1
Department of Education
Division of Lapu-Lapu City
LECTURE NOTES IN ORGANIZATION AND MANAGEMENT
Prepared by:
RUBY GALA-LIGOT
MARIGOLD N. MARTINEZ
Lecture Notes in Organization and Management
Prepared by: Ruby Gala-Ligot
2
Hello Senior High School Students!
You are about to start a journey. This module is your partner as you explore the interesting
world of Organization Management.
You will meet conventional and new concepts which are necessary in acquiring knowledge
and skills in Organization and Management. Our purpose is to make this journey meaningful
and relevant in your life as a Senior High School student. While we help you achieve your goal
of becoming a successful entrepreneur or businessman, we also want you to enjoy this
journey.
Have fun. Enjoy learning OM!
The Target Skills of Organization and Management
Lecture Notes in Organization and Management
Prepared by: Ruby Gala-Ligot
3
Content Implementation Matrix
SUBJECT TITLE:
HOURS: 80
ORGANIZATION AND MANAGEMENT
SEMESTER: 1st
QUARTER: 1
CONTENT
CONTENT
STANDARD
Nature
and
Management
CODE
Concept
of Basic
Concepts ABM_AOM11-Ia-b-1
and Theories of
ABM_AOM11-Ia-b-2
Management
1. Definition and functions
ABM_AOM11-Ia-b-3
of management
2. Evolution
of
Management Theories
3. Functions, roles, and
skills of a manager
TIME BUDGET
2.5 hours
2.5 hours
2.5 hours
The Firm and Its Environment
1. Environmental
forces
and
environmental
scanning
2. The
local
and
international
business
environment of the firm
3. Phases of economic
development
4. Forms
of
business
organizations
The
role
of
business in the
environment
and
how
the
environment affects
the firm
ABM_AOM11-Ic-d-4
45 min.
ABM_AOM11-Ic-d-5
45 min.
ABM_AOM11-Ic-d-6
45 min.
ABM_AOM11-Ic-d-7
45 min.
ABM_AOM11-Ic-d-8
45 min.
ABM_AOM11-Ic-d-9
45 min.
Planning
2.4hrs./ 144mins.
1.
2.4hrs./ 144mins.
2.
3.
4.
5.
6.
The importance of ABM_AOM11-Ie-g-10
planning concepts
Definition and nature of in
business ABM_AOM11-Ie-g-11
planning
success
ABM_AOM11-Ie-g-12
Types of planning
Planning at different
ABM_AOM11-Ie-g-13
levels in the firm
Planning techniques and
ABM_AOM11-Ie-g-14
tools
Application of planning
tools and techniques
Decision making
Lecture Notes in Organization and Management
Prepared by: Ruby Gala-Ligot
2.4hrs./ 144mins.
2.4hrs./ 144mins.
2.4hrs./ 144mins.
4
Organizing
The significance of ABM_AOM11-Ih-j-15
organizational
1. Nature of organizations
structures
for ABM_AOM11-Ih-j-16
2. Types of organizational
effective business ABM_AOM11-Ih-j-17
structures
3. Organization
theories management
ABM_AOM11-Ih-j-18
and application
4. Delegation
ABM_AOM11-Ih-j-19
5. Formal and Informal
organizations
2.4hrs./ 144mins.
2.4hrs./ 144mins.
2.4hrs./ 144mins.
2.4hrs./ 144mins.
Staffing
52.5 mins
1.
52.5 mins
2.
3.
4.
5.
6.
7.
8.
The process of ABM_AOM11-IIa-brecruiting, selecting 20
Definition and nature of and
training
staffing
ABM_AOM11-IIa-bemployees
Recruitment
21
Selection
Training
and
ABM_AOM11-IIa-bDevelopment
22
Compensation/wages
and
performance
ABM_AOM11-IIa-bevaluation/appraisal
23
Employee relations
Employee movements
ABM_AOM11-IIa-bRewards Systems
24
2.4hrs./ 144mins.
52.5 mins
52.5 mins
52.5 mins
52.5 mins
52.5 mins
ABM_AOM11-IIa-b25
ABM_AOM11-IIa-b26
Leading
1.
2.
3.
4.
5.
Definition
Motivation
Leadership Theories
Communication
Management of Change
and Diversity
6. Filipino and Foreign
Cultures
How
motivation,
leadership,
and
communication,
work
in
an
organization
ABM_AOM11-IIc-e27
1.71hrs/
mins
102.86
ABM_AOM11-IIc-e28
1.71hrs/
mins
102.86
ABM_AOM11-IIc-e29
1.71hrs/
mins
102.86
ABM_AOM11-IIc-e30
1.71hrs/
mins
102.86
ABM_AOM11-IIc-e31
1.71hrs/
mins
102.86
ABM_AOM11-IIc-e32
1.71hrs/
mins
102.86
ABM_AOM11-IIc-e33
1.71hrs/
mins
102.86
Lecture Notes in Organization and Management
Prepared by: Ruby Gala-Ligot
5
Controlling
2.4hrs./ 144mins.
1.
2.4hrs./ 144mins.
2.
3.
4.
5.
Different controlling ABM_AOM11-IIf-h-34
methods
and
Definition and nature of techniques
ABM_AOM11-IIf-h-35
management control
ABM_AOM11-IIf-h-36
The
link
between
planning and controlling
ABM_AOM11-IIf-h-37
Control methods and
systems
ABM_AOM11-IIf-h-38
Application
of
management control in
accounting
and
marketing concepts and
techniques
Role of budgets in
planning and control
Introduction to the Different The
different ABM_AOM11-IIi-39
Functional
Areas
of functional areas of
Management
management
a. Human
Resource
Management
b. Marketing Management
c. Operations Management
d. Financial Management
e. Information
and
Communication
Technology
Management
Special Topics in Management
The basic concepts ABM_AOM11-IIj-40
of
small-family
1. Small
Business business
ABM_AOM11-IIj-41
Management
and
ABM_AOM11-IIj-42
Entrepreneurship
2. Family
Business
Enterprise
3. Starting a Business:
Legal
Forms
and
Requirements
Lecture Notes in Organization and Management
Prepared by: Ruby Gala-Ligot
2.4hrs./ 144mins.
2.4hrs./ 144mins.
2.4hrs./ 144mins.
1 hr/ 60 mins.
1.33 hrs/ 80 mins.
6
Lesson 1
CONTENT TITLE: Nature and Concept of Management
Discussion:
A. What is Management?
CONTENT STANDARDS:
1. Basic Concepts and Theories of Management
Management is the process of reaching organizational goals by working with and through
people and other organizational resources.
Management in businesses and organizations is the function that coordinates the efforts
of people to accomplish goals and objectives by using available resources efficiently and
effectively.
Management has the following 3 characteristics:
1. It is a process or series of continuing and related activities.
2. It involves and concentrates on reaching organizational goals.
3. It reaches these goals by working with and through people and other organizational
resources.
B.) MANAGEMENT FUNCTIONS:
1. PLANNING:
Planning is the logical thinking through goals and making the decision as to what needs to be
accomplished in order to reach the organizations’ objectives.
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Planning involves choosing tasks that must be performed to attain organizational goals,
outlining how the tasks must be performed, and indicating when they should be performed.
Planning activity focuses on attaining goals. Managers outline exactly what organizations
should do to be successful. Planning is concerned with the success of the organization in the
short term as well as in the long term.
2. ORGANIZING:
Manager must organize all its resources well before in hand to put into practice the course of
action to decide that has been planned in the base function.
Organizing can be thought of as assigning the tasks developed in the planning stages, to
various individuals or groups within the organization. Organizing is to create a mechanism to
put plans into action.
People within the organization are given work assignments that contribute to the company’s
goals. Tasks are organized so that the output of each individual contributes to the success of
departments, which, in turn, contributes to the success of divisions, which ultimately
contributes to the success of the organization.
3. DIRECTING/ INFLUENCING
It involves the implementation of plans by mobilizing individuals and group efforts through
motivation, communication, leadership and supervision.
Directing can also be called Influencing and is also referred to as motivating and leading.
Influencing can be defined as guiding the activities of organization members in the direction
that helps the organization move towards the fulfillment of the goals.
The purpose of influencing is to increase productivity. Human-oriented work situations usually
generate higher levels of production over the long term than do task oriented work situations
because people find the latter type distasteful.
4. CONTROLLING:
It is the process of regulating the ongoing activities of the organization to ensure that they are
in conformity with the established plans and produce the desired results.
Controlling is the following roles played by the manager:
1. Gather information that measures performance
2. Compare present performance to pre established performance norms.
3. Determine the next action plan and modifications for meeting the desired performance
parameters.
Controlling is an ongoing process.
4. STAFFING:
After the organizational functions are done, he may decide to beef up his staffing by recruiting,
selecting, training, and developing employees.
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C.)
The Evolution of Management:
The Evolution of Management started before the Industrial Revolution, when the economy
was based on agriculture Professional managers were not needed because most people
worked for themselves.
The Industrial Revolution Refers to the period during which a country develops an industrial
economy. By the late 1800s, the economy depended largely on industries such as oil, steel,
railroads, and manufactured goods.
Many people left their farms to take jobs in factories, where professional managers supervised
their work. The new industrial enterprises that emerged in the nineteenth century demanded
management skills that had not been necessary earlier.
Evolution of Management Theory:
Evolution of Management Theory
Lecture Notes in Organization and Management
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A. Scientific Theory:
A. Scientific Theory Defined by Frederick Taylor (1865 - 1915) in the late 1800’s to replace
informal rule of thumb knowledge. Also called Taylorism , the Taylor system, or the Classical
Perspective. It's a theory of management that analyzes and synthesizes workflow processes,
and improving labour productivity.
Taylor’s scientific management was based on four main ideas: :
Taylor’s scientific management was based on four main ideas: a) Jobs should be designed
according to scientific rules rather than rule-of-thumb methods. b) Employees should be
selected and trained according to scientific methods. c) Employers should also train
employees in order to improve their performance. d)The principles of scientific management
should be explained to workers. Management and workers should be interdependent so that
they cooperate.
Abraham Maslow 1908-1970:
Abraham Maslow 1908-1970 Maslow believed that individuals fulfil lower-level needs before
seeking to fulfil higher-level needs. One set of needs must be met before another is sought,
Maslow referred to this as a hierarchy of needs.
B) Administrative Theories:
Administrative Theories Focus on managers and their behavior Henri Fayol , Management is
a discipline with principles that can be taught Max Weber Developed the concept of
“bureaucracy” as the ideal structure for an organization
Fayol’s Administrative Principles:
Fayol’s Administrative Principles 1. Division of labor 2. Authority to give orders 3. Discipline 4.
Unity of command 5. Unity of direction 6. Subordination of individual interest to the general
interests, 7. Remuneration: pay for work done 8. Centralization 9. Scalar chain 10. Order 11.
Equity 12. Stability of tenure of personnel /staff 13. Esprit de corps 14. Initiative
Weber's Bureaucratic Management (1930-1950):
Weber's Bureaucratic Management (1930-1950) Formal system of rules and procedures
Hierarchical structure with detailed authority Clear division of labor Rationality Career
commitment
establishing strong lines of authority and control. He suggested organizations develop
comprehensive and detailed standard operating procedures for all routinized tasks.
Professor Douglas McGregor (1906 - 1964) Theory X —assumes that people are basically
lazy and will avoid working if they can. To make sure that employees work, Theory X managers
impose strict rules and make sure that all important decisions are made only by them.
Lecture Notes in Organization and Management
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Theory Y assumes that people find satisfaction in their work. Theory Y managers believe that
people are creative and will come up with good ideas if encouraged to do so. They tend to
give their employees much more freedom and let them make mistakes.
Theory Z:
Theory Z William Ouchi, a management researcher developed this new theory in the 1980s
Theory Z - business management theory that integrates Japanese and American business
practices. The Japanese business emphasis is on collective decision making, whereas the
American emphasis is on individual responsibility.
Behavioral Theory:
Behavioral Theory Focuses on the human aspects of organizations Mary Parker Follett
Management is a dynamic process Workers should be involved in decisions Chester
Barnard Organizations are social systems Managers need “buy-in” of employees
Mary Parker Follet :
Mary Parker Follet Co ordination by direct contact Co ordination in the early stages Co
ordination as a reciprocal relation of all the features in a situation Co ordination is a
continuous process
Barnard’s key concepts::
Barnard’s key concepts: Importance of an Individual's behaviour. Compliance Concept of
"zone of indifference". Communication Focused on importance of communication in informal
organization.
George Elton Mayo (1880 - 1949) :
George Elton Mayo (1880 - 1949) Professor George Elton Mayo (1880-1949) has secured
fame as the leader in a series of experiments which became one of the great turning-points
in management thinking. At the Hawthorne plant of Western Electric, he discovered that job
satisfaction increased through employee participation in decisions rather than through shortterm incentives.
Mayo's importance to management lies in the fact that he established evidence on the value
of a management approach and style which, although not necessarily an alternative to FW
Taylor's scientific management, presented facts which Taylorites could not ignore.
History
Management theory originated with "scientific" and "bureaucratic" management that used
measurement, procedures and routines as the basis for operations. Organizations developed
hierarchies to apply standardized rules to the workplace and punished workers for not
following them. With the "human relations" movement, companies started emphasizing
individual workers. Contemporary management theories, including system theory,
Lecture Notes in Organization and Management
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contingency theory and chaos theory, focus on the whole organization, with employees as a
key part of the system.
Culture
Management theories have evolved to acknowledge that corporate culture can be a
contributor to performance. If you can develop a sense of belonging to a group for your
company, you can manage the business for improved financial performance and return on
investment. To work well with a positive corporate culture as a manager, you have to work
through the culture and not try to control it. A positive corporate culture takes care of a lot of
informal exchange of information and behavioral norms.
Quantitative Methods
All contemporary management theories emphasize measurement and quantitative analysis.
Management has evolved to focus on fundamental company operating results and business
variables that are relevant, specific to goals and quantifiable. Information technology allows
you to analyze large data sets and extract trends. You can evaluate key performance
indicators, which track data affecting your objectives, to tell you how well you are advancing
toward your goals. You can perform these evaluations independently of the management style
and organizational structure of the company.
Competing Approaches
Management theories have evolved into two competing orientations. Theory X assumes
employees don't want to work and act out of self-interest. Managers have to put in place a
disciplinary structure to guide employees in the execution of their work. If you function with
theory X, you have to tell employees what to do and encourage them to do it. Theory Y
assumes employees want to carry out interesting and rewarding work and seek reward in the
achievement. Managers have to set goals and allow employees to find creative ways to reach
them. If your company culture is in line with theory Y, you facilitate employee effort and act
more like a coach.
D.) Functions, Roles and Skills of a Manager:
Roles of Manager
A Manager wears many hats. Not only is a manager a team leader, but he or she is also a
planner, organizer, cheerleader, coach, problem- solver and decision maker- all rolled into
one. And these are just a few of the managers’ roles.
Lecture Notes in Organization and Management
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Interpersonal role:
People look up to him as a person with authority, and as a figurehead.
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Lesson 2
CONTENT TITLE: THE FIRM AND ITS ENVIRONMENT
CONTENT STANDARD:
The role of business in the environment, and how the environment affects the firm.
A) What is Business Environment? What is environmental scanning?
Business environment is the sum total of all external and internal factors that influence a
business. You should keep in mind that external factors and internal factors can influence
each other and work together to affect a business. For example, a health and safety regulation
is an external factor that influences the internal environment of business operations.
Additionally, some external factors are beyond your control. These factors are often
called external constraints. Let's take a look at some key environmental factors.
Environmental Scanning- is a process that systematically surveys and interprets relevant
data to identify external opportunities and threats. An organization gathers information about
the external world, its competitors and itself. The company should then respond to the
information gathered by changing its strategies and plans when the need arises.
External Factors:Political factors are governmental activities and political conditions that may affect your
business. Examples include laws, regulations, tariffs and other trade barriers, war, and social
unrest.
Macroeconomic factors are factors that affect the entire economy, not just your business.
Examples include things like interest rates, unemployment rates, currency exchange rates,
consumer confidence, consumer discretionary income, consumer savings rates, recessions,
and depressions.
Microeconomic factors are factors that can affect your business, such as market size,
demand, supply, relationships with suppliers and your distribution chain, such as retail stores
that sell your products, and the number and strength of your competition.
Social factors are basically sociological factors related to general society and social relations
that affect your business. Social factors include social movements, such as environmental
movements, as well as changes in fashion and consumer preferences. For example, clothing
fashions change with the season, and there is a current trend towards green construction and
organic foods.
Technological factors are technological innovations that can either benefit or hurt your
business. Some technological innovations can increase your productivity and profit margins,
such as computer software and automated production. On the other hand, some technological
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innovations pose an existential threat to a business, such as Internet streaming challenging
the DVD rental business.
Internal Factors:
Internal environmental factors are events that occur within an organization. Generally
speaking, internal environmental factors are easier to control than external environmental
factors. Some examples of internal environmental factors are as follows:

Management changes

Employee morale

Culture changes

Financial changes and/or issues
Environmental Scanning and Environmental Forces can be summarized using the PEST and
SWOT Analysis.
The SWOT Analysis
SWOT
is
a
structured
planning
tool
that
can
be
used
to
evaluate
the Strengths, Weaknesses, Opportunities, and Threats involved in running a business
venture. Using a SWOT analysis can be used to help a business determine the advantages
or disadvantages of changes they want to make based on internal and external factors. A
SWOT analysis can be broken into two distinct parts. The strengths and weaknesses are
based on internal environmental factors. Opportunities and threats are based on external
environmental factors.
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One of the most commonly used analytical tools for assessing external macro-economic
factors related to particular situation is PEST Analysis.
What is PEST Analysis?
PEST is an acronym for Political, Economic, Social and Technological. This analysis is
used to assess these four external factors in relation to your business situation.
Basically, a PEST analysis helps you determine how these factors will affect the
performance and activities of your business in the long-term. It is often used in
collaboration with other analytical business tools like the SWOT analysis and Porter’s Five
Forces to give a clear understanding of a situation and related internal and external factors.
Understanding the PEST Factors
Before you jump ahead and start using this analysis, you should understand what each of
these factors in this analysis signifies.

Political – Here government regulations and legal factors are assessed in terms of their
ability to affect the business environment and trade markets. The main issues
addressed in this section include political stability, tax guidelines, trade regulations,
safety regulations, and employment laws.

Economic – Through this factor, businesses examine the economic issues that are
bound to have an impact on the company. This would include factors like inflation,
interest rates, economic growth, the unemployment rate and policies, and the business
cycle followed in the country.

Social – With the social factor, a business can analyze the socio-economic environment
of its market via elements like customer demographics, cultural limitations, lifestyle
attitude, and education. With these, a business can understand how consumer needs
are shaped and what brings them to the market for a purchase.

