A body of principles of management has been developed by Henri Fayol, the father of modern management. Fayol wrote perceptibly on the basis of his practical experience as a manager. Although, he did not develop an integrated theory of management, his principles are surprisingly in tune with contemporary thinking in management theory. Fayol held that there is a single “administrative science”, whose principles can be used in all management situations no matter what kind of organization was being managed. This earned him the title of “Universality”. He, however, emphasized that his principles were not immutable laws but rules of thumb to be used as occasion demanded.

Fayol held that activities of an industrial enterprise can be grouped in six categories : (i) technical (production), (ii) commercial (buying, selling and exchange), (iii) financial (search for and optimum use of capital), (iv) security (protection of property and persons), (v) accounting (including statistics); and (vi) managerial.

However, he devoted most of his attention to managerial activity. He developed the following principles underlying management of all kinds of organizations :


1 Authority and Responsibility are Related : Fayol held that authority flows from responsibility. Managers who exercise authority over others should assume responsibility for decisions as well as for results. He regarded authority as a corollary to responsibility. Authority is official as well as personal. Official authority is derived from the manager’s position in organizational hierarchy and personal authority is compounded of intelligence, experience, moral worth, past services, etc. A corollary of the principle that no manager should be given authority unless he assumes responsibility is that those who have responsibility should also have commensurate authority in order to enable them to initiate action on others and command resources required for the performance of their functions. This aspect of relationship between responsibility and authority is particularly relevant in India where authority tends to be concentrated in higher echelons of management.

2. Unity of Command : This principle holds that one employee should have only one boss and receive instructions from him only. Fayol observed that if this principle is violated authority will be undermined, discipline will be jeopardy, order will be disturbed and stability will be threatened. Dual command is a permanent source of conflict. Therefore, in every organization, each subordinate should have one superior whose command he has to obey.

3. Unity of Direction : This means that all managerial and operational activities which relate a distinct group with the same objective should be directed by “one head and one plan. According to Fayol, there should be, “one head and one plan for a group of activities having the same objective”. It, however, does not mean that all decisions should be made at the top. It only means that all related activities should be directed by one person. For example, all marketing activities like product strategy and policy, advertising and sales promotion, distribution channel policy, product pricing policy, marketing research, etc., should be under the control of one manager and directed by an integrated plan. This is essential for the “unity of action, coordination of strength and focusing of effort”. Violation of this principle will cause fragmentation of action and effort, and wastage of resources.

4. Scalar Chain of Command : According to Fayol scalar chain is the chain of superiors ranging from the ultimate authority to the lowest ranks. The line of authority is the route followed via every link in the chain by all communication which start from or go to the ultimate authority.

5. Division of Work : This is the principle of specialization which, according to Fayol, applies to all kinds of work, managerial as well as technical. It helps a person to acquire an ability and accuracy with which he can do more and better work with the same effort. Therefore, the work of every person in the organization should be limited as far as possible to the performance of a single leading function.

6. Discipline : Discipline is a sine qua non for the proper functioning of an organization. Members of an organization are required to perform their functions and conduct themselves in relation to others according to rules, norms and customs. According to Fayol, discipline can best be maintained by : (i) having good superiors at all levels; (ii) agreements (made either with the individual employees or with a union as the case may be) that are as clear and fair as possible; and (iii) penalties judiciously imposed.

7. Subordination of Individual Interest to General Interest : The interest of the organization is above the interests of the individual and the group. It can be achieved only when managers in high positions in the organization set an example of honesty, integrity, fairness and justice. It will involve an attitude and a spirit of sacrificing their own personal interests whenever it becomes apparent that such personal interests are in conflict with organizational interests. It may, however, be emphasized that social and national interests should have precedence over organizational interests whenever the two run counter to each other.

8. Remuneration : Employees should be paid fairly and equitably. Differentials in remuneration should be based on job differentials, in terms of qualities of the employee, application, responsibility, working conditions and difficulty of the job. It should also take into account factors like cost of living, general economic conditions, demand for labour and economic state of the business.

