Study Notes

Management and Ethics

RBI Grade B
Management and Ethics Notes for RBI Grade B

Contents
Fundamentals of Management ............................................................................................................... 4
Introduction to Management ................................................................................................................... 4
Evolution of Management Thought........................................................................................................ 8
Scientific Approach to Management ...................................................................................................... 9
Administrative Approach to Management ........................................................................................... 10
Bureaucratic Management ................................................................................................................... 12
Behavioural Theory of Management .................................................................................................... 12
Human Relations Theory of Management ............................................................................................ 13
Systems Theory ..................................................................................................................................... 14
Contingency Theory .............................................................................................................................. 16
Quantitative Approach to Management............................................................................................... 17
Management Functions ......................................................................................................................... 17
Managerial Roles ................................................................................................................................... 27
Nudge Theory ......................................................................................................................................... 28
Organisation Behaviour ......................................................................................................................... 31
Human Resources Development ......................................................................................................... 34
Personality ............................................................................................................................................... 40
Motivation ................................................................................................................................................ 47
Content Theories of Motivation ............................................................................................................ 53
Process Theories of Motivation ............................................................................................................ 62
Leadership ................................................................................................................................................. 72
Leadership Concept and Styles ........................................................................................................... 72
Leadership Theories .............................................................................................................................. 78
Emotional Intelligence, Johari Window and Conflict ......................................................................... 94
Organisation Structure and Organisation Change .......................................................................... 101
Ethics at workplace ............................................................................................................................... 109
Ethics at workplace .............................................................................................................................. 109
Theories of Ethics................................................................................................................................. 112
Ethical Principles in Business............................................................................................................. 118
Code of Ethics and Code of Conduct ................................................................................................ 126
Corporate Governance ......................................................................................................................... 127

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 Management and Ethics Notes for RBI Grade B

Factors of corporate Governance ...................................................................................................... 130

Mechanisms of corporate Governance ............................................................................................. 131
Corporate Governance – regulatory framework .............................................................................. 135
Communication ...................................................................................................................................... 137
Communication Process ..................................................................................................................... 137
Organisational Communication – verbal, oral, written, non-verbal, upward, downward, lateral
................................................................................................................................................................ 141
Barriers to Communication ................................................................................................................. 147
Role of Information technology .......................................................................................................... 149

Quotes on leadership and good governance

“A leader is one who knows the way, goes the way, and shows the way.” – John C. Maxwell
“Good governance is the art of putting wise thoughts into prudent actions.” – Dr. APJ Abdul Kalam

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Management and Ethics Notes for RBI Grade B

Fundamentals of Management

Introduction to Management

Management, as a concept, is universal in the modern industrial world. It makes human efforts
more productive and brings better technology, products and services to our society. It is a very
important economic resource and a life-giving element in business ecosystem.
In the absence of proper management, the resources of production (men, machines and
materials, money) cannot be converted into production. Thus, management is a vital function
concerned with each aspects of the working of an organization.
Management is concerned with both acquisition and application of knowledge. It does not go by
rule of thumb or intuition alone even though it is sometimes considered to be an extension of
common sense. Hence, management is a combination of both an art and a science.
The scientific approach lies in decision-making, planning and in the appropriate use of
technology. Whereas the artistic approach to management can be found in the tasks of
communicating, leadership and goal-setting.

Characteristics of Management

 Management is a group activity: Management is a group activity. One can’t satisfy its
desires by itself. Therefore, he unites fellow- beings and works in an organized group to
achieve what he cannot achieve individually.
 Management is Goal - oriented: According to Theo Haiman - “Effective management is
always management by objectives." Group efforts are directed towards the achievements
of some predetermined goals. Management is concerned with establishment and
accomplishment of these objectives.
 Management is a factor of Production: Management is not an end in itself. It is a
means to achieve the group objectives. It is a factor of production that is required the co-
ordinate with the other factors of production for the accomplishment of predetermined
goals and objectives.
 It is a Universal Character: Management is essential in almost all types of concerns.
Where there is some human activity, management is must there. The basic principles of
management are universal. These can be applied in all types of concerns i.e., business,
social, religious, cultural, sports, educational.
 Management is needed at all levels of the enterprise: On the basis of the nature of
work or target and the scope of authority, management is needed at all levels of the
organisations e.g., top level, middle level and supervisor level.
 It is a distinct function: Management is a distinct function performed to fix and achieve
stated objectives by the use of manpower and other factors of production. Different from
the activities, techniques and procedures, the process of management consists of such
functions as planning, organizing, staffing, directing, coordinating, motivating and
controlling.

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 Management and Ethics Notes for RBI Grade B

 It is a Social Process: Management is also regarded as a social process. It has a social

responsibility to make reasonable use of resources that are scarce keeping in view the
benefit of the community as a whole.

Harold Koontz, George R. Terry,

“Management is an art of getting things “Management is a distinct process
done through and with the people in consisting of planning, organizing,
formally organized groups. It is an art actuating and controlling, performed to
of creating an environment in which determine and accomplish stated
people can perform & individuals can Process objective by the use of human beings
co-operate towards attainment of group (social, integrating, and other resources”
goals”. continuous, distinct)

Art
Practical Knowledge, Activity
personal skill,
creativity, perfection (Informational,
through practice, Decisional, inter-
goal-oriented personal)
Management
is a
Louis Allan,
“Management is what
a manager does”
Science
Universally acceptable Multi-Disciplinary
principles, (code of conduct for
experimentation & managers, branch of
observation, cause knowledge for
and effect relationship, managing resources)
test of validity
F.W. Taylor,
“Management is an art of
Ernest Dale – “It is a Soft Science” knowing what to do, when to
do and see that it is done in
Social Science – as it is social process; the best and cheapest way”.
relative not absolute principles
Behaviour Science – deals with human
beings

Figure: Features of Management

 Management is a system of Authority: Authority is the power to compel men to work in

a specific manner. Management cannot work in the absence of authority. There is a chain
of authority and responsibility among people working at different levels of the
organization. There cannot be an efficient management without well-defined lives of
command a superior subordinate relationship at every levels of decision making.
 Management is Intangible: It can be seen in the form of results and could not be actually
seen. For example, when we are not able to produce desired quantity, we say it is the
result of poor management.

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Management and Ethics Notes for RBI Grade B

 It is Art as well as Science: Management is a science since its principles have universal
application. Management is an art as the results of management depends upon the
personal skill of managers. The art of the manager is essential to make the best use of
management science. Thus, management is both science and art.

Significance of Management

Management plays a unique role modern society. Peter F.Drucker has summarized the essence
of management as “ under developed countries are under managed, it denotes the
multidimensional significance of management. Below are the few significances of Management.

 Determination of Objectives: The success of various operations of an organisation

mainly depends on the identification of its objectives. Objectives are identified and laid
down by the management. They should be the writing and communicated to all others in
the management.
 Meeting challenges: All the policy decisions of an enterprise are taken by the
management. It keeps in touch with the current environment and predicts what is going to
happen in future. Through better planning and control, management steers a concern to
meet the demands of the changing environment.
 Provides innovation: Management infuses an enterprise with new ideals, imaginations
and vision.
 Social Benefits: Management raises the standard of living of the people by providing
good quality products at the lowest prices. It also promotes peace and prosperity in the
society through optimum use of scarce resources.
 Employment: The expansion and diversification activities of the managers in
organizations create more employment to the society. This is very essential for our
country.

Management Vs Administration

Sheldon opines, "Administration is concerned with determination of the corporate policy, the
coordination of finance, production and distribution the settlement of the compass of the
organisation and the ultimate control of executive ".

Administration is generally regarded as a top-level activity which is mainly concerned with

providing broad goals and objectives. Management, on the other hand, is concerned with the
accomplishment of those goals and policies. On the other hand, management, is concerned with
the execution of policy, within the limits set up by the administration and the employment of the
organization for the particular object set before it.

Administration Management
Deals with formulation of objectives, policies for It means getting the work done through and with
the organization. others.
Relates to decision making. It is a thinking Refers to the execution of decisions. It is a doing
function. function.
Administration decides what is to be done and Management decides who shall implement the

6 Management: it works under

administration.
 Management and Ethics Notes for RBI Grade B

when it is to be done. administrative decisions.

Administration refers to the higher levels in the Management is relevant at the lower levels in the
organization. organization.

Principles of Management

Henri Fayol (1841-1925) was a French management theorist. He propounded the 14 principles of
management and published in his book ‘Administration industrielle et generale’.

Henry Fayol’s 14 Principles of Management are:

S. No. Principle Meaning
1. Division of labour Fayol stressed on Specialisation in work - when employees are
specialized, output can increase because they become increasingly
skilled and efficient

2. Authority & Managers must have the authority to give orders, but they must also
responsibility keep in mind that with authority comes with responsibility.

3. Discipline Discipline must be upheld in organizations, but methods for doing so

can vary.

4. Unity of Command Employees should have only one direct supervisor i.e. “One Boss”

difference 5. Unity of Direction Teams with the same objective should be working under the direction of
bertween the one manager, using one plan. This will ensure that action is properly
two coordinated.

6. Subordination of The interests of one employee should not be allowed to become more
Individual Interest to important than those of the group. This includes managers.
general interest
7. Remuneration of Employee satisfaction depends on fair remuneration for everyone. This
employees includes financial and non-financial compensation.

8. Centralisation and The concentration of decision-making authority is called centralisation

Decentralisation whereas its dispersal among more than one person is known as
decentralisation. According to Fayol, it is important to aim for an
appropriate balance.

9. Scalar Chain An organization consists of superiors & subordinates. The formal lines of
authority from highest to lowest ranks are known as scalar chain.
According to Fayol, ―Organisations should have a chain of authority &
communication that runs from top to bottom & should be followed by
managers & the subordinates.

However, the concept of ‘gang plank’ was later considered which

allowed for communication between same level for faster
communication.

10. Order According to Fayol, people and materials must be in suitable places at
appropriate time for maximum efficiency.

11. Equity Good sense and experience are needed to ensure fairness to all

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 turnover-> the rate at which employees leave a workforce
Management and Ethics Notes for RBI Grade B

S. No. Principle Meaning

employees, who should be treated as fairly as possible
12. Stability of Tenure Employee turnover should be minimized to maintain organizational
efficiency, according to Fayol. Personnel planning should be a priority.

13. Initiative Employees should be given the necessary level of freedom to create
and carry out plans and encourage initiative in the organisation

14. Espirit De Corps Management should promote a team spirit, unity and harmony among
employees, according to Fayol

Evolution of Management Thought

Management theories in the early period were not really theories, but some discrete practices or
experiences. For that matter, management theories in the present century are also not totally free
from certain problems. To become a theory, an experience or practice needs to undergo several
modifications, syntheses and tests. For this purpose, a sound theoretical and conceptual
framework is essential for a theory to take shape.

A number of theoretical approaches with varying hypotheses, assumptions and propositions have
emerged over the last decades. Management scholars have borrowed and applied concepts from
other disciplines. Thus, management theory has evolved in a symbiotic relationship to its related
and supporting disciplines like mathematics, statistics and behavioural sciences, depriving the
motivation to Concepts and Schools of devise its own conceptual framework independent of
related disciplines. Moreover, management research has been put psychologically and
philosophically closer to practice than to theory.

Management theories are mainly classified on the basis of the age they below to. They are-
i) Classical management theory.
ii) Neoclassical management theory
iii) Modern management theory
Under each group, some schools of management thoughts are discussed below.

Classical Management Theory

Classical management theory is the earliest areas of management research. It focuses on the
rationality in decision-making and the efficiency of the organization. Classical approach mainly
looks for economic efficiency. The Classical school is sometimes called the traditional school of
management among practitioners. This school, evolved as a result of the industrial revolution, in
response to the growth of large organisations and in contrast to the handicraft system that
existed till then.

It tries to develop and operate universal principles or models that can be applied in all
circumstances. The primary contributions of the classical school of management includes

(i) application of science to the practice of management

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 Management and Ethics Notes for RBI Grade B

(ii) development of the basic management functions and

(iii) articulation and application of specific principles of management.

Classical approach can be classified into three management approaches-scientific

management, administrative management and bureaucratic management.

Classical
Approach

increase efficiency Scientific Administrative Bureaucratic

Management Management Management

These views focused primarily upon a manager who oversees manual laborers. As the labor
force gradually shifted from labor to a mixture of labor and knowledge work, these principles
became less relevant.