Technological – How technology can either positively or negatively impact the
introduction of a product or service into a marketplace is assessed here. These factors
include technological advancements, lifecycle of technologies, the role of the Internet,
and the spending on technology research by the government.
An Example of PEST
Here is an example of PEST analysis that can give you a clear understanding of how this
works:
Lecture Notes in Organization and Management
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Political

Economic
New state

tax
policies for

accounting

New employment
Social

International
Technical

Shift in
economic growth
educational
processes in the
Changes in
requirements
industry
interest rates
and changing
laws for

career attitudes

employee
handbook
growth rate
Rate of
innovation

Population
Changes in
technology
maintenance

Automated
incentives
Political instability
in a foreign
partner country
PESTLE Analysis: An extension of PEST Analysis
What is PESTLE Analysis? PESTEL analysis is an extension of PEST that is used to assess
two
additional
macroeconomic
factors.
These
factors
are
the Legal and
Environment conditions that can have an impact on the company. Examples of PESTLE
analysis are similar to those of a PEST analysis, but they would include the following:
Environment:

Changes in weather and climate

Laws regarding pollution and recycling

Waste management

Use of green or eco-friendly products and practices
Legal:

Discrimination laws

Health and safety laws

Consumer protection laws

Copyright and patent laws
So, if you want to assess a business situation in a comprehensive way, a PEST analysis is a
definite must that can help you understand the macroeconomic business environment.
B. DESCRIBE THE LOCAL AND INTERNATIONAL BUSINESS ENVIRONMENT OF A
FIRM
International business is an enormously relevant facet of the modern economy,
and will only become more integrated into core business strategy as technology
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continues to progress. International business is simply the summation of all
commercial transactions that take place between various countries (crossing political
boundaries). This is not exclusively limited to the domain of business, as NGOs,
governments, and coops also operate across country borders with a variety of
objectives (aside from simple profitability).
From a business perspective, the primary incumbent in an international business
environment is the multinational enterprise (MNE), which is a company that pursues
strategic success in global production and sales (i.e. operating within a number of
country borders). The number of examples of this type of firm is constantly growing.
From fast food chains like McDonald's to auto manufacturers like Honda to smartphone
designers like Samsung, the number of international players in most markets is
constantly on the rise.
C. PHASES OF ECONOMIC DEVELOPMENT
D. FORMS OF BUSINESS ORGANIZATION
One of the first decisions that you will have to make as a business owner is how the business
should be structured. All businesses must adopt some legal configuration that defines the
rights and liabilities of participants in the business’s ownership, control, personal liability, life
span, and financial structure. This decision will have long-term implications, so you may want
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to consult with an accountant and attorney to help you select the form of ownership that is
right for you. In making a choice, you will want to take into account the following:
•Your vision regarding the size and nature of your business.
•The level of control you wish to have.
•The level of “structure” you are willing to deal with.
•The business’s vulnerability to lawsuits.
•Tax implications of the different organizational structures.
•Expected profit (or loss) of the business.
•Whether or not you need to re-invest earnings into the business.
•Your need for access to cash out of the business for yourself.
An overview of the four basic and legal forms of organization: Sole Proprietorship;
Partnerships; Corporations and Limited Liability Company follows.
1. Sole Proprietorship
Advantages of a Sole Proprietorship
• Easiest and least expensive form of ownership to organize.
• Sole proprietors are in complete control, and within the parameters of the law, may make
decisions as they see fit.
• Profits from the business flow-through directly to the owner’s personal tax return.
• The business is easy to dissolve, if desired.
Disadvantages of a Sole Proprietorship
• Sole proprietors have unlimited liability and are legally responsible for all debts against the
business. Their business and personal assets are at risk.
• May be at a disadvantage in raising funds and are often limited to using funds from
personal savings or consumer loans.
• May have a hard time attracting high-caliber employees, or those that are motivated by the
opportunity to own a part of the business.
• Some employee benefits such as owner’s medical insurance premiums are not directly
deductible from business income (only partially as an adjustment to income).
2. Partnerships
In a Partnership, two or more people share ownership of a single business.
Like
proprietorships, the law does not distinguish between the business and its owners. The
Partners should have a legal agreement that sets forth how decisions will be made, profits will
be shared, disputes will be resolved, how future partners will be admitted to the partnership,
how partners can be bought out, or what steps will be taken to dissolve the partnership when
needed; Yes, its hard to think about a “break-up” when the business is just getting started, but
many partnerships split up at crisis times and unless there is a defined process, there will be
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even greater problems. They also must decide up front how much time and capital each will
contribute, etc.
Advantages of a Partnership
• Partnerships are relatively easy to establish; however time should be invested in
developing the partnership agreement.
• With more than one owner, the ability to raise funds may be increased.
• The profits from the business flow directly through to the partners’ personal tax return.
• Prospective employees may be attracted to the business if given the incentive to become a
partner.
• The business usually will benefit from partners who have complementary skills.
Disadvantages of a Partnership
• Partners are jointly and individually liable for the actions of the other partners.
• Profits must be shared with others.
• Since decisions are shared, disagreements can occur.
• Some employee benefits are not deductible from business income on tax returns.
• The partnership may have a limited life; it may end upon the withdrawal or death of a
partner.
Types of Partnerships that should be considered:
1. General Partnership
Partners divide responsibility for management and liability, as well as the shares of profit or
loss according to their internal agreement. Equal shares are assumed unless there is a
written agreement that states differently.
2. Limited Partnership and Partnership with limited liability
“Limited” means that most of the partners have limited liability (to the extent of their
investment) as well as limited input regarding management decision, which generally
encourages investors for short term projects, or for investing in capital assets. This form of
ownership is not often used for operating retail or service businesses. Forming a limited
partnership is more complex and formal than that of a general partnership.
3. Joint Venture
Acts like a general partnership, but is clearly for a limited period of time or a single project. If
the partners in a joint venture repeat the activity, they will be recognized as an ongoing
partnership and will have to file as such, and distribute accumulated partnership assets upon
dissolution of the entity.
3. Corporations
A Corporation, chartered by the state in which it is headquartered, is considered by law to be
a unique entity, separate and apart from those who own it. A Corporation can be taxed; it can
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be sued; it can enter into contractual agreements. The owners of a corporation are its
shareholders. The shareholders elect a board of directors to oversee the major policies and
decisions. The corporation has a life of its own and does not dissolve when ownership
changes.
Advantages of a Corporation
• Shareholders have limited liability for the corporation’s debts or judgments against the
corporation.
• Generally, shareholders can only be held accountable for their investment in stock of the
company. (Note however, that officers can be held personally liable for their actions, such
as the failure to withhold and pay employment taxes.
• Corporations can raise additional funds through the sale of stock.
• A Corporation may deduct the cost of benefits it provides to officers and employees.
• Can elect S Corporation status if certain requirements are met. This election enables
company to be taxed similar to a partnership.
Disadvantages of a Corporation
• The process of incorporation requires more time and money than other forms of
organization.
• Corporations are monitored by federal, state and some local agencies, and as a result may
have more paperwork to comply with regulations.
• Incorporating may result in higher overall taxes. Dividends paid to shareholders are not
deductible from business income; thus this income can be taxed twice.
Subchapter S Corporation
A tax election only; this election enables the shareholder to treat the earnings and profits as
distributions, and have them pass through directly to their personal tax return. The catch here
is that the shareholder, if working for the company, and if there is a profit, must pay his/herself
wages, and it must meet standards of “reasonable compensation”. This can vary by
geographical region as well as occupation, but the basic rule is to pay yourself what you would
have to pay someone to do your job, as long as there is enough profit. If you do not do this,
the IRS can reclassify all of the earnings and profit as wages, and you will be liable for all of
the payroll taxes on the total amount.
4.Limited Liability Company (LLC)
The LLC is a relatively new type of hybrid business structure that is now permissible in most
states. It is designed to provide limited liability features of a corporation and the tax efficiencies
and operational flexibility of a partnership. Formation is more complex and formal than that of
a general partnership.
The owners are members, and the duration of the LLC is usually determined when the
organization papers are filed. The time limit can be continued if desired by a vote of the
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members at the time of expiration. LLC’s must not have more than two of the four
characteristics that define corporations: Limited liability to the extent of assets; continuity of
life; centralization of management; and free transferability of ownership interests.
Federal Tax Forms for LLC
Taxed as a partnership in most cases; corporation forms must be used if there are more than
2 of the 4 corporate characteristics, as described above.
In summary, deciding the form of ownership that best suits your business venture should be
given careful consideration. Use your key advisors to assist you in the process.
Source: Kenner & Speck, LC
Forms of Business Organization
These are the basic forms of business ownership:
1. Sole Proprietorship
A sole proprietorship is a business owned by only one person. It is easy to set-up and is the
least costly among all forms of ownership.
The owner faces unlimited liability; meaning, the creditors of the business may go after the
personal assets of the owner if the business cannot pay them.
The sole proprietorship form is usually adopted by small business entities.
2. Partnership
A partnership is a business owned by two or more persons who contribute resources into the
entity. The partners divide the profits of the business among themselves.
In general partnerships, all partners have unlimited liability. In limited partnerships,creditors
cannot go after the personal assets of the limited partners.
3. Corporation
A corporation is a business organization that has a separate legal personality from its owners.
Ownership in a stock corporation is represented by shares of stock.
The owners (stockholders) enjoy limited liability but have limited involvement in the company's
operations. The board of directors, an elected group from the stockholders, controls the
activities of the corporation.
In addition to those basic forms of business ownership, these are some other types of
organizations that are common today:
Limited Liability Company
Limited liability companies (LLCs) in the USA, are hybrid forms of business that have
characteristics of both a corporation and a partnership. An LLC is not incorporated; hence, it
is not considered a corporation.
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Nonetheless, the owners enjoy limited liability like in a corporation. An LLC may elect to be
taxed as a sole proprietorship, a partnership, or a corporation.
In UK and in Europe this form of business organization is referred to as Pte. Ltd or Private
Limited.
Cooperative
A cooperative is a business organization owned by a group of individuals and is operated for
their mutual benefit. The persons making up the group are called members. Cooperatives
may be incorporated or unincorporated.
Some examples of cooperatives are: water and electricity (utility) cooperatives, cooperative
banking, credit unions, and housing cooperatives.
LESSON 3
CONTENT: PLANNING
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CONTENT STANDARD: THE IMPORTANCE OF PLANNING CONCEPTS IN BUSINESS
SUCCESS
A) What is planning and its Nature?
A manager performs his functions to accomplish organizational objectives by
working with and through people and other organizational resources. He does this a
midst an environment characterized by constant change. With an increasingly
uncertain future, a manager anticipates the environment by planning.
Planning consists of systematically identifying and analyzing factors external and
internal to the organization and matching them with organizational resources and
capabilities. It is done at various levels of the organization and in various ways.
The Nature of Planning
Planning is a process of determining the actions an organization will do to meet its
objectives amidst constantly changing and uncertain environment. It consists of several steps:
1. Establishment of Objectives
2. Establishment of Planning Premises
3. Determining alternative Courses
4. Evaluation of Alternatives
5. Selecting a Course of Action
6. Formulating Derivative Plans
7. Establishing Sequence of Activities
8. Feedback of Follow-Up Action
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Through this process, the degree of organizational success is increased by minimizing risks
associated with uncertainties surrounding business conditions. An organization is successful
to the extent that objectives set are achieved.
First Step: Establishment of Objectives
Establishing Objectives is the first step in planning. An objective is a performance
goal, a desired outcome, a target to which the actions of a manager and the people and
resources he manages, are directed to. Common areas where objectives are explicitly
expressed are profit, growth, market share, customer service, employee welfare and social
responsibility.
Managers decide on the objectives for his organization. Depending on the level of
management he is in, objectives are developed accordingly. In smaller and/or flatter
organizations, there are fewer levels and oftentimes, there is only one or two set/s of
objectives developed corresponding to one or two lean management team/s.
The diagram below depicts the relationship between objectives and the managerial
hierarchy. This is especially the case in large organizations.
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At the top of the hierarchy of objectives is the mission of the organization, that
is, its reason for existence. The mission and overall objectives of the organization come
from top management. All other objectives emanate from those that are set by the top
management. Thus, objectives are said to be properly developed when they reflect the
mission of the organization. Objectives are also finalized after getting inputs from
people responsible for attaining them.
Second Step: Establishment of Planning Premises
 Planning Premises are those external and internal factors in the environment
that are assumed as conditions surrounding the likelihood of certain situations
happening in the future when the plans are carried out.
Third Step: Determining Alternative Courses
Fourth Step: Evaluation of Alternatives:
 Organization can pursue its objective in various ways. There are alternative
courses for every plan and oftentimes, it is more challenging to reduce the
number of alternatives than finding them. Once found, these alternative
courses can be analyzed, examined and evaluated through the use of planning
tools and techniques. These tools and techniques enable the manager to
identify alternatives that can be eliminated because of unreasonable premises.
Fifth Step: Selecting a Course of Action.
 The selection of course of action from among alternatives is also known as
decision making. A plan is formally adopted when a decision to commit
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resources and provide direction has been made. Until a selection is made,
there are only analysis and studies being made.
Sixth Step: Formulating Derivative Plans
 To support the decision, derivative plans have to be formulated as supporting
to the accomplishment of the master plan.
Seventh Step: Establishing Sequence of Activities
Eight Step: Feedback or Follow Up Action
 The last two steps of planning consist of determining the sequence of activities
with which to implement the plan. It involves managing the people involved and
providing the resources necessary for implementation.
Types of Planning:
1. Financial Planning: It goes without saying that you must have a tangible financial plan
for your business, but with the infinite number of ways you can develop yours, what do
you do? When it comes to our financial planning, we’ve found the strongest results after
following this handful of “musts”:

The plan must have buy-in from employees at all levels of the organization.

The plan must be clearly communicated.

The plan must be rooted in reality.

The plan must be forward-looking.

The plan must be reviewed formally; progress must be tracked on an ongoing basis.
2. Strategic Planning: In addition to having a strong financial outlook, your company also
needs a clear strategic vision. A strategy describes how the ends (goals) will be achieved
by the means (resources). The senior leadership of an organization is generally tasked
with determining strategy.
Our simple guidelines to strategic planning are as follows:

You must have a believable, predictable sales line for the strategy to work.
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
You must clearly analyze and address your company’s opportunities, threats, strengths
and weaknesses.

You must have a clear intelligence on your competitors.

You must have a realistic and detailed understanding of the marketplace and the
economy.
3. Contingency Planning: A sturdy contingency plan is essential to growth and business
success. After all, you need a “Plan-B” or a backup plan to launch when the unexpected
happens, right? Contingency planning makes you proactive and serves as a source of
innovation and business growth in and of itself (double win!). In short, a good contingency
represents a researched and vetted realistic opportunity. If disaster strikes, activate
contingencies in order to fill a void.
4. Succession Planning: What if your manager or an executive left suddenly? Is your
organization prepared to replace a major player on your team? While “missing” them is
one thing, making sure your organization continues to grow beyond their departure is
crucial to your overall success (obviously!). To make sure you don’t skip more than a
beat, you need to beef up your succession planning process.
Succession planning, however, needs to be more than just naming a successor for major
company positions. A strong succession plan creates opportunities for managers as well as
succession candidates because with a developed successor in place, managers are primed
to move into new positions and pursue opportunities when those arise as well. Therefore,
succession candidates must be groomed; developed and prepared to step into a new role
when the opportunity arises so that the multi-shift can happen simultaneously as needed (not
to put off until candidates are “ready”). You won’t experience that lag time trying to figure out
who can take over their responsibilities and continue on your path to growth without wasting
time or additional resources.
Planning at different levels in the firm:
A new small business will not require many levels of business planning right away. However,
a business owner may begin with an initial business plan and need to use different levels of
business planning as the company grows. In the growth years of a business, new departments
or functions will need to be created to meet customer needs, and these units will require goals
that support the overall goals of the firm.
Firm-Level Planning
A business owner has to choose a model of planning, such as strategic planning, that will
guide the entire business. Planning is about setting goals that can be timed and measured to
determine if a company meets the desired level of performance. Without a strategic plan, a
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business owner will make more reactive decisions in response to the market. With a strategic
plan, all of the firm's employees will know what direction to take.
Department-Level Planning
Once a business has grown to a certain point, a business owner or manager will begin to
organize employees into departments, teams or business functions. Employees will support a
specific product, perform a specific function or serve customers in a defined market. At this
level, regardless of business size, a department or team manager must collaborate with the
owner or company manager and determine what part of the firm's goals will require his
department's tactical plan. This should be a two-way process so that the staff will buy into goal
setting and give their input.
Operational Planning
It used to be that middle-level managers created a tactical plan, or how the different units of
the company will implement the goals in a broad sense, and that lower-level managers created
operational goals. Now, many organizations do not have middle-level managers. Therefore,
department-level managers end up doing tactical and operational planning. This level of
planning requires that a manager consider which employee or group will be responsible for
each department goal at the operational level. This will include looking at the specific activities
that employees perform and how they interlace to support the department's goals.
Employee Planning
At the direction of their manager, individuals can write goals to illustrate specifically how they
will help achieve operational goals. These should be as specific, measurable, achievable,
relevant and timed as the goals at the other levels of planning. Individuals are also a good
source of information about the product or service they support. They can suggest ways for
the company to match the strengths of the business with current opportunities in the market.
The six major planning tools and techniques that managers use are identified and described
below:
•
Forecasting is the process of predicting what will happen in the future. It is a technique
used by managers to assess the environment. It predicts future environmental happenings or
events that will affect the operations of the organization. Forecasting can be quantitative or
qualitative. Quantitative forecasting applies mathematics to data in order to predict the future.
For example, to predict future sales, the historical relationship between sales and time is
analyzed by doing a time series analysis. Qualitative forecasting, on the other hand, uses
judgment to predict outcomes. To qualitatively forecast sales, appropriate managers can be
asked about their opinion as to what will happen to the sales in the future. This technique is
called Jury of Executive Opinion.
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•
Contingency planning involves identifying alternative courses of action that can be
implemented, if and when an original plan proves inadequate because of changing
circumstances.
•
Scenario planning is a long-term version of contingency planning that involves identifying
several alternative future scenarios or states of affairs that may occur, and then making plans
to deal with each scenario should it actually occur.
•
Benchmarking is a technique that makes use of internal and external comparisons to
better evaluate current performance and identify possible actions to improve the future.
• Scheduling is a technique used by managers for resource allocation. It consists of detailing
the list of activities to be done with the corresponding resources that need to be allocated
within a specific time period in order to attain an objective.

Staff planners are persons who take responsibility for leading and coordinating the
planning function for the total organization or one of its major components.

