CBSE Class 12 Business Studies – Chapter 2: Principles of Management

Principles of Management

In this video series, I am covering the Business Studies subject from the CBSE Class XII syllabus. We will be following the standard NCERT textbook for the topics that we need to discuss. This is the second part of the series, and we will cover the Principles of Management.

Introduction

In this subject, we will be using the terms schools of thought, management theories, and principles of management. So, first of all, we need to understand what these terms are and how they are connected.

A school of thought is like a collection of ideas and rules about how to run a business or any organization. These are ideas about how to make a business work well, how to lead people, and how to get things done efficiently.

There are several management schools:

• Classical
• Behavioral
• Quantitative
• Systems
• Contingency
• Modern Management Schools (also called Contemporary and Emerging Theories)

Within a school of thought, there may be multiple theories. These theories are classified under one school of thought because they were developed around the same time or have a similar high-level approach.

Under each theory, there will be several principles. In this chapter, we will focus on Classical Management Theories. We will read about the Scientific Management Theory by Frederick Taylor and the Administrative Management Theory by Henri Fayol.

Even though these theories were developed around 100 years ago, they laid the foundation for the formal study of management as a subject. Some of the later theories developed or evolved from the classical theories. Understanding the classical theories will provide a foundation for the study of more specialized and advanced theories.

Principles of Management

A management principle is a broad and general guideline for decision-making and behavior. For example, in the school of classical management theories, there is the administrative management theory that we will be studying. Under the administrative management theory, there is the principle of Division of Work.

This principle is a general guideline for decision-making when the manager has to deal with some work that has multiple complex activities. By dividing the work, team members can focus on one type of activity and specialize in that activity.

Similarly, when it comes to promoting employees, a manager may choose to follow a principle of promotion by seniority or a principle of promotion based on performance.

We discussed in the previous video that management is a science and an art. Similarly, management principles are scientific because they were developed after observation, documentation, and experimentation. The application of management principles is an art because managers will have to choose which principle to apply and customize it to the specific needs of the organization and the requirements of the situation.

So, we should remember that management principles are not precise instructions on what to do. They are broad and general guidelines for decision-making and behavior.

Nature of Principles of Management

The nature of principles of management refers to the important qualities and characteristics that all management principles have. The textbook mentions seven common features:

1. Universal Applicability: The principles of management are generally applicable to all types of organizations. Factors like the nature of the organization, the type of business, the size of the business, and other factors will require the principles to be adapted for each organization.
2. General Guidelines: They are generic guidelines, not specific instructions. They provide a general approach to problem-solving and decision-making.
3. Formed by Practice and Experimentation: These principles were developed over many years through the experiences of managers and through scientific methods.
4. Flexibility: The principles are flexible and can be customized or adapted to different types of situations. Multiple principles may be applicable for a specific situation.
5. Mainly Behavioral: The principles of management are mainly concerned with human behavior and aim to influence people’s actions.
6. Cause and Effect Relationships: They attempt to establish relationships between variables, helping managers predict the outcome of their decisions.
7. Contingent Application: The applicability of the principles is contingent upon the prevailing situation. Managers must consider the specifics of the situation to decide which principle to apply.

Significance of Principles of Management

The principles of management are significant for several reasons:

1. Provide Useful Insights: They allow managers to understand and deal with new situations by learning from the past experiences of others.
2. Optimum Utilization of Resources and Effective Administration: By reducing the need for trial and error, these principles help in better utilization of resources, time, and money.
3. Scientific Decisions: They enable businesses to take decisions based on facts, logic, and data rather than on gut feelings.
4. Meeting Changing Environment Requirements: Management principles allow businesses to proactively or reactively meet changing environmental requirements.
5. Encourage Ethical Practices: They set standards on how companies should behave and what kind of responsibilities they have towards their employees and society.
6. Basis for Training, Education, and Research: Being part of a documented body of knowledge, these principles become the foundation for the study of management as a subject.

Classical Management Theories

In the classical school of management theories, there are:

• Scientific Management Theory by Frederick Taylor
• Administrative Management Theory by Henri Fayol
• Bureaucratic Management Theory by Max Weber (not covered in this syllabus)

We will be covering the scientific management and administrative management theories. Even though these theories were developed around a hundred years ago, they are still applicable and have greatly influenced modern management theories.