Major approaches to management under classical management theory are:

Scientific Approach to Management

The earliest pioneer of Scientific Management Theory was Frederick Taylor – “Principles of
Scientific Management”. His work revolved around “One Best Way to do a job”. He proposed
the following method for addressing any managerial task:

Develop science for the elements of work to replace

“rule of thumb”

Select, train, teach workers

Cooperate with Workers to ensure work is done

Divide work suitably between workers and

managers

Thus, the scientific method provides a logical framework for the analysis of problems basically
defining the problem, gathering data, analysing the data, developing alternatives, and selecting
the best alternative. Taylor believed that following the scientific method, would provide a way to

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Management and Ethics Notes for RBI Grade B

determine the most efficient way to perform work. Instead of abdicating responsibility for
establishing standards, the management would scientifically study all facets of an operation and
carefully set a logical and rational standard. Instead of guessing or relying solely on trial and
error, the management should go through the time-consuming process of logical study and
scientific research to develop answers to business problems.

Gilbreth: Another major contribution to Scientific Management theory was by Frank Gilbreth
and Lillian Moller Gilbreth. They studied task process and efficient body motions. They
focused on the efficiency of effort furthering the understanding of the best way to carry out a
process.

Limitations: No man can be entirely an 'economic man' and man's behaviour is dictated not only
by financial needs, but other needs like social needs, security needs and esteem needs. Hence,
it may not always be true that economic incentives are strong enough to motivate workers.

Separation of planning and doing a job and the greater specialisation inherent in the system tend
to reduce the need for skill and produce greater monotony of work. Lastly, advances in methods
and better tools and machines eliminated some workers, causing resentment amongst them.

Administrative Approach to Management

The father of Administrative or Management Process Theory is Henri Fayol. In his text,
“Administration Industrielle et Generale”, he proposed several managerial functions. The
functions include:

Planning

Controlling Organizing

Managerial
Functions

Coordinating Commanding

This framework evolved into the highly-influential P-O-L-C (Plan, Organize, Lead, Control)
framework for management functions. The Coordinating and Controlling functions collapsed
into Leadership.

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Management and Ethics Notes for RBI Grade B

Henry Fayol also contributed to the understanding of managerial duties through his text, “Fayol’s
14 Principles of Management”. The 14 Principles are:

Henri Mintzberg- In “The Nature of Managerial Work”, he added to the body of administrative
management theory by proposing a framework for the Role of Managers. He identified 10 roles
of a manager

Interpersonal Roles Informational Roles Decisional Roles

Figurehead Monitor Entrepreneur
Supervisor Disseminator Disturbance Handler
Liaison Spokesperson Resource allocator
Negotiator

Robert L. Katz, another administrative management theorist, proposed categories for

managerial skills, including:

 Conceptual
 Human
 Technical

Limitations: Like the scientific management school, the administrative management school is
also criticised on some grounds. Many of the principles of this school, including those of Fayol,
are contradictory and have dilemmas. These principles are no better than proverbs which give
opposite messages. For example, the principle of unity of command contradicts the principle of
specialisation or division of labour and the principle of limited span of control, contradicts that the
number of organisational levels should be kept at a minimum.
Secondly, these principles are based on a few case studies and they are not empirically tested.
Thirdly, these principles are stated as unconditional statements and valid under all circumstances
which is not practicable.

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Management and Ethics Notes for RBI Grade B

Bureaucratic Management
Max Weber explored the organizational structure and proposed the concept of a “Bureaucracy”.
He saw an organization as a clearly-defined structure with a division of labor, clear
hierarchy, detailed rules, and impersonal relationships. The characteristics of bureaucracy
type of management is based on the rational that authority would be more adaptable to
changes. Besides, system of written rules and standard operating procedures are
prescribed to provide certainty and facilitate coordination. Impersonal relationship is maintained
between the managers and employees. Moreover, only competent people are hired for jobs
based on their competence and technical qualifications.

The advantages of bureaucracy are manyfold. Apart from consistent employee behaviour, it does
away with overlapping or conflicting jobs or duties and the behaviour of the system is predictable.
In turn, consistency and precise job definitions help to avoid wasteful actions and improve
efficiency. Further, bureaucracy has the advantages of basing its mode of hiring and promotion
on merit, developing expertise in employees and assuring continuity in the organisation. In other
words, bureaucracy emphasises the position rather than person, and the organisation continues
even when individuals leave.

Limitations: Too much of red-tapism and paperwork not only lead to unpleasant experiences,
but also to inefficient operations. Since employees are impersonally and are expected to rely on
rules and policies, they are unwilling to exercise individual judgment and avoid risks.
Consequently, their growth, creativity, development, and even initiative suffer considerably.
Machine like treatment makes employees, unconcerned about the organisation, and exhibit
indifference regarding the organisation and job performance. Bureaucracy expects conformity in
behaviour rather than performance.

Neo-Classical Theory (1920s- 1950s)

The Traditional classical theory and its principles are criticised on the ground that they are
contradictory, pay little attention to motivation, and make hasty pronouncements on what should
be done.

As a reaction to schools of classical theory, which over emphasised the mechanical and
physiological characters of management, came up the schools of neoclassical theory, with a
more human-oriented approach and emphasis on the needs, drives, behaviours and attitudes of
individuals.

Two important groups, namely, human relations school and behavioural schools emerged during
1920s and 1930s under the neoclassical theory.

Behavioural Theory of Management

It demonstrates how management can be effective by applying knowledge of organisation

behaviour. The behavior-based approach to management focused on the individual worker,

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Management and Ethics Notes for RBI Grade B

such as motivations, behaviors, social systems, etc. It incorporated aspects of psychology,

motivation, and sociology.

Some of the major contributors to Behavioral Theory were:

 Mary Parker Follet – Her work focused on Individual and Group Behavior. Here theories
include: Genuine power is not “coercive” (power over) but coactive (power with).
True leaders create group power rather than expressing personal power
 Hugo Munsterberg – His work focused on psychological tests for employee
selection. He also proposed theoretical concepts for training. His work also linked worker
behavior to individual motivation.
 Chester Barnard – His work painted organizations as coordinated social systems. He
explored the role of communication in stimulating activity. Notably, he proposed the
concept of the organizations as an open system.
 Abraham Maslow – Maslow proposed that human behavior is purposeful and is
motivated by the desire to satisfy needs and that lower-level needs must be met
before a person can focus on the next level of needs.
 Elton Mayo – Mayo demonstrated that employee motivation is heavily influenced by
social and situational factors. Mayo’s findings, referred to as the “Hawthorne Effect,”
marked a radical change in motivational theory and management practice. His study led
to the development of the Human Relations Theory of Management.

Human Relations Theory of Management

Elton Mayo believed that all early management theories only focused on how money affects
employee performance. He believed there were more factors that influenced how employees
behaved and performed at work. To test his theory, he began a study at Chicago’s Western
Electric Hawthorne Plant in the 1920s and 1930s and created his own management theory based
on his findings which are more commonly known today as The Hawthorne Effect.

The initial goal of the The Hawtorne Study was to determine how changing the lighting would or
would not affect employee productivity. They began the study with a small group of employees
who they interacted with throughout the process. The study found that regardless of how they
changed the lighting, productivity increased. When they were unable to make a connection as to
why productivity improved, they began branching out to other departments to see if the results
were similar. They realized that the lighting changes did not affect productivity but instead the
daily interactions with the employees throughout the process motivated them to work more
efficiently and increase their output. They allowed employees to voice their opinions, frustrations,
and successes which in turn helped the employees feel more valuable. In addition, since they
knew they were being monitored, they were more motivated to perform on a higher level. This
was a revolutionary discovery that put the spotlight on human relations and highlighted the
importance of individual and group dynamics.

Mayo and his colleagues arrived at two important conclusions: (i) existence of strong informal
groups (ii) employees' behaviour at work is affected by pan economic factors. They revealed

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Management and Ethics Notes for RBI Grade B

some inadequacies of the rational and structured approaches of classical theory and the fallacy
of viewing all workers as rational and economic beings.

Human relations approaches laid greater emphasis on the work group and need for better
communication between supervisors and workers. The Humans relations movement is looked as
a trend towards power equalisation. It is an attempt for reduction in the power and status
differential between supervisors and subordinates. It is looked upon as a continuing reaction
against the emphasis of programmed work, rigid hierarchical control and a high degree of
specialisation of Taylorism. However, they did not reject all the classical ideas. The neoclassical
writers believed that treating employees like individuals (neoclassical) would make them act
according to the principles (classical). They said "treat employees as if they are important and
give the workers the feeling of participation."

Limitations:

 Treating management as equivalent to human behaviour.

 Talks about organisation & organisation behaviour in vague terms.

Modern Management Theory

The study of management theory has gained momemtum in recent decades. It explores
numerous aspects of the manager, the employee, the organization, the business environment,
resources (human and capital), efficiency, understanding, and creativity/innovation.

Modern management theory highlights, the complexity of the organisation as well as individuals
and the diversity of their needs, motives, aspirations and potentials. As a result, one time status
or universal management principles are impracticable. The complexities require intricate
managerial strategies for dealing with people and organisation. As against the rational economic
man of the classical theory and the social person view of neoclassical theory, the complex
employee view is the premises of modem management theory.

The primary contemporary approaches to management include:

Systems Theory

An organization is a system consisting of a number of interdependent parts functioning as

a whole for some purpose. These parts might include: inputs, a transformation process,
outputs, feedback, and the environment.

The system approach envisions the organization as made up five components:

 Inputs - Raw Materials, Human Resources, Capital, Information, Technology
 A Transformational Process - Employee Work Activities, Management Activities,
Operations Methods
 Outputs - Products or Services, Financial Results, Information, Human Results

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Management and Ethics Notes for RBI Grade B

 Feedback - Results from outputs influence inputs.

 The Environment - These components make up internal and external factors that affect
the system.

An organization is generally considered to be open and organic with the subpart or

subsystem interacting. The system is considered open, as organizations receive varied forms
of inputs from other systems. For example, a company receives supplies, information, raw
materials, etc. These inputs are converted to outputs that affect other systems.

Closed and Open Management Systems

An organization is made up of closed systems and open systems. Closed systems are the
internal sub-units of the organization that do not interact with the external environment. Open
systems are internal sub-units that interact with other systems (or sub-units within other
systems) that are outside of the organization. In effect, all organizations are open systems.

Advantages and Disadvantages of a Systems Approach

The advantages of the systems approach include:

 It assists in studying the functions of complex organizations
 It is probabilistic rather than deterministic.
 It has been utilized as the base for the new kinds of organizations like project
management organization.
 It is possible to bring out the inter-relations in various functions like planning, organizing,
directing and controlling.

The disadvantages of the systems approach include:

 This approach is somewhat abstract and vague.
 It can be difficult to apply to large and complex organizations.
 It does not provide any tool and technique for managers.
 It is not a prescriptive management theory, as it does not specify tools and techniques for
practicing managers

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Management and Ethics Notes for RBI Grade B

 It does not address power and social inequalities and their causes.
 It does not specify the nature of interactions and interdependencies.

Contingency Theory
This is a decision-making theory of management and an extension of the systems approach to
management.

The contingency approach is a management theory that suggests the most appropriate style
of management is dependent on the context of the situation and that adopting a single, rigid
style is inefficient in the long term. The behaviour of one sub-unit of an organization “is
dependent on its environment and relationship to other units or sub-units that have some control
over the sequences desired by that sub-unit.”

The main characteristics of the Contingency Approach to management are:

 Management is entirely situational. The application and effectiveness of any technique is

contingent on the situation.
 The managers should understand that there is no one best way to manage. As such, no
action is universal and varies from situation to situation.
 Management should match its approach to the requirements of the particular situation. To
be effective, management policies and practices must respond to environmental changes.
The organisation structure, the leadership style, the control system—all should be
designed to fit the particular situation.
 As management’s success depends on its ability to cope with its environment.
Management should be skilled to anticipate and comprehend environmental changes.

Contingency approach is an improvement over the system approach as it not only examines the
relationships between the sub-systems of an organisation but the relationship between the
organisation and its environment too.