A Gantt chart is a tool used for scheduling resources. It is bar chart with time on the
horizontal axis and the resource to be scheduled on the vertical axis. A typical Gantt
chart looks like this:
The chart gives an overview of the way organizational resources are used. With the use of the
chart, the manager is helped in coordinating organizational resources. It is also used to
establish realistic standards against which output can be measured.
DECISION MAKING
Every action of a manager is generally an outcome of a decision.
Owing to this fact, P.P. Drucker in his book “Practice of Management,” observes “Whatever a
manager does, he does through making decision.” True, the job of management involves the
making of innumerable decisions. That is why many persons think that management is
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decision-making. The word ‘decides’ means to come to a conclusion or resolution as to what
one is expected to do at some later time. According to Manely H. Jones, “It is a solution
selected after examining several alternatives chosen because the decider foresees that the
course of action he selects will do more than the others to further his goals and will be
accompanied by the fewest possible objectionable consequences”‘.
Decision is a choice whereby a person comes to a conclusion about given circumstances/
situation. It represents a course of behaviour or action about what one is expected to do or
not to do. Decision- making may, therefore, be defined as a selection of one course of action
from two or more alternative courses of action. Thus, it involves a choice-making activity and
the choice determines our action or inaction.
Decision-making is an indispensable part of life. Innumerable decisions are taken by human
beings in day-to-day life. In business undertakings, decisions are taken at every step. All
managerial functions viz., planning, organizing, staffing, directing, coordinating and controlling
are carried through decisions. Decision-making is thus the core of managerial activities in an
organisation.
Definition of Decision-Making:
Decision-making is the selection based on some criteria from two or more possible
alternatives. “-—George R.Terry
A decision can be defined as a course of action consciously chosen from available alternatives
for the purpose of desired result —J.L. Massie
A decision is an act of choice, wherein an executive forms a conclusion about what must be
done in a given situation. A decision represents a course of behaviour chosen from a number
of possible alternatives. -—D.E. Mc. Farland
From these definitions, it is clear that decision-making is concerned with selecting a course of
action from among alternatives to achieve a predetermined objective.
Following elements can be derived from the above mentioned definitions:
1. Decision–making is a selection process and is concerned with selecting the best type of
alternative.
2. The decision taken is aimed at achieving the organisational goals.
3. It is concerned with the detailed study of the available alternatives for finding the best
possible alternative.
4. Decision making is a mental process. It is the outline of constant thoughtful consideration.
5. It leads to commitment. The commitment depends upon the nature of the decision whether
short term or long term.
Features or Characteristics of Decision-Making:
From definitions and elements we can draw the following important features of
managerial decisions:
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1. Rational Thinking:
It is invariably based on rational thinking. Since the human brain with its ability to learn,
remember and relate many complex factors, makes the rationality possible.
2. Process:
It is the process followed by deliberations and reasoning.
3. Selective:
It is selective, i.e. it is the choice of the best course among alternatives. In other words,
decision involves selection of the best course from among the available alternative courses
that are identified by the decision-maker.
4. Purposive:
It is usually purposive i.e. it relates to the end. The solution to a problem provides an effective
means to the desired goal or end.
5. Positive:
Although every decision is usually positive sometimes certain decisions may be negative and
may just be a decision not to decide. For instance, the manufacturers of VOX Wagan car once
decided not to change the model (body style) and size of the car although the other rival
enterprise (i.e. the Ford Corporation) was planning to introduce a new model every year, in
the USA.
That a negative decision and is equally important was stressed by Chester I. Bernard-one of
the pioneers in Management Thought-who observed, “The fine art of executive decision
consists in not deciding questions that are not now pertinent, in not deciding prematurely, in
not making decisions that cannot be made effective, and in not making decisions that other
should make. ”
6. Commitment:
Every decision is based on the concept of commitment. In other words, the Management is
committed to every decision it takes for two reasons- viz., (/) it promotes the stability of the
concern and (ii) every decision taken becomes a part of the expectations of the people
involved in the organisation.
Decisions are usually so much inter-related to the organisational life of an enterprise that any
change in one area of activity may change the other areas too. As such, the Manager is
committed to decisions not only from the time that they are taken but upto their successfully
implementation.
7. Evaluation:
Decision-making involves evaluation in two ways, viz., (i) the executive must evaluate the
alternatives, and (ii) he should evaluate the results of the decisions taken by him.
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LESSON 4
CONTENT: ORGANIZING
CONTENT STANDARDS: The significance of organization structures for effective business
management.
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 What is the Meaning and Nature of Organizing?
In general way we can define term organization as a group of individuals who are interacting
with each other and contributing their efforts towards the attainment of certain goals or
objectives. In other words organization may be defined as a co-operative & healthy
relationship among-st the groups which is built up by them through proper network of
communication system with a view to achieve their specific or common goals.
"Organizing" may be defined as such process which is made by any business firm for
the purpose of achieving its own goals or objectives in smooth way. It is the process of
ensuring healthy relationship among the departments by the proper channel of communication
so that the personnel (employees) of every department can give their hundred percent
contributions in the accomplishment of desired goals.
 Concept or Nature of Organizing or Organization:
There are two essential Concepts with regard to Organizing:

Organization as a Process: The concept of organizing can be considered as a process,
because a large number of events or activities are done under the process of organizing
with-a-view to accomplish the preset goals in an appropriate way. In fact, organizing
involves division of works, determination of activities, grouping of activities, delegation of
authority and the establishment of proper co-ordination and balance among various
departments of individuals towards the attainment of predetermined goals. On the whole it
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is clear that the objectives of business firm cannot be obtained by doing single activity, so
organizing is set to be a process.

Organization as a Structure of Relationship: Organization refers to a structure of
relationship due to involvement of a large number of groups. In fact, under the process of
organizing the relationship of departments to departments, groups to groups and
individuals to individuals are analyzed carefully through the process of communication
system with a view to establish proper unity and co-ordination among them. So that
everyone can take initiative for the welfare of enterprise. Thus it is clear that Organization
can
be
considered
as
a
structure
of
relationship.
http://managementstudyonline.blogspot.com/2013/09/meaning-and-nature-oforganizing.html
 TYPES OF ORGANIZATIONAL STRUCTURES
1. Functional Structure.
Functional structure is an organization that is set- up by function and so that each portion of
the organization is grouped according to its purpose. In this type of organization, People are
grouped according to skills, knowledge and know-how. For example, there may be a marketing
department, a sales department and a production department. The functional structure works
very well for small businesses in which each department can rely on the talent and knowledge
of its workers and support itself. However, one of the drawbacks to a functional structure is
that the coordination and communication between departments can be restricted by the
organizational boundaries of having the various departments working separately.
2. Divisional Structure
Divisional structure: an organization set up by product, territory, customer or process
and typically is used in larger companies that operate in a wide geographic area or that have
separate smaller organizations within the umbrella group to cover different types of products
or market areas.
The divisional structure simplifies the work of the manager in terms of coordination
among function. It is strongly oriented and responsive to customers. Managers are also given
a broad training in general management.
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For example, the now-defunct Tecumseh Products Company was organized
divisionally--with a small engine division, a compressor division, a parts division and divisions
for each geographic area to handle specific needs. The benefit of this structure is that, needs
can be met more rapidly and more specifically; however, communication is inhibited because
employees in different divisions are not working together. Divisional structure is costly because
of its size and scope. Small businesses can use a divisional structure on a smaller scale,
having different offices in different parts of the city, for example, or assigning different sales
teams to handle different geographic areas.
3. Matrix organizational structure
The third main type of organizational structure, called the matrix structure, is a hybrid of
divisional and functional structure. Typically used in large multinational companies, the matrix
structure allows for the benefits of functional and divisional structures to exist in one
organization. It is a type of organizational structure in which people with similar skills are
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pooled for work assignments, resulting in more than one manager (sometimes referred to as
solid line and dotted line reports, in reference to traditional business organization charts).
For example, all engineers may be in one engineering department and report to an
engineering manager, but these same engineers may be assigned to different projects and
report to a different engineering manager or a project manager while working on that project.
Therefore, each engineer may have to work under several managers to get his or her job done
This can create power struggles because most areas of the company will have a dual
management--a functional manager and a product or divisional manager working at the same
level and covering some of the same managerial territory.
> ORGANIZATION THEORIES AND APPLICATION
A)CLASSICAL ORGANIZATION THEORY
Scientific Management approach
Weber's Bureaucratic approach
Administrative theory.
B) NEOCLASSICAL THEORY
C)MODERN ORGANIZATION THEORY
Systems approach
Socio-technical approach
Contingency or Situational approach
A). Classical organization theory includes the scientific management approach,
Weber's bureaucratic approach, and administrative theory.
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scientific management approach is based on the concept of planning of work to
achieve efficiency, standardization, specialization and simplification. The approach to
increased productivity is through mutual trust between management and workers. Taylor
(1947) proposed four principles of scientific management:

science, not rule-of-thumb;
scientific selection of the worker;
management and labour cooperation rather than conflict; and
scientific training of workers.
Weber's bureaucratic approach considers the organization as a part of broader society.
This approach is considered rigid, impersonal, self-perpetuating and empire building.The
organization is based on the principles of:
structure;
specialization;
predictability and stability;
rationality; and
democracy.
Administrative theory was profounded by Henry Fayol and is based on several principles
of management: Fayol’s 14 Principles of Management
B)Neoclassical theory emphasizes individual or group behaviour and human relations in
determining productivity. The main features of the neoclassical approach are individual, work
group and participatory management.
c) Modern theories are based on the concept that the organization is an adaptive system
which has to adjust to changes in its environment. Modern theories include the systems
approach; the socio-technical approach, and the contingency or situational approach.
The systems approach considers the organization as a system composed of a set of interrelated - and thus mutually dependent - sub-systems. Thus the organization consists of
components, linking processes and goals.
The socio-technical approach considers the organization as composed of a social system,
technical system and its environment. These interact among themselves and it is necessary
to balance them appropriately for effective functioning of the organization.
The contingency or situational approach recognizes that organizational systems are interrelated with their environment and that different environments require different organizational
relationships for effective working of the organization.
http://www.fao.org/docrep/w7503e/w7503e03.htm
 DELEGATION
What is Delegation? What are the different elements of Delegation?
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-
Definition: The Delegation of Authority is a process through which manager
assigns responsibility to the subordinate with a certain level of authority, i.e. power to
take decisions, in order to accomplish certain assignments on the manager’s behalf.
What are the Elements of Delegation?
1. Responsibility: The responsibility means, assigning the work to an individual. The
managers assign certain responsibility to the subordinates for the completion of certain
tasks on his behalf. An individual has to apply all his physical and mental ability to get
the task completed efficiently.Here it is to be noted, that manager can only assign the
responsibility, and in the case of the subordinate fouls, the manager will be answerable
to his seniors. Thus, the responsibility flows upwards.
2. Authority: To fulfill the responsibility, certain authority is delegated to the subordinate.
Authority means the power to take decisions. Hence, the manager along with the
responsibility also delegates authority to enable the subordinate to take decisions
independently and accomplish the task efficiently.
The authority must be equal to the responsibility, this means, a certain level of authority
is delegated which is sufficient to complete the responsibility. The authority also flows
upward, as we go up in the scalar chain, the authority increases.
3. Accountability: Accountability means, to check whether the subordinates are
performing their responsibilities in an expected manner or not. The Accountability
cannot be delegated which means, in the case of non-completion of the task, the
manager will only be held responsible for it, not the subordinates. The accountability
also flows upward, i.e. subordinates will be accountable to the manager and the
manager to his superior.
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Thus, in order to get the task accomplished, the manager delegates some responsibility along
with the certain authority to his subordinate to exercise control and is held accountable for his
operations only to the immediate manager and not to the manager’s manager.
 FORMAL AND INFORMAL ORGANIZATIONS

An organisation is said to be formal organisation when the two or more than two
persons come together to accomplish a common objective, and they follow a formal
relationship, rules, and policies are established for compliance, and there exist a
system of authority. On the other end, there is aninformal organisation which is
formed under the formal organisation as a system of social relationship, which
comes into existence when people in an organisation, meet, interact and associate
with each other.
Key Differences Between Formal and Informal Organization
The difference between formal and informal organisation can be drawn clearly on the following
grounds:
1. Formal Organization is an organisation in which job of each member is clearly defined,
whose authority, responsibility and accountability are fixed. Informal Organization is
formed within the formal organisation as a network of interpersonal relationship when
people interact with each other.
2. Formal organisation is created deliberately by top management. Conversely, informal
organisation is formed spontaneously by members.
3. Formal organisation is aimed at fulfilling organisation’s objectives. As opposed to an
informal organisation is created to satisfy their social and psychological needs.
4. Formal organisation is permanent in nature; it continues for a long time. On the other
hand, informal organisation is temporary in nature.
5. The formal organisation follows official communication, i.e. the channels of
communication are pre-defined. Unlike informal organisation, the communication flows
in any direction.
6. In the formal organisation, the rules and regulations are supposed to be followed by
every member. In contrast to informal communication, there are norms, values, and
beliefs that work as a control mechanism.
7. In the formal organisation, the focus is on the performance of work while in the case of
an informal organisation, interpersonal communication is given more emphasis.
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8. The size of a formal organisation keeps on increasing, whereas the size of the informal
organisation is small.
9. In a formal organisation, all the members are bound by the hierarchical structure, but
all the members of an informal organisation are equal.
In Conclusion, an informal organisation is just opposite of a formal organisation. The principal
difference between these two is that all the members of a formal organisation follow a chain
of command, which is not in the case of an informal organisation. Moreover, there exist a
superior-subordinate relationship (status relationship) in the former, whereas such relationship
is absent in the latter because all the members are equal (role relationship).
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Lesson 5
CONTENT TITLE: Staffing
CONTENT STANDARD: The significance of organization structures for effective business
management.
Discussion:
A. What is Staffing?
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The term ‘Staffing’ relates to the recruitment, selection, development, training and
compensation of the managerial personnel. Staffing, like all other managerial functions, is the
duty which the apex management performs at all times. In a newly created enterprise, the
staffing would come as a third step—next to planning and organizing—but in a going
enterprise the staffing process is continuous.
In order to define and clarify the group of employees included in the staffing concept, it must
be stated that the staffing function is concerned with the placement, growth and development
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of all of those members of the organization whose function it is to get things done through one
effort of other individuals.
This definition includes all levels of management because those who will occupy positions in
the top two or three levels of management fifteen or twenty years from now are likely to be
found in the lower levels today.
“The managerial function of staffing involves manning the organisational structure through
effective and proper selection, appraisal, and development of personnel to fill the roles
designed into the structure.” — Koontz and O’Donnell
A.1 Nature of Staffing:
Staffing is an integral part of human resource management. It facilitates procurement and
placement of right people on the right jobs.
The nature of staffing function is discussed below:

People Centred:
Staffing is people centred and is relevant in all types of organisations. It is concerned with all
categories of personnel from top to bottom of the organisation.
The broad classification of personnel may be as follows:
(i) Blue collar workers (i.e., those working on the machines and engaged in loading, unloading
etc.) and white collar workers (i.e., clerical employees).
(ii) Managerial and non-managerial personnel.
(iii) Professionals (such as Chartered Accountant, Company Secretary, Lawyer, etc.).

Responsibility of Every Manager:
Staffing is a basic function of management. Every manager is continuously engaged in
performing the staffing function. He is actively associated with recruitment, selection, training
and appraisal of his subordinates. These activities are performed by the chief executive,
departmental managers and foremen in relation to their subordinates. Thus, staffing is a
pervasive function of management and is performed by the managers at all levels.
It is the duty of every manager to perform the staffing activities such as selection, training,
performance appraisal and counseling of employees. In many enterprises. Personnel
Department is created to perform these activities.
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But it does not mean that the managers at different levels are relieved of the responsibility
concerned with staffing. The Personnel Department is established to provide assistance to the
managers in performing their staffing function. Thus, every manager has to share the
responsibility of staffing.

Human Skills:
Staffing function is concerned with training and development of human resources. Every
manager should use human relations skill in providing guidance and training to the
subordinates. Human relations skills are also required in performance appraisal, transfer and
promotion of subordinates. If the staffing function is performed properly, the human relations
in the organisation will be cordial.

Continuous Function:
Staffing function is to be performed continuously. It is equally important in the established
organisations and the new organisations. In a new organisation, there has to be recruitment,
selection and training of personnel. In a running organisation, every manager is engaged in
various staffing activities. He is to guide and train the workers and also evaluate their
performance on a continuous basis.
A.2 Importance of Staffing:
It is of utmost importance for the organisation that right kinds of people are employed. They
should be given adequate training so that wastage is minimum. They must also be induced to
show higher productivity and quality by offering them incentives.
In fact, effective performance of the staff function is necessary to realize the following benefits:

Efficient Performance of Other Functions:
Staffing is the key to the efficient performance of other functions of management. If an
organisation does not have competent personnel, it can’t perform planning, organisation and
control functions properly.

Effective Use of Technology and Other Resources:
It is the human factor that is instrumental in the effective utilisation of latest technology, capital,
material, etc. the management can ensure right kinds of personnel by performing the staffing
function.

Optimum Utilisation of Human Resources:
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The wage bill of big concerns is quite high. They also spend money on recruitment, selection,
training and development of employees. In order to get the optimum output from the personnel,
the staffing function should be performed in an efficient manner.

Development of Human Capital:
The management is required to determine the manpower requirements well in advance. It has
also to train and develop the existing personnel for career advancement. This will meet the
requirements of the company in future.

Motivation of Human Resources:
The behaviour of individuals is shaped by many factors such as education level, needs, sociocultural factors, etc. that is why, the human aspect of organisation has become very important.
The workers can be motivated through financial and non-financial incentives.

