to be immediately taken to bring any variation under control. E.g: Cash Budget.
(i) Basic Budget: A Budget, which remains unaltered over a long period of time, is called Basic Budget.
(ii) Current Budget: A Budget, which is established for use over a short period of time and is related to the current conditions, is called Current Budget.
(i) Fixed Budget: It is a Budget designed to remain unchanged irrespective of the level of activity actually attained. It operates on one level of activity and less than one set of conditions. It assumes that there will be no change in the prevailing conditions, which is unrealistic.
(ii) Flexible Budget: It is a Budget, which by recognizing the difference between fixed, semi variable and variable costs is designed to change in relation to level of activity attained. It consists of various budgets for different levels of activity.
(i) Functional Budget: Budgets, which relate to the individual functions in an organization, are known as Functional Budgets, e.g. purchase Budget, Sales Budget, Production Budget, plant Utilization Budget and Cash Budget.
(ii) Master Budget: It is a consolidated summary of the various functional budgets. It serves as the basis upon which budgeted Profit & Loss Account and forecasted Balance Sheet are built up.
Concept of Budgetary Control
Budgetary control is the process of determining various budgeted figures for the enterprise for the future period and them comparing the budgeted figures with the actual performance for calculating variances, if any.
According to Brown and Howard, “Budgetary control is a system of controlling costs which includes the preparation of budgets, coordinating the departments and establishing responsibilities, comparing actual performance with the budgeted and acting upon results to achieve maximum profitability.”
Objectives of Budgetary Control: The main objectives of budgetary control are as follows:
  1. To ensure planning for future by setting up various budgets, the requirements and expected performance of the enterprise are anticipated.
  2. To co-ordinate the activities of different departments.
  3. To operate various cost centres and departments with efficiency and economy.
  4. Elimination of wastes and increase in profitability.
  5. To anticipate capital expenditure for future.
  6. To centralize the control system.
  7. Correction of deviations from the established standards.
  8. Fixation of responsibility of various individuals in the organization.
Essentials of Budgetary Control: There are certain steps which are necessary for the successful implementation of a budgetary control system. These are as follows:
  1. Organization for Budgetary Control.
  2. Budget Centres.
  3. Budget Manual.
  4. Budget Officer.
  5. Budget Committee.
  6. Budget Period.
  7. Determination of Key Factor.
Advantages of Budgetary Control
  1. Co-ordination: the working of different departments and sectors is properly co-ordinated. The budgets of different departments have a bearing on one another. The co-ordination of various executive and subordinates is necessary for achieving budgeted targets.
  2. Determining Weaknesses: the deviation in budgeted and actual performance will enable the determination of weak spots. Efforts are concentrated on those aspects where performance is less than the stipulated.
  3. Corrective Action: The management will be able to take corrective measures whenever there is a discrepancy in performance. The deviations will be regularly reported so that necessary action is taken at the earliest. In the absence of a budgetary control system the deviations can be determined only at the end of the financial period.
  4. Consciousness: It creates budget consciousness among the employees. By fixing targets for the employees, they are made conscious of their responsibility. Everybody knows what he is expected to do and he continues with his work uninterrupted.
  5. Reduces Costs: In the present day competitive world budgetary control has a significant role to play. Every businessman tries to reduce the cost of production for increasing sales. He tries to have those combinations of products where profitability is more.
Limitations of Budgetary Control
  1. Budgetary Revision Required: Budgets are prepared on the assumptions that certain conditions will prevail. Because of future uncertainties, assumed conditions may not prevail necessitating the revision of budgetary targets.
  2. Discourage Efficient Persons: Under budgetary control system the targets are given to every person in the organization. The common tendency of people is to achieve the targets only.
  3. Problem of Co-ordination: the success of budgetary control depends upon the co-ordination among different departments. The performance of one department affects the results of other departments. To overcome the problem of co-ordination a Budgetary Officers is needed.
  4. Conflict among Different Departments: Budgetary control may lead to conflicts among functional departments. Every departmental head worries for his departmental goals without thinking of business goals.
  5. Depends upon Support of Top Management: Budgetary control system depends upon the support of top management. The management should be enthusiastic for the success of this system and should give full support for it.
Zero base-budgeting

Zero-base budgeting is the latest technique of budgeting and it has an increased use as managerial tool. This technique was first used in America in 1962. The former President of America, Jimmy Carter used this technique when he was the Governor of Georgia for controlling state expenditure. In Zero-base budgeting a manager is to justify why he wants to spend. The preference of spending on various activities will depend upon their justification and priority for spending will be drawn. It will have to be proved that an activity is essential and the amounts asked for are really reasonable taking into account the volume of activity.

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