Organisational Humanism

This school of thought is an extension of behavioural schools of neoclassical theory and hence
has much in common with behavioural schools. The underlying philosophy of this school is that
individuals need to use all of their capacities and creative skills at work as well as at home. This
‘self-actualizing vie’ is the basis of this school. According to this view, motives fall into categories,
that can be arranged according to their importance, and employees seek to mature (self-
actualise) on the job and are capable of being so. Employees are primarily self-motivated and
self-controlled and react negatively to externally imposed controls. If allowed to become
selfactualised, employees will integrate the goals with those of the organisation. Self-
actualization refers to reaching one's potential i.e., ultimate use of personal skills.

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Management and Ethics Notes for RBI Grade B

Organisational humanism is criticized on the ground that it is difficult to believe that every
employee seeks self-actualisation at work. Organisational humanists say that there are many
ways in which employees can entertain themselves at work and make their jobs interesting.

Socio-Technical Systems Approach

It says that Social & technical systems interact. This interaction is important for organisational
effectiveness. Organisational effectiveness depends on looking at people and their interactions
and also at the technical environment in which they operate.

Quantitative Approach to Management

The quantitative approach to management applies mathematical models, information and
optimization models, computer simulations, and other quantitative techniques to
managerial decision-making. The primary branches of quantitative management theory
include:

 Operations Management – The management of functional processes employed in

delivering the company’s value proposition.
 Quantitative Management – This approach focuses on the use of data analysis in
management decision making.
 Total Quality Management – This is an efficiency and waste reduction approach to
management processes and decision making.
 Management Info Systems – This field includes the use of technological and
quantitative methods for the observation, collection, organization, evaluation, and
dissemination of information across and throughout an organization.

Management Functions

A function is a type of work activity that can be identified and distinguished from other work.
Experts have identified several managerial functions as important elements of management.
While Newman and Summer have identified four functions namely, organising, planning, leading
and controlling, Henry Fayol has recommended five basic functions namely, planning, organising,
commanding, coordinating and controlling.

Luther Gulick and L. Urwick have coined an acronym for seven functions namely POSDCORB
which stands for Planning, Organising, Staffing, Directing, Coordinating, Reporting and
Budgeting.

It should be noted that they are carried out simultaneously and concurrently. The view of this
approach is that an organisation is a total system and these functional elements are interrelated
and interdependent.

Planning: Planning works a bridge that takes us from where we are to where we want to reach.
It is the process of determining in advance what should be accomplished and how to do it. In

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Management and Ethics Notes for RBI Grade B

other words, it is an analytical process of establishing goals, objectives and targets, assessing
the future, premising, generating and evaluating alternatives, selecting programs, projects or
courses, estimating resources, preparing the plan document with derivative plans and
implementing the plan.

Four important characteristics of planning are

(i) The purpose of every plan and all derivative plans is to facilitate the accomplishment
of enterprise purposes and objectives;
(ii) Planning is the “first” function and logically precedes the execution of all other
managerial functions;
(iii) Managers at all levels are involved in planning;
(iv) The efficiency of a plan is measured by the amount it contributes to the purpose and
objectives as offset by the costs of other unsought consequences required to
formulate and operate.

There are rational approaches and principles to follow in the planning process. Below are a few
examples of them-
 Planning should start with where we are (premising) rather than with where we want to
be;
 Individuals involved in the planning process should agree to use consistent planning
premises;
 Flexibility must be built into the plans;
 The plans must be closely integrated;
 The plans should be documented and distributed to all members of the management;
 Planning has value only if it is transformed into action; and
 Plans should be reviewed periodically throughout the year

Box: Terms to know in relation to planning

 Vision – desired future position of company and where it wants to reach in the long term
 Mission – defines company’s business and what the organization does
 Objectives: Objectives can be said to be the desired future position that the
management would like to reach with respect to specific areas of business. It usually
originates from the mission statement with more specific desired position
 Strategy: A strategy provides the broad contours of an organisation‘s business. It will
also refer to future decisions defining the organisations direction & scope in the long run.
 Policy: Policies are general statements that guide thinking or channelise energies
towards a particular direction.
 Procedure: Procedures are routine steps on how to carry out activities.
 Rule: Rules are specific statements that tell what is to be done.
 Budget: A budget is a statement of expected results expressed in numerical terms. It is a
plan which quantifies future facts & figures.

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Management and Ethics Notes for RBI Grade B

The significance and advantages of planning are:

 it offsets uncertainty and change;

 provides a framework for execution and direction; focuses attention on objectives;
 improves services, leads to operations and facilitates control;
 ensures rational and effective development;
 permits the anticipation and future resources needs; and
 brings the skills and experience of staff members to the planning process.

Organising: Organising is the process of prescribing formal relationships among people and
resources (i.e., personnel, raw materials, tools, capital, etc.) to accomplish the goals.

Organising involves:

 analysing the entire activities of an organisation into homogeneous types of works and jobs;
 sorting and grouping the resulting works and jobs into a logical structure;
 assigning these activities to specific positions and persons; and
 providing a means for coordinating the efforts of individuals and groups.

The term organisation refers to both the process of organisation and the result of that process.
Organisation differentiates and integrates the activities necessary to achieve the objectives.
Activities are grouped into working divisions, departments, or other identifiable units primarily by
clustering similar and related duties. The result is a network of interdependent units.

Organisational structures usually comprise departments, divisions, sections, units or cells,

obtained on the basis of division of works and jobs. These structural patterns reflect horizontal
and vertical positions, indicating distribution of work, authority and responsibility, span of control,
nature of duties, outflow of work, means for evaluation of work output, staff discipline mechanism,
smooth flow, functional points and coordination points, etc.

Some basic principles of organising are listed below:

 The key activities should be clearly defined;

 The activities should be grouped on some logical basis;
 The responsibilities of each division, department, unit and job should be clearly defined;
 Authority should be delegated as far down in the organisation as possible;
 Responsibility and authority should be made equal;
 The number of persons reporting to each manager should be reasonable;
 The organisation should be designed to provide stability, flexibility, perpetuation and self-
renewal; and
 The organisation structure should be evaluated on the basis of its contribution to
enterprise objectives.

Delegation of Authority is an important part of the organizing function. Delegation of Authority

means division of authority and powers downwards to the subordinate. Delegation occurs when
someone with authority confers upon another person the power to do a particular task.

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Management and Ethics Notes for RBI Grade B

Delegation is usually a one-way street - superiors delegate authority to subordinates. However,

ultimate responsibility for task completion usually remains the responsibility of the person who
delegated the authority to complete it. For example, a sale manager in an enterprise can share
his duties with his immediate subordinates who in turn delegate them to their subordinates. The
process of delegation of authority results in what is known as 'boss-subordinate relationship" and
also gives rise to an organization.

The above definitions of delegation reveal that there are three essential elements in it. They are:

 Assignment of responsibility to subordinates

 Granting of some authority to subordinates to enable them to perform the duties assigned
 Creating an obligation on the part of subordinates to perform the duties assigned to them
i.e., creating accountability.

These three elements are described as:

1. Authority – it is the power and right of a person to use and allocate the resources
efficiently, to take decisions and to give orders to achieve the organizational
objectives. Authority must be well-defined. All people who have the authority should
know what the scope of their authority is, and they shouldn’t mis utilize it. Authority is
the right to give commands, orders and get the things done. The top-level
management has greatest authority. Authority always flows from top to bottom. It
explains how a superior gets work done from his subordinate by clearly explaining
what is expected of him and how he should go about it. Authority should be
accompanied with an equal amount of responsibility. Delegating the authority to
someone else doesn’t imply escaping from accountability. Accountability still rest with
the person having the utmost authority.
2. Responsibility - is the duty of the person to complete the task assigned to him. A
person who is given the responsibility should ensure that he accomplishes the tasks
assigned to him. If the tasks for which he was held responsible are not completed,
then he should not give explanations or excuses. Responsibility without adequate
authority leads to discontent and dissatisfaction among the person. Responsibility
flows from bottom to top. The middle level and lower-level management holds
more responsibility. The person held responsible for a job is answerable for it. If he
performs the tasks assigned as expected, he is bound for praises. While if he doesn’t
accomplish tasks assigned as expected, then also he is answerable for that.
3. Accountability - means giving explanations for any variance in the actual
performance from the expectations set. Accountability cannot be delegated. For
example, if ’A’ is given a task with sufficient authority, and ’A’ delegates this task to B
and asks him to ensure that task is done well, responsibility rest with ’B’, but
accountability still rest with ’A’. The top-level management is most accountable.
Being accountable means being innovative as the person will think beyond his scope
of job. Accountability, in short, means being answerable for the result. Accountability
can’t be escaped. It arises from responsibility.

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Management and Ethics Notes for RBI Grade B

Staffing: If organisational structure creates positions at different levels for performing various
functions, staffing deals with providing the right type of persons to man them. Persons are the
key to the effective functioning of any organisation. In fact, the real strength of an organisation is
its personnel; they can make or break the organisation.

Staffing is the formal process of ensuring that the organisation has qualified workers available at
all levels to meet its short- and long-term objectives. This function includes:

(i) Human resource planning

(ii) Recruitment and selection
(iii) Training and development
(iv) Rewards and compensations
(v) Health and safety
(vi) Career planning and management
(vii) Employee assistance, coaching and orientation
(viii) Performance appraisal.

Directing: Directing is the managerial function concerned with the interpersonal aspect of
managing by which subordinates are led to understand and contribute effectively and efficiently
to the attainment of enterprise objectives. It is aimed at getting the members of the organisation
to move in the direction that will achieve its objectives. In other words, directing is the managerial
function that enables managers to get things done through persons, both individually and
collectively.

Directing is not the singular function of the top management. In fact, it pervades the organisation
at all supervisory levels. This calls for good interpersonal communication, both oral and written.
Written communications are often through memos, letters, reports, directives, policy guidelines,
staff and work manuals and similar others. It is essential to get them drafted unambiguously to
give proper direction to the employees. This is supported by oral communication, formally at staff
meetings and informally on other occasions.

Controlling: Another important aspect of directing is exercise of control over the system. Control
does not merely mean restrictions or restraints to be forced on the system, but they are
guidelines for the organisation to perform according to set standards of efficiency and quality.

Controlling can be defined as the process of comparing actual performance with standards and
taking any necessary corrective action. Hence, the control process consists of

(i) establishment of standards

(ii) measurement of performance, and
(iii) correction of deviations

A good control system should be forward looking, objective, flexible, economical,

understandable, reflect nature and needs of activity as well as the organisation pattern, promptly
report deviations and exceptions at critical points and lead to corrective actions. The other
important principles of controlling are listed below:

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Management and Ethics Notes for RBI Grade B

 Controls require a clearly defined organisational structure;

 Controls must be based on plans;
 Controlling is a primary responsibility of every manager charged with executing plans;
 The control itself should be exercised where the malfunction is likely to occur;
 Controls must focus on key variables;
 Controls must be meaningful and economical;
 Controls must provide accurate and timely feedback;
 Feed forward controls should be used to supplement feedback control; and
 Controlling requires action.

Types of Control mechanism

 Feedback control
o It takes place after operations are finished and is intended to correct problems that
have already occurred.
o It is also referred to as corrective control.
 Concurrent control
o It takes place while operations are going on and is intended to minimize
problems as they occur.
o Concurrent control is a control type based on timing that involves the regulation,
monitoring and adjusting of ongoing activities that are part of the transformation
process to ensure that they conform to organizational standards.
 Feed forward control
o It is a mechanism in a system for preventing problems before they occur by
monitoring performance inputs and reacting to maintain an identified level.
o This control mechanism is directed towards the future
o It is also referred to as preventive control

Techniques of Control

 Steering control is a technique used to detect deviations and allow corrective actions to
be taken while the activity is being performed.

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Management and Ethics Notes for RBI Grade B

 The most commonly used

techniques of control are:
o Budgetary control – it
is the process of
preparing budgets for
future, comparing the
standards set by the
budget with the actual
performance, find out
reasons for the
difference in
performance and taking corrective action. The commonly prepared budgets
include operational budget, cash flow budget and capital expenditure budget.
o Standard costing - Standard costing is a technique which uses standards for
costs and revenues for the purpose of control through variance analysis.
o Financial Ratio Analysis – it helps in analyzing the financial performance of the
company in terms of its profitability, liquidity, solvency and efficiency.
o Break-even Analysis – it is a tool of control available to management which is
concerned with the cost-volume profit relationship. It magnifies a set of
relationships of fixed costs, variable costs, price, level of output and sales mix to
the profitability of the organization.
o Internal Audit – it is a way to independently review the systems, business
structures, and processes of the organization including its corporate governance
and accounting processes to ensure compliance with laws and regulations and
maintain accurate and timely reporting systems in the organization.
o Statistical Control - Statistical process control is a method of quality control
which employs statistical methods to monitor and control a process. This helps to
ensure that the process operates efficiently, producing more specification-
conforming products with less waste.