Building Higher Morale:
Right type of climate should be created for the workers to contribute to the achievement of the
organisational objectives. By performing the staffing function effectively, management can
show the significance it attaches to the personnel working in the enterprise. This will increase
the morale of the employees.
B. Recruitment
Recruitment (hiring) is a core function of human resource management. Recruitment refers
to the overall process of attracting, selecting and appointing suitable candidates
for jobs (either permanent or temporary) within an organization. Recruitment can also refer to
processes involved in choosing individuals for unpaid positions, such as voluntary roles or
unpaid trainee roles. Managers, human resource generalists and recruitment specialists may
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be tasked with carrying out recruitment, but in some cases public-sector employment
agencies, commercial recruitment agencies, or specialist search consultancies are used to
undertake parts of the process. Internet-based technologies to support all aspects of
recruitment have become widespread.
According to the Business Dictionary, recruitment is the process of finding and hiring the bestqualified candidate (from within or outside of an organization) for a job opening, in a timely
and cost effective manner. The recruitment process includes analyzing the requirements of a
job, attracting employees to that job, screening and selecting applicants, hiring, and integrating
the
new
employee
to
the
organization.
Types of Recruitment:
Internal Recruitment
External Recruitment
(Internal recruitment is when the business (External recruitment is when the business
looks to fill the vacancy from within its looks to fill the vacancy from any suitable
existing workforce)
applicant outside the business.)
Transfers
Employment at Factory Level
Promotions (through Internal Job Postings)
Advertisement
Employment Exchanges
Re-employment of ex-employees
Employment Agencies
Educational Institutions
Recommendations
Labor Contractors
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C. Selection
Employee Selection is the process of putting
right men on right job. It is a procedure of
matching organizational requirements with the
skills and qualifications of people. Effective
selection can be done only when there is
effective
matching.
By
selecting
best
candidate for the required job, the organization
will get quality performance of employees.
Moreover, organization will face less of absenteeism and employee turnover problems. By
selecting right candidate for the required job, organization will also save time and money.
Proper screening of candidates takes place during selection procedure. All the potential
candidates who apply for the given job are tested.
The Employee selection Process takes place in following order1. Preliminary Interviews- It is used to eliminate those candidates who do not meet the
minimum eligiblity criteria laid down by the organization. The skills, academic and
family background, competencies and interests of the candidate are examined during
preliminary interview. Preliminary interviews are less formalized and planned than the
final interviews. The candidates are given a brief up about the company and the job
profile; and it is also examined how much the candidate knows about the company.
Preliminary interviews are also called screening interviews.
2. Application blanks- The candidates who clear the preliminary interview are required
to fill application blank. It contains data record of the candidates such as details about
age, qualifications, reason for leaving previous job, experience, etc.
3. Written Tests- Various written tests conducted during selection procedure are
aptitude test, intelligence test, reasoning test, personality test, etc. These tests are
used to objectively assess the potential candidate. They should not be biased.
4. Employment Interviews- It is a one to one interaction between the interviewer and
the potential candidate. It is used to find whether the candidate is best suited for the
required job or not. But such interviews consume time and money both. Moreover the
competencies of the candidate cannot be judged. Such interviews may be biased at
times. Such interviews should be conducted properly. No distractions should be there
in room. There should be an honest communication between candidate and
interviewer.
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5. Medical examination- Medical tests are conducted to ensure physical fitness of the
potential employee. It will decrease chances of employee absenteeism.
6. Appointment Letter- A reference check is made about the candidate selected and
then finally he is appointed by giving a formal appointment letter.
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D. Training and Development
Training and development describes the formal, ongoing efforts that are made within
organizations to improve the performance and self-fulfillment of their employees through a
variety of educational methods and programs. In the modern workplace, these efforts have
taken on a broad range of applications—from instruction in highly specific job skills to longterm professional development.
In recent years, training and development has emerged as a formal business function, an
integral element of strategy, and a recognized profession with distinct theories and
methodologies. More and more companies of all sizes have embraced "continual learning"
and other aspects of training and development as a means of promoting employee growth and
acquiring a highly skilled work force. In fact, the quality of employees and the continual
improvement of their skills and productivity through training, are now widely recognized as
vital factors in ensuring the long-term success and profitability of small businesses.
"Create a corporate culture that supports continual learning," counseled Charlene Marmer
Solomon in Workforce. "Employees today must have access to continual training of all types
just to keep up'¦. If you don't actively stride against the momentum of skills deficiency, you lose
ground. If your workers stand still, your firm will lose the competency race."
In general, training programs have very specific and quantifiable goals, like operating a
particular piece of machinery, understanding a specific process, or performing certain
procedures with great precision. Developmental programs, on the other hand, concentrate on
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broader skills that are applicable to a wider variety of situations, such as decision making,
leadership skills, and goal setting.
Actual administration of the training program involves choosing an appropriate location,
providing necessary equipment, and arranging a convenient time. Such operational details,
while seemingly minor components of an overall training effort, can have a significant effect
on the success of a program. In addition, the training program should be evaluated at regular
intervals while it is going on. Employees' skills should be compared to the predetermined goals
or milestones of the training program, and any necessary adjustments should be made
immediately. This ongoing evaluation process will help ensure that the training program
successfully meets its expectations.
COMMON TRAINING METHODS
While new techniques are under continuous development, several common training methods
have proven highly effective. Good continuous learning and development initiatives often
feature a combination of several different methods that, blended together, produce one
effective training program.
Orientations
Orientation training is vital in ensuring the success of new employees. Whether the training is
conducted through an employee handbook, a lecture, or a one-on-one meeting with a
supervisor, newcomers should receive information on the company's history and strategic
position, the key people in authority at the company, the structure of their department and how
it contributes to the mission of the company, and the company's employment policies, rules,
and regulations.
Lectures
A verbal method of presenting information, lectures are particularly useful in situations when
the goal is to impart the same information to a large number of people at one time. Since they
eliminate the need for individual training, lectures are among the most cost-effective training
methods. But the lecture method does have some drawbacks. Since lectures primarily involve
one-way communication, they may not provide the most interesting or effective training. In
addition, it may be difficult for the trainer to gauge the level of understanding of the material
within a large group.
Case Study
The case method is a non-directed method of study whereby students are provided with
practical case reports to analyze. The case report includes a thorough description of a
simulated or real-life situation. By analyzing the problems presented in the case report and
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developing possible solutions, students can be encouraged to think independently as opposed
to relying upon the direction of an instructor. Independent case analysis can be supplemented
with open discussion with a group. The main benefit of the case method is its use of real-life
situations. The multiplicity of problems and possible solutions provide the student with a
practical learning experience rather than a collection of abstract knowledge and theories that
may be difficult to apply to practical situations.
Role Playing
In role playing, students assume a role outside of themselves and play out that role within a
group. A facilitator creates a scenario that is to be acted out by the participants under the
guidance of the facilitator. While the situation might be contrived, the interpersonal relations
are genuine. Furthermore, participants receive immediate feedback from the facilitator and the
scenario itself, allowing better understanding of their own behavior. This training method is
cost effective and is often applied to marketing and management training.
Simulations
Games and simulations are structured competitions and operational models that emulate reallife scenarios. The benefits of games and simulations include the improvement of problemsolving and decision-making sskills, a greater understanding of the organizational whole, the
ability to study actual problems, and the power to capture the student's interest.
Computer-Based Training
Computer-based training (CBT) involves the use of computers and computer-based
instructional materials as the primary medium of instruction. Computer-based training
programs are designed to structure and present instructional materials and to facilitate the
learning process for the student. A main benefit of CBT is that it allows employees to learn at
their own pace, during convenient times. Primary uses of CBT include instruction in computer
hardware, software, and operational equipment. The last is of particular importance because
CBT can provide the student with a simulated experience of operating a particular piece of
equipment or machinery while eliminating the risk of damage to costly equipment by a trainee
or even a novice user. At the same time, the actual equipment's operational use is maximized
because it need not be utilized as a training tool. The use of computer-based training enables
a small business to reduce training costs while improving the effectiveness of the training.
Costs are reduced through a reduction in travel, training time, downtime for operational
hardware, equipment damage, and instructors. Effectiveness is improved through
standardization and individualization.
Web-based training (WBT) is an increasingly popular form of CBT. The greatly expanding
number of organizations with Internet access through high-speed connections has made this
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form of CBT possible. By providing the training material on a Web page that is accessible
through any Internet browser, CBT is within reach of any company with access to the Web.
The terms "online courses" and "web-based instruction" are sometimes used interchangeably
with WBT.
Self-Instruction
Self-instruction describes a training method in which the students assume primary
responsibility for their own learning. Unlike instructor- or facilitator-led instruction, students
retain a greater degree of control regarding topics, the sequence of learning, and the pace of
learning. Depending on the structure of the instructional materials, students can achieve a
higher degree of customized learning. Forms of self-instruction include programmed learning,
individualized instruction, personalized systems of instruction, learner-controlled instruction,
and correspondence study. Benefits include a strong support system, immediate feedback,
and systematization.
Audiovisual Training
Audiovisual training methods include television, films, and videotapes. Like case studies, role
playing, and simulations, they can be used to expose employees to "real world" situations in
a time-and cost-effective manner. The main drawback of audiovisual training methods is that
they cannot be customized for a particular audience, and they do not allow participants to ask
questions or interact during the presentation of material.
Team-Building Exercises
Team building is the active creation and maintenance of effective work groups with similar
goals and objectives. Not to be confused with the informal, ad-hoc formation and use of teams
in the workplace, team building is a formal process of building work teams and formulating
their objectives and goals, usually facilitated by a third-party consultant. Team building is
commonly initiated to combat poor group dynamics, labor-management relations, quality, or
productivity. By recognizing the problems and difficulties associated with the creation and
development of work teams, team building provides a structured, guided process whose
benefits include a greater ability to manage complex projects and processes, flexibility to
respond to changing situations, and greater motivation among team members. Team building
may include a broad range of different training methods, from outdoor immersion exercises to
brainstorming sessions. The main drawback to formal team building is the cost of using outside
experts and taking a group of people away from their work during the training program.
Apprenticeships and Internships
Apprenticeships are a form of on-the-job training in which the trainee works with a more
experienced employee for a period of time, learning a group of related skills that will eventually
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qualify the trainee to perform a new job or function. Apprenticeships are often used in
production-oriented positions. Internships are a form of apprenticeship that combines on-thejob training under a more experienced employee with classroom learning.
Job Rotation
Another type of experience-based training is job rotation, in which employees move through a
series of jobs in order to gain a broad understanding of the requirements of each. Job rotation
may be particularly useful in small businesses, which may feature less role specialization than
is typically seen in larger organizations.
APPLICATIONS OF TRAINING PROGRAMS
While the applications of training and development are as various as the functions and skills
required by an organization, several common training applications can be distinguished,
including technical training, sales training, clerical training, computer training, communications
training, organizational development, career development, supervisory development, and
management development.
Technical training describes a broad range of training programs varying greatly in application
and difficulty. Technical training utilizes common training methods for instruction of technical
concepts, factual information, and procedures, as well as technical processes and principles.
Sales training concentrates on the education and training of individuals to communicate with
customers in a persuasive manner. Sales training can enhance the employee's knowledge of
the organization's products, improve his or her selling skills, instill positive attitudes, and
increase the employee's self-confidence. Employees are taught to distinguish the needs and
wants of the customer, and to persuasively communicate the message that the company's
products or services can effectively satisfy them.
Clerical training concentrates on the training of clerical and administrative support staffs,
which have taken on an expanded role in recent years. With the increasing reliance on
computers and computer applications, clerical training must be careful to distinguish basic
skills from the ever-changing computer applications used to support these skills. Clerical
training increasingly must instill improved decision-making skills in these employees as they
take on expanded roles and responsibilities.
Computer training teaches the effective use of the computer and its software applications,
and often must address the basic fear of technology that most employees face and identify
and minimize any resistance to change that might emerge. Furthermore, computer training
must anticipate and overcome the long and steep learning curves that many employees will
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experience. To do so, such training is usually offered in longer, uninterrupted modules to allow
for greater concentration, and structured training is supplemented by hands-on practice. This
area of training is commonly cited as vital to the fortunes of most companies, large and small,
operating in today's technologically advanced economy.
Communications training concentrates on the improvement of interpersonal communication
skills, including writing, oral presentation, listening, and reading. In order to be successful, any
form of communications training should be focused on the basic improvement of skills and not
just on stylistic considerations. Furthermore, the training should serve to build on present skills
rather than rebuilding from the ground up. Communications training can be taught separately
or can be effectively integrated into other types of training, since it is fundamentally related to
other disciplines.
Organizational development (OD) refers to the use of knowledge and techniques from the
behavioral sciences to analyze an existing organizational structure and implement changes in
order to improve organizational effectiveness. OD is useful in such varied areas as the
alignment of employee goals with those of the organization, communications, team
functioning, and decision making. In short, it is a development process with an organizational
focus to achieve the same goals as other training and development activities aimed at
individuals. OD practitioners commonly practice what has been termed "action research" to
effect an orderly change which has been carefully planned to minimize the occurrence of
unpredicted or unforeseen events. Action research refers to a systematic analysis of an
organization to acquire a better understanding of the nature of problems and forces within it.
Career development refers to the formal progression of an employee's position within an
organization by providing a long-term development strategy and designing training programs
to achieve this strategy as well as individual goals. Career development represents a growing
concern for employee welfare and their long-term needs. For the individual, it involves the
description of career goals, the assessment of necessary action, and the choice and
implementation of necessary steps. For the organization, career development represents the
systematic development and improvement of employees. To remain effective, career
development programs must allow individuals to articulate their desires. At the same time, the
organization strives to meet those stated needs as much as possible by consistently following
through on commitments and meeting the employee expectations raised by the program.
Management and supervisory development involves the training of managers and
supervisors in basic leadership skills, enabling them to effectively function in their positions.
For managers, training initiatives are focused on providing them with the tools to balance the
effective management of their employee resources with the strategies and goals of the
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organization. Managers learn to develop their employees effectively by helping employees
learn and change, as well as by identifying and preparing them for future responsibilities.
Management development may also include programs for developing decision-making skills,
creating and managing successful work teams, allocating resources effectively, budgeting,
business planning, and goal setting.
E. Compensation/Wages and Performance Evaluation/Appraisal
Compensation is a primary motivator for
employees. People look for jobs that not only
suit their creativity and talents, but compensate
them—both in terms of salary and other
benefits—accordingly. Compensation is also
one of the fastest changing fields in Human
Resources,
as
companies
investigate
various
ways
continue
of
to
rewarding
employees for performance.
Compensation Laws
In the Philippines, the provisions for compensation and wages is governed by the Labor Code
of the Philippines.
Here are some excerpts of the provisions:
Art. 82. Coverage. The provisions of this Title shall apply to employees in all establishments
and undertakings whether for profit or not, but not to government employees, managerial
employees, field personnel, members of the family of the employer who are dependent on him
for support, domestic helpers, persons in the personal service of another, and workers who
are paid by results as determined by the Secretary of Labor in appropriate regulations.
Art. 83. Normal hours of work. The normal hours of work of any employee shall not exceed
eight (8) hours a day.
Art. 85. Meal periods. Subject to such regulations as the Secretary of Labor may prescribe,
it shall be the duty of every employer to give his employees not less than sixty (60) minutes
time-off for their regular meals.
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Art. 87. Overtime work. Work may be performed beyond eight (8) hours a day provided that
the employee is paid for the overtime work, an additional compensation equivalent to his
regular wage plus at least twenty-five percent (25%) thereof. Work performed beyond eight
hours on a holiday or rest day shall be paid an additional compensation equivalent to the rate
of the first eight hours on a holiday or rest day plus at least thirty percent (30%) thereof.
Art. 91. Right to weekly rest day.
It shall be the duty of every employer, whether operating for profit or not, to provide each of
his employees a rest period of not less than twenty-four (24) consecutive hours after every six
(6) consecutive normal work days.
Art. 102. Forms of payment. No employer shall pay the wages of an employee by means of
promissory notes, vouchers, coupons, tokens, tickets, chits, or any object other than legal
tender, even when expressly requested by the employee.
Payment of wages by check or money order shall be allowed when such manner of payment
is customary on the date of effectivity of this Code, or is necessary because of special
circumstances as specified in appropriate regulations to be issued by the Secretary of Labor
and Employment or as stipulated in a collective bargaining agreement.
Art. 103. Time of payment. Wages shall be paid at least once every two (2) weeks or twice
a month at intervals not exceeding sixteen (16) days. If on account of force majeure or
circumstances beyond the employer’s control, payment of wages on or within the time herein
provided cannot be made, the employer shall pay the wages immediately after such force
majeure or circumstances have ceased. No employer shall make payment with less frequency
than once a month.
Art. 133. Maternity leave benefits.
Every employer shall grant to any pregnant woman employee who has rendered an
aggregate service of at least six (6) months for the last twelve (12) months, maternity leave
of at least two (2) weeks prior to the expected date of delivery and another four (4) weeks
after normal delivery or abortion with full pay based on her regular or average weekly
wages. The employer may require from any woman employee applying for maternity leave
the production of a medical certificate stating that delivery will probably take place within
two weeks.
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Art. 135. Discrimination prohibited. It shall be unlawful for any employer to discriminate
against any woman employee with respect to terms and conditions of employment solely on
account of her sex.
F. Performance Appraisal
Performance Appraisal is the systematic evaluation
of
the
performance
of
employees
and
to
understand the abilities of a person for further
growth and development. Performance appraisal is
generally done in systematic ways which are as
follows:

Improve
performance:
performance
improvement is the notion of measuring the
productivity of a certain procedure, and then finding solutions in order for the productivity
to rise, the capability of the employees and their effectiveness.

Increase motivation: Performance appraisal is used as a motivation tool. An employee's
efficiency can be proven if the targets he was set, have been achieved. The employee will
be motivated to do even better and his performance will rise in the near future.

Identify training/development needs: The fundamental step of training and development is
establishing the organizational needs for the employees at this time and in the near future.
A few questions may be asked in the process: What can an employee learn in order to be
more productive? In which field is training most necessary? And finally who should benefit
from the training most?
The effectiveness of an employee is the key factor for the employer, because the profit the
company or organization makes depends on the employees' productiveness.
The training and development needs should begin with an assessment of the company as it
lies currently, how it operates and what each employee is best at. This assessment will enable
the training to be based on certain factors which seem most important. Knowledge of the
organization’s strategic plan and its needs for the future must help the training to bring the
company up a step on the ladder. In using a performance appraisal, an organisation can build
an employee profile of poor performances which allows a reduced risk of legal implications for
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redundancies. Seeing additional benefit, as the company can decide who is worthy of
promotion or bonus.
Performance appraisal involves three steps.

First, you set performance standards. Prior to the appraisal, you need to ensure that
you communicate to your employees the performance expected of them and the
corresponding rewards or consequences of such performance. In particular, you need
to clarify the desired behavior employees need to exhibit at work and the results you
expect. You usually share this information with your employees during the hiring
process where you tell them their obligations and responsibilities on the job or at the
commencement of the appraisal period.

Second, you need to measure employee performance and to compare them with
standards. You use such tools as the graphic rating scale, ranking method, forced
distribution method, behaviorally anchored rating scale (BARS), Management by
Objectives (MBO) and the critical incident method. For the small business, your
performance appraisal process can be informal. It can also sometimes be
undocumented. Hence, you need to have sufficient information of your employees’
performance in order that your employees are able to view the appraisal process as
fair and objective. You need to evaluate your employees’ performance frequently,
making sure you are familiar with their performance, and that they are involved in
determining how to eliminate performance weaknesses.

Finally, you provide feedback of their performance to your employees. When
performance is unsatisfactory but may be corrected or remedied, you should come up
with a joint plan for correcting the deviation. For employees whose performance is
satisfactory, your objective is to maintain satisfactory performance. Finally if the
performance is both satisfactory and becomes the basis for promotion, you need to
discuss with your employee an action plan to enable him to effectively perform his new
job.
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G. Employee Relations
An organization can’t perform only with the help of chairs, tables, fans or other non living
entities. It needs human beings who work together and perform to achieve the goals and
objectives of the organization.
The human beings working together towards a common goal at a common place
(organization) are called employees. In fact the employees are the major assets of an
organization.
The success and failure of any organization is directly proportional to the labor put by each
and every employee.
The employees must share a good rapport with each other and strive hard to realize the goal
of the organization. They should complement each other and work together as a single unit.
For the employees, the organization must come first and all their personal interests should
take a back seat.
What is Employee Relations?
Every individual shares a certain relationship with his colleagues at the workplace where he
spends his maximum time. His fellow workers are the ones with whom he spends the
maximum hours in a day. The relationship with his colleagues is either warm, so-so or bad.
The relationship can be between any one in the organization - between co-workers, between
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an employee and his superior, between two members in the management and so on. It is
important that the employees share a healthy relationship with each other to deliver their best
performances.
Employee relations refer to the relationship shared among the employees in an organization.
The employees must be comfortable with each other for a healthy environment at work. It is
the prime duty of the superiors and team leaders to discourage conflicts in the team and
encourage a healthy relationship among employees.
Observation says that a healthy relation among the employees goes a long way in motivating
the employees and increasing their confidence and morale. One starts enjoying his office and
does not take his work as a burden. He feels charged and fresh the whole day and takes each
day at work as a new challenge. If you have a good relation with your team members you feel
going to office daily. Go out with your team members for a get together once in a while or have
your lunch together. These activities help in strengthening the bond among the employees
and improve the relations among them.
An employee must try his level best to adjust with each other and compromise to his best
extent possible. If you do not agree to any of your fellow worker’s ideas, there are several
other ways to convince him. Sit with him and probably discuss with him where he is going
wrong and needs a correction. This way he would definitely look up to you for your advice and
guidance in future. He would trust you and would definitely come to your help whenever you
need him. One should never spoil his relations with his colleagues because you never know
when you need the other person.
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Avoid using foul words or derogatory sentences against anyone. Don’t depend on lose talk in
office as it spoils the ambience of the place and also the relation among the employees. Blame
games are a strict no no in office.
One needs to enter his office with a positive frame of mind and should not unnecessarily make
issues out of small things. It is natural that every human being can not think the way you think,
or behave the way you behave. If you also behave in the similar way the other person is
behaving, there is hardly any difference between you and him. Counsel the other person and
correct him wherever he is wrong.
It is of utmost importance that employees
behave with each other in a cultured way,
respect each other and learn to trust each
other. An individual however hardworking
he is, cannot do wonders alone. It is
essential that all the employees share a
cordial
relation
with
each
other,
understand each other’s needs and expectations and work together to accomplish the goals
and targets of the organization.
F. Employee Movements
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There are a variety of employee movements Training which the HR managers of today resort
to. The most ordinary among them are –

Promotion

Transfer

Demotion

Separation
PROMOTION
Involves the reassignment of an employee to a higher level job. This also refers to the upward
or vertical movement of employees in an organization from lower level jobs to higher level jobs
involving increases in duties and responsibility, higher pay and privileges.
Reasons for Employee Promotions
• An effective way to keep good men in the firm
• As recognition of and reward for good performance
• To boost employee morale and encourage the employees to render to the company the best
service they are capable of
Basis or Criteria Used for Promotion
1. Seniority – length of service
a. Straight seniority – the length of service of an employee is the sole basis for
determining who gets the promotion.
b. Qualified seniority – the more competent employee as compared to another
employee with longer service will be the one promoted.
2. Current and past performance
Assessment centers evaluate the qualified candidates for promotion, w/c focus
on the kinds of skills and abilities to effectively perform the higher level jobs
that the candidates seek.
3. Competency or merit determined by the ratings or evaluations received by the
employees.
4. Unofficial Promotion Criteria
a. Personal Characteristics
b. Nepotism – showing of favoritism or patronage to relatives
c. Social Factors
d. Friendship
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e. Promotion from Within - Filling up vacancies in upper level management
positions by promoting lower level managers. A major advantage of this policy
is its positive effect upon employee motivation. Knowing that they have the
opportunity to be promoted tends to motivate employee’s performance with the
company and to solidify their feelings of loyalty toward the company.
DEMOTION
The reassignment of an employee to a lower job involving fewer skills and responsibilities.
The movement of an employee to a less important job from a higher level job in the
organization which may not involve a reduction in pay but a reduction in status or privileges.
Basis or Criteria for Demotion

Reorganizations, company merger or business contractions may result in fewer jobs,
forcing some employees to accept lower positions.

