PRINCIPLES AND PRACTICES OF

MANAGEMENT

Nature of Management
What is Management:
# Management is vast and extensive
# Concerned with human beings who are highly
unpredictable ! ! !
# Young developing discipline concepts are continuously
changing.

Some definitions :
Lawrence A. Appley Management is accomplishment of
results through the efforts of the other people.
H. Koontz Management is art of getting things done
through and with people in formally organized groups.
G. Terry Management is process of planning, organizing,
actuating and controlling to determine and accomplish the
objectives by the use of people and resources.
Mc. Farland Management is process by which managers
create, direct, maintain and operate purposive organizations
through systematic, coordinated, cooperative human effort.

Sisk It is the coordination of all resources through the

process of planning, organizing, directing and controlling in
order to attain stated objectives.

Importance of Management
# Optimum use of resources - Ensures optimum utilization of
resources at command. Creates right climate for employees to
put their best
# Effective leadership and motivation.
# Establish sound employee relations.
# Achievement of Organizational goals and objectives.
# Change and growth.
# Improves standard of Living.

# Joseph A. Schumpeter referred to Management and

entrepreneurs as engine of growth.
# Drucker Management the life blood of an enterprise.
Management is crucial factor in economic and social
factors.

Management vs. Administration

# Administration is broader than management:
Administration: Overall determination of policies, setting of
major objectives and laying out of broad programs as described
by Haimann.
Administration is policy making function. Management is
carrying out the policies.
Spriegal Administrative is largely determinative and
management is essentially executive.
American thought : Administrators think
Managers act.

# Administration is part of management:

According to English school of thought - Management is a
wider concept than administration.
Administration handles the current problems arising in
carrying out policies laid down by management.
Management is the rule making and rule enforcing body
and is all encompassing. Administration is part of it and an
implementing agency
This thought is represented by
EFL Brech, Henry Fayol and Kimball

# Management and Administration are identical:

William Newman, Harold Koontz, Dalton E. McFarland,
Earnest Dale Hardly maintain any distinction.
Any effort to stretch the matter too far may be self
defeating and thoroughly misleading.
Compartmentalization hardly serves any useful purpose.
To resolve the controversy Drucker suggested that
Management is applicable in business enterprise while
as Administration is applicable in government offices,
military organizations, social and cultural institutions.

# Management as Science:
Science is - Systematic body of knowledge
Scientific inquiry and Observation
Experimentation
Universal truths
Management is also body of knowledge has no. of principles
studied and put to application.
It is a social science deals with Human beings and their
behavior, which is unpredictable and defies experimentation.
It is not exact science like physics, chemistry and biology.
Therefore offers only guidelines for solving problems.

Manager vs scientist scientist can afford to wait till complete

information is available. Manager cannot afford. He has to decide
based on whatever information available.
Scientific Management When Taylor used the term, he was
aware experimentation and verification of facts is not possible.
He used this as an organized body of knowledge.
# Management as an art:
Art is application of knowledge and personal skills ! ! !
How to do things creatively and skillfully.
Management uses Knowledge of management theory to
achieve results.
Management is also creative like other art.

Personalized : Like art it is also a personalized activity. Every

manager has his own way of managing people and things
based on his knowledge and experience.
Constant practice: Managers learn from mistakes . They
develop their skills through constant practice.
Therefore management is science as well as art.

Management as a Profession
Characteristics of a profession
Well defined body of knowledge
Formal education and training
Minimum qualification
Representative body
Service above self
Ethical code of conduct.
Management as a profession
1.Management has a well defined body of knowledge
2. Management education through training is possible now.
3. Minimum qualification is required to be a manager.

4. Representative body there is no such body as of now.

5. There is no universal code of conduct at present. Although
certain trade associations and management associations
formulated ethical code for managers.
6. Service motto In absence of a regulating body and code of
conduct managers often indulge in practices aimed at
maximizing their personal wealth.
Professionalization of management Now it is gaining
importance slowly in India. Public sector is professionally
managed in private sector it is happening now.