Other Managerial Functions

Coordinating: It deals with linking several activities to achieve a functional whole in the
organisation. In other words, it ensures that persons who perform interdependent activities work
together in a way that contributes to overall goal attainment. Coordinating is the management of
interdependence in a work situation. It is much more than just cooperation and it involves an
information giving function.

It is in the coordinating process that a manager has to act like a leader and her/his leadership
skills are put to test. The best coordination occurs when individuals see how their jobs contribute
to the goals of the organisation. To avoid splintering efforts, the dominant goal of the organisation
should be clearly defined and communicated to everyone concerned. Goals of subordinate
departments should be designed to contribute to the goals of the organisation. Coordination calls
for skill of leadership, communication and delegation.

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 Management and Ethics Notes for RBI Grade B

Communicating: Communicating is the transfer of information, ideas, understanding or feeling

between people. In other words, it is the process of passing information and understanding from
one person to another. Communication is an all-pervasive phenomenon.

Reporting: It has already been mentioned that reporting is converse of directing. Reporting
serves the purpose of keeping authorities and the public at large informed about the
performance, achievements and shortfalls for a specific period. This function not only helps with
a healthy self-assessment but also by maintaining good public relations. Libraries usually
generate a great amount of statistical data and reports.

Budgeting: The budget is one of the plan documents. It is a statement of planned allocation of
resources expressed in financial or numerical terms. Budgeting includes financial planning,
accounting and controlling.

Innovating: As every organisation has to constantly grow bigger and better, innovation becomes
an important function of a manager. Innovation means creating new ideas which may either
result in the development of new products or finding the new user for the old ones.

Representing: Today’s manager is required to spend a part of his time representing his
organisation before various outside groups (stake holders) like Government officials, labour
unions, financial institutions, suppliers, customers, etc.

Functions of Management - summary

Function Features Steps Advantages Disadvantages

Planning o Primary function 1. Establishing o Facilitates o Rigidity
o Preparatory step Objectives Management by o Time consuming
o Systematic 2. Establishing Objective o Based on probability
approach planning premise o Minimises and estimates
o Goal-oriented 3. Choice of uncertainties o False sense of
o Future looking alternative course o Facilitates co- security
o Intellectual process of action ordination o Expensive
o Continuous process 4. Formulation of o Improves o External limitations
o All pervasive derivative plans employee’s morale like government
o Flexible 5. Securing co- o Helps in achieving policies,
o Designed for operation economies technological
efficiency 6. Follow-up/appraisal o Facilitates changes, policies of
of plans controlling competitors, change
o Provides in demand and
competitive edge consumer
o Encourages preferences, etc.
innovation

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 Management and Ethics Notes for RBI Grade B

Function Features Steps Advantages Disadvantages

Organising synchronization and 1. identification of o Specialization Works on various
combination of human, activities. o Well-defined jobs principles like
physical and financial 2. Classification of o Clarifies authority specialization,
resources grouping of activities. o Co-ordination in functional organisation,
3. Assignment of various span of control, unity of
duties. departments command
4. Delegation of o Effective
authority and administration
creation of o Growth and
responsibility. diversification
5. Coordinating o Scope for new
authority and changes
responsibility
relationships
Staffing o Right man for the 1. Manpower Planning o Places right person o Time consuming
right job 2. Recruitment, for right job o Expensive
o Pervasive activity Selection & o Reduces turnover
o Continuous process Placement o Improves efficiency
o Basis of staffing is 3. Training & o Increases morale
efficient Development
management of 4. Remuneration
personnel 5. Performance
Appraisal
6. Promotions &
Transfer
Directing o inter-personnel 1. Supervision o Initiates action
aspect of 2. Motivation o Ensures efficiency
management 3. Leadership o Achieving
o deals directly with 4. Communication organisational
influencing, guiding, goals
supervising, o Means of
motivating sub- motivation
ordinate o Provides stability
o Heart of o Facilitates change
management
Controlling o Measurement of 1. Establishment of o Facilitates co-
accomplishment standard ordination
against standards performance. o Helps in planning
o Correction of 2. Measurement of o Predict deviations
deviations actual performance. before they actually
o End function 3. Comparison of occur
o Dynamic actual performance
with the standards
and finding out
deviation if any.
4. Corrective action

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Management and Ethics Notes for RBI Grade B

The Levels of Management

 The number of levels in management increases when the size of the business and work force
increases and vice versa.
 The level of management determines a chain of command, the amount of authority & status
enjoyed by any managerial position.
 three broad categories:
o Top level / Administrative level
o Middle level / Executory
o Low level / Supervisory / Operative / First-line managers
 All three levels are involved in some type of planning. However, the planning at the three
levels varies in terms of the breadth and duration of the planning done.

Management Level Type of Meaning

Planning
Top/ Senior Strategic  Setting of broad, long term goals;
Management  like analyzing competitive landscape,
opportunities, threats, strengths and
weaknesses of the company and determining
how to proceed and what to do to effectively
run the company
 it can be associated with vision and mission
statements and strategy
Middle Management Tactical  Identifying specific, short-term objectives to be
achieved
Lower/execution level Operational  Setting of work standards and schedules and
procedures and rules

Apart from the above, the management would also undertake contingency planning as back-up
planning in case the primary plans fail.
Contingency planning would mostly be done at top level, but can also be carried out by all level
managers within their scope of work.

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 Management and Ethics Notes for RBI Grade B

Types of Management strategies

The definition of strategy has been evolving from years. One of the earliest definitions include
‘the determination of the basic long-term goals of an enterprise, and the adoption of
courses of action and the allocation of resources necessary for carrying out these goals‘.
Strategy is at the foundation of every decision that has to be made within an organization. If the
strategy is poorly chosen and formulated by top management, it has a major impact on the
effectiveness of employees in pretty much every department within the organization.
Strategy can basically take four forms:
 Corporate Strategy - It is about selecting an
optimal set of businesses and determining how
they should be integrated into a corporate whole.
Typically, major investment and divestment
decisions are made at this level by top
management. Usually, corporate strategy may
exist in case of large corporates or conglomerates
and decisions related to mergers and acquisitions
fall under this.
 Business level strategy or competitive strategy
- business-level strategy is aimed at gaining a
competitive advantage by offering true value for customers while being a unique and
hard-to-imitate player within the competitive landscape. These are also done at top level
but below corporate strategy.
 Functional strategy - These strategies are often aimed at improving the effectiveness of
a company’s operations within departments. Within these department, workers often refer
to their ‘Marketing Strategy’, ‘Human Resource Strategy’, etc.
 Operational strategy - It gives form to the operating units of an organization. An
operating strategy is put across at the field level, usually to achieve on-hand
objectives.

Managerial Roles
According to Henry Mintzberg, a manager has 10 roles sub-divided into three categories:

Interpersonal roles:
These are the relations a manager has with others inside and outside the organisation. These
include:
1) Figure Head: This takes into account the role as symbolic head of the organisation.
For example, welcoming official visitors and duties of a legal nature.
2) Leader: The manager guides, directs and motivates subordinates and is accountable
for their actions.
networking
3) Liaison: The manager has to establish linkages, relationships and networks, both
inside and outside the organisation which would be useful in achieving organizational
goals.

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 Management and Ethics Notes for RBI Grade B

Informational roles:
An important aspect of the Manager's job is receiving and communicating information. This
further includes:
1) Monitor: The manager constantly searches for relevant information internally as well
as outside the organisation. This enables the manager to keep up with new trends and
flow of information ideas.
2) Disseminator: The transmission of information received from outside to internal
members and subordinates is another role.
3) Spokesperson: A manager also speaks on behalf of his/her Unit or Organisation.

Decision Making Roles:

A manager has four decision making roles:
1) Entrepreneur: A manager perform the role of an entrepreneur by initiating change.
2) Disturbance handler: A manager is expected to solve problems and handle
disturbances in the organisation.
3) Resource allocator: The resources of an organisation are always limited. A manager
makes best use of them to achieve the stated goals and accordingly allocates them.
4) Negotiator: A manager negotiates with both insiders as well as outsiders.

Nudge Theory

Nudge theory was popularized by behavioral economics researchers Richard Thaler and Cass
Sunstein in the 2008 book Nudge: Improving Decisions About Health, Wealth, and Happiness.

Nudge theory is the science behind subtly leading people to the ‘right’ decision. It works on the
principle that small actions can have a substantial impact on the way people behave.

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Management and Ethics Notes for RBI Grade B

Change in the workplace can be difficult for anyone. When a company brings in new
technologies, switches up its processes, restructures, or introduces new guidelines, the
change can make employees feel insecure and uncertain about their roles.

For efficient running of the organization, the organisation needs its employees to be on
board with the change that is being made. And to make that happen, organisations use one
of the most effective techniques to drive organizational change: nudge theory.

How does Nudge Theory work?

Nudge theory is also known as “choice architecture.” This makes the leader, a choice
architect.
In that sense, the leader can use nudge theory to design employees’ decision-making
processes and use positive reinforcement to encourage change, guiding them towards the
most favourable outcome for your organization.
It is not an easy process and it starts with analysing the current behaviour of employee s and
what are the desired changes in their behaviour. Following are the three actions which are
necessary to leading change in behaviour of the employees.

Perception nudges
These are actions which play around perceptions of organisational behaviour . Individual
have different perception of the different situation. So, it is important to understand
employees’ perception of the desired change. This also gives an idea that what are
impediments to change and how these can be overcome by influencing perception of
employees.

Motivation Nudges
These are actions which are needed to make employees think positively about a change.
There are many forms of motivational nudges and organization can take example of other
individual example to show the others that it is the best behaviour and it fits to the idea of
change.

Case Study
A company has started a mentorship program that pairs senior staff with interns and entry -
level employees. The only problem is, there are more mentees than mentors.
Though senior staff members initially voiced interest in the program, few have officially taken
on a mentee.
First, you have to get to the heart of the issue: Mentors may have lost interest, feel they’re
too busy, or aren’t sure how the experience will play out. If the main issue is lost interest,
implementing motivational nudges can help.
In this scenario, motivational nudges may include rewards and incentives for those who
participate, such as increased paid leave for each year of mentorship, a monetary bonus, or
another high-quality incentive.

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Management and Ethics Notes for RBI Grade B

If receiving those incentives isn’t motivation enough, seeing their peers take an extra paid
holiday when they’re feeling tired or overworked may eventually do the trick.

Ability and simplicity nudges

When change is hard and complex and employees feel it is difficult to adopt changes then
simple nudges are needed by organization. These simple and tiny actions will improve
employees’ ability to adopt to change.

Approval or agreement nudge

Having trouble getting everyone on board with a workplace change? When leadership
members or peers voice their approval of a change, nudge theory can help move employees
in the same direction.

Default nudges
People often click on “Accept Cookies” button on a website without looking at other options.
Because, people are more likely to accept the default direction than go against it (specially
in low-stakes scenarios).
In the workplace, the leader can change the default option in a scenario to positively
influence your employees’ decisions.

Case Study
Let’s say you want to increase enrollment in pension schemes. Instead of providing
employees the choice to opt-in to a pension scheme, automatically enrolling employees in
pension schemes and including an opt-out option offers a better likelihood of success.

How does Nudge Theory work?

 Defining change - It is like knowing your destination. If the desired change is clearly
defined and articulated among the employees than it is more likely that it will be
successfully accomplished.
 Stakeholder analysis - It is also necessary to have analysis of how change will be
perceived by all stakeholders and how the expected change is going to affect all of
these stakeholders. This analysis will provide with change leaders more clarity and
better strategy to implement change.
 Timeline - Making a rational plan to implement a change is also a part of nudging
process. It will also help in identifying what resource will be needed and when these
resources will be required to execute the change.
 Inclusive decision making - It is also essential part of nudging process that those
who matter most and those who are affected by the desired change should be
involved in decision making process.
 Receptive to feedback - Listening to feedback is a powerful nudging technique.
Whether the feedback is coming from employees, or it is from customers, it is
important to be open about feedback and learn from it.