Inability of the employees to perform their jobs according to acceptable standards.

As a form of disciplinary action or a way to handle disciplinary problems, also viewed
as a routine form of punishment for wrongdoing.

The tool used to communicate to employees that they are beginning to be “liabilities”
rather than assets to an organization.
TRANSFER
This is the reassignment of employee to a job with similar pay, status, duties, and
responsibilities. It also involves horizontal movement from one job to another.
Reasons for Transfer

Because personnel placement practices are not perfect, an employee-job mismatch
may result.

An employee becoming unsatisfied with his job for one or a variety of reasons

Organizations sometimes initiate transfers to further the development and
advancement of the employee especially at management and staff.

Due to business expansion, retrenchment erroneous placement, the need to meet
departmental requirement during peak season.

For personal enrichment/greater convenience and for more interesting jobs.
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
For employee to be better suited or adjusted to his job (remedial transfer)
Kinds of Transfer

Permanent – made to fill vacancies requiring the special skills or abilities of the
employee being transferred.

Temporary – made due to the temporary absence of an e employee, e.g., in case of
sick, leave, vacation leave, or shifts in the work load during peak periods.
LAYOFF
The separation of an employee initiated by the employee due to business reverses, the
introduction of labor saving devices, or the reduction in the demand for particular skills.
Management as temporary measures during periods of business recession, industrial
depression or seasonal fluctuation resorts
RESIGNATION
This is when employees voluntarily decide to end their employment with an organization.
Causes of Resignation

Dissatisfaction about wages and working conditions

Misunderstandings with supervisors or fellow workers

Inconvenient work hours are among the chief reasons employee resignation
RETIREMENT
This is when employees having satisfied certain conditions under existing laws and/or
provisions of the collective bargaining agreements or upon reaching the age of 60 are
separated from employment with entitlement to retirement benefits. This is given either in a
lump sum amount or in a form of a monthly pension for life.
TERMINATION/DISCHARGE OR DISMISSAL
The practice of putting an end to the employer- employee relations initiated by the employer
with prejudice to the worker. A discharge is due to some fault of the employee such as inability
to meet the company’s standards of performance, incompetence, violation of company rules,
insubordination, etc.
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H. Rewards Systems
1http://img-aws.ehowcdn.com/340x221p/photos.demandstudios.com/getty/article/146/109/200221546-001.jpg
Your employees are at the heart of your business. You hired them to help you gain and
maintain success, and they are, at least initially, inspired to perform the work necessary to
achieve your goals. Rewarding your staff when they effectively fulfill your directives is an often
overlooked yet critical management tool. When properly administered and communicated, a
reward program can create and maintain a highly motivated employee force working for the
prosperity of your business.
Reward management is concerned with the formulation and implementation of strategies and
policies that aim to reward people fairly, equitably and consistently in accordance with their
value to the organization.
Reward management consists of analyzing and controlling employee remuneration,
compensation and all of the other benefits for the employees. Reward management aims to
create and efficiently operate a reward structure for an organization. Reward structure usually
consists of pay policy and practices, salary and payroll administration, total reward, minimum
wage, executive pay and team reward.
How to Adopt an Effective Rewards System
I.
Measurable Business Strategy
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Your reward program can promote optimal fulfillment in your business if it is designed so your
employees' successful job performance is in line with your business objectives. Start by stating
a chief goal; then list the specific steps required to achieve it. Employee rewards provide
compelling motivation to continue fruitful behavior on your behalf.
II.
Rewards
A system of monetary rewards, such as bonuses, should not be treated as part of regular pay.
Equate financial rewards with specific achievements. Your reward system can apply to
individuals or groups of people. For example, for meeting your annual profit goal, you could
offer profit sharing to the employee who contributed the most to your success or to an entire
team.
Rewards serve many purposes in organisations. They serve to build a better employment
deal, hold on to good employees and to reduce turnover.
The principal goal is to increase people's willingness to work in one’s company, to enhance
their productivity.
Most people assimilate "rewards", with salary raise or bonuses, but this is only one kind of
reward, Extrinsic reward. Studies proves that salespeople prefer pay raises because they
feel frustrated by their inability to obtain other rewards, but this behavior can be modified by
applying a complete reward strategy.
There are two kinds of rewards:
Extrinsic rewards: concrete rewards that employee receive.

Bonuses: Usually annually, Bonuses motivates the employee to put in all endeavours
and efforts during the year to achieve more than a satisfactory appraisal that increases
the chance of earning several salaries as lump sum. The scheme of bonuses varies
within organizations; some organizations ensure fixed bonuses which eliminate the
element of asymmetric information, conversely, other organizations deal with bonuses
in terms of performance which is subjective and may develop some sort of bias which
may discourage employees and create setback. Therefore, managers must be extra
cautious and unbiased.
In the Philippines, if one works for the government, the evaluation is called the
Performance-Based Bonus (PBB) system. The PBB is a merit-based incentive
program that recognizes and rewards exemplary performance in government.
Launched by the Aquino administration in 2012, the PBB ultimately aims to improve
the delivery of goods and services to all Filipinos, as well as institute a culture of
excellence in public service across the bureaucracy.
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
Salary raise: Is achieved after hard work and effort of employees, attaining and
acquiring new skills or academic certificates and as appreciation for employees duty
(yearly increments) in an organization. This type of reward is beneficial for the
reason that it motivates employees in developing their skills and competence which
is also an investment for the organization due to increased productivity and
performance. This type of reward offers long-term satisfaction to employees.
Nevertheless, managers must also be fair and equal with employees serving the
organization and eliminate the possibility of adverse selection where some
employees can be treated superior or inferior to others.

Gifts: Are considered short-term. Mainly presented as a token of appreciation for an
achievement or obtaining an organizations desired goal. Any employee would
appreciate a tangible matter that boosts their self-esteem for the reason of
recognition and appreciation from the management. This type of reward basically
provides a clear vision of the employee’s correct path and motivates employee into
stabilising or increasing their efforts to achieve higher returns and attainments.

Promotion: Quite similar to the former type of reward. Promotions tend to effect the
long-term satisfaction of employees. This can be done by elevating the employee to
a higher stage and offering a title with increased accountability and responsibility due
to employee efforts, behaviour and period serving a specific organization. This type
of reward is vital for the main reason of redundancy and routine. The employee is
motivated in this type of reward to contribute all his efforts in order to gain
managements trust and acquire their delegation and responsibility. The issue
revolved around promotion is adverse selection and managers must be fair and
reasonable in promoting their employees.


Other kinds of tangible rewards
Intrinsic rewards: tend to give personal satisfaction to individual[9]

Information / feedback: Also a significant type of reward that successful and effective
managers never neglect. This type of rewards offers guidance to employees whether
positive (remain on track) or negative (guidance to the correct path). This also
creates a bond and adds value to the relationship of managers and employees.

Recognition: Is recognizing an employee’s performance by verbal appreciation. This
type of reward may take the presence of being formal for example meeting or
informal such as a "pat on the back" to boost employees self-esteem and happiness
which will result in additional contributing efforts.

Trust/empowerment: in any society or organization, trust is a vital aspect between
living individuals in order to add value to any relationship. This form of reliance is
essential in order to complete tasks successfully. Also, takes place in empowerment
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when managers delegate tasks to employees. This adds importance to an employee
where his decisions and actions are reflected. Therefore, this reward may benefit
organizations for the idea of two minds better than one.
Intrinsic rewards makes the employee feel better in the organization, while Extrinsic rewards
focus on the performance and activities of the employee in order to attain a certain outcome.
The principal difficulty is to find a balance between employees' performance (extrinsic) and
happiness (intrinsic).[10]
The reward also needs to be according to the employee’s personality. For instance, a sports
fan will be really happy to get some tickets for the next big match. However a mother who
passes all her time with her children, may not use them and therefore they will be wasted.
When rewarding one, the manager needs to choose if he wants to rewards an Individual, a
Team or a whole Organization. One will choose the reward scope in harmony with the work
that has been achieved.

III.
Individual

Base pay, incentives, benefits

Rewards attendance, performance, competence

Team: team bonus, rewards group cooperation

Organization: profit-sharing, shares, gain-sharing
Timing and Method
To be effective, employee rewards should be presented regularly. However, work to guard
against rewards becoming automatic and expected, which could decrease employee
motivation. You can present rewards privately, or you might have an annual awards ceremony.
If rewarded annually, be sure to acknowledge the employee at the time he accomplishes the
task and indicate that he will be a reward recipient. Your method of bestowing rewards should
reflect the employees' level of productivity, with the highest rewards going to the most
productive people. You can create an added level of employee motivation by publicly
announcing the reward, such as in a news release.
IV.
Communication
An employee reward program is most effective when all employees fully understand the
system and your business goals. Upon hire and at subsequent opportunities throughout
employment, communicate the symbiotic nature of your goals and the corresponding rewards.
Creating excitement among employees for the program keeps it in the forefront of their
workdays and enables your entire staff to function at higher levels toward achieving your
business goals.
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Lesson 6
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CONTENT TITLE:
Leading
CONTENT STANDARD:
How motivation, leadership, and communication work in an
organization
Discussion:
I.
What is Leading?
A manager needs to do more than just plan, organize, and staff her team to achieve a
goal. She must also lead. Leading involves motivating, communicating, guiding, and
encouraging.
It
requires
the
manager to coach, assist, and
problem solve with employees.
Leadership is a process by which an
executive can direct, guide and
influence the behavior and work of
others towards accomplishment of
specific goals in a given situation.
Leadership is the ability of a manager
to induce the subordinates to work
with confidence and zeal.
Leadership
is
the
potential
to
influence behaviour of others. It is also
defined as the capacity to influence a group towards the realization of a goal. Leaders are
required to develop future visions, and to motivate the organizational members to want to
achieve the visions.
According to Keith Davis, “Leadership is the ability to persuade others to seek defined
objectives enthusiastically. It is the human factor which binds a group together and motivates
it towards goals.”
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A.1 Nature of Directing
Nature or Characteristics of Direction:
The following features of direction bring out the nature of directing function of management:
1. It is a Dynamic Function:
Directing is a dynamic and continuing function. A manager has to continuously direct,
guide, motivate and lead his subordinates. With change in plans and organizational
relationships, he will have to change the methods and techniques to direction.
2. It Initiates Action:
Directing initiates organized and planned action and ensures effective performance
by subordinates towards the accomplishment of group activities. It is regarded as the
essence of management-in-action.
3. It Provides Necessary Link between Various Managerial Functions:
Directing links the various managerial functions of planning, organizing, staffing and
controlling. Without directing the function of controlling will never arise and the other
preparatory functions of management will become meaningless. In the words of
Haimann, “nothing happens unless and until the business automobile is put into gear
and the accelerator pressed.”
4. It is a Universal Function:
Directing is a universal function that is performed in all organizations and at all the
levels of management. All managers have to guide, motivate, lead, supervise and
communicate with their subordinates, although more time is spent on directing at
higher levels of management.
5. It is Concerned with Human Relationships:
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The direction function of management deals with relationship between people
working in an organization. It creates co­operation and harmony among the members
of the group. It seeks to achieve orderly arrangement of group effort to provide unity
of action in the pursuit of common objectives.
J. Leading Vs. Managing
Management and Leadership, two components that are important factors in an organization.
Leadership and art and management a science, this explains the diversity of leadership and
the structure of management. Both have their differences but also have similarities that tie the
two together. There is a fair thin line between the differences and the similarities of these two
categories, which will then be described, in this following blog. A discussion point of view on
what the CMI (CMI 2013) has suggested will be mentioned.
The definition of “Leadership” means “ the ability of an individual to influence, motivate, and
enable others to contribute towards the effectiveness and success of the organizations of
which they are members”. However, the definition of “Management” means embracing
controlling and directing a group of one or more people to lead and synchronize the group
towards accomplishing a specific goal or target. In the two categories the people presenting
leadership or management personalities will tend to portray different styles.
Similarities:
Either being a leader or a manager requires leading people and subordinates. However the
main focuses for both are how to manage with people, being one or more than one. A leader
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and a manager must have good communication and social skills and will both be comfortable
working in a workforce area. The relationships towards their followers or subordinates must
be of a good relation in order to give out tasks or regulate and supervise them without them
feeling uncomfortable. In order to be a leader, good management skills are required and in
order to be a good manager significant leadership skills are also required. This shows that at
the end of the day these two categories will always bind together as one will need the skills of
another. Decent regular training for both would be respectable in order to lead and manage
without fault.
Differences:
There are also a few differences such as how
leaders have the essence of change whereas
managers have the essence of stability. Leaders
are always changing their style due to their
followers and how the surroundings change,
leaders are always ready to adapt to new
situations. Manager’s stick to structured ways of
handling
their
subordinates,
stability
and
controlling comes before hand. Leaders focus on
leading people and their approach is mainly strategic; leaders also have followers and have
passion as energy. Manager’s focus on managing work and there approach is operational,
managers also have subordinates and have the term “control” as an energy. Leaders are likely
to strive, take risks and want achievements whereas managers take action and wants results
in their end outcome.
Video: Top 10 Differences Between Managers and Leaders
K. Leadership Theories
For decades, leadership theories have been the source of numerous studies. In reality as well
as in practice, many have tried to define what allows authentic leaders to stand apart from the
mass! Hence, there as many theories on leadership as there are philosophers, researchers
and professors that have studied and ultimately published their leadership theory.
Theories are commonly categorized by which aspect is believed to define the leader the most.
The
most
widespread
one's
are: Great
Man
Theory, Trait
Theory, Behavioural
Theories, Contingency Theories, Transactional Theories and Transformational Theories.
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Great Man Theory (1840s)
The Great Man theory evolved around the mid 19th century. Even though no one was able to
identify with any scientific certainty, which human
characteristic or combination of, were responsible
for identifying great leaders. Everyone recognized
that just as the name suggests; only a man could
have the characteristic (s) of a great leader.
The Great Man theory assumes that the traits of
leadership are intrinsic. That simply means that
great leaders are born... they are not made. This
theory sees great leaders as those who are
destined by birth to become a leader. Furthermore, the belief was that great leaders will rise
when confronted with the appropriate situation. The theory was popularized by Thomas
Carlyle, a writer and teacher. Just like him, the Great Man theory was inspired by the study of
influential heroes. In his book "On Heroes, Hero-Worship, and the Heroic in History", he
compared a wide array of heroes.
In 1860, Herbert Spencer, an English philosopher disputed the great man theory by affirming
that these heroes are simply the product of their times and their actions the results of social
conditions.
Trait Theory (1930's - 1940's)
The trait leadership theory believes that people are either born or are made with certain
qualities that will make them excel in leadership roles. That is, certain qualities such as
intelligence, sense of responsibility, creativity and other values puts anyone in the shoes of a
good leader. In fact, Gordon Allport, an American psychologist,"...identified almost 18,000
English personality-relevant terms" (Matthews, Deary & Whiteman, 2003, p. 3).
The trait theory of leadership focused on analyzing mental, physical and social characteristic
in order to gain more understanding of what is the characteristic or the combination of
characteristics that are common among leaders.
There were many shortfalls with the trait leadership theory. However, from a psychology of
personalities approach, Gordon Allport's studies are among the first ones and have brought,
for the study of leadership, the behavioural approach.

In the 1930s the field of Psychometrics was in its early years.

Personality traits measurement weren't reliable across studies.