Arguments for
Professionalization of
Management

Arguments against
professionalization

Improves knowledge
in a
systematic
Manner
Improves
professional status
and prestige
Promotes managerial
ethics
Promotes talent

Formal qualification
is difficult to set
Managers are
known by
performance
Managers are
responsible to many
groups !
Competent
education and
training facilities do

Levels of Management
# Top Management
Determines objectives and policies
Designs the basic operating and financial structure of an
organization
Provides guidelines and directions
Lays down the standards of performance
Maintains good public relations
# Middle Management
Interprets and explains the policies framed by the top
Issues detailed instructions
Participates in operating decisions
Trains other managers

# Lower Management Plan day-to-day operations

Assigns job to workers
Provide supervision and control over work
Arranges material tools and equipment
Maintains discipline

Chairman, CEO, President, MD etc

TOP
Functional Heads and immediate
Subordinates

Section Head, First Line

Managers, Supervisors

MIDDLE
LOWER
MMIMIDDLE

Managerial Skills
# Technical Skills: The activity to use specific knowledge,
methods and techniques in performing work.
Exa: Drilling Supervisor in Oil Exploration Company.
# Human Skills: Ability to understand, motivate and get along
with other people.
# Conceptual Skills: Ability to visualize the organization as a
whole, discern inter relationships among organizations parts
and understand how the organization fits into the wider
context of the industry, community and the world.

Levels and Managerial Skills

Robert L. Katz Model

TE
SK C H
IL N I
LS C
A

LOWER MANAGEMENT

SK
IL
LS
AN
M
H
U

MIDDLE MANAGEMENT

C
SK ON
IL C E
LS PT

U
A

TOP MANAGEMENT

Characteristics of a Quality manager:

Successful managers have certain characteristics that
create a climate for success for themselves and their
subordinates. Some of the key traits are
#
#
#
#

Knowledge
Decisiveness
Ability to handle conflict
Emotional stability

Evolution of Management
Development of Management has ancient roots.
# Pyramids and Great Wall of china mega projects needed
management.
# 200 Years ago Adam Smith talked about division of labor
and specialization and its advantages.
# However, study of management as science began recently,
especially after industrial revolution.
# Only last few decades it attracted attention of psychologists,
sociologists, anthropologists, mathematicians, political
scientists, economists and so on.

# Approaches by these scholars has created Confusion and

chaos. No wonder, Koontz described it as Jungle
# Koontz, ODonnel and Weihrich suggested 11 approaches
In 1966 Stogdill suggested 18 approaches
In 1971 Hutchison suggested 5 approaches . . . . .
# To facilitate easy understanding three broad approaches have
been identified

Classical Theory
Neo - Classical Theory
Modern theory

Classical Theory:
Classical means something traditionally accepted or Longestablished.
Does not mean they are static and outdated. Some of the
elements are still existing in one form or other.
1. Inter-related functions such as planning, organizing,
staffing, directing and controlling exercised in sequential
form and repeated over and over again to bring order.
2. Guiding principles in order to crystallize, the increasing
knowledge and thinking the writers have developed certain
principles based on practical experience.

3. Bureaucratic structure: for maximizing efficiency, work

must be logically divided into simple, routine and repetitive
tasks. Then grouped according to work characteristics and
arranged in the form of departments headed by an executive
who has subordinates directly reporting to him.
Command should flow from only one individual ; everybody
should have only one boss.
Work must be allocated to individuals based in job demand
and individuals ability.
Organizations are run through rules, regulations and
procedures.

The whole structure takes the shape of a pyramid

EELEMENTS

Top Management

Middle management

Supervisory
Management

Pyramid Structure and elements of classical Theory

The Hierarchy
Division of Labor and
specialization
The scalar principle
Unity of command
Departmentalization
Span of control
Parity of authority
and responsibility
Centralization vs
Decentralization
Line and staff
relationship

4. Reward and punishment nexus:

Follow the rules, obey the orders, show the results and get the
rewards
Emphasis was laid on efficient use of resources while producing results.
Branches of Classical Theory:
Bureaucracy ( by Weber )

CLSSICAL
SCHOOL

Scientific Management ( by Taylor )

Administrative theory ( by Fayol )

Bureaucracy :
A structure with highly routine operating tasks achieved
through
- specialization,
- very formalized rules, regulations and procedures and
impersonal,
- tasks that are grouped into functional departments,
- centralized and rigid hierarchy of authority - responsibility
relations,
- narrow spans of control and
decision making that follows the chain of command.