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Management and Ethics Notes for RBI Grade B

 Remove bottlenecks - The road of change is full of thorns. The role of change
leaders and management is to remove bottlenecks on the way to change. By doing
this, change leaders will get support from the employees and all other important
stakeholders.
 Consistency - Patience is needed to implement change. The change leaders need to
keep morale of team high and keep moving consistently. Teams should not show
complacency on initial wins and real goal should be remain in focus till it is achieved.

Organisation Behaviour
“Organizational behavior is directly concerned with the understanding, prediction, and control of
human behavior in organizations.” — Fred Luthans.

Organisation behaviour (OB) is a study that examines human behavior in a work environment
and determines its impact on job structure, performance, communication, motivation, leadership,
etc. It studies three determinants of behavior in organizations: individuals, groups and structure.

Organizations are combination of humans and technology. OB is the study and application of
knowledge about how people act within the organization. It is a human toll for human benefit.

Scope of Organizational Behavior

The three internal organizational elements viz., people, technology and structure and the fourth
element, i.e., external social systems may be taken as the scope of O.B.

1. People

The people constitute the internal social system of the organization. They consist of individuals
and groups. Groups may be large or small, formal or informal, official or unofficial. They are
dynamic. They form, change and disband. Human organization changes every day. Today, it is
not the same as it was yesterday. It may change further in the coming days. People are living,
thinking and feeling being who created the organization and try to achieve the objectives and
goals. Thus, organizations exist to serve the people and not the people exist to serve the
organization.

2. Structure

Structure defines the sole relationship of people in an organization. Different people in an

organization are given different roles and they have certain relationship with others. It leads to
division of labour so that people can perform their duties or work to accomplish the organizational
goal. Thus, everybody cannot be an accountant or a clerk. Work is complex and different duties
are to be performed by different people. Some may be accountant, others may be managers,
clerks, peons or workers. All are so related to each other to accomplish the goal in a co-ordinated

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Management and Ethics Notes for RBI Grade B

manner. Thus, structure relates to power and duties. One has the authority and others have a
duty to obey him.

3. Technology

Technology imparts the physical and economic conditions within which people work. With their
bare hands people can do nothing so they are given assistance of buildings, machines, tools,
processes and resources. The nature of technology depends very much on the nature of the
organization and influences the work or working conditions. Thus, technology brings
effectiveness and at the same restricts people in various ways.

4. Social System

Social system provides external environment which the organization operates. A single
organization cannot exist also. It is a part of the whole. One organization cannot give everything
and therefore, there are many other organizations. All these organizations influence each other. It
influences the attitudes of people, their working conditions and above all provides competition for
resources and power.
5. External environment

Models of Organizational Behavior

The five models of organizational behavior are the:

 autocratic model,
 custodial model,
 supportive model,
 collegial model and
 system model

Autocratic model

Autocratic model is the model that depends upon strength, power and formal authority. In an
autocratic organisation, the people (management/owners) who manage the tasks in an
organisation have formal authority for controlling the employees who work under them. These
lower-level employees have little control over the work function. Their ideas and innovations are
not generally welcomed, as the key decisions are made at the top management level. The
guiding principle behind this model is that management/owners have enormous business
expertise, and the average employee has relatively low levels of skill and needs to be fully
directed and guided. This type of autocratic management system was common in factories in the
industrial revolution era.

One of the more significant problems associated with the autocratic model is that the
management team is required to micromanage the staff – where they have to watch all the
details and make every single decision. Clearly, in a more modern-day organisation, where highly
paid specialists are employed an autocratic system becomes impractical and highly inefficient.

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Management and Ethics Notes for RBI Grade B

Custodial model
The custodial model is based around the concept of providing economic security for employees –
through wages and other benefits – that will create employee loyalty and motivation.

In some countries, many professional companies provide health benefits, corporate cars,
financial packaging of salary, and so on – these are incentives designed to attract and retain
quality staff.

The underlying theory for the organisation is that they will have a greater skilled workforce, more
motivated employees, and have a competitive advantage through employee knowledge and
expertise.

Supportive model
Unlike the two earlier approaches, the supportive model is focused around aspiring leadership. It
is not based upon control and authority (the autocratic model) or upon incentives (the custodial
model), but instead tries to motivate staff through the manager-employee relationship and how
employees are treated on a day-to-day basis.

Quite opposite to the autocratic model, this approach states that employees are self-motivated
and have value and insight to contribute to the organisation, beyond just their day-today role. The
intent of this model is to motivate employees through a positive workplace where their ideas are
encouraged and often adapted. Therefore, the employees have some form of “buy-in” to the
organisation and its direction.

Collegial model
The collegial model is based around teamwork – everybody working as colleagues (hence the
name of the model). The overall environment and corporate culture need to be aligned to this
model, where everybody is actively participating – is not about status and job titles – everybody is
encouraged to work together to build a better organisation.

The collegial model is quite effective in organisations that need to find new approaches –
marketing teams, research and development, technology/software – indeed anywhere the
competitive landscape is constantly changing and ideas and innovation are key competitive
success factors.

System model
The final organisational model is referred to as the system model. This is the most contemporary
model of the five models. In the system model, the organisation looks at the overall structure and
team environment, and considers that individuals have different goals, talents and potential.

The intent of the system model is to try and balance the goals of the individual with the goals of
the organisation. Individuals obviously want good remuneration, job security, but also want to
work in a positive work environment where the organisation adds value to the community and/or
its customers. The system of model should be an overall partnership of managers and
employees with a common goal, and where everybody feels that they have a stake in the
organisation.

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Management and Ethics Notes for RBI Grade B

Human Resources Development

Human Resource Development is a system of developing in a continuous and planned way the
competencies of individual employees, dyadic groups (supervisor and subordinate), teams and
the total organisation to achieve the organisations goals. It maximizes the congruence between
the individual and the organisational goals of employees an develops an organisational culture in
which superior- subordinate relationships, teamwork and collaboration among various units
become strong and contribute to the professional well-being, motivation and pride of employees.

Scope of Human Resource Development

 Enabling and empowering people in organization so that they can actualize their potential
 treat employees as value creators/value enhancers and assets based on the Resource
Based View (RBV) of the firm
 Employee not a mere factor of production but source of competitive advantage

Performance
Appraisal
Potential
HR Appraisal &
Information Development

Employee Career
Welfare & Planning
Quality of life
HRD

Organisation Training &

Development Development

Counselling
Rewards
& Mentoring

Figure 1: Scope of HRD

Significance of Human Resources Development

Develops Competency
 Competence is the ability of an individual to do a job properly.
 Development people in time according to the organization needs with the help of training &
development programs.
 To develop emplacements skill & competencies different training & development
programmers are launched.

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Management and Ethics Notes for RBI Grade B

Employee commitment
 Employee commitment is the loyalty & support of work force towards the goals of an
organisation.
 Strong relationship between superior & subordinate creates healthy employs commitment
plays a vital role in the development of each & every organization all over the world.
 Committed employees bring added value to the organization through their determination
support high productivity & awareness of quality.

Job satisfaction
 Job satisfaction can be defined as the extent of positive feelings that individual have towards
their jobs.
 When a person says that he has high job satisfaction it means that he really likes his job.
 Job satisfaction is very important because most of the people spend a major portion of their
life at their working place.
 It usually depends on the mind of employee’s worker.

Performance development
 Performance development is the on-going process between supervisor & employee of
communications & clarifying position responsibilities & priorities and performance
expectations to enhance effectiveness in achieving the mission & goals of an organization.
 It provides a structured process tools, forms & other sources to facilities effective
communication about performance between supervisors & staff.

Increase in productivity
 All successful business understands how important productivity is in a work environment.
 An employee’s productivity can help the company in utilizing the capacity of their available
work force.
 Motivation is an essential factor to ensure productivity in the work place.
 HR can make employees happier & more productive by providing positive training &
enjoyable work environment that help retain talent.

Training and Development

 HR training and development specialists coordinate new employee orientation, an essential
step in forging a strong employer-employee relationship.
 The training and development area of HR also provides training that supports the company's
fair employment practices and employee development to prepare aspiring leaders for
supervisory and management roles.

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Management and Ethics Notes for RBI Grade B

Performance Evaluation

Performance evaluation is a measurement process; it is an exercise in observation and

judgment; it is a feedback process. It is a control device, which is used by the organization to
accomplish its predetermined goals.
Performance refers to an employee’s accomplishment of assigned tasks. Performance means
doing a job effectively and efficiently.
Performance evaluation is the process by which manager or consultant examines and evaluates
an employee’s work behavior by comparing it with preset standards, documents the results of the
comparison and uses the results to provide feedback to the employees to show where
improvements are needed and why.

Meaning Objectives
 Systematic  Basis for Compensation - determine
evaluation of the compensation packages, wage
structure, salaries raises, etc., based
performance of
on merit
employees
 Basis of Promotion – identify efficient
 understanding the employess from inefficient employees.
abilities of a person  To identify the strengths and
for further growth weaknesses of employees to place
and development right men on right job. Features of affective
 Employee development - To maintain performance appraisal
and assess the potential present in a system
person for further growth and  Mutual trust
development.  Clear objective
 Effective communication – between  Standardization
employee and employer  Training
 Motivation - It serves as a basis for  Job relatedness
influencing working habits of the  Documentation
employees.
 Feedback and
 Validation of selection and training participation
processes - To review and retain the  Individual differences
selection and other training  Post appraisal interview
programmes.  Review and appeal

Characteristics of an Effective Performance Evaluation

Explain the appraisal process

 In the appraisal meeting between a manager and employee, the manager should first explain
the purpose and the process of the Performance evaluation.
 Generally, a Performance evaluation is conducted to clarify job expectations, set goals for
improvement of weaknesses and reward for accomplishments and overall performance.
 The manager’s job is to explain the steps involved during and after the Performance
evaluation.

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Management and Ethics Notes for RBI Grade B

Clarify job expectations

 A mutual understanding of job expectations is essential to an effective Performance
evaluation. Absence of mutual understanding, the appraisal meeting could spiral downward
because the manager and employee might be working from completely different viewpoints.
 A review of the job description, and employee skills, qualifications and responsibilities should
precede the actual Performance evaluation.

Review and update job skills

 It is important to review the skills of employees and update accordingly. Manager discusses
any improvements necessary, and praise the employee for acquiring the new skill.
 The manager determines what additional skills the employee can learn during the next
evaluation period by setting reasonable goals for professional development. The employee
should feel free to provide input throughout the Performance evaluation.
 Employees should be provided with a self-appraisal form. If this is the case, the employee will
come to the Performance evaluation meeting with the completed self-appraisal.

Review accomplishments and goals

 Accomplishments throughout the evaluation year will be enumerated. If there are quantifiable
goals established for the review period, the manager and the employee determine if the goals
have been met.
 Often, a “management by objective” technique is used to track specific, goals, progress and
completion of each quarter. Using this technique simplifies the Performance evaluation
because there are intermediate assessments made during the evaluation period.

Final steps and rewards

 An overall appraisal score may be discussed during the meeting or it may be calculated after
the manager has had an opportunity to consider the employee input.
 In addition, the manager should indicate whether or not the employee will be entitled to an
increase in pay or bonus, if applicable. Many employers use a scale that determines a
percentage increase in Performance evaluation scores.
 Whenever possible, the manager should inform the employee of the type or amount of
increase to expect for his/her performance during the year.

Methods of Performance Evaluation

4 Methods of Performance Evaluation;

 Category rating methods.
 Comparative methods.
 Behavioral/objective methods.
 Narrative methods.

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Management and Ethics Notes for RBI Grade B

Category Rating Methods

The simplest methods for appraising performance are category rating methods, which require a
manager to mark an employee’s level of performance on a specific form divided into categories
of performance.
The graphics rating scale and checklist are common category rating methods.
 Graphics Rating Scale
Graphic rating scale is a scale that lists a number of traits and a range of performance for
each that is used to identify the score that best describes an employee’s level of
performance for each trait.
 Checklist
The checklist is composed of a list of statements or words. Raters check statements most
representative of the characteristics and performance of employees.
This method requires the rater to select statements or words that describe the employee’s
performance and characteristics. He does not evaluate employee performance. The rater
is usually the immediate supervisor. He just supplies report about Performance
Appraisals and the final rating is done by the HR department.