Study samples were of low level managers

Explanations weren't offered as to the relation between each characteristic and its
impact on leadership.
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
The context of the leader wasn't considered.
Many studies have analyzed the traits among existing leaders in the hope of uncovering those
responsible for ones leadership abilities! In vain, the only characteristics that were identified
among these individuals were those that were slightly taller and slightly more intelligent!
Behavioural Theories (1940's - 1950's)
In reaction to the trait leadership theory, the behavioural theories are offering a new
perspective, one that focuses on the
behaviours of the leaders as opposed to
their
mental,
physical
or
social
characteristics. Thus, with the evolutions
in psychometrics, notably the factor
analysis,
researchers
were
able
to
measure the cause an effects relationship
of
specific
human
behaviours
from
leaders. From this point forward anyone
with the right conditioning could have
access to the once before elite club of naturally gifted leaders. In other words, leaders are
made not born.
The behavioural theories first divided leaders in two categories. Those that were concerned
with the tasks and those concerned with the people. Throughout the literature these are
referred to as different names, but the essence are identical.
Associated Theories

The Managerial Grid Model / Leadership Grid

Role Theory
Contingency Theories (1960's)
The Contingency Leadership theory argues that
there is no single way of leading and that every
leadership style should be based on certain
situations, which signifies that there are certain
people who perform at the maximum level in
certain places; but at minimal performance
when taken out of their element.
To a certain extent contingency leadership theories are an extension of the trait theory, in the
sense that human traits are related to the situation in which the leaders exercise their
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leadership. It is generally accepted within the contingency theories that leader are more likely
to express their leadership when they feel that their followers will be responsive.
Associated Theories

Fiedler's contingency theory

Hersey-Blanchard Situational Leadership Theory

Path-goal theory

Vroom-Yetton-Jago decision-making model of leadership

Cognitive Resource Theory

Strategic Contingencies Theory
Transactional leadership Theories (1970's)
Transactional theories, also known as exchange theories of leadership, are characterized by
a transaction made between the leader and the followers. In fact, the theory values a positive
and mutually beneficial relationship.
For the transactional theories to be effective and as a result have motivational value, the leader
must find a means to align to adequately reward (or punish) his follower, for performing leaderassigned task. In other words, transactional leaders are most efficient when they develop a
mutual reinforcing environment, for which the individual and the organizational goals are in
sync.
The transactional theorists state that humans in general are seeking to maximize pleasurable
experiences and to diminish un-pleasurable experiences. Thus, we are more likely to
associate ourselves with individuals that add to our strengths.
Associated Theories

Leader-member Exchange (LMX)
Transformational Leadership Theories (1970s)
The Transformational Leadership theory states that this process is by which a person interacts
with others and is able to create a solid relationship that results in a high percentage of trust,
that will later result in an increase of motivation, both intrinsic and extrinsic, in both leaders
and followers.
The essence of transformational theories is that leaders transform their followers through their
inspirational nature and charismatic personalities. Rules and regulations are flexible, guided
by group norms. These attributes provide a sense of belonging for the followers as they can
easily identify with the leader and its purpose.
Associated Theories

Burns Transformational Leadership Theory
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
Bass Transformational Leadership Theory

Kouzes and Posner's Leadership Participation Inventory
L. Motivation Theories
Motivational theories are split into two groups as process and content theories. Content
theories endeavor to name and analyze the factors which motivate people to perform better
and more efficiently while process theories concentrate on how different types of personal
traits interfere and impact the human behavior. Content theories are highly related with
extrinsic rewards, things that are concrete like bonuses and will help improve employees'
physiological circumstances whereas process theories are concerned with intrinsic rewards,
such as recognition and respect, which will help boost employees confidence in the work place
and improve job satisfaction.
A famous content theory would be
Maslow's Hierarchy of Needs, and a
famous process theory would be the
equity theory.
Theories of motivation provide a
theoretical
basis
for
reward
management though some of the
best known ones have emerged from
the psychology discipline. Perhaps the first and best known of these comes from the work of
Abraham Maslow. Maslow’s Hierarchy of Needs describes a pyramid comprising a series of
layers from at the base the most fundamental physiological needs such as food, water, shelter
and sex, rising to the apex where self-actualisation needs included morality and creativity.
Maslow saw these levels of needs being fulfilled one at a time in sequence from bottom to top.
Employment and the resources it brings are classed under ‘safety needs’ (level 2) while the
workplace may also contribute to a sense of ‘belonging’ (level 3) and recognition at work can
satisfy the need for ‘self-esteem’ (level 4).
Frederick Herzberg’s motivator-hygiene theory, first published in 1959, argues that an
employee’s job satisfaction or dissatisfaction is influenced by two distinct sets of factors and
also that satisfaction and dissatisfaction were not at opposite ends of the same continuum but
instead needed to be measured separately. The two sets of factors are motivator factors and
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hygiene factors. According to Herzberg, real motivation comes from the work itself, from
completing tasks, while the role of reward is to prevent dissatisfaction arising.
Expectancy Theory is the theory which posits that we select our behaviour based on the
desirability of expected outcomes of the action. It was most prominently used in a work context
by Victor Vroom who sought to establish the relationship between performance, motivation
and ability and expressed it as a multiplicative one – where performance equals motivation x
ability. There are a lot of attractions for this kind of approach, particularly for employers who
can target their motivation effort and anticipate a definable mathematical return for them. As
this is a cognitive process theory it relies on the way employees perceive rewards. These three
theories plus variants of them have been used in countless research studies and continue to
inform the practice of reward management up to the present day.
M. Communication
Understanding Communication
A famous quote says - “The way we communicate with others and with ourselves
ultimately determines the quality of our lives”
The process of passing any information from one person to the other person with the aid of
some medium is termed as communication.
The first party who sends the information is called the sender and the second party who
receives the information, decodes the information and accordingly responds is called
the receiver or the recipient. Thus in simpler terms communication is simply a process where
the sender sends the information to the receiver for him to respond.
Sender
----------------------------------
Receiver
Information
Joe might have an unparalleled, incomparable concept or an idea with him but he would never
get the credit if he merely keeps it within himself. He has to pass on the idea to his fellow
workers. He has to communicate. Not only communicate but also effectively communicate.
In an organization, your boss will never give you your share of credit, unless and until you
present your work in a well defined manner. How will one present his/her work- by
communication. The trick is not only to communicate but effectively communicate.
And if you can effectively communicate, the world is all yours.
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The Process of Sending the Message
The first party or the sender first thinks of
information, whatever he intends to
communicate or transfer to the others.
Then he puts the information or the
message in words or prepare a content.
The process of putting the thoughts in
words is called encoding. Finally the
content after being ready is transmitted to
the receiver.
The process of receiving the Message
The message reaches the sender, who then decodes the message or in simpler terms breaks
the information, understands it and responds to the receiver. The sender also gives feedback
to the receiver after he has understood the complete information.
Communication in simpler terms is a process of passing the information from the first party
(sender) to the second party (receiver). Communication plays a vital role not only in
organizations or one’s professional career but also is essential in day to day life.
Importance of Communication in an Organization
Effective Communication is significant for managers in the organizations so as to perform the
basic functions of management, i.e., Planning, Organizing, Leading and Controlling.
Communication Flows in an Organization
In an organization, communication flows in 5 main directions1. Downward Flow of Communication: Communication that flows from a higher level
in an organization to a lower level is a downward communication. In other words,
communication from superiors to subordinates in a chain of command is a downward
communication. This communication flow is used by the managers to transmit workrelated information to the employees at lower levels. Employees require this
information for performing their jobs and for meeting the expectations of their
managers. Downward communication is used by the managers for the following
purposes Providing feedback on employees performance
Giving job instructions
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Providing a complete understanding of the employees job as well as to
communicate them how their job is related to other jobs in the organization.
Communicating the organizations mission and vision to the employees.
Highlighting the areas of attention.
Organizational publications, circulars, letter to employees, group meetings etc are
all examples of downward communication. In order to have effective and error-free
downward communication, managers must:

Specify communication objective

Ensure that the message is accurate, specific and unambiguous.

Utilize the best communication technique to convey the message to the
receiver in right form
2. Upward Flow of Communication: Communication that flows to a higher level in an
organization is called upward communication. It provides feedback on how well the
organization is functioning. The subordinates use upward communication to convey
their problems and performances to their superiors.
The subordinates also use upward communication to tell how well they have
understood the downward communication. It can also be used by the employees to
share their views and ideas and to participate in the decision-making process.
Upward communication leads to a more committed and loyal workforce in an
organization because the employees are given a chance to raise and speak
dissatisfaction issues to the higher levels. The managers get to know about the
employees feelings towards their jobs, peers, supervisor and organization in general.
Managers can thus accordingly take actions for improving things.
Grievance Redressal System, Complaint and Suggestion Box, Job Satisfaction
surveys etc all help in improving upward communication. Other examples of Upward
Communication are -performance reports made by low level management for
reviewing by higher level management, employee attitude surveys, letters from
employees, employee-manager discussions etc.
3. Lateral / Horizontal Communication: Communication that takes place at same levels
of hierarchy in an organization is called lateral communication, i.e., communication
between peers, between managers at same levels or between any horizontally
equivalent organizational member. The advantages of horizontal communication are
as follows:
It is time saving.
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It facilitates co-ordination of the task.
It facilitates co-operation among team members.
It provides emotional and social assistance to the organizational members.
It helps in solving various organizational problems.
It is a means of information sharing
It can also be used for resolving conflicts of a department with other department
or conflicts within a department.
4. Diagonal Communication: Communication that takes place between a manager and
employees of other workgroups is called diagonal communication. It generally does
not appear on organizational chart. For instance - To design a training module a
training manager interacts with an Operations personnel to enquire about the way they
perform their task.
5. External Communication: Communication that takes place between a manager and
external groups such as - suppliers, vendors, banks, financial institutes etc. For
instance - To raise capital the Managing director would interact with the Bank Manager.
Communication helps managers to perform their jobs and responsibilities. Communication
serves as a foundation for planning. All the essential information must be communicated to
the managers who in-turn must communicate the plans so as to implement them. Organizing
also requires effective communication with others about their job task. Similarly leaders as
managers must communicate effectively with their subordinates so as to achieve the team
goals. Controlling is not possible without written and oral communication.
Thus, we can say that “effective communication is a building block of successful
organizations”. In other words, communication acts as organizational blood.
Communication is central to the entire management process for four primary reasons:

Communication is a linking process of management.Communication is the way
managers conduct the managerial functions of planning, organizing, staffing, directing,
and controlling. Communication is the heart of all organizations

Communication is the primary means by which people obtain and exchange
information. Decisions are often dependent upon the quality and quantity of the
information received. If the information on which a decision is based is poor or
incomplete, the decision will often be incorrect.
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
The
most
time‐consuming
activity
a
manager
engages
in
is
communication. Managers spend between 70 to 90 percent of their time
communicating with employees and other internal and external customers.

Information and communication represent power in organizations.An employee
cannot do anything constructive in a work unit unless he or she knows what is to be
done, when the task is to be accomplished, and who else is involved. The staff
members who have this information become centers of power.
N. Change and Diversity in the Workplace
Workplace diversity refers to the variety of
differences
between
people
in
an
organization. That sounds simple, but
diversity encompasses race, gender,
ethnic group, age, personality, cognitive
style, tenure, organizational function,
education, background and more.
Diversity not only involves how people
perceive
themselves,
but
how
they
perceive others. Those perceptions affect their interactions. For a wide assortment of
employees to function effectively as an organization, human resource professionals need to
deal effectively with issues such as communication, adaptability and change. Diversity will
increase significantly in the coming years. Successful organizations recognize the need for
immediate action and are ready and willing to spend resources on managing diversity in the
workplace now.
Benefits of Workplace Diversity
An organization’s success and competitiveness depends upon its ability to embrace diversity
and realize the benefits. When organizations actively assess their handling of workplace
diversity issues, develop and implement diversity plans, multiple benefits are reported such
as:

Increased adaptability
Organizations employing a diverse workforce can supply a greater variety of solutions
to problems in service, sourcing, and allocation of resources. Employees from diverse
backgrounds bring individual talents and experiences in suggesting ideas that are
flexible in adapting to fluctuating markets and customer demands.
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
Broader service range
A diverse collection of skills and experiences (e.g. languages, cultural understanding)
allows a company to provide service to customers on a global basis.

Variety of viewpoints
A diverse workforce that feels comfortable communicating varying points of view
provides a larger pool of ideas and experiences. The organization can draw from that
pool to meet business strategy needs and the needs of customers more effectively.

More effective execution
Companies that encourage diversity in the workplace inspire all of their employees to
perform to their highest ability. Company-wide strategies can then be executed;
resulting in higher productivity, profit, and return on investment.
Challenges of Diversity in the Workplace
Taking full advantage of the benefits of diversity in the workplace is not without its challenges.
Some of those challenges are:

Communication - Perceptual, cultural and language barriers need to be overcome for
diversity programs to succeed. Ineffective communication of key objectives results in
confusion, lack of teamwork, and low morale.

Resistance to change - There are always employees who will refuse to accept the
fact that the social and cultural makeup of their workplace is changing. The “we’ve
always done it this way” mentality silences new ideas and inhibits progress.

Implementation of diversity in the workplace policies - This can be the overriding
challenge to all diversity advocates. Armed with the results of employee assessments
and research data, they must build and implement a customized strategy to maximize
the effects of diversity in the workplace for their particular organization.

Successful Management of Diversity in the Workplace - Diversity training alone is
not sufficient for your organization’s diversity management plan. A strategy must be
created and implemented to create a culture of diversity that permeates every
department and function of the organization.
Recommended steps that have been proven successful in world-class organizations
are:

Assessment of diversity in the workplace - Top companies make assessing and
evaluating their diversity process an integral part of their management system. A
customizable employee satisfaction survey can accomplish this assessment for your
company efficiently and conveniently. It can help your management team determine
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which challenges and obstacles to diversity are present in your workplace and which
policies need to be added or eliminated. Reassessment can then determine the
success of you diversity in the workplace plan implementation.

Development of diversity in the workplace plan - Choosing a survey provider that
provides comprehensive reporting is a key decision. That report will be the beginning
structure of your diversity in the workplace plan. The plan must be comprehensive,
attainable and measurable. An organization must decide what changes need to be
made and a timeline for that change to be attained.

Implementation of diversity in the workplace plan - The personal commitment of
executive and managerial teams is a must. Leaders and managers within
organizations must incorporate diversity policies into every aspect of the organization’s
function and purpose. Attitudes toward diversity originate at the top and filter
downward. Management cooperation and participation is required to create a culture
conducive to the success of your organization’s plan.
Recommended diversity in the workplace solutions include:

Ward off change resistance with inclusion. - Involve every employee possible in
formulating and executing diversity initiatives in your workplace.

Foster an attitude of openness in your organization. - Encourage employees to
express their ideas and opinions and attribute a sense of equal value to all.

Promote diversity in leadership positions. - This practice provides visibility and
realizes the benefits of diversity in the workplace.

Utilize diversity training. - Use it as a tool to shape your diversity policy.

Launch
a
customizable
employee
satisfaction
survey
that
provides
comprehensive reporting. - Use the results to build and implement successful
diversity in the workplace policies.
As the economy becomes increasingly global, our workforce becomes increasingly diverse.
Organizational success and competitiveness will depend on the ability to manage diversity in
the workplace effectively. Evaluate your organization’s diversity policies and plan for the
future, starting today.
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O. Filipino and Foreign Cultures
Many factors that influence management
relationships also influence employer employee, or boss - worker relationships.
However, additional factors are also
important, especially in across-cultural
relations.
Differences in cultural backgrounds of
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managers and employees is frequently a filipino-culture-differences-intro-A.png
source of misunderstanding. Corporate
management in the Philippines is a relatively new phenomenon introduced by the Americans.
Traditionally the only organization was the family, for even the barangay (village) was loosely
organized. Even today some big corporations in the Philippines still operate on familial lines,
with modifications to suit the contemporary requirements of corporate management.
A Filipino’s relationship with his organization is like an extended family and he may expect the
organization to look after him like a family. Whereas, other nationalities’, particularly Western
relationships with his organization is contractual and he considers his leisure time his own.
Filipino culture sometimes influences business practices to compensate for the lack, or
inadequacy of government and social systems, e.g., social security and national health
programs. The paternalistic Filipino manager is compensating for what society does not
provide adequately. He is a surrogate pater familae and by satisfying this expectation
becomes a more effective manager.
Modern corporations in the Philippines are now largely dominated by western concepts.
Management-labour relations are objective and impersonal - there is no place for emotional
decision-making. Young executives are seldom drawn from family or kinship groups, or if they
are, it is normally on the basis of training and skills. In some cases college and business
friendships have replaced familial concerns and provide the necessary protective umbrella
over employees’ interest and security.
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However, most workers in a corporation come from a different community than managers.
Most workers are drawn from a community whose culture is primarily subjective, personalistic,
and familial. Yet these people are expected to function according to the norms and values of
the corporation. Managers must recognize and be aware of the different orientation of their
workers, especially if the managers are not Filipino. Sensitivity seems to be more acute in
lower-income workers than in technical or managerial groups. The latter groups take
dissenting opinions and criticisms as healthy and necessary in work situations.
In the Philippines the struggle for survival at the lower end of the socio-economic scale is
evident in the work environment. The battle against poverty and malnutrition is grinding and
lesser paid workers have reduced energy levels caused by inadequate protein in their diet.
Filipino managers handle this with compassion.
Lesson 7
CONTENT TITLE:
Controlling
CONTENT STANDARD:
Different controlling methods and techniques.
Discussion:
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P. Definition and nature of management control
Definition
Control, or controlling, is one of the managerial functions like planning, organizing, staffing
and directing. It is an important function because it helps to check the errors and to take the
corrective action so that deviation from standards are minimized and stated goals of the
organization are achieved in a desired manner.
According to modern concepts, control is a foreseeing action whereas earlier concept of
control was used only when errors were detected. Control in management means setting
standards, measuring actual performance and taking corrective action.
Nature
The management of any organization must develop a control system tailored to its
organization's goals and resources. Effective control systems share several common
characteristics.
A manager is concerned about organizational performance or the overall result of
organizational activities and processes. He makes sure that objectives and plans devised to
attain these objectives are being accomplished. This is done by carrying out the managerial
function of controlling.
Controlling is the process of checking to see whether organizational activities are going on as
planned. It consists of three steps:

measuring performance by establishing standards,

comparing measured performance to standards, and

taking corrective action.
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&ved=0ahUKEwjKx__0x_rPAhXFso8KHdO6CUkQ_AUIBigB#imgrc=QbhpV0qBenIZHM%3A
Q. The Link Between Planning and Controlling
Planning and controlling are two separate fuctions of management, yet they are closely
related. The scope of activities if both are overlapping to each other. Without the basis of
planning, controlling activities becomes baseless and without controlling, planning becomes
a meaningless exercise. In absense of controlling, no purpose can be served by. Therefore,
planning and controlling reinforce each other.
According to Billy Goetz, " Relationship between the two can be summarized in the following
points
1. Planning preceeds controlling and controlling succeeds planning.
2. Planning and controlling are inseperable functions of management.
3. Activities are put on rails by planning and they are kept at right place through
controlling.
4. The process of planning and controlling works on Systems Approach which is as
follows :
Planning → Results → Corrective Action
5. Planning and controlling are integral parts of an organization as both are important
for smooth running of an enterprise.
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6. Planning and controlling reinforce each other. Each drives the other function of
management.
In the present dynamic environment which affects the organization, the strong relationship
between the two is very critical and important. In the present day environment, it is quite
likely that planning fails due to some unforeseen events. There controlling comes to the
rescue. Once controlling is done effectively, it give us stimulus to make better plans.
Therfore, planning and controlling are inseparate functions of a business enterprise.
R. Control Methods and Systems
According to Maciariello et al. (1994), management control is concerned with coordination,
resource allocation, motivation, and performance measurement. The practice of management
control and the design of management control systems draws upon a number of academic
disciplines.

Management control involves extensive measurement and it is therefore related to and
requires contributions from accounting especially management accounting.

Second, it involves resource allocation decisions and is therefore related to and
requires contribution from economics especially managerial economics.

Third, it involves communication, and motivation which means it is related to and must
draw contributions from social psychology especially organizational behavior.
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Alif Aiqal (2007) defined Management Control as the process by which managers influence
other members of the organization to implement the organization’s strategies.
Effective Organizational Control Systems
The management of any organization must develop a control system tailored to its
organization's goals and resources. Effective control systems share several common
characteristics. These characteristics are as follows:

A focus on critical points. For example, controls are applied where failure cannot be
tolerated or where costs cannot exceed a certain amount. The critical points include
all the areas of an organization's operations that directly affect the success of its key
operations.

Integration into established processes. Controls must function harmoniously within
these processes and should not bottleneck operations.

Acceptance by employees. Employee involvement in the design of controls can
increase acceptance.

Availability of information when needed. Deadlines, time needed to complete the
project, costs associated with the project, and priority needs are apparent in these
criteria. Costs are frequently attributed to time shortcomings or failures.

Economic feasibility. Effective control systems answer questions such as, “How much
does it cost?” “What will it save?” or “What are the returns on the investment?” In short,
comparison of the costs to the benefits ensures that the benefits of controls outweigh
the costs.

Accuracy. Effective control systems provide factual information that's useful, reliable,
valid, and consistent.