9. Centralisation : Fayol believed in centralisation. He, however, did not contemplate concentration of all decision making authority in the top management. He, however, held that centralisation and decentralisation is a question of proportion. In a small firm with a limited number of employees, the owner-manager can give orders directly to everyone. In large organizations, however, where the worker is separated from the chief executive through a long scalar chain, the decision making authority has to be distributed among various managers in varying degrees. Here one generally comes across a situation of decentralisation with centralised control. The degree of centralisation and decentralisation also depends on the quality of managers.

10. Order : Order, in the conception of Fayol, means right person on the right job and everything in its proper place. This kind of order, depends on precise knowledge of human requirements and resources of the concern and a constant balance between these requirements and resources.

11. Equity : It means that subordinates should be treated with justice and kindliness. This is essential for eliciting their devotion and loyalty to the enterprise. It is, therefore the duty of the chief executive to instill a sense of equity throughout all levels of scalar chain.

12. Stability of Tenure of Personnel : The managerial policies should provide a sense of reasonable job security. The hiring and firing of personnel should depend not on the whims of the superiors but on the well-conceived personnel policies. He points out that it takes time for an employee to learn his job; if they quit or are discharged within a short time, the learning time has been wasted. At the same time those found unsuitable should be removed and those who are found to be competent should be promoted. However, “a mediorce manager who stays is infinitely preferable to outstanding managers who come and go”.

13. Initiative : It focuses on the ability, attitude and resourcefulness to act without prompting from others. Managers must create an environment which encourages their subordinates to take initiative and responsibility. Since it provides a sense of great satisfaction to intelligent employees, managers should sacrifice their personal vanity in order to encourage their subordinates to show initiative. It should, however, be limited, according to Fayol, by respect for authority and discipline.

14. Esprit de Corps : Cohesiveness and team spirit should be encouraged among employees. It is one of the chief characteristics of organized activity that a number of people work together in close coopearation for the achievement of common goals. An environment should be created in the organization which will induce people to contribute to each other’s efforts in such a way that the combined effort of all together promotes the achievement of the overall objectives of enterprise. Fayol warns against two enemies of esprit de corps, viz. (i) divide and rule, and (ii) abuse of written communication. It may work to the benefit of the enterprise to divide its enemy but it will surely be dangerous to divide one’s own workers. They should rather be welded in cohesive and highly interacting work-groups. Overreliance on written communication also tends to disrupt team spirit. Written communication, where necessary, should always be supplemented by oral communication because face-to-face contacts tend to promote speed, clarity and harmony.


He is known as ‘father of scientific management’. His ideas about management grew out of his wide-ranging experience in three companies: Midvale Steel Works, Simonds Rolling Mills and Bethlehem Steel Co.

Taylor concluded that scientific management involves a completer mental revolution on the part of both workers and management, without this mental revolution scientific management does not exist.

5 principles of scientific management;propounded by Taylor

Principles of scientific management propounded by Taylor are:

1. Science, Not Rule of Thumb 2. Harmony, Not Discord 3. Mental Revolution 4. Cooperation, Not Individualism 5. Development of each and every person to his or her greatest efficiency and prosperity.

1. Science, Not Rule of Thumb:

In order to increase organisational efficiency, the ‘Rule of Thumb’ method should be substituted by the methods developed through scientific analysis of work.

Rule of Thumb means decisions taken by manager as per their personal judgments. According to Taylor, even a small production activity like loading iron sheets into box cars can be scientifically planned. This will help in saving time as well as human energy. Decisions should be based on scientific enquiry with cause and effect relationships.

This principle is concerned with selecting the best way of performing a job through the application of scientific analysis and not by intuition or hit and trial methods.

The work assigned to any employee should be observed and analyzed with respect to each element or part thereof and the time involved therein so as to decide the best way of performing that the work and to determine the standard output for same.

2. Harmony, Not Discord:

Taylor emphasized that there should be complete harmony between the workers and the management since if there is any conflict between the two, it will not be beneficial either for the workers or the management.

Both the management and the workers should realize the importance of each other. In order to achieve this state, Taylor suggested complete mental revolution on the part of both management and workers.

It means that there should be complete change in the attitude and outlook of workers and management towards each other. It should always be kept in mind that prosperity for an employer cannot exist for a long time unless it is accompanied by the prosperity of the employees of that organisation and vice versa.

It becomes possible by (a) sharing a part of surplus with workers (b) training of employees, (c) division of work (d) team spirit (e) positive attitude (f) sense of discipline (g) sincerity etc.