Comparative Methods
Comparative method requires that managers directly compare the performance of their
employees against one another.
Ranking method is one of the most prominent ones. The ranking method consists of listing all
employees from highest to lowest in performance. The primary drawback of the ranking method
is that the size of the differences among individuals is not well defined.

Behavioral/Objective Methods
Behavioral approaches hold promise for some situations in overcoming some of the problems
with other methods.
 Behavioral Rating Approaches: Behavioral rating approaches attempt to assess an
employee’s behaviors instead of other characteristics. Some of the different behavioral
approaches are behaviorally anchored rating scales (BARS), behavioral observation
scales (BOS), and behavioral expectation scales (BES).
 Management by Objectives (MBO): Management by objectives (MBO) specifies the
performance goals that individual hopes to attain within an appropriate length of time. The
objectives that each manager sets are derived from the overall goals.

Narrative Methods
Managers and HR specialists frequently are required to provide written appraisal information.
Critical Incident
 In the critical incident method, the manager keeps a written record of both highly favorable
and unfavorable actions in an employee’s performance.
 When a “critical incident” involving an employee occurs, the manager writes it down. A list of
critical incidents is kept during the entire rating period for each employee. The critical incident
method can be used with other methods to document the reasons why an employee was
rated in a certain way.

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Management and Ethics Notes for RBI Grade B

Essay
 The essay, or “free-form,” appraisal method requires the manager to write a short essay
describing each employee’s performance during the rating period.
 The rater usually is given a few general headings under which to categorize comments. The
intent is to allow the rater more flexibility than other methods do.
Field Review
 This approach can include the HR department as a reviewer, or a completely independent
reviewer outside the organization.
 In the field review, the outside reviewer becomes an active partner in the rating process. The
outsider interviews the manager about each employee’s performance and then compiles the
notes from each interview into a rating for each employee.
360° Feedback or Multi-source Appraisal
 360-degree feedback, also known as multi-rater feedback, multisource feedback, or multi-
source assessment.
 Most often, 360- degree feedback will include direct feedback from an employee’s
subordinates, peers, and supervisor(s), as well as a self-evaluation.
 It can also include, in some cases, feedback from external sources, such as customers and
suppliers or other interested stakeholders.

Employee Welfare

Employee welfare means anything done for the comfort and (intellectual or social) improvement
of the employees, over and above the wages paid. In simple words, it means “the efforts to make
life worth living for workmen.” It includes various services, facilities and amenities provided to
employees for their betterment. These facilities may be provided voluntarily by progressive
entrepreneurs, or statutory provisions may compel them to provide these amenities; or these may
be undertaken by the government or trade unions, if they have the required funds.
The objectives of employee welfare are to improve the life of the working class, to bring about
holistic development of the worker’s personality and so on. Employee welfare is in the interest of
employee, employer and the society as a whole. It enables workers to perform their work in
healthy and favorable environment.

Hence, it improves efficiency of workers and keeps them content, thereby contributing to high
employee morale. It also develops a sense of responsibility and dignity amongst the workers and
thus makes them good citizens of the nation.
According to the International Labour Organization (ILO), ’employees’ welfare should be
understood to mean such services, facilities, and amenities which may be estab-lished in or in
the vicinity of undertakings to enable the persons employed in them to perform their work in
healthy and congenial surroundings, and provided with amenities conducive to the good health
and morale.’
The basic features of employees’ or labour welfare are as follows:
 Labour welfare includes various facilities, services and amenities provided to workers for
improving their health, efficiency, economic betterment and social status.

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Management and Ethics Notes for RBI Grade B

 Welfare measures are in addition to regular wages and other economic benefits available to
workers due to legal provisions and collective bargaining.
 Labour welfare measures are flexible and ever-changing. New welfare measures are added
to the existing ones from time to time.
 Welfare measures may be introduced by the employers, government, employees or by any
social or charitable agency.
 The purpose of labour welfare is to bring about the development of the whole personality of
the worker to make him a good worker and a good citizen.

Employee Welfare – Objectives

 The objectives of employee welfare are discussed below:
 To enhance the level of morale of employees.
 To create a loyal, contented workforce in organization.
 To develop a better image of the company in the minds of the employees.
 To enable the workers to live comfortably and happily.
 To develop efficiency of the workers.
 To reduce influence of trade unions over the workers.
 To expose philanthropic and benevolent activities of the company.
 To make the workers know that the company takes care of them.
 To develop positive attitude towards job, company and management.
 To reduce tax burden.
 To develop a feeling of satisfaction of employees with the company.
 To develop a sense of belonging to the company.
 To retain skilled and talented workers.
 To develop better human relation.
 To prevent social evils like drinking, gambling through improvement of working conditions,
cultural activities and social conditions.

Personality

Meaning of Personality
- Personality is a set of qualities that makes a person (or a thing) distinct from another.
- Personality is the totality of one’s attitudes, interests, behavioral patterns, emotional
responses, social roles, and other individual traits that are formed over long periods of
time.
Factors affecting Personality

1) Heredity Factors:
 Heredity is the transmission of the qualities from the parents to the children through a
biological mechanism lying in the chromosomes of the germ cells.
 Physical stature, facial attractiveness, temperament, sex, muscle composition and
biological rhythms are the examples of heredity characteristics.

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Management and Ethics Notes for RBI Grade B

2) Environmental Factors:
 The environment, i.e. one’s early conditioning, the family norms, friends and social groups
exerts pressures on one’s personality formation.
 For example, in India, children learn from an early age the values of hard work and family
closeness.
 Research studies have also revealed that parents have effect on the personality
development of their children as compared to other members of the family.
 Besides parents, siblings (brothers and sisters) also influence the shaping of personality.
Elders serve as models for the younger.

3) Situation:
 No doubt, both heredity and environment are the primary determinants of personality, but
situation also influences the effects of heredity and environment on personality.
 As an example, the same person while facing an employment interview and while
enjoying picnic with his/ her friends in a public park behaves quite differently depending
on the two different situations.

4) Physical Factors:
 There are many physical factors which will determine a person’s personality.
 These physical factors include the overall physical structure of a person: his height,
weight, color, sex, beauty, body language, etc.

5) Intelligence: Intelligence is mainly hereditary. Persons who are very intelligent can turn the
situations for the betterment of all, be it in home, school and society than those who are
less intelligent.

6) Sex Differences: Sex differences play a vital role in the development of personality of
individual. Boys are generally more assertive and vigorous. They prefer adventures. Girls
are quieter and more injured by personal, emotional and social problems.

Personality Types

Each person is a unique combination of four personality types.

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Management and Ethics Notes for RBI Grade B

Type A Personality
Type A personality likes to be in charge and be in control of their environment and their lives.
They’re normally not very detail-oriented, choosing to delegate details to others. They’re usually
very goal-oriented and practical in their solutions. And arriving at their solutions and goals will
entail a no-nonsense, bottom-line approach. Type A personalities don't like a lot of restraints or
restrictions placed on them. Instead, they prefer to work independently and set their own
schedules.

Type B Personality
The Type B personality is a very outgoing, energetic, and fast-paced individual who likes to be
around people and enjoys being the center of attention. They’re good relationship builders, and
most people like them right away. Their driving need is for approval, so they try to like everyone
in hopes everyone will like them too. Compliments, acknowledgement of their achievements,
words of admiration, and even applause from groups will be the most important thing you can do
for them.

Type C Personality
The Type C personality is a very detail-oriented individual who likes to be involved in things that
are controlled and stable. They’re interested in accuracy, rationality, and logic. People who can't
seem to control their emotions will bother them because Type C personalities believe being
emotional makes objectivity difficult or perhaps impossible. They also dislike being around people
who are full of hype, since they desire facts, accuracy, and logic. Other people's emotions may
not be a priority for them, as they tend to strive for the facts and let the chips fall where they may.

Type D Personality
A Type D personality takes a slower, easier pace toward their work and life in general. They seek
security and longevity on the job and are very happy doing a repetitive task, day in and day out.
The repetition allows them to become very skilled in what they do. Likewise, they won't like it if
the rules change a lot, as that’s contrary to their desire to minimize change and stick with what
they know works. For the Type D personality, even though the current way may be unpleasant,
they worry that the unknown may be even worse.

Big Five Model of Personality

The Big Five Personality Model (OCEAN), which puts forth the idea that human personality is
made up of five basic dimensions. The acronym OCEAN stands for: openness to experience,
conscientiousness, extroversion, agreeableness and neuroticism.

Openness to Experience
- It encompasses someone’s desire to try new things, be open and think creatively.
- This trait is often referred to as the depth of someone’s mental experiences, or
imagination.
- People who score high in this area are generally artistic and curious, while those who
score low tend to be conventional and stay in their comfort zones.

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Management and Ethics Notes for RBI Grade B

Conscientiousness
- This trait measures a person’s reliability and dependability.
- A conscientious person is more goal-oriented, tends to control impulses and is usually
very organized.
- They are likely to see success in every aspect of life and excel as a leader. Those who
score lower in this area are more likely to be impulsive and procrastinate on assignments.

Extroversion
- The extroversion trait indicates how social and talkative a person may be.
- Those scoring high in extroversion are generally more assertive, socially confident and
recharge from interacting with people.
- While those who score lower are more likely to seek solitude and introspection.

Agreeableness
- Agreeableness shows how well someone can get along with other people.
- People scoring high in this trait are usually well-liked, sympathetic and affectionate.
- Those who score lower are perceived as blunt, rude and sarcastic.

Neuroticism
- The last OCEAN trait is also known as emotional stability.
- It measures how well a person can control emotions like anxiety and sadness.
- Scoring high in this area indicates that someone may be prone to those emotions and
may also have low self-esteem.
- Those receiving a low score are probably more confident and adventurous.

Perception

People look at the world and see things differently. People use an organized framework that they
have built out of a lifetime of experience and accumulated values. This is another way in which
people insist on acting like human beings rather than rational machines. Employees see their
world differently for a variety of reasons. They may differ in their personalities, needs,
demographic factors, a past experience, or they may find themselves in different physical
settings, time periods, or social surroundings. Whatever may be the reasons, they tend to act
on the basis of their perceptions.

Perceptual process are the different stages of perception we go through. The different stages are
 Receiving
 Selecting
 Organizing
 Interpreting

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Management and Ethics Notes for RBI Grade B

Receiving
 Receiving is the first and most important stage in the process of perception. It is the initial
stage in which a person collects all information and receives the information through the
sense organs.

Selecting
 Selecting is the second stage in the process. Here a person doesn’t receive the data
randomly but selectively. A person selects some information out of all in accordance with his
interest or needs. The selection of data is dominated by various external and internal factors.
 External factors − The factors that influence the perception of an individual externally are
intensity, size, contrast, movement, repetition, familiarity, and novelty.
 Internal factors − The factors that influence the perception of an individual internally are
psychological requirements, learning, background, experience, self-acceptance, and interest.

Organizing
 Keeping things in order or say in a synchronized way is organizing. In order to make sense of
the data received, it is important to organize them. We can organize the data by −
o Grouping them on the basis of their similarity, proximity, closure, continuity.
o Establishing a figure ground is the basic process in perception. Here by figure, we mean
what is kept as main focus and by ground we mean background stimuli, which are not
given attention.
o Perceptual constancy that is the tendency to stabilize perception so that contextual
changes don’t affect them.

Interpreting
 Finally, we have the process of interpreting which means forming an idea about a particular
object depending upon the need or interest. Interpretation means that the information we
have sensed and organized, is finally given a meaning by turning it into something that can
be categorized. It includes stereotyping, halo effect etc.

Factors Influencing Perceptual Process

Perception is our sensory experience of the world around us and involves both the recognition of
environmental stimuli and action in response to these stimuli. Through the perceptual process,
we gain information about properties and elements of the environment that are critical to our
survival.
A number of factors operate to shape and sometimes distort perception.

External Factors:
 Size: Bigger size attracts the attention of the perceiver
 Intensity: A loud sound, strong odor or bright light is noticed more as compared to a soft
sound, weak odour or dimlight.
 Repetition: A repeated external stimulus is more attention getting than a single one.
Advertisers use this principle.

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 Management and Ethics Notes for RBI Grade B

 Novelty and Familiarity: A novel or a familiar external situation can serve as attention getter.
 Contrast: It is a kind of uniqueness which can be used for attention getting. Letters of bold
types, persons dressed differently than others, etc., get more attention.
 Motion: A moving object draws more attention as compared to a stationary object.
Advertisers use this principle.