Frederick Taylor’s Scientific Management Theory

Background

Frederick Winslow Taylor was born in 1856 in a relatively wealthy family. He originally planned to become a lawyer like his father but decided to take up a different profession due to vision problems. He joined as an apprentice machinist in a factory, gaining firsthand experience as a worker and later as a manager. He completed a degree in mechanical engineering in 1883 through correspondence.

Taylor worked as a consulting engineer and later joined the Bethlehem Steel Company in 1898, where he could implement his management principles. He published “The Principles of Scientific Management” as a series of articles, later compiled into a book.

Contributions

• Suggested that there may be several ways of completing some work; through scientific analysis, we should find the “one best way.”
• Known for his “Time and Motion” studies, breaking a job into components and measuring each part.
• First to suggest the study of management as a discipline.
• Coined the phrase “Scientific Management.”
• Developed the “Piece Rate Wage System” to reward productivity.

Definition of Scientific Management

Taylor’s definition: “Knowing exactly what you want men to do and seeing that they do it in the best and cheapest way.”

Taylor’s Principles and Techniques

Taylor developed four Principles of Scientific Management and seven Techniques of Scientific Management. The techniques are tools used to implement the principles.

Taylor’s Principles of Scientific Management

1. Science, Not Rule of Thumb: Use scientific methods rather than approximate methods for each element of work.
2. Harmony, Not Discord: Ensure harmony between management and workers and among workers themselves.
3. Cooperation, Not Individualism: Encourage cooperation among employees and between employees and management.
4. Development of Each and Every Person to His or Her Greatest Efficiency and Prosperity: Select employees scientifically, train them properly, and focus on their development.

Taylor’s Techniques of Scientific Management

1. Functional Foremanship: Division of management into planning and execution functions, each supervised by different foremen.
2. Standardization and Simplification of Work: Setting standards for processes and reducing complexity in products and processes.
3. Method Study: Finding the best way to do a job by analyzing various production methods.
4. Motion Study: Studying movements to eliminate unnecessary motions and increase efficiency.
5. Time Study: Determining the standard time taken to perform a standard job.
6. Fatigue Study: Analyzing factors causing fatigue to optimize work-rest schedules.
7. Differential Wage System: Offering incentives to workers who exceed performance standards.

Henri Fayol’s Administrative Management Theory

Background

Henri Fayol was a French management theorist who graduated in mining engineering. He worked in various roles in an integrated coal, iron, and steel company in France. He developed his concept of administration based on his own experiences and is considered the “Father of General Management.”

Contributions

• First to identify the distinct functions of management: Plan, Organize, Command, Coordinate, and Control.
• Classified industrial activities into six categories: Technical, Commercial, Financial, Security, Accounting, and Managerial.
• Developed 14 principles of management.

Fayol’s 14 Principles of Management

1. Division of Work: Specialization allows employees to become experts, increasing efficiency.
2. Authority and Responsibility: Managers must have the authority to give orders and the responsibility to ensure they are carried out.
3. Discipline: Employees must obey and respect organizational rules for smooth functioning.
4. Unity of Command: Each employee should receive orders from one superior only.
5. Unity of Direction: All teams should move towards the same objectives through coordinated efforts.
6. Subordination of Individual Interest to General Interest: The organization’s interests should take priority over individual interests.
7. Remuneration: Fair wages should be paid to employees for their services.
8. Centralization and Decentralization: There should be a balance between centralization and decentralization of authority.
9. Scalar Chain: A clear line of authority from top to bottom should be established.
10. Order: There should be an appointed place for each employee and material; proper arrangement is essential.
11. Equity: Managers should be kind and fair to subordinates.
12. Stability of Tenure of Personnel: High employee turnover should be avoided; stability promotes efficiency.
13. Initiative: Employees should be encouraged to take initiative within the bounds of authority and discipline.
14. Esprit de Corps: Promoting team spirit will build harmony and unity within the organization.

Comparison of Taylor and Fayol

Conclusion

With that, we have come to the end of this chapter. If you have any questions or feedback, post a comment below. I will see you soon in the next video.