Management should always be ready to share the gains of the company with the workers and the latter should provide their full cooperation and hard work for achieving organizational goals. Group action with mutual-trust and understanding should be perfect understanding the focus of working. This principle requires that there should be perfect understanding between the management and workers and both should feel that they are part of same family. It helps to produce synergy effect since both management and workers work in unison.

3. Mental Revolution:

The technique of Mental Revolution involves a change in the attitude of workers and management towards each other. Both should realize the importance of each other and should work with full cooperation. Management as well as the workers should aim to increase the profits of the organisation.

For this the workers should put in their best efforts so that the company makes profit and on the other hand management should share part of profits with the workers. Thus, mental revolution requires a complete change in the outlook of both management and workers. There should be a spirit of togetherness between workers and management.

4. Cooperation, Not Individualism:

This principle is an extension of principle of ‘Harmony, not discord’ and lays stress on mutual cooperation between workers and the management. Cooperation, mutual confidence, sense of goodwill should prevail among both, managers as well as workers. The intention is to replace internal competition with cooperation.

Both ‘Management’ and ‘Workers’ should realize the importance of each other. Workers should be considered as part of management and should be allowed to take part in decision making process of the management. Management should always welcome their suggestions and should also reward them if their suggestions prove to be beneficial for the organisation viz. reduction of costs or increase in production etc.

At the same time, workers should also resist from going on strike or making unnecessary demands from management. Workers should be treated as integral part of organisation and all important decisions should be taken after due consultation with workers. Both of them should visualize themselves as two pillars whose soundness alone can ensure achievement of common goals of the organisation.

Taylor also suggested that there should be proper division of work and responsibility between the two. Management should always guide, encourage and help the workers.

5. Development of each and every person to his or her greatest efficiency and prosperity:

Efficiency of any organisation also depends on the skills and capabilities of its employees to a great extent. Thus, providing training to the workers was considered essential in order to learn the best method developed through the use of scientific approach. To attain the efficiency, steps should be taken right from the process of selection of employees. Employees should be scientifically selected.


Separation of Planning and doing: Taylor emphasized the separation of planning aspects from actual doing of the work. The planning should be left to the supervisor and the workers should emphasize on operational work.
• Functional Foremanship: Separation of planning from doing resulted into development of supervision system that could take planning work
adequately besides keeping supervision on workers. Thus, Taylor evolved the concept of functional foremanship based on specialization of functions

Image result for functional foremanship diagram

• Job Analysis: It is undertaken to find out the best way of doing things. The best way of doing a job is one which requires the least movement
consequently less time and cost.
• Standardization: Standardization should be maintained in respect of
instruments and tools, period of work, amount of work, working
conditions, cost of production etc.
• Scientific Selection and Training of Workers: Taylor has suggested that the workers should be selected on scientific basis taking into account their education, work experience, aptitudes, physical strength etc.

• Financial Incentives: Financial incentives can motivate workers to put in their maximum efforts. Thus, monetary (bonus, compensation) incentives and non monetary (promotion, upgradation) incentives should be provided to employees.


George Elton Mayo (1880-1949): Mayo was a professor at the Harvard
Business School. He served as the leader of the team which carried out
the famous Hawthorne Experiments at the Hawthorne plant of the
Western Electric Company (USA) during 1927-32. Originally the
research was an application of Taylor’s management science techniques
designed to improve production efficiency.
Mayo discussed in detail the factors that cause a change in human
behaviour. Mayo’s first study involved the manipulation of illumination
for one group of workers and comparing their output with that of another group whose illumination was held constant. He concluded that the cause of increase in the productivity of workers is not a single factor like changing working hours or rest pauses but a combination of these
several other factors. Considerate supervision, giving autonomy to the
workers, allowing the formation of small cohesive groups of workers,
creating conditions which encourage and support the growth of these
groups and the cooperation between workers and management lead to
increase in productivity.
Mayo’s contribution to management thoughts lies in the recognition of
the fact that worker’s performance is related to psychological,
sociological and physical factors. Mayo and his associates concluded
that a new social setting created by their tests had accounted for the
increase in productivity. Their finding is now known as the Hawthorne
Effect or the tendency for people, who are singled out for special
attention, to improve their performance. Hawthorne study was an
important landmark in studying the behaviour of workers and his
relationship to the job, his fellow workers and organization. He
highlighted that workers were found to restrict their output in order to
avoid displeasure of the group, even at the sacrifice of incentive pay.
Thus, Hawthorne studies were a milestone in establishing the framework for further studies into the field of organizational behaviour.