Internal Factors
 Self-concept: The way a person views the world depends a great deal on the concept or
image he has about himself. The concept plays an internal role in perceptual selectivity.
 Beliefs: A person's beliefs have profound influence on his perception. Thus, a fact is
conceived not on what it is but what a person believes it to be.
 Expectations: These affect what a person perceives. A technical manager may expect
ignorance about the technical features of a product from non-technical people.
 Inner Needs: The need is a feeling of tension or discomfort, when one thinks he is missing
something. People with different needs experience different stimuli. According to Freud,
wishful thinking is the means by which the Id attempts to achieve tension reduction.

Perceptual Errors

A perceptual error is the inability to judge humans, things or situations fairly and accurately.
Examples bias, prejudice, stereotyping, which have always caused human beings to err in
different aspects of their lives.

Perceptual error has strong impact in organisation and it hampers in proper decision-making skill
while hiring, performance appraisal, review, feedback etc.

There are many types of perceptual errors in workplace, as follows:

Confirmation Bias - Confirmation bias happens when you look for information that supports your
existing beliefs and reject data that goes against what you believe. This can lead you to make
biased decisions, because you don't factor in all the relevant information.

Anchoring - Anchoring is a cognitive bias that describes the common human tendency to rely
too heavily on the first piece of information offered (the "anchor'') when making decisions. During
decision making, anchoring occurs when individuals use an initial piece of information to make
subsequent judgments. This bias is the tendency to jump to conclusions – that is, to base your
final judgment on information gained early in the decision-making process. It is like a "first
impression" bias.

Overconfidence Bias - This happens when you place too much faith in your own knowledge and
opinions. You may also believe that your contribution to a decision is more valuable than it
actually is. You might combine this bias with anchoring, meaning that you act on hunches,
because you have an unrealistic view of your own decision-making ability.
Recency effect: When we make judgement based on the recent development or information

45
Similar to mee effect: we tend to favor or give favourable judgement to those who are similar to us.
primary effect: tendency to form judgement quickly based on the first information we recieved

Management and Ethics Notes for RBI Grade B

Halo Effect - This is the tendency for a person's positive traits to "spill over" from one area of
their personality to another in others' perception of them. In other words, it's hard to believe that
someone you like or trust in another context could be wrong now. positive

Horn Effect – It is the opposite of the horn effect when someone's negative traits cloud your
judgment of them or their abilities. negative one quality
Gambler's Fallacy - With the gambler's fallacy, you expect past events to influence the future.
Often, the longer the run, the stronger your belief can be that things will change the next time.
But in fact, outcomes are highly uncertain. The number of successes that you've had previously
has little or no bearing on the future.

Fundamental Attribution Error - This is the tendency to blame others when things go wrong,
instead of looking objectively at the situation. You may blame or judge someone based on a
stereotype or a perceived personality flaw. Fundamental attribution error is the tendency to place
blame on external events.

Stereotyping bias: Stereotypes are assumptions made about a group of people (here country)
and are applied to individuals, irrespective of their personal characteristics, because of their
affiliation with a certain group. Stereotypes can be positive, negative or neutral

Groupthink - Groupthink is a psychological and sociological phenomenon in which members of

a group will conform to majority opinion to maintain group harmony rather than stating their own
opinions. Groupthink is differentiated from simple group consensus by its often illogical or poorly
thought through conclusions. Groupthink often results in an irrational or dysfunctional decision-
making outcome.

Bandwagon Bias - Bandwagon bias is a form of Groupthink . Here, the tendency is to form an
opinion or take action because others have already done so. The probability of you "hopping on
the bandwagon" increases as others adopt an idea.

Mere Exposure Effect - According to Robert Zajonc's 1968 study, the mere exposure effect, or
"familiarity principle," occurs when repeated exposure of the individual to a stimulus object
enhances his attitude toward it. In decision making, this bias can manifest itself as a preference
for opinions, people or information that one has already seen or heard before.

Hindsight Bias - hindsight bias is when someone believes that they accurately predicted the
outcome of a decision before it was made, even if they did not. Researchers Neal Roese and
Kathleen Vohs argue that hindsight bias occurs when people feel that a certain outcome was
obvious and expected, but only after the event has taken place.

Hindsight bias can be especially problematic when you want to understand why a decision went
wrong, as it can be hard to look back objectively. It can also cause problems when you need to
analyze or interpret results in business experiments, because you might view your findings as
"predictable" once your tests are complete.

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 Management and Ethics Notes for RBI Grade B

Dunning-Kruger Effect - The Dunning-Kruger effect refers to people's ability to accurately

assess their own and others' competence. In general, low-skilled people tend to overestimate
their own abilities, and highly skilled people tend to underestimate theirs.

Framing effect is an example of cognitive bias, in which people react to a particular choice in
different ways depending on how it is presented

Escalation of commitment – Also known as commitment bias, it describes our tendency to

remain committed to our past behaviors, particularly those exhibited publicly, even if they do not
have desirable outcomes.

Availability Bias - Availability bias suggests that decision makers use the information that is
most readily available to them when making a decision. This comes at the expense of looking for
additional information that could lead to a further understanding of the situation. As such, a
decision is made on limited or superficial information.

Randomness error/Randomness bias - Randomness bias is the natural tendency to see

patterns in random data. For example, a supporter of a sports team feels that the team won a
match when he wore a particular t-shirt and then continues to wear it for every match.

Representative bias is when a decision maker wrongly compares two situations because of a
perceived similarity, or, conversely, when he or she evaluates an event without comparing it to
similar situations. The decision maker believes that the situation represents all of the
characteristics of the population of which it is a part. This is similar to stereotyping.

Selective Perception - This is the tendency to see a particular situation or issue from a chosen
perspective. This is related to the team-based mentality. We see all situations or issues through a
common lens that influences our ability to understand alternative or conflicting points of view or
alternatives.

blame Self-Serving Bias - This is one’s tendency to attribute the positive results of a decision or
game situation to one’s own actions or decision. Likewise, it causes individuals to attribute negative
consequences to factors outside of our control. This can cause an inability to accurately assess
or affect a situation through decision making.

Motivation

Motivation is the word derived from the word ’motive’ which means needs, desires, wants
and drives which exist within the individuals. Thus, it is the process of stimulating people to
perform actions to accomplish the goals.

Process of Motivation:

Motivation is a psychological phenomenon which means needs and wants of the individuals
have to be tackled by framing an incentive plan. It begins with an unsatisfied need, which

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Management and Ethics Notes for RBI Grade B

creates tension and drives an individual to search for goals that, if attained, will satisfy the
need and reduce the tension.

Feedback
Goal
accomplishment
Action to satisy
needs and
motives
Tension

Unsatisfied needs
and wants

Nature and Characteristics of Motivation

Psychological Goals Continuous Integrated

Aspect Directed process process

Complex and Component Positive or

Dynamic of Directing Negative

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Management and Ethics Notes for RBI Grade B

Importance of Motivation

For Organization For Individual

 Determinant of individual performance  Helps him achieve his personal goals
 Motivated employees empower the team  Gives him job satisfaction
 Efficient and profitable business  Helps in self-development of
 Ease in adaptability and creativity in times of individual
change  Builds friendly relationships
 Optimistic and challenging attitude at work  Gains by working with a dynamic
place team

We can summarize the importance of motivation as following:

• Improves level of efficiency
• Leads to achievement of organizational goal
• Builds healthy relationship
• Puts human resources into action
• Leads to work force stability
• Disincentives for inefficient employees

How Managers Motivate – Steps to Motivation

•Identify what Identify and Develop an employee Add motivation

motivates employees address barriers Motivation Program to employee
•
to employee  Explain expectations training
•
 Good leadership motivation from employee

•  Get trainees
Clear goals &  Monitor employee’s
•
expectations  Negative progress with care involved
 •
Accurate & timely outlook  communicate  Keep their
•
feedback  Lack of frequently to review attention
 •
Interesting work knowledge plan and employee focused
 Challenges  Fear of being conduct  Give real life
•
 Responsibility judged  provide examples
•
 Recognition encouragement,
•
 Respect praise, recognition

•
Fair treatment  disciplinary action
•

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Management and Ethics Notes for RBI Grade B

Types of Motivation

Motivation

based on based on based on type

source approach of incentive

Non-
Monetary/
Extrinsic Intrinsic Positive Negative monetary/
Financial
non-financial

Extrinsic/External Positive Monetary

 Comes from outside forces  Based on reward  Salary,
 Desire to do something because  Improves performance  Bonus,
its externally rewarding  Achieved by co-operation of  Share in profit,
 E.g. – higher salary, bonus, employees leading to feeling of  Retirement benefits, etc.
recognition, promotion, layoff, happiness
etc.  E.g. – bonus, promotion, Non-monetary
Intrinsic/Internal recognition  Recognition,
 Comes from within a person Negative  Promotion,
 Desire to do something because  Based on fear or punishment  Authority and responsibility,
it is enjoyable or satisfying  Fear to act as a push  Appreciation
 E.g. – learning, sense of mechanism for employees to  Job enrichment
achievement, social contacts, do certain job  training
curiosity, respect  causes to anger and frustration
in employees
 E.g. – demotion, layoff, etc.

Concept of Morale

Morale is an attitude of an employee towards job, colleagues, his superior, his organization, and
the environment.

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Management and Ethics Notes for RBI Grade B

High Morale Low Morale

• implies determination at work • Greater grievances and conflicts in

• keen teamwork on part of the employees organization
• Organizational Commitment and a sense of • High rate of employee absenteeism and
belongingness in the employees mind turnover
• Immediate conflict identification and • Dissatisfaction with the superiors and
resolution employers
• Healthy and safe work environment • Poor working conditions
• Effective communication in the organization • Employees frustration
• Increase in productivity • Decrease in productivity
• Greater motivation • Lack of motivation

Morale and Productivity

Morale and productivity are not always positively related. Rensis Likert stated that there can be
different combinations of morale and productivity.

Efficiency Fear
Zone Zone

Dread
Party
Zone
Zone

High Morale – High Productivity: Also referred to as the Efficiency Zone, it represents the ideal
combination of morale and productivity. It occurs when right motivational policies are adopted by
managers such that the employees not only know their jobs, but also feel committed towards the
organisational goals.

High Morale – Low Productivity: This is referred as the Party Zone, where although the
employees are satisfied with the jobs but they are not committed to the work. This may be
because of the nature of task, the nature of superiors, kind of technology used, work methods or
inadequate training facilities that restrict efforts to perform their jobs well. People work for their
individual/group goals rather than organisational goals.

Low Morale – Low Productivity: It is the Dread zone. Lack of motivation, unclear jobs and lack
of harmonious superior – subordinate relationships reflect low morale and, therefore, frustrations,

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Management and Ethics Notes for RBI Grade B

tensions, discontentment and grievances develop against managers which results in low
productivity.

Low Morale – High Productivity: Low morale results in high productivity when negative
motivation is used by managers. Punishments, threats and penalties for non-conformity to
organisational plans and policies directs employees towards high productivity. This is a fear
zone for the organisation as such a situation does not last for long as negative motivation can
increase production only for a short span of time.

Ways to improve Morale

Theoretical studies have revealed that improving morale can enhance employee satisfaction and
thus improving profitability. Some important ways to improve morale among workers in an
organization are:
 Organizational Transparency: Transparency in an organization helps build trust and
loyalty in the organisation and employees.
 Feedback: Employers need to give positive feedback to employees. This should be
regarded narrowly. A positively oriented meeting to analyse a current success what have
they done right is also important and contributes to morale in the organization. Feedback
should be implemented regularly and constantly.
 Workshops and interactive activities: Company must organize workshops to train
employees. Let employees express feelings, opinions and thoughts.
 Leadership and decision making flexibility: Adjusting decision taking strategy to discuss
with employees and listen whenever possible but not always.
 High organizational and management credibility are highly important as employees can
be reassured and can trust management.
 Working environment must be improved as much as possible.

Motivation, Morale and Incentives

Motivation Morale Incentives

•Process of stimulating •internal feeling towards •stimulus for greater action

people to action to work inspired by the •positive (rewards, praise,
accomplish the goals external environment, etc.) or negative
•Individual concept – attitude, behaviour (demotion, penalties, etc.)
needs, wants, desires of •depends on relation •monetary (bonus, etc.) or
individual that drive him between expectations and non-monetary (promotion,
•internal -psychological reality job security, job
phenomenon •group phenomenon enrichment, recognition,
etc.)