Comprehensibility. Controls must be simple and easy to understand.
Organizational Control Techniques
Control techniques provide managers with the type and amount of information they need to
measure and monitor performance. The information from various controls must be tailored to
a specific management level, department, unit, or operation.
To ensure complete and consistent information, organizations often use standardized
documents such as financial, status, and project reports. Each area within an organization,
however, uses its own specific control techniques, described in the following sections.
After the organization has strategies in place to reach its goals, funds are set aside for the
necessary resources and labor. As money is spent, statements are updated to reflect how
much was spent, how it was spent, and what it obtained. Managers use these financial
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statements, such as an income statement or balance sheet, to monitor the progress of
programs and plans. Financial statements provide management with information to monitor
financial resources and activities. The income statement shows the results of the
organization's operations over a period of time, such as revenues, expenses, and profit or
loss. The balance sheet shows what the organization is worth (assets) at a single point in time,
and the extent to which those assets were financed through debt (liabilities) or owner's
investment (equity).
Financial audits, or formal investigations, are regularly conducted to ensure that financial
management practices follow generally accepted procedures, policies, laws, and ethical
guidelines. Audits may be conducted internally or externally. Financial ratio analysis
examines the relationship between specific figures on the financial statements and helps
explain the significance of those figures:

Liquidity ratios measure an organization's ability to generate cash.

Profitability ratios measure an organization's ability to generate profits.

Debt ratios measure an organization's ability to pay its debts.

Activity ratios measure an organization's efficiency in operations and use of assets.
In addition, financial responsibility centers require managers to account for a unit's
progress toward financial goals within the scope of their influences. A manager's goals
and responsibilities may focus on unit profits, costs, revenues, or investments.
Budget controls
A
budget
organization
depicts
how
expects
much
to
an
spend
(expenses) and earn (revenues) over a
time period. Amounts are categorized
according to the type of business activity
or account, such as telephone costs or
sales of catalogs. Budgets not only help
managers plan their finances, but also
help them keep track of their overall
spending.
A budget, in reality, is both a planning
tool and a control mechanism. Budget
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development processes vary among organizations according to who does the budgeting and
how the financial resources are allocated. Some budget development methods are as follows:

Top‐down budgeting. Managers prepare the budget and send it to subordinates.

Bottom‐up budgeting. Figures come from the lower levels and are adjusted and
coordinated as they move up the hierarchy.

Zero‐based budgeting. Managers develop each new budget by justifying the
projected allocation against its contribution to departmental or organizational goals.

Flexible budgeting. Any budget exercise can incorporate flexible budgets, which set
“meet or beat” standards that can be compared to expenditures.
Marketing controls
Marketing controls help monitor progress toward goals for customer satisfaction with
products and services, prices, and delivery. The following are examples of controls used to
evaluate an organization's marketing functions:

Market research gathers data to assess customer needs—information critical to an
organization's success. Ongoing market research reflects how well an organization is
meeting customers' expectations and helps anticipate customer needs. It also helps
identify competitors.

Test marketing is small‐scale product marketing to assess customer acceptance.
Using surveys and focus groups, test marketing goes beyond identifying general
requirements and looks at what (or who) actually influences buying decisions.

Marketing statistics measure performance by compiling data and analyzing results.
In most cases, competency with a computer spreadsheet program is all a manager
needs. Managers look at marketing ratios, which measure profitability, activity, and
market shares, as well as sales quotas, which measure progress toward sales goals
and assist with inventory controls.
Unfortunately, scheduling a regular evaluation of an organization's marketing program is
easier to recommend than to execute. Usually, only a crisis, such as increased competition or
a sales drop, forces a company to take a closer look at its marketing program. However, more
regular evaluations help minimize the number of marketing problems.
Human resource controls
Human resource controls help managers regulate the quality of newly hired personnel, as well
as monitor current employees' developments and daily performances.
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On a daily basis, managers can go a long way in helping to control workers' behaviors in
organizations. They can help direct workers' performances toward goals by making sure that
goals are clearly set and understood. Managers can also institute policies and procedures to
help guide workers' actions. Finally, they can consider past experiences when developing
future strategies, objectives, policies, and procedures.
Common control types include performance appraisals, disciplinary programs, observations,
and training and development assessments. Because the quality of a firm's personnel, to a
large degree, determines the firm's overall effectiveness, controlling this area is very crucial.
Computers and information controls
Almost all organizations have confidential and sensitive information that they don't want to
become general knowledge. Controlling access to computer databases is the key to this area.
Increasingly, computers are being used to collect and store information for control purposes.
Many organizations privately monitor each employee's computer usage to measure employee
performance, among other things. Some people question the appropriateness of computer
monitoring. Managers must carefully weigh the benefits against the costs—both human and
financial—before investing in and implementing computerized control techniques.
Although computers and information systems provide enormous benefits, such as improved
productivity and information management, organizations should remember the following
limitations of the use of information technology:

Performance limitations. Although management information systems have the
potential to increase overall performance, replacing long‐time organizational
employees with information systems technology may result in the loss of expert
knowledge that these individuals hold. Additionally, computerized information systems
are expensive and difficult to develop. After the system has been purchased,
coordinating it—possibly with existing equipment—may be more difficult than
expected. Consequently, a company may cut corners or install the system carelessly
to the detriment of the system's performance and utility. And like other sophisticated
electronic equipment, information systems do not work all the time, resulting in costly
downtime.

Behavioral limitations. Information technology allows managers to access more
information than ever before. But too much information can overwhelm employees,
cause stress, and even slow decision making. Thus, managing the quality and amount
of information available to avoid information overload is important.

Health risks. Potentially serious health‐related issues associated with the use of
computers and other information technology have been raised in recent years. An
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example is carpal tunnel syndrome, a painful disorder in the hands and wrists caused
by repetitive movements (such as those made on a keyboard).
Regardless of the control processes used, an effective system determines whether employees
and various parts of an organization are on target in achieving organizational objectives.
S. Application of Management Control in Accounting and Marketing Concepts and
Techniques
In a nutshell, management accounting and control is about helping managers enhance
decision-making (e.g. pricing decisions, product-mix decisions), guide the implementation of
strategy (e.g. through budgets and other control systems), and evaluate the performance of
managers or business units (e.g. through performance measures).
Information on costs is a particularly important part of the data provided by management
accounting and control systems. Accordingly, one focus of this course will be on different
techniques of cost accounting. However, systems and techniques have to be understood not
only in terms of their technical functioning, but also with respect to their relationship to the
organizational context in which they are embedded. Accounting systems may not only be used
to enable economically sensible decision-making, but may also serve as “rationalization”
devices for decisions already made, or as ammunition in political power struggles between
organizational actors. Part of the objective of the course is to sensitize students for the different
uses which accounting information may be assigned to.
To be sustainable, the modern organization has to maintain positive relationships with all its
key stakeholders. In addition, it has to prepare itself for and react to many, fast-evolving
environmental and social challenges that can put its long term sustainability at risk. In this
course, we will also discuss how social and environmental strategies, performance indicators,
and targets can be integrated in the management accounting and control platforms of
organizations.
Management accounting and management accounting system
Anthony & Young (1999) showed that management accounting has three major subdivisions:

full cost accounting,

differential accounting and

management control or responsibility accounting
Management control system techniques
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According to Horngren et al. (2005), management control system is an integrated technique
for collecting and using information to motivate employee behavior and to evaluate
performance. Management control systems use many techniques such as:

Activity-based costing - Activity-based costing (ABC) is a costing methodology that
identifies activities in an organization and assigns the cost of each activity with
resources to all products and services according to the actual consumption by each.
This model assigns more indirect costs (overhead) into direct costs compared to
conventional costing.

Balanced scorecard - The balanced scorecard (BSC) is a strategy performance
management tool – a semi-standard structured report, supported by design methods
and automation tools, that can be used by managers to keep track of the execution of
activities by the staff within their control and to monitor the consequences arising from
these actions
The phrase 'balanced scorecard' is commonly used in two broad forms:
1. As individual scorecards that contain measures to manage performance,
those scorecards may be operational or have a more strategic intent; and
2. As a Strategic Management System, as originally defined by Kaplan &
Norton.
The critical characteristics that define a balanced scorecard are:
a. its focus on the strategic agenda of the organization concerned
b. the selection of a small number of data items to monitor
c. a mix of financial and non-financial data items.

Benchmarking and Benchtrending - Benchmarking is comparing one's business
processes and performance metrics to industry bests and best practices from other
companies. Dimensions typically measured are quality, time and cost. In the process
of best practice benchmarking, management identifies the best firms in their industry,
or in another industry where similar processes exist, and compares the results and
processes of those studied (the "targets") to one's own results and processes. In this
way, they learn how well the targets perform and, more importantly, the business
processes that explain why these firms are successful. Benchmarking is used to
measure performance using a specific indicator (cost per unit of measure, productivity
per unit of measure, cycle time of x per unit of measure or defects per unit of measure)
resulting in a metric of performance that is then compared to others.
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
Budgeting - A budget is a quantitative expression of a plan for a defined period of time.
It may include planned sales volumes and revenues, resource quantities, costs and
expenses, assets, liabilities and cash flows. It expresses strategic plans of business
units, organizations, activities or events in measurable terms.

Capital budgeting - Capital budgeting, or investment appraisal, is the planning
process used to determine whether an organization's long term investments such as
new machinery, replacement of machinery, new plants, new products, and research
development projects are worth the funding of cash through the firm's capitalization
structure (debt, equity or retained earnings). It is the process of allocating resources
for major capital, or investment, expenditures. One of the primary goals of capital
budgeting investments is to increase the value of the firm to the shareholders.
Many formal methods are used in capital budgeting, including the techniques such as

Accounting rate of return

Average accounting return

Payback period

Net present value

Profitability index

Internal rate of return

Modified internal rate of return

Equivalent annual cost

Real options valuation
These methods use the incremental cash flows from each potential investment, or
project. Techniques based on accounting earnings and accounting rules are
sometimes used - though economists consider this to be improper - such as the
accounting rate of return, and "return on investment." Simplified and hybrid methods
are used as well, such as payback period and discounted payback period.

JIT - Just-in-time (JIT) manufacturing, also known as just-in-time production or the
Toyota production system (TPS), is a methodology aimed primarily at reducing flow
times within production system as well as response times from suppliers and to
customers. Following its origin and development in Japan, largely
in the 1960s and 1970s and particularly at Toyota.

Kaizen (Continuous Improvement) - Kaizen, 改善, Japanese for
"improvement." When used in the business sense and applied to
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the workplace, kaizen refers to activities that continuously improve all functions and
involve all employees from the CEO to the assembly line workers. It also applies to
processes, such as purchasing and logistics, that cross organizational boundaries into
the supply chain. It has been applied in healthcare, psychotherapy, life-coaching,
government, banking, fantasy hockey, and other industries.
By improving standardized activities and processes, kaizen aims to eliminate waste
(see lean manufacturing). Kaizen was first implemented in several Japanese
businesses after the Second World War, influenced in part by American business and
quality management teachers who visited the country. It has since spread throughout
the world and is now being implemented in environments outside of business and
productivity.

Program
management techniques
-
Program
management
or
programme
management is the process of managing several related projects, often with the
intention of improving an organization's performance. In practice and in its aims it is
often closely related to systems engineering, industrial engineering, change
management, and business transformation.

Target costing - Target costing is an approach to determine a product’s life-cycle cost
which should be sufficient to develop specified functionality and quality, while ensuring
its desired profit. It involves setting a target cost by subtracting a desired profit margin
from a competitive market price. A target cost is the maximum amount of cost that can
be incurred on a product, however, the firm can still earn the required profit margin
from that product at a particular selling price. Target costing decomposes the target
cost from product level to component level. Through this decomposition, target costing
spread the competitive pressure faced by the company to product’s designers and
suppliers. Target costing consists of cost planning in the design phase of production
as well as cost control throughout the resulting product life cycle. The cardinal rule of
target costing is to never exceed the target cost. However, the focus of target costing
is not to minimize costs, but to achieve a desired level of cost reduction determined by
target costing process.

Total quality management (TQM) - Total quality management (TQM) consists of
organization-wide efforts to install and make permanent a climate in which an
organization continuously improves its ability to deliver high-quality products and
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services to customers. While there is no widely agreed-upon approach, TQM efforts
typically draw heavily on the previously developed tools and techniques of quality
control. TQM enjoyed widespread attention during the late 1980s and early 1990s
before being overshadowed by ISO 9000, Lean manufacturing, and Six Sigma.
T. The Role of Budgets in Planning and Control
It is all in the game if the budget allows the projects of an organization to be done. Every
financial activity that a firm undergoes has to be decided with respect to the budget that has
been planned with respect to the same. Under the conditions it is very important to know what
a budget actually means. A budget is formal document that states the monetary capacity of a
firm to plan, control and allocate its resources accordingly. In other words it is the presence of
money that is converted to currency as and when it is required by the firm. IT is very important
to know the company's earnings while deciding the budget of a particular firm. The reason for
the same is that it is this guarantee of income based on which a firm can plan its planning and
the events that follow. So, the further processes of monitoring and resource allocation would
depend largely on what the budget fixes for them with respect to the earnings that the firm can
make in the near future. Before the financial activities are changed from what had been
planned earlier, it is required to make the necessary changes in the budget so as to ascertain
whether the changes are feasible by the firm or not. As for example, if a company thinks of
up-stretching in the market, it would have to check if the allocated resources as per as the
budget allows it to do so currently or in the required period or not. (Southgate, 2010)
The Need For Budgeting
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The Purpose of
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Role of budgeting in the planning, control, and resource allocation process
Budget and its Role in Planning
One can see the importance of budgeting in planning from the examples of some of the top
real estate structures that have been constructed in UAE in the past. Some of them are the
Arabian Ranches in the top cities of the country, the construction of Address Hotel and some
similar stature buildings. The amount of planning required in the construction of these
structures went to a high degree. For example, if the budget required about 200 million AED
for the construction of any of the companies, it would have to plan the financing from sources
like debts and equity. It is this planning of finding the leverage of the firm that the budget helps
one to do. Accordingly one can take the respective loans in order to complete a project. If the
budget allows the risk associated with raising money from the debt market, it can be taken; if
it doesn't then the company would have to look for certain investors who could become
shareholders of the company.
There are also other areas where planning has been done on the basis of the budget planned.
Consider the telecommunication giant, Etisalat for example. The company had serious needs
to mend its ways so as to compete with the other entrants into the market. This could only be
possible if the budget of the company allowed it to do so. The reason for the same is that if a
country switches over from marketing strategy to another, it would first have to check its budget
before making an analysis of the risk-return trade off.
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Planning of the tourism department of the country is also highly based on the budget
sanctioned to them. This is the reason that in spite of having a Muslim origin, the country has
been able to draw a number of non-Muslim expatriates and tourists as well. Very recently the
world saw the Palm Islands made in reality. The planning of the structure that the world looks
up to is based on budgeting done for the same. (Husain, 2010)
Budget and its Role in Controlling
There have been many areas where corrective actions have to be taken so as to put the
projects back on track. This is where the role of budgeting in controlling comes into play. Two
of the pioneers in the manufacturing of electronic and electrical goods in the country are Huda
Lighting and Imation UAE. Both the countries have employed staff for expediting purposes in
the country. These production staff goes to the respective vendors and the shop-floors so as
to motivate them to supply and produce more respectively. It must be acknowledged at this
point in time that the amount of expense that the production staff incurs is a substantial part
of the total spending of the company. This could never have been possible if the budget of the
firm would not have allowed this to happen. The role played by expediting in controlling, has
also worked a great deal in the past. These mentioned companies have all made much larger
profits that they could have predicted with the use of this control measure. It could never have
been possible without the use of an adequate amount of budgeting. The budget has to ensure
that the expenses incurred by these production staff in going about to vendors and shop floors
actually works for them more than it costs.
One of the most important control measures that we have in the near past in the corporate is
the implementation of ERP (Enterprise Resource Planning). Once again the budget for the
same is more than half the total budget of the organization. The reason for the same is that it
not only has a client focus but it also solves certain real life examples and manages the client
along with the staff. One has to convince the top-management in order to implement such a
powerful system in the organization. The top management would only agree to the
implementation once the budget allows it to do so. The reason for the same is that even their
powers are diluted by doing the same. But, if the budget allows it to happen, the management
would have no other option but to implement it and finally improve the chances of the firm to
perform better in the future. So, one cans see the most significant of the control measures like
implementation of expediting and Enterprise Resource Planning are based on the shoulders
of the budgeting done by the company. This is also an indication that the budgeting of a
company has to keep a number of facts in mind so that it does not bring false hopes which get
ruined in the future.
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Budget and its Role in Resource Allocation
One of the most significant factors that highly manage the risk-return trade off of a firm is the
resource allocation that the firm does. Resources are not only in terms of people but also in
terms of the equipments and the inventory that a company would have to maintain as a result.
Much of the resource allocation processes like loading in the production, planning and control
is dependent on the budget that has been decided for the firm. The reason for the same is that
loading allows resource allocation to a particular unit of a firm in all the ways that have been
included earlier. Without the budget conforming to this resource allocation, it could never have
been feasible. This is where budget gets into action in every minute unit that a firm establishes.
For example, the recent construction of Executive Bay and Capital Bay was based on the
resource allocation that the budget made for them. The reason for the same is that these sites
are both innovations in their respective manner. So, there was a vital requirement of building
them as soon as possible. Had they not done the same, the fresh entrants could certainly have
destroyed their brand value. So, the companies had planned its resources so as to make on
time as preferred in the market. Once again, it must be acknowledged that only a proper
budgeting made this into a reality.
Conclusion
From the evidences that have been given above, one can conclude the fact that budgeting
has one of the major roles to play in the financial structure of a company. Almost all the
business plans that have been developed of late were a result of budgeting done in order to
improve their implementation. Much of the tourism as we have seen has only developed
because of the inclusion of a proper budgeting to make it happen. So, one can say that not
only are a company's future prospects dependent on the type of budgeting that it follows but
it also effects the national economy of the country as a result. UAE would never have the type
of place without the construction of some of the most sought-after structures in the world. The
land was all about deserts which by no means could have attracted the tourists. What has
made this a possibility is the budgeting of some of the most well-planned events and activities
of the nation. It is therefore recommended that of a company hopes to make a new plan in the
corporate, or decide its controlling measures or its resource allocation, it would have to be
particular about the budget that make it happen. If it is not so, the company would only see
disastrous results in the future. (DeFiore, 2010)
Lesson 8
CONTENT TITLE:
Controlling
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CONTENT STANDARD:
The different functional areas of management.
Discussion:
A. Introduction
Many companies base their organizational structures on various functional areas, creating
departments around these functions and assigning responsibilities according to employees'
job titles and experience. A functional organizational structure groups employees by various
skills and expertise, leading to greater efficiency, according to the online Encyclopedia of
Management. Several key types of functional areas are typically seen in business
environments.
There are five main functional areas of management viz., human resource, production office,
finance and marketing. However, nowadays, some new and emerging dimensions are also
considered areas of management as: time management, environment management, transport
management, international management, forex management.
In time management, the emphasis is given on achieving the target in minimum time. By the
nature, only one thing time is allotted equally to every creature as 24 hours in a day. But the
person, who knows the art of time management, ranks first. Japanese time management is
regarded best in the world.
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In environment management, the efforts are made to check the different types of industrial
pollution viz., air, water and noise. It is the responsibility of general manager to plan for
congenial ecology to plant, animal and human being. Transport management is the
specialized branch for arranging efficient and cheaper transport facility.
In the age of multinational corporations (MNCs), the primary concern of international
management is with the management of people, material and money of the international
environment.
It is the extension of simple management process itself, but across national frontiers. A
manager while dealing with different nations must take into account the legal, political, social,
economic and technical aspects in the global perspective. Forex (foreign exchange)
management is the application of management principles for earning more and more foreign
money.
B. Human resource management:
Human resource development or personnel management or manpower management is
concerned with obtaining and maintaining of a satisfactory and satisfied work force i.e.,
employees. It is a specialized branch of management concerned with ‘man management’.
The recruitment, placement, induction, orientation, training, promotion, motivation,
performance appraisal, wage and salary, retirement, transfer, merit-rating, industrial relations,
working conditions, trade unions, safety and welfare schemes of employees are included in
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personnel management. The object of personnel management is to create and promote team
spirit among workers and managers.
C. Marketing management:
Philip Kotler views marketing as a social and managerial process by which individuals and
group obtain what they need and want through creating and exchanging products and values
with others. American Marketing Association defines marketing management as the “process
of planning and executing the conception, pricing, promotion and distribution of ideas, goods
and services to create exchange that satisfy individual and organizational objectives.”
The course content of marketing management generally includes: marketing concept,
consumer behaviour, marketing mix, market segmentation, product and price decisions,
promotion and physical distribution, marketing research and information, international
marketing etc.
Modern marketing management is bridging the gap of demand and supply through demarketing, remarketing, over-marketing and meta- marketing. Modern marketing, from
societal point of view, is the force that harnesses a nation’s industrial capacity to meet the
society needs and wants.
The main function of modern management is to organize human and physical resources and
direct them toward efficient performance and higher productivity at the minimum costs. The
same line of thinking can be applied in various functional areas viz., personnel, production,
office finance and marketing. Modern managers are the harbinger of cooperation, fellow
feeling, mutual understanding and growth.
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D. Operations Management
The Operations department is held responsible for overseeing, designing and controlling the
process of production and redesigning business operations if necessary. In a manufacturing
company, operations department designs processes to produce the product efficiently. They
also have to acquire materials and maintenance of equipment, supplies and more.
E. Financial management:
Financial management can be looked upon as the study of relationship between the raising of
funds and the deployment of funds. The subject matter of financial management is: capital
budgeting cost of capital, portfolio management, dividend policy, short and long term sources
of finance. Financial management involves mainly three decisions pertaining to:
1. Investment policies:
It dictates the process associated with capital budgeting and expenditures. All proposals to
spend money are ranked and investment decisions are taken whether to sanction money for
these proposed ventures or not.
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2. Methods of financing:
A proper mix of short and long term financing is ensured in order to provide necessary funds
for proposed ventures at a minimum risk to the enterprise.
3. Dividend decisions:
This decision affects the amount paid to shareholders and distribution of additional shares of
stock.
F. Information & Communication Technology Management
Computers and information systems are very essential in business nowadays. The IT
department acts as the backbone of a smooth operation involving the latest technology
relevant to the business. This department is responsible for creating software/s for other
departments, providing direct operating assistance in software-use and data-management to
maintain functional areas in the organization.
LESSON 9
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CONTENT: SPECIAL TOPICS IN MANAGEMENT
CONTENT STANDARD: The Basic Concepts of Small-Family Business
A. Entrepreneur Vs. Small Business Owner:
An Entrepreneur is an individual who starts and runs a business with limited resources and
planning, taking account of all the risks and rewards of his or her business venture. The
business idea is usually a new innovation, product or service, rather than an existing business
model.
Such entrepreneurial ventures target high-returns, with high level of uncertainty.
The entrepreneur is willing to put his or her financial security and career at stake to take risks
on an idea, spending time as well as capital on an uncertain venture.
Entrepreneurial ventures require the enterprising individual to arrange for capital, raw
materials, manufacturing locations and skilled employees necessary to produce a good or
offer a service. Marketing, sales and distribution are other important aspects which are
controlled by the entrepreneur.
Today’s technological advancements (like online ventures) have allowed the entrepreneurs to
skip a few mandatory needs (like procuring manufacturing facilities, door-to-door marketing)
or outsourcing selected functions (like marketing, sales & distribution), but the risk is still borne
by the entrepreneur.
Entrepreneurship is different from:

Inheriting and/or running an existing businesses (family owned, co-owned)

Working for other businesses or entrepreneurs for a salary

Being a commission agent

Selling already available goods or services as a franchisee or dealership
There is a very fine line between running a small business (SB) and an entrepreneurial venture
(EV) as they have a lot in common. Initial stages of both SB and EV need significant hard work
and dedication, but over a period of time very few SBs become EV. The following guidelines
help to differentiate between the two.
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What are the primary difference between Small Businesses and Entrepreneurial
Ventures?

Small Business usually deal with known and established products & services,
Entrepreneurial Ventures are for new innovative offerings

SBs aim for limited growth and continued profitability while EVs target rapid growth
and high productivity returns

Small Businesses deal with known risks; Entrepreneurial Ventures take deep dive
with lots of unknown risks

EVs generally impact economies & communities in a significant manner, which also
results in a cascading effect on other sectors like job creation. Small businesses are
more limited in this perspective and remain confined to their own domain and group.
A few myths which exist about entrepreneurs:

Entrepreneurs take uncalculated and unknown risks without any plans – Partially
True; entrepreneurs do take uncalculated and unknown risks but they do keep limited
resources, plans as well as bandwidth for dealing with the unknowns to a limited extent

Entrepreneurs start business with a revolutionary invention – Partially True; not
all entrepreneurial ventures are true breakthroughs. Most are identifying and
capitalizing on a mix-n-match approach. Google (GOOG) did not invent the internet,
McDonald's (MCD) did not invent the cheeseburger, Starbucks (SBUX) did not
invent coffee. It’s the identification and capitalization of the idea and rapid growth rate
with cascading impact that makes the venture entrepreneurial.

Entrepreneurs venture out only after significant experience in the industry –
Most entrepreneurs are young, inexperienced individuals, who follow their passion.

Entrepreneurs complete extensive research before taking the first step – Unless
an existing business is setting up a new business line on a new concept, entrepreneurs
start with very limited or no research. However, they do have good awareness about
the potential of their offering, which gives them the confidence to go ahead with the
venture and risks.

Entrepreneurs start with sufficient capital and sound business plans – Capital is
the foremost requirement of any entrepreneurial venture. Most entrepreneurs fail to
secure capital from outside sources, unless they already proven themselves with a
running prototype. Hence, most entrepreneurs start out with insufficient capital and a
risky and uncertain business plan, with an aim to secure capital along the way with a
working model or prototype to impress capital providers.
A few simple examples of Entrepreneurs and Entrepreneurship:
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
Products Space:
Trading goods - like buying wholesale lots of branded shampoo at wholesale rates and selling
them at retail rates at your retail shop or online (through sites like ebay.com) - does not
constitute entrepreneurship.
However, manufacturing your own innovative distinct homemade herbal shampoo, getting a
patent of the same and marketing it for business using the same sales channels will qualify as
entrepreneurship.
The Africa-based KickStart organization (not to be confused with Kickstarter) has been
building low-cost, low effort yet high yield products like a low effort soil press, a machine that
processes sunflower seeds into cooking oil, and manually operated water pumps operated
with minimal effort.

Services Space:
Offering that extra room in your property backyard for a monthly rent is a simple rental
business.
Building a service based model around this can be a fantastic entrepreneurial idea.
Airbnb implemented the mix-n-match entrepreneurial approach to build a community network
of all such available rental places in an area, city or country and made it available for tourists.
Without owning a single property, their innovative business model offers a win-win situation
for all parties. The owners get short-term high paying tourist customers instead of long term
low paying rentals. Tourists benefit from relatively low costs and a secured home-like stay.
Airbnb benefits from service charges for offering this buyer-seller marketplace model, owing
and controlling the sales channel without owning a single property needing high investments.
Similarly, buying a few cabs and running them through employed drivers is a common
business, but not entrepreneurship. Building a large network of such cab owners and providing
on-call cabs on need and availability basis allows profit opportunities without the need for
owning a single cab.
Nothing in this world comes free. In the first example, the entrepreneur takes the risks on time,
effort and financial investments needed for manufacturing the herbal shampoo, getting
necessary licenses and handling legal disputes arising of any consumer complaints and
competitions. In the latter example, the entrepreneur is accountable for ensuring reliable
community of property owners willing to offer proper facilities, as well as ability to handle
conflicts arising between various parties.
So what does it take for being a successful entrepreneur?
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There are several theories put forward by researchers at leading institutes about
entrepreneurship. There is no “one size fits all” model defined for entrepreneurship. Depending
upon the nature of business idea/ market/ products or services offered for sale, the success
stories vary a lot.
Broadly speaking, entrepreneurship either originates from passion or from identifying suitable
business opportunity.
A person who is very passionate about developing electronic circuits may (accidently) develop
a great appliance. Such an individual may not necessarily have the business thoughts in mind,
but he is driven by pure passion. He doesn’t listen to anyone, goes by his gut feeling and one
day develops a great product which can be well marketed to offer extremely high returns. He
fits the first category of “passionate” entrepreneurs.
A businessman with sharp business acumen sensing a profit opportunity with a mix-n-match
approach will fit in the latter category.
Irrespective of the originating category, an entrepreneurial idea, if well nurtured and correctly
driven, can transform into a very profitable business venture.
B. SETTING UP A SMALL-FAMILY BUSINESS
A small business is a business that is independently owned, operated and financed
and has fewer than 100 employees and has assets which give it a relatively little impact on its
industry. When family members own, operate and finance a small business, it is called a small
family business. Entrepreneurs introduce new products and services to the market through
the formation of small businesses.
Entrepreneurship is the process of creating something new with value through an organized
effort to pursue opportunities. After identifying business opportunities, entrepreneurs look into
the feasibility of the business opportunities. They generate business ideas by looking into
limitations of current product offerings, breakthroughs, unfilled market needs and trends and
changes. These ideas are evaluated on the basis of personal and marketplace considerations.
Part of the venture’s feasibility is the study of competition and financing.
After thoroughly researching a venture’s viability, an entrepreneur plans for the small
business by coming up with a business plan. A business plan is a written document that gives
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the details of the business opportunity
identified by the entrepreneur and he plans
to exploit it. It describes the directions of the
business and the financing it needs for its
operations. The business plan contains the
following information:
 Executive Summary
 Industry Analysis
 Company Description
 Product
and
Services
Description
 Market Description
 Marketing Strategy
 Operations Description
 Staffing description
 Marketing Strategy
 Operations Description
 Staffing description
 Financial projections
 Capital needs
 Milestones

An organization can now be set up to implement the business plan. The entrepreneur
needs to decide the form of legal ownership his small business will have. His small
business can be a sole or single proprietorship, partnership or a corporation depending
on his preference with regard to taxes legal liability.
C. Starting a Business: Legal Forms and Requirements
A. Register the Business Organization
The first step is to register the business with the appropriate government agency depending
on the type of business organization one wants to establish.
Sole proprietorship—register with the Department of Trade (DTI)
A sole proprietorship is the simplest type of business organization that may be established by
a person, called the sole proprietor. Unlike a partnership or corporation, which is a business
organization that has a separate existence from the partners in a partnership or stockholders
in a corporation, the sole proprietorship does not have a separate existence from the business
owner.
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In a sole proprietorship, the business is an extension of the business owner. Thus, the assets
and liabilities of the sole proprietorship are considered the assets and liabilities of the business
owner.
Partnership—register with the Securities and Exchange Commission (SEC).
A partnership is a business organization whereby two or more persons agree to contribute
money, property, or industry to a common fund, with the intention of dividing the profits among
themselves. Two or more persons may also form a partnership for the exercise of a
profession.1
The partnership has an existence separate from that of each of the partners.2
Unlike a corporation, a partnership does not have shares of stock, which are the basis for the
distribution of the profits (i.e., dividends) among the stockholders. Instead, in a partnership,
the losses and profits are distributed in accordance with the agreement of the partners. If only
the share of each partner in the profits has been agreed upon, the share of each in the losses
shall be in the same proportion. In the absence of an agreement, the share of each partner in
the profits and losses shall be in proportion to what he has contributed to the partnership, but
the industrial partner shall not be liable for the losses.3
As for the profits, the industrial partner shall receive such profits as may be just and equitable
under the circumstances. If the industrial partner contributed capital, he shall also receive a
share in the profits in proportion to his capital.4
Corporation—register with the SEC.
A corporation is “an artificial being created by operation of law, having the right of succession
and the powers, attributes and properties expressly authorized by law or incident to its
existence.”5
The corporation has an existence separate from that of its stockholders.
Corporations may be classified as either stock or nonstock corporations. Stock corporations
have capital stock divided into shares of stock, which may be issued to the stockholders. Stock
corporations are allowed to distribute dividends to the stockholders on the basis of the number
of shares of stock owned by them. Nonstock corporations do not have capital stock divided
into shares of stock and are not allowed to distribute dividends to the members.6
A stock corporation is the appropriate type of corporation for the purpose of operating a
business.
B. Obtain a Mayor’s or Business Permit
All businesses are required to secure a mayor’s permit or business permit from the local
government of the city or municipality where the business is located.
Different cities and municipalities have different registration procedures and requirements.
The following are the general requirements for securing a permit for a new business:
Application forms
1. DTI registration or SEC registration, whichever is applicable
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2. Lease contract or title covering the property where the business is located, whichever
is applicable
3. Locational or zoning clearance
4. Building permit and occupancy permit
5. Public liability insurance
6. Barangay clearance
7. Fire safety certificate
Other requirements specific to the type of business to be carried out
For the specific requirements, one needs to visit the city or municipal hall of the city or
municipality where the business will be established.
C. Register with the Bureau of Internal Revenue (BIR)
All businesses have to register with the BIR before the commencement of operation for
taxation purposes.
The registration process involves obtaining and registering a tax identification number (TIN),
obtaining BIR-registered official receipts and invoices, registering the business’s books of
accounts, and paying the applicable fees.
The registration must be done at the Revenue District Office (RDO) of the BIR, which covers
the
registered
address
of
the
business.
For the specific requirements for BIR registration, one needs to visit the RDO that covers the
registered address of the business.
D. Register with the Social Security System (SSS)
All businesses that have employees must be registered
with the SSS. The registered employer will be assigned an
employer number, which will be used as reference for the
remittance of monthly contributions, composed of the
employee’s contribution and the employer’s share.
SSS coverage is compulsory for all employees not over sixty years of age and their
employers.7
An employer is any person who carries on in the Philippines any trade, business, industry,
undertaking, or activity of any kind and uses the services of another person who is under his
or its orders as regards the employment. Meanwhile, an employee is any person who performs
services for an employer in which either mental or physical efforts or both are used and who
receives compensation for such services, where there is an employer‐employee relationship.8
The SSS provides replacement income for employees in times of disability, sickness,
maternity, and old age. It also provides assistance during death and for funeral expenses.
E. Register with the Philippine Health Insurance Corporation (PhilHealth)
All employers are required to register themselves and their employees with PhilHealth, the
government health-care system. Upon registration, an employer shall be issued an employer
number.
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121
Under the PhilHealth system, the monthly contribution is divided equally between the employer
and the employee. It is deducted and withheld automatically by the employer from the
employee’s salary then remitted to PhilHealth.
F. Register with the Home Development Mutual Fund (Pag-IBIG Fund)
All employees who are or ought to be covered by the SSS are also covered by mandatory
membership in the Pag-IBIG Fund.10 The Pag-IBIG Fund provides various types of housing
loans to employees.
Members make their contributions to the Pag-IBIG Fund through salary deduction. The
employer has the responsibility to deduct the contribution from the employee’s salary.
Together with the employer’s share of the contribution, the employee contribution is remitted
to the Pag-IBIG Fund on a monthly basis.
Importance of Securing the Legal Requirements
The above legal requirements are only the essential requirements for starting a business in
the Philippines. There may be other special permits, clearances, or registrations from or with
other government agencies that may be necessary, depending on the kind of business and
projects a business owner plans to engage in.
It is very important to secure these essential legal requirements. The consequences of
operating a business without the said legal requirements range from the closure of business,
to the imposition of monetary fines, and finally, to imprisonment.
Local government units in different cities and municipalities have different penalties for
businesses operating without the required mayor’s or business permit, such as surcharge and
interest on the amount of fees due. However, one common penalty that may be imposed is
the closure of the business. Confiscation of the business property and assets may also be
done.
As for failing to register a business with the BIR, the said violation is penalized by a fine ranging
from P5,000 to P20,000, imprisonment of six months to two years. There is also a compromise
penalty of P2,000 to P20,000, depending on whether the business is located in a city or in a
municipality.11
For failing or refusing to register the employees or to deduct contributions from the employees’
compensation and remit the same to the SSS, the penalty is either a fine (ranging from P5,000
to P20,000) or imprisonment for six years to twelve years.12
Any employer who fails or refuses to register employees with PhilHealth or to deduct
contributions from the employees’ compensation or remit that same amount to PhilHealth is
penalized with a fine of P5,000, multiplied by the total number of employees of the business.13
On the other hand, any employer who fails or refuses to register employees with the Pag-IBIG
Fund or to collect or remit the required contributions is penalized either with a fine of not less
than but not more than twice the amount involved, or imprisonment of not more than six years.
The employer may be both fined and imprisoned, depending on the discretion of the court.14
Lecture Notes in Organization and Management
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122
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Tibon, Dr. Maria Victoria P. Learning to Succeed in Business with Management.
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Boundless. “Overview of the International Business Environment.” Boundless Finance,
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http://foundersguide.com/legal-requirements-business-phils/
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https://mbsportal.bl.uk ,
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Prepared by: Ruby Gala Ligot and Marigold N. Martinez
123
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Small
Business
Owner,
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Wikipedia, https://en.wikipedia.org/wiki/Recruitment
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Inc.com, http://www.inc.com/encyclopedia/training-and-development.html
http://www.referenceforbusiness.com/small/Di-Eq/EmployeeCompensation.html#ixzz4OAZgxrnU
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http://www.referenceforbusiness.com/small/Di-Eq/Employee-Compensation.html
http://www.managementstudyguide.com/performance-appraisal.htm
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https://www.educba.com/course/employee-movements-training/#overview
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124
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https://en.wikipedia.org/wiki/Management_control_system#Management_control
https://en.wikipedia.org/wiki/Total_quality_management
https://en.wikipedia.org/wiki/Activity-based_costing
https://en.wikipedia.org/wiki/Balanced_scorecard
https://en.wikipedia.org/wiki/Benchmarking
https://en.wikipedia.org/wiki/Budget
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https://en.wikipedia.org/wiki/Just-in-time_manufacturing
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125
http://www.essay.uk.com/free-essays/management/role-of-budgeting-in-the-planning.php
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C. CITATIONS
1
Article 1767, Civil Code of the Philippines.
2
Article 1768, ibid.
3
Article 1797, ibid.
4
Ibid.
5
Section 2, Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the
Philippines.
6
Section 3, ibid.
7
Section 9, Republic Act No. 1161, otherwise known as the Social Security Law, as
amended by Republic Act No. 8282.
8
Section 8, ibid.
9
Sections 13 and 15, Implementing Rules and Regulations of Republic Act No. 7875,
otherwise known as the New National Health Insurance Act.
10
Section 6, Republic Act No. 9679, otherwise known as the Home Development Mutual
Fund Law of 2009.
11
Section 258, Republic Act No. 8424, otherwise known as the National Internal Revenue
Code of 1997.
12
Section 28(e), Republic Act No. 1161, otherwise known as the Social Security Law, as
amended by Republic Act No. 8282.
13
Section 44, Republic Act No. 7875, otherwise known as the National Health Insurance Act
of 1995, as amended by Republic Act No. 10606
14
Section 25, Republic Act No. 9679, otherwise known as the Home Development Mutual
Fund Law of 2009.
Lecture Notes in Organization and Management
Prepared by: Ruby Gala Ligot and Marigold N. Martinez