Chester Barnard (1886-1961): Chester Barnard, president of Bell TelephoneCompany, developed theories about the functions of the manager as determined by constant interaction with the environment. Barnard saw organizations as social systems that require human cooperation. He expressedhis view in his book The Function of the Executive. He proposed ideas that bridged classical and human resource view points. Barnard believes thatorganizations were made up of people with interacting social relationships.
The manager’s major functions were to communicate and stimulate
subordinates to high level of efforts.
He saw the effectiveness of an organization as being dependent on its ability to achieve cooperative efforts from a number of employees in a total,integrated system. Barnard also argued that success depended on maintaining good relations with the people and institutions with whom the organization regularly interacted. By recognizing the organization’s dependence on investors, suppliers, customers, and other external stakeholders, Barnard introduced the idea that managers had to examine the external environment and then adjust the organization to maintain a state of equilibrium. Barnard also developed set of working principles by which organizational communication systems can maintain final authority for the management
team. These principles are:
• Channels of communication should be definitely known.
• Objective authority requires a definite formal channel of communication
to every members of an organization.
• The line of communication must be as direct or short as possible.
• The complete line of communication should usually be used.
• Competence of the persons serving at communication centers that is
officers, supervisory heads, must be adequate.
• The line of communication should not be interrupted during the time theorganization is to function.


In 1943, Peter Drucker began his own consulting business which allowed him to work with companies like IBM and Procter & Gamble. He realized that the two most important things for a business to achieve were innovation and marketing.

Drucker taught that management is a liberal art and is about much more than productivity. To be an effective manager you must understand things like psychology, science, religion, and the other things that go into that subject.

Drucker observed that often managers would try to take charge of everything. This was usually out of a desire for control or the belief that they were the only person who could accomplish a task correctly. Because of this, he advocated strongly for the decentralization of management. He taught that managers needed to delegate tasks to empower their employees.

In his 1954 book “The Practice of Management”, Peter Drucker coined the term “management by objectives” or MBO. MBO compares the performance of employees to the typical standards required for that position. The belief behind MBO is that if employees help determine the standards, they will have more incentive to fulfill them.

Peter’s Drucker’s 5 Most Important Questions

One of the biggest ways Peter Drucker was able to contribute to business and management was by teaching organizations how to best allocate their energy and resources. His book, “The 5 Most Important Questions You Will Ever Ask About Your Organization”, outlined five important questions every executive should ask about their business.

  • What is your mission?

Every business needs an effective and concise mission statement. Your mission statement doesn’t explain what you do but rather why you do what you do. Your mission statement should be the driving force behind the actions of you and everyone in your company.

  • Who is your customer?

Peter Drucker understood that many businesses didn’t even really know who it was they were serving. You must find out who your customer is and then organize all of your efforts toward meeting their needs and bringing them value.

  • What does your customer value?

This question is perhaps the most important of all five questions. The key is that it can only truly be answered by your customer themselves. You must know what your customer wants and needs.

  • What are your results?

Drucker stated that you must be able to measure your results in both qualitative and quantitative terms. You must not only know what your results are but you must have a standard for evaluating them as well.

  • What is your plan?

In order to reach your goal, you must have a plan for how to get there. According to Peter Drucker, your plan should include your mission statement, action steps, and a way to evaluate your results. If you can’t summarize those points then you don’t have a plan to achieve your goals.

Business Ethics


Ethics means the set of rules or principles that the organization should follow. While in business ethics refers to a code of conduct that businesses are expected to follow while doing business.

Through ethics, a standard is set for the organization to regulate their behavior. This helps them in distinguishing between the wrong and the right part of the businesses.

The ethics that are formed in the organization are not rocket science. They are based on the creation of a human mind. That is why ethics depend on the influence of the place, time, and the situation.

Code of conduct is another term that is used extensively in businesses nowadays. It is a set of rules that are considered as binding by the people working in the organization.