Elements of Bureaucracy:

Hierarchy
Division of work
Rules, regulations and procedures
Records
Impersonal relationships,
Administrative class

Advantages:

Specialization
Rationality
Predictability
Democracy

Disadvantages:

Rigidity
Impersonal
Displacement of objectives
Compartmentalization of activities
Empire building
Red tape

Scientific Management :
# An approach that emphasizes the scientific study of
work in order to improve worker efficiency.
# It arose from the need to increase productivity in US due
to shortage of skilled labor in early 20th Century.
# To enhance productivity, ways had to be found out
Work elimination
Combining some parts
Sequencing the tasks
Is there one best way of doing job.

Frederick W. Taylor (1890~1930) undertook scientific study at

Bethlehem Steel at Pennsylvania to answer these questions.
He offered increase in daily pay $ 1.15/day to $1.85/day to a
worker to follow his instructions.
Taylor experimented with rest periods, walking speed,
carrying positions and other variables. After a long period of
scientifically trying various combinations of procedures,
techniques and tools, Taylor succeeded in finding out one
best way to perform the task and realized the goals set by
him. He trained other workers.

Thus by putting the right person on the job with correct tools
and equipment, by having workers follow Taylors instructions
exactly and by motivating workers through economic
incentives of higher daily wage Taylor achieved significant
improvements in productivity.

Basics of Scientific Management:

Each task must be scientifically designed to replace old methods.
Workers must be scientifically selected and trained.
Bring scientifically designed job and worker together and match
them.
There must be division of labor and cooperation between
management and workers.

Taylor summed up his approach as following:

1.
2.
3.
4.
5.
6.

Science, not rule of thumb

Harmony, not discord
Cooperation, not individualism
Maximum output in place of restricted output
Develop each man to his greatest efficiency and prosperity
Equitable division of work and responsibility between
management and labor.

Key Concept:
1. Scientific task planning: Management should decided in
advance as to what work is to be done, how, when, where and
by whom.
2. Time and motion studies: The time study would indicate
minimum time required to do a job. Time standards are
developed by these studies.
3. Standardization: Standards have to be set in advance for the
task, materials, work methods, quality, time and cost etc. This
helps in simplifying the process of production, reducing
waste and improving quality.
4. Differential piece rate system: Taylor advocated differential
piece rate system based on actual performance.

5. Functional Foremanship: In order to achieve better

production control, Taylor advocated functional foremanship,
where the factory is divided into several components, each in
charge of a specialist such as route clerk, instruction card
clerk, cost & time clerk, gang boss, inspector , repair boss and
disciplinarian etc. These functional specialists plan and give
expert advice.

Contributions:
# Conservation and saving adequate utilization of every
piece of resource.
# Specialization and division of labor brought about second
Industrial Revolution in America and other developing
nations.
# American Production Miracle is result of Scientific
Management.
# Stress on work design encouraged managers to pursue one
best way philosophy and achieve the tasks with minimum
effort and cost.

Limitations:
1. Exploitative device Has two objectives; increasing
workers productivity and improve workers economic
welfare. While first objective was achieved, the second
objective never got realized.
2. Depersonalized work Standardized jobs led to straight
jacket. Workers made to repeat the same operations everyday.
This produced boredom and monotony.
3. Unpsychological No accurate information as to how
workers efficiency to be measured and how wages are to be
given.
4. Undemocratic Drucker questioned the idea of managers
planning and workers loaded with boring and routine work. It
overshadows workers independence. Treats workers as
unthinking animals.

5. Anti-social workers are treated as economic tools only.

According to Myers it aims at excluding the average
workman from field of work as far as possible.
6. Unoriginal Hoagland questioned the originality. Later
research into Bethleham Steel records and other sources
indicated that Taylors report was almost lie.
7. Unrealistic Taylor believed that workers are motivated by
material benefits. Current research indicates that employees do
not work for money alone. They seek job satisfaction, growth
opportunities, challenging work, recognition ete.

Administrative Theory: Henry Fayol ( 1841~ 1925 )

# About the time when Taylor was developing Scientific
Management in US, Henry Fayol was revolutionizing
managerial thinking in France.
# He was mining engineer with Coal and Iron combine, where he
spent his entire working career.
# He took over the company when it was near bankruptcy in
1888 and turned into financially strong company.
# Based on his own experience, he developed the administrative
theory, explained the process of management from top
managerial perspective.