Ethical Principles in Businesses from an Indian Perspective

Essentially, any businesses that run in India comprises of these ethical principles.


Whenever there is great pressure to do right instead of maximizing profits, this principle is tested. The executives need to demonstrate courage and personal integrity, by doing what-what think is right.

These are the principles, which are upright, honorable. They need to fight for their beliefs. For these principles, they will not back down and be hypocritical or experience.


No ethical behavior can be promoted without trust. And for trust, loyalty needs to be demonstrated. The executives need to be worthy of this trust while remaining loyal to the institutions and the person. There should be friendship in the time of adversity and support and devotion for the duty.

They should not use or disclose personal information. This leads to confidence in the organization. They should safeguard the ability of a professional to make an independent decision by avoiding any kind of influence or the conflicts of interest.

So, they should remain loyal to their company and their colleagues. When they accept the other employees, they need to provide a reasonable time to the firm and respect the proprietary information attach to the previous firm. Thus, they should refuse to take part in any activity that might take the undue advantage of the firm.


The ethical executives are honest while dealing with their regular work. They also need to be truthful and do not deliberately deceive or mislead the information to others. There should be an avoidance of the partial truths, overstatements, misrepresentations, etc. Thus, they should not have selective omission by any means possible.

Respect and Concern

These are two necessarily different forms of behavior in the organization. But they go in tandem that is why they have been put under one principle. When the executive is ethical he is compassionate, kind, and caring.

There is one golden rule which states that help those who are in need. Further, seek their accomplishments in such a manner that the business objectives of the firm are achieved.

The executives also need to show respect towards the employee’s dignity, privacy, autonomy, and rights. He needs to maintain the interests of all those whose decisions are at stake. They need to be courteous and treat the person equally and rightly.


The executives need not be just fair in all the dealings, but they also should not exercise the wrong use of their power. They should not try to use over each or other indecent manners to gain any sort of advantage. Also, they should not take undue advantage of anything or other people’s mistakes.

Fair people are inclined more towards justice and ensure that the people are equally treated. They should be tolerant, open-minded, willing to admit their own mistakes. The executives should also be able to change their beliefs and positions based on the situation.


Any executive, if ethical, should be a leader to others. They should be able to handle the responsibilities. They should be aware of the opportunities due to their position. The executives need to be a proper role model for others.

Elements of Business Ethics

  1. Formal Code of Conduct: Those organisations which undertake to inculcate ethical conduct in the business organisation, establish and implement the code of conduct, for their employees and members. These codes are the statement of organisational values.
  2. Ethics committee: There are many organisations, which create the ethics committee, which is especially dedicated to maintaining ethics in the organisation. Such committees raise ethical concerns, develops and update the code of conduct, settle down ethical dilemmas, in the organisations.
  3. Ethical Communication: Another major component is the development of an effective ethical communication system, which has a great role to play in making the ethics programme successful. It tends to educate employees regarding the ethical standards and norms of the organisation.
  4. Ethics office: The next step, is the setting up an ethics office, to communicate and enact policies among various members of the organisation.
  5. Disciplinary system: A disciplinary system should be formed, so as to handle the ethical contravention quickly and severely.
  6. Ethics training programme: Another important aspect, is the ethics training programme, in which the employees of the organisation undergo training, and learn ethical norms of the company.
  7. Monitoring: An ethical programme is considered successful and fruitful only when an effective monitoring committee, is created which looks after various processes and controls deviations.

Social Responsibility of Business


Social responsibility of business implies the obligations of the management of a business enterprise to protect the interests of the society.

According to the concept of social responsibility the objective of managers for taking business decisions is not merely to maximize profits or sharehold­ers’ value but also to serve and protect the interests of other members of a society such as workers, consumers and the community as a whole.

 Responsibility of Business Enterprises towards Stakeholders and Society in General contract:

Responsibility of Business Enterprises towards Stakeholders and Society in General

Social contract is a set of rules that defines the agreed interrelationship between various elements of a society. The social contract often involves a quid pro quo (i.e. something given in exchange for another). In the social contract, one party to the contract gives something and expects a certain thing or behaviour pattern from the other.

1. Responsibility to Shareholders:

In the context of good corporate governance, a corporate enterprise must recognise the rights of shareholders and protect their interests. It should respect shareholders’ right to information and respect their right to submit proposals to vote and to ask questions at the annual general body meeting.