# He is acknowledged as father of classical management

school, not because he was first to investigate managerial
behavior, but because he was the first to systematize it.
# He believes that sound managerial practice falls into certain
patterns that can be identified and analyzed. He believed
that management can be taught , once its basic principles
were understood and general theory of management
formulated.

Fayols Six Activities:

Fayol began by classifying business operations into six major
activities:
# Technical ( Production )
# Commercial ( Buying and Selling )
# Financial ( Use of Capital )
# Security ( Protection of Property )
# Accounting ( Keeping Financial records )
# Managerial
Since first five were understood by managers, Fayol
on the last one.

focused

Management Functions :
Fayol argued that managers should perform five functions
1. Planning Devising a course of action that will help
organization to meet its objectives.
2. Organizing Mobilizing the material and human
resources of the organizations to put the plan into effect.
3. Commanding Giving directions to employees so that
they perform the needed tasks.
4. Coordination Make sure that the resources and
activities are working harmoniously.
5. Controlling Monitoring the plans to ensure that they
are being carried out properly.

Principles of Management:
At the operating level, Fayol asserted that managers should
apply fourteen principles. These principles can be applied
in all types, functions, levels, and sizes of organizations.
1. Division of work Principle of specialization. Applies to all
kinds of work. Increases output making employees more
efficient.
2. Authority and Responsibility Right to give orders and
power to obtain obedience. Official and personal authority.
3. Discipline Respect to rules and regulations.
4. Unity of Command Receiving command from one
supervisor.

5. Unity of direction One manager one plan One manager

to have one direction.
6. Subordination of individual interest to common good
Organizational interest above personal interest. Manager must
set an example through his good conduct and behavior. In
case of conflict scarify personal interest.
7. Remuneration of personnel Fair compensation for all.
Fayol did not favor profit sharing with workers but advocated
for managers.
8. Order Materials and people should be at right place and
right time.
9. centralization Decision making power should be in right
proportion.

10. Scalar chain The graded chain of authority from top to

bottom through communication flow is termed as Scalar
Chain
11. Equity Employees must be dealt fairly. Equity is
combination of justice and kindness.
12. Stability of tenure- Stability is essential because time is
required for an employee to get used to new work to succeed
in doing it well.
13. Initiative Employees must be encouraged to think
through to implement a plan, even though some mistakes may
result. Opportunity to perform independently is essential
component of employee growth and development.
14. Esprit de corps Union is strength Promoting team
spirit will give organization a sense of unity.

Managerial Skills:
Fayol emphasized the need for following skills1. Physical ( Health and vigor )
2. Mental ( ability to understand, learn; apply judgment and
adapt to different situations )
3. Moral ( Energy, initiative, firmness, loyalty, tact and dignity)
4. Educational ( Acquaintance with matters not related to the
function performed)
5. Technical ( Specialized knowledge relating to ones area of
specialization, especially about machines and work
processes)
6. Experience ( Related to the work carried out )

Contribution of Fayol:
1. All operations in business can be classified into six major
heads.
2. Main elements of Management
3. Proposed fourteen principles of management which could
be applied universally
He always believed that managerial ability could be
applied to the home, the church, the military, the school,
politics as well as to industry.

Limitations:
1. Lack of empirical evidence The theory is not supported
by any data or empirical evidence.
2. Neglect of human factor Views human beings as passive
and capable of reacting to rules and economic incentives.
Human attributes such as emotion, attitude, creativity
have been totally ignored.
3. False assumptions assumes that all organizations can be
managed by the same set of rules and principles. It does
not recognize differences. Rules have to be applied
carefully looking at the internal and external dynamics of
the organization.

4. Pro-management bias It is more concerned with what

managers should know and do rather than with a more
general understanding of managerial behavior.
5. Historical Significance It has only historical
significance. It is more appropriate for the past
( environment was stable and predictable) than for the
present ( environment is turbulent, competent and
continuously changing) .

Neo Classical Theory:

Also known as Human Relations theory
# Feeling of incompleteness.
# Shortsightedness in Scientific and Administrative theories.
# Appeared as if human element is some where neglected.

Hawthorne Experiments:
Conducted in Western Electric Company at Hawthorn
plant near Chicago during 1920s and early 1930s.
1. Changing intensity of lighting in test group
2. Keeping every thing constant in control group

# Repeated with another test group giving more facilities to

test room. Over a period both control and test room
performance have gone up.

Why ? ? ?

Hawthorn Effect ! ! !
Workers knew that they are part of an experiment.
Given special attention and treatment
Consulted for changes against imposed from above
Resulted in stimulating feeling of group pride and
belongingness.

# Interviewing program By Mayo:

Mayo has interviewed many employees and patiently
listened to them. Discussed their personal problems also.
Such as

Children education and wellbeing

Familys ration expenses
What friends think their job
And so on.

# Bank wiring room Experiment resulted in no gain in

results.

Human relations Key concepts

# Employees are not only economic beings, but also
social and psychological beings.
# Man is motivated by more than satisfaction of
economic needs.
# Emphasis should be on creating a humanistic or
informal organization rather than mechanistic or
formal organization.
# Organization should be democratized and should
feel part of a one big happy family

The individual

The work
environment

The work Group

The leader

Human Relations in Action

The Individual Each person is unique. Each is bringing
certain attitudes, beliefs and way of life and also skills
technical, social and logical.

 The work group Work is a social experience and most

workers enjoy membership of social groups. Managers
should recognize this to improve relations at work. Good
interpersonal and inter group relationships among people
will obtain productivity gains.
The work environment - Managers have to create positive
work environment where employee feels prior to achieve
organizational goals. i) Goals are clearly defined ii)
Incentives are properly used iii) Decisions are timely and
participative iv) conflicts openly resolved v) Work is
interesting and growth oriented.
The leader Behave to generate respect, able to adjust to
various personalities and situations.

# Participative Climate:
Workers discuss with supervisors and influence
decisions that effect them - is major aspect of
human relations theory.
Before changing any thing the group is consulted.
Their comments are listened and discussed.
The group unquestionably develops a sense of
participation.

Refinements in neo- classical theory :

Basics
Structure
Behavior

Classical Theory
Impersonal, Mechanical
OB is a product of rules

Neo-classical Theory
Orgn. is a social system
Product of feelings, sentiments

Focus

and Regulations.
Work & economic needs

and attitudes
Small groups, emotional and
human qualities
Personal, security and social
needs .

Emphasis

Practices

Results

Maximize rewards,
Emphasis on order
and rationality
Authoritarian, rules
regulations

Work alienation,
dissatisfaction.

Democratic practices,
participation, Recognizes
importance of dignity and
Values.
Happy employee & trying
to produce more.

Criticisms :
- Philosophy - Economists fell that it develops loyalities to
their own self interests. Preaching collaboration instead of
competition and human relations will ultimately reduce
efficiency.
- Scientific validity Research by Mayo and associates had
many weaknesses in design, analysis and interpretation.
- Short-sighted The approach lacks adequate focus on work.
Overemphasis on psychological aspects at the cost of
structural and technical aspects. Tends to neglect economic
dimension of work satisfaction.
- Over concern with Happiness studies have failed to show
consistent relation between happiness and productivity. Quite
possible to have lot of happy but unproductive employees.
- Anti individualist. Individual losing to the group !

Systems Approach
# Systems theory is the Big picture approach that overcomes
the narrow approach.
# Systems theory tells us activity of an organization effects every
other part. Job of manager is to ensure that all parts of the
organization are coordinated internally.
# Systems view of management recognizes that regardless of how
efficient the production department might be, if the marketing
department does not anticipate the consumer tastes and work
with the product development department in creating what
consumer want the organization as a whole will suffer.
# System theory tries to solve problems by diagnosing within a
framework of inputs, transformation processes , outputs and
feed back.