The corporate enterprise should observe the best code of conduct in its dealings with the shareholders. However, the corporate Board and management try to increase profits or shareholders’ value but in pursuing this objective, they should protect the interests of employees, consumers and other stakeholders. Its special responsibility is that in its efforts to increase profits or shareholders’ value it should not pollute the environment.

2. Responsibility to Employees:

The success of a business enterprise depends to a large extent on the morale of its employees. Employees make valuable contribution to the activities of a business organisation. The corporate enterprise should have good and fair employment practices and industrial relations to enhance its productivity. It must recognise the rights of workers or employees to freedom of association and free collective bargaining. Besides, it should not discriminate between various employees.

The most important responsibility of a corporate enterprise towards employees is the payment of fair wages to them and provide healthy and good working conditions. The business enterprises should recognise the need for providing essential labour welfare activities to their employees, especially they should take care of women workers. Besides, the enterprises should make arrange­ments for proper training and education of the workers to enhance their skills.

However, it may be noted that very few companies in India follow many of the above good practices. While the captains of Indian industries generally complain about low productivity of their employees, little has been done to address their problems. Ajith Nivard Cabraal rightly writes, “It should perhaps be realised that corporations can only be as effective and efficient as its employees and therefore steps should be taken to implement such reforms in a pro-active manner, rather than merely attempting to comply with many labour laws that prevail in the country. This is probably one area where good governance practices could make a significant impact on the country’s business environment.”

3. Responsibility to Consumers:

Some economists think that consumer is a king who directs the business enterprises to produce goods and services to satisfy his wants. However, in the modern times this may not be strictly true but the companies must acknowledge their responsibilities to protect their interests in undertaking their productive activities.

The following responsibilities of business enterprises to consumers are worth mentioning:

1. They should supply goods or services to the consumers at reasonable prices and do not try to exploit them by forming cartels. This is more relevant in case of business enterprises producing essential goods such as life-saving drugs, vegetable oil and essential’ services such as electricity supply and telephone services.

2. They should not supply to the consumers’ shoddy and unsafe products which may do harm to them.

3. They should provide the consumers the required after-sales services.

4. They should not misinform the consumers through inappropriate and misleading advertise­ments.

5. They should make arrangements for proper distribution system of their products so as to ensure that black-marketing and profiteering by traders do not occur.

6. They should acknowledge the rights of consumers to be heard and take necessary measures to redress their genuine grievances.

Despite the above responsibilities which are generally regarded as good marketing practices by management experts the business enterprises in India generally do not pay heed to them and as a result consumers are dissatisfied or disappointed in a large number of cases. There has been a growing awareness of consumer rights.

The organised movement to protect consumer rights which is termed as consumerism has been the result of the negligence of business enterprises to their responsibilities to consumers. Besides, due to the indifferent attitude of business enterprises to consumer rights, Government has been compelled to enact Consumer Protection Act to protect consumers’ rights and to prevent their exploitation by the businesses.

4. Obligation towards the Environment:

The foremost responsibility of business enterprises is to ensure that they should not damage the environment and for this purpose they should reduce as much as possible air and water pollution by their productive activities. They should not dump their toxic waste products in rivers and streams to avoid their pollution. Pollution of environment poses a great health hazard for the people and is a cause of several respiratory and skin diseases.

In economic theory pollution of environment is regarded as social cost that must be minimised. There is now a growing awareness towards reduction in environment pollution. According to the recent findings the climate change is occurring due to greater emission of carbon dioxide and other pollutants.

Therefore, the corporate enterprises should adopt high standards of environmental protection and ensure that they are implemented regardless of enforcement of any environment laws passed by the government. Many countries including India have passed laws to protect the environment but they are not properly and strictly enforced.

Business enterprises in their attempt to maximise profits recklessly and negligently pollute the environment. Therefore, it is required that government should take tough measures and enforce environment laws strictly if environment is to be protected.

5. Responsibility to Society in General:

Business enterprises function by public consent with the basic objective of producing goods and services to meet the needs of the society and provide employment to the people. The traditional view is that in performing this function businesses maximise profits or shareholders’ value and doing so they do not behave in any socially irresponsible way.