INPUTS
MEN,MATERI
AL,MONEY,
TECHNOLOG
Y

PROCESSE
S
ACTIVTIES
,
OPERATIO
NS

EIN

TARGETS

ENVIRONMENT

An open system

OUTPUTS
GOALS,
SALES/PR
OFITS

System Vocabulary:
System : A set of inter-related parts ( sub systems ) which are
mutually related to each other. A change in one part may lead
to change in other parts.
Sub system: Parts which make up the whole system are called
sub-system. Basically there are five sub systems in an
organization 1. Goal sub-systems (Orgn., team and
individual) 2. Technical Subsystem( tools, equipment, skills,
knowledge) 3.Structural sub-systems (Authority and
relationships) 4.Managerial sub-system( Plan, lead, Control
etc) 5.Psychosocial sub-system( Psychological and social
factors influencing people at work)
Synergy : Whole is greater than sum of the parts. Challenge
is getting all elements of an organization functioning together
for optimal output.

 Open and closed system : A system is considered open if it

interacts with environment; considered closed if it does
not.
System boundary : Every system has boundary that
separates it from environment. Boundary is rigid if it is
closed system and flexible in an open system.
Flow : Open system receives inputs from its environment
which are transformed which are transformed into
outputs. For a business firm inputs would be information,
materials, labor, capital etc. Undergo transformation
processes within the system ( operations that alter them )
and exit the system as outputs

Contingency Approach
# Also called situational approach.
# Research has found that non of the theories are universal in
their applicability. No single way is best for all occasions.
# Contingency theorists ( Selzenic, Burns and stalker,
Woodward, Lawrence and Lorsch, James Thomson and
others) that the method of managing must differ, since
organizations differ in character and content.
# It depends often managers answer for most questions.

# Contingency approach is both analytical and situational

with the purpose of developing a practical answer to the
question at hand.
*****

ETHICS
Ethics is a Greek word Meaning Character
norms, morals and ideals prevailing in a group,
society.
# Standardized form of conduct/behavior understood
and accepted in a particular field of activity.
# Moral principles or set of values. They give an idea
of what is right or wrong, true or false, fair or unfair,
just or unjust, proper or improper

# Ethics is fundamental, personal trait which one

adopts and follows as a guiding principle or
basic Dharma in ones life.
# Most cases runs parallel to law and shows due
consideration to others rights, interests in a
civilized society.
# Compassion on other hand induces a person to
give more than what ethics might demand.
# Every rational human being practices ethics for
his own and others wellbeing and society

Business Ethics
# Rules of biz conduct, by which propriety (correct
conduct) of biz activities may be judged. Ethical
principles are dictated by society and underlie
broad social policies.
# Biz ethics also relate to the behavior of the
managers. Focus is in people, how individuals
fulfill the ethical requirements of business.
# Deepak Parekh : Do not do something that you
would be ashamed of, if it becomes public

# Carter McNamara Defined

Biz ethics is generally coming to know what is right
or wrong in the work place and doing what is right, in
regard to effects of products/services and in
relationships with stake holders
# It is now become a management discipline,
especially since the birth of the Social responsibility
of Business to society and to all stakeholders.
# Robert Kreitner - Highly publicized accounts of
corporate misconduct in recent years have lead to
wide spread cynicism about biz. Ethics
# Gallop Poll - 18% professionals rated high in ethics
in USA.

Principles of Business Ethics

Four principles of ethics ( Decision Making Criteria)
1. Utilitarian Criteria: Decisions are made solely on the
basis of their outcomes or consequences. The goal is to
provide greatest good for the greatest number.
For instance, firing employees, raising prices, selling products
with questionable quality, closing down plants, laying off large
number of employees and similar decisions can be justified in
utilitarian terms.
Decision makers tend to feel safe. A lot of questionable
actions can be justified as in the best interests of the
organization.
Many argue that this perspective needs to change.

2. Rights Criteria: Another critical criteria is to focus on rights. To

make decisions consistent with fundamental liberties and privileges as
laid in the constitution. Decisions to respect and protect the basic
rights of individuals.
3. Focus on Justice Criteria: This requires individuals to impose and
enforce rules fairly and impartially so there is equitable distribution of
benefits and costs.
It looks at issues from the perspective of the other persons or
affected parties. The questions to be asked are :
i) Have you defined the problem accurately?
ii) Would you define in the same way if you stood on the other side.

iii) To whom and what is your loyalty as a person and as a member of

the organization.
iv) Whom will the decision injure?
v) Can you discuss with affected party?
vi) Will the decision stand the test of time?
4) Ethics of care:
Advocated by Manuel G.Velasquez. Individual cannot exist in isolation
from caring relationship of others.
Relationships are necessary for self to exist and should be maintained
and nurtured.
Ethics of care means that we have an obligation to exercise special care
towards those particular persons with whom we have valuable close
relations particularly relations of dependency - key concept in ethics of
care

Role of ethics in Business

1.Ethics have a considerable influence - Ethics help the
market to its best.
2. The government, laws and lawyers cannot resolve some
key problems of business and protect the society :ethics can.
Ethics only can resolve futuristic issues such as technology
races ahead much faster than the government regulations.
3.Ethical activity is valuable in itself, because it enhances the
quality of lives and the work we do. Business has an ethical
responsibility for fairness for humanity, e.g. employees.

Conceptual Model for Business Ethics

Peter Madsen explains that business ethics can broadly be
divided into separate areas. The three Cs model.
1. Compliance of rules:

Laws
Principles of morality
Policy of the company and fairness.

2. Contribution the business can make to society:

The core values

Quality of ones products and services
By providing jobs to people
Use fullness of activities to surrounding community and
Quality of work life (QWL) influenced by ethical and moral values.

3. The consequence of business activity:

Towards environment inside the plant and outside the organization

and community. e.g Union Carbide - Bhopal tragedy.
Social responsibility towards share holders, bankers, suppliers,
customers and employees of the organization.
Good public image. Sound business practices so that public image is
not tarnished.

Social responsibility of Business

Business depends on society for various needs. Such as
money, people and skills. Also depends on society for
markets where products are sold.
In other words, it depends on society for its existence,
sustenance and growth.
Being so much dependent, business has definite
responsibility towards society.
Therefore social responsibility of business means the
obligation of business enterprise to ensure policies are
made and implemented in line with values and objectives
of the society.

Changing views of management responsibility

There has been changes in attitude of managements in taking
social responsibility in the past century.
Phase-1: Profit maximizing management This derives
strength from Adam Smiths Wealth of Nations , entrepreneurs
produce what people want and they want profit. They produce
more for self interest to earn more profit and benefit all. Thus
competition brings down prices. What is good for business is
good for country
The classical economic doctrine of maximizing profits was
against corporate social responsibility.
Phase-2: Trusteeship management - It began with diffusion of
corporate responsibility as shareholders. So managers are not only
to maximize profits, but also serve as trustees of employees, stock
holders, suppliers, customers and public at large. They emphasized
concern for the interest of others

as well as their own. The change in societys attitudes and

expectations is reflected in the socio-economic model of
business. This model views business as a sub-system of
society.
Phase-3 :Quality-of-Life Management The values of QOL
management contrasts with both the profit maxi miser and
trustee manager. Now the essential equation becomes what is
good for society becomes good for the company. While
accepting profit as essential, the QOL management would
neither produce nor sell unsafe or shoddy goods.
It also considers government as a partner in a joint effort to
solve societys problems.

Modern View: A case for social responsibility.

Peter Drucker argued that management should assume social
responsibility. Thus it is important for management to consider
the impact of every business policy and action upon society. It
has to consider the actions are likely to promote the public
good.

Why business should assume social responsibility

Business plays a very significant role in economic, social,
political and technological affairs and owes responsibilities to
all segments of society.
Five broad reasons:
1. Responding to demands of society as business grows,
public takes more interest in it, as it has a greater impact on
the community. Managers need to respond so as to maintain
public image of their company.
2. Longer-run self- interest of business Concern for
employees can harmonize with companys best interests.
Responsibilities to share holders for attracting investments.
Avoiding environmental pollutions.

3. Moral justification Businesses now tend to participate in

the development of better world.
4. Ethical behavior and generation of profits for share
holders is not incompatible.
5. All stake holders have a stake in companies because they
can be harmed, if company behaves unethically.
Government has enacted number of laws to check these
practices and to bring in an element of ethics into business.

Social responsibility Approaches

1) Social Opposition Feel no obligation to society.
2) Social Obligation Obligation only to obey the laws.
3) Social response position Go beyond legal requirements.
4) Social contribution Have deep obligation to society.
Responsible citizen eager to contribute to the improvement
of the society.

Business and its interest groups

Two broad categories
1. Internal interest groups
- Owners
- Employees
2. External interest groups
- Consumers
- Government
- Society
- Creditors, Suppliers, Distributors, Dealers.
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