 Higher motivation often leads to higher morale of employees, but high morale does not
essentially result in greatly motivated employees

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Management and Ethics Notes for RBI Grade B

 Incentive is a means to increase motivation. It is an act or promise for greater action.

It is also referred to as a stimulus for greater action.
 Incentives can be provided in many forms like- monetary and non monetary E.g. higher
wages, recognition, praise etc.
 Motivation is challenging process. An incentive may be motivation for one person, but
the same incentive might not be a source for another individual
 According to Davis, “Morale is a mental condition of groups and individuals which
determines their attitude.”
 In short, morale can be described as afusion of employees’ attitudes, behaviours,
manifestation of views and opinions - all taken together in their work scenarios,
exhibiting the employees’ feelings towards work, working terms and relation with their
employers. Morale includes employees’ attitudes on and specific reaction to their job.
 There are two states of morale: high morale and low morale

Difference between motivation and morale

Motivation Morale

Motivation is an internal-psychological drive of an Morale is more of a group scenario

individual which urges him to behave in a specific
manner
Higher motivation often leads to higher morale of High morale does not essentially result in greatly
employees motivated employees
It is an individual concept It is a group concept
Motivation acquires primary concern in every It is a secondary phenomenon
organization
Things tied to motivation are tied to the Things tied to morale are usually things that are
performance of the individual. part of the work environment

Content Theories of Motivation

Contemporary/Process Theories
Classical/Content Theories
"Emphasis on actual process of
“Emphasis on what motivates individuals”
Motivation"
•Maslow’s Hierarchy of Needs •Cognitive Evaluation Theory
•Herzberg’s Two-factor Theory •Goal-setting Theory
•Gregor’s Theory X & Theory Y •Self-efficacy Theory
•William Ouchi's Theory Z •Reinforcement Theory
•Alderfer’s ERG Theory •Adam's Equity Theory
•McClelland’s Theory of Needs •Vroom's Expectancy Theory
•Porter Lawler Model
•Self-Determination Theory

Classical Theories are building blocks of contemporary theories.

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 Management and Ethics Notes for RBI Grade B

1. Maslow’s Hierarchy of Needs

Given By – Abraham Maslow

Basic Theory-
This theory is based on the idea that human behavior is goal-directed. It causes goal-directed
behaviour. With the help of motivation, we can handle needs and tackle them. This can be
understood by understanding the hierarchy of needs of individuals. The needs of an individual
serve as a driving force in human behaviour. Maslow has proposed “The Need Hierarchy Model”
 Hierarchy of five needs
within an individual
 Physiological and Safety
Needs are referred to as E.g. - Challenging job; growth
opportunity to rise up the ladder
Basic Needs or lower order
needs; these are satisfied
externally.
 Love & belongingness and
Self-esteem needs are
E.g. – higher
Psychological needs; Self-
job title
actualization is self-fulfillment
need; these are also referred
E.g. –
as higher order needs and teamwork;
satisfied internally. social events
 Individuals are motivate by
unsatisfied needs; as one is
satisfied, the next need
emerges
E.g. – Retirement
benefits, job security, E.g. – salary; lunch breaks
safe and hygienic work
environment

Later Maslow modified the hierarchy later to include three other needs at the top taking the total
to eight – cognitive needs, aesthetic needs and transcendence needs.

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Management and Ethics Notes for RBI Grade B

Under this extended model, the first four needs, Maslow identified as deficit needs i.e. if the
needs are not met, they make us uncomfortable and we are motivated or driven by these needs
in as much as we are able to sufficiently fulfill these needs.

The last four needs, he identifies as growth needs: i.e. we never get enough of these. We are
constantly motivated by these needs as they pertain to our growth and development.

He also arranged them in a hierarchy such that we are motivated primarily by a need only if lower
level needs have been met. Thus, before one is motivated by cognitive or self-actualization
needs, one should have taken care of basic deficit needs like physiological, security, belonging
and esteem.

The deficit needs mean the same as under the original f-level model. The growth needs are as
follows:

1. Cognitive needs: Maslow believed that humans have the need to increase their
intelligence and thereby chase knowledge. Cognitive needs is the expression of the
natural human need to learn, explore, discover and create to get a better understanding
of the world around them. This growth need for self-actualization and learning, when not
fulfilled leads to confusion and identity crisis. Also, this is directly related to need to
explore or the openness to experience.
2. Aesthetic needs: Based on Maslow’s beliefs, it is stated in the hierarchy that humans
need beautiful imagery or something new and aesthetically pleasing to continue up
towards Self-Actualization. Humans need to refresh themselves in the presence and
beauty of nature while carefully absorbing and observing their surroundings to extract the
beauty that the world has to offer. This need is a higher level need to relate in a beautiful
way with the environment and leads to the beautiful feeling of intimacy with nature and
everything beautiful.

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 Management and Ethics Notes for RBI Grade B

3. Self-actualization needs: Self-actualization is the instinctual need of humans to make

the most of their abilities and to strive to be the best they can. This need when fulfilled
leads to feeling of generativity.
4. Self-transcendence needs: Maslow later divided the top of the triangle to add self-
transcendence which is also sometimes referred to as spiritual needs. Spiritual Needs are
a little different from other needs, accessible from many level. This need when fulfilled,
leads to feelings of integrity and take things to another level of being.

Problems with Maslow’s theory:

 According to Maslow, a satisfied need no longer motivates. Therefore, as each of these
needs becomes substantially satisfied, the next one becomes dominant. However, In real
life scenario, no need is ever fulfilled completely. A satisfied need can arise again in
future.

 Needs of every human being are different. Therefore, it is not necessary that needs of all
humans will be satisfied in the same hierarchy as mentioned. It is possible that a person
might move on to higher level need without the lower level need being satisfied.

 Another criticism of Maslow’s theory is that there is no empirical evidence behind the
theory, no evidence that needs are organised in a particular manner.

2. Two-Factor Theory

Given By – Frederick Herzberg

Also called – Motivator-hygiene theory

Basic Theory
 Certain factors in workplace cause job satisfaction while certain cause
dissatisfaction
o Hygiene factors/maintenance factors/dissatisfiers - presence of these factors
causes job satisfaction but not necessarily motivate; absence of these factors
causes job dissatisfaction
o Motivators - Absence does not necessarily dissatisfy but presence leads to higher
motivation

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 Management and Ethics Notes for RBI Grade B

 According to Herzberg, the opposite of “Satisfaction” is “No satisfaction” and the

opposite of “Dissatisfaction” is “No Dissatisfaction”.

Figure 2: Two-factor theory

The Two-Factor theory implies that there should be adequacy of the hygiene factors to avoid
employee dissatisfaction. Also, the work should be stimulating and rewarding so that the
employees are motivated to work and perform better. This theory emphasizes upon job-
enrichment to motivate the employees. Focusing on the motivational factors can improve work-
quality.

Problems with two-factor theory:

1. It overlooks situational variables.

2. The theory’s reliability is uncertain.
3. There is no comprehensive measure of satisfaction.
4. The theory ignores blue-collar workers.

3. Theory X & Theory Y

Given by – Douglas McGregor

Basic Theory –

McGregor said that there are 2 distinct views of human beings- one negative, labelled as
theory X and the other positive, labelled as theory Y. Manager’s deal with employees on the
basis of assumptions they hold for category X and Y people.

 Under Negative view, managers believe that employees inherently dislike work, and must
be coerced or directed to perform it (Theory X).

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Management and Ethics Notes for RBI Grade B

 Under positive view, managers believe that employees view work as natural as play or
rest and people can be given responsibility to work (Theory Y)

Assumptions of Theory X

 An average employee intrinsically does not like work and tries to escape it
 Since the employee does not want to work, he must be persuaded, compelled, or
warned with punishment A close supervision is required
 Employees generally dislike responsibilities.
 Employees resist change.
 Employees needs formal direction.

Assumptions of Theory Y

 Employees perceive their job as relaxing and normal. They exercise their physical and
mental efforts in an inherent manner in their jobs.
 Employees use self-direction and self-control to achieve the organizational objectives.
 If the job is rewarding and satisfying, then it will result in employees’ loyalty and
commitment to organization.
 Employee is willing to take responsibility

As such the management style is chosen differently for theory X and Theory Y employees:

Problems with Theory X and Y

 It is very difficult to categorise people into type X and Y.

 A person can exhibit characteristics of both the groups X and Y.
 Human behavior is complex and dynamic. It might not fit into two just categories.

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 Management and Ethics Notes for RBI Grade B

4. William Ouchi’s Theory Z

 The Theory Z was developed by the American management professor William Ouchi,
following the X and Y theory by Douglas McGregor
 Theory Z is more aligned towards Japanese style of management as compared to that
of American style.
 The theory is based on the following underlying assumptions:
o Employees are motivated when they can enter into a long-term partnership with an
organization.
o Employees expect support from the organization. Employees believe that they can
give their best with the support of the organizations
o Empoyees are motivated by a good work-life balance. Employees value family,
culture, etc. similar to the working conditions offered by an organization
 Theory Z is an approach to management characterized by long-term job security,
consensual decision making, slow evaluation and promotion procedures, and
individual responsibility, etc.

•Employees are motivated when organizations provide long-term job security which
in turn brings stability in the organization as well
•Employees are motivated when organizations look after the well-being of their
Job Security
employees and family

•Employees prefer consensus in decision making

•Employees like working in groups which inturn increases their moral obligations
Consensus

•Organizations which have mechanism for slow evaluation and promotion are more
Slow preffered by employees as compared to short-term evaluations
Evaluation

Individual
•Organizations which places importance on individual achievements and responsibility
are likely to motivate the employees
Responsi-
bility

•Management should have confidence and trust in the abilities of its employees which
will enable employees to participate in decision making
Confidence

 Further, Theory Z emphasises on job rotation, training and formalized measures

adoption by organizations to motivate employees. Workers should focus on becoming

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 Management and Ethics Notes for RBI Grade B

generalists rather than specialists as they are expected to understand various aspects
of their organizations for participating in the decision making
 However, the theory is criticized on the grounds such as
o Providing long-term job security may bring down the employee productivity
o Participative decision making may not always be feasible in every type of
organzations such as those which requires performing of similar routine task
o Slow promotions may act as a deterence for high-achieving kind of employees

5. Alderfer’s ERG Theory

Given By – Clayton Alderfer

Basic Theory
Re-categorization of Maslow’s Hierarchy of Needs into three needs:
 E – Existence needs- it includes an individual’s physiological and physical safety
needs.
 R – Relatedness needs- Maslow’s social needs and external component of esteem
needs fall in this class of need.
 G - Growth needs- Maslow’s of self-actualization needs and intrinsic component
esteem needs constitute growth needs

Existence Needs Satisfaction Relatedness Needs Progression Growth Needs

Desire for physiological Desire for satisfying Desire for self-
and material well-being interpersonal relationships development and personal
Frustration Regression growth

Difference between Maslow Need Hierarchy Theory and Alderfer’s ERG Theory

 ERG Theory states that at a given point of time, more than one need may be
operational. Maslow’s theory states that at a given point of time, only one need can be
operational
 ERG Theory states that if the fulfillment of a higher-level need is subdued, there is an
increase in desire for satisfying a lower-level need. As per Maslow’s theory, a higher level
need does not arise until the lower level need is fulfilled.
 According to Maslow, an individual remains at a particular need level until that need is
satisfied. While according to ERG theory, if a higher- level need aggravates, an individual
will revert to increase his satisfaction of a lower- level need. This is known as frustration-
regression aspect of ERG theory.
For example - when growth need aggravates, then an individual might be motivated to
accomplish the relatedness need and if he cannot fulfill relatedness needs, then he will be
motivated by the existence needs. Thus, frustration/aggravation can result in regression
to a lower-level need.
 While Maslow’s need hierarchy theory is rigid as it assumes that the needs follow a
specific hierarchy ERG Theory of motivation is very flexible.

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 Management and Ethics Notes for RBI Grade B

6. McClelland’s Theory of Needs

Given By – David McClelland

Also Called – Achievement Motivation Theory
Basic Theory
 Human behavior is affected by three needs – Need for Power, Need for Achievement, Need
for Affiliation

Need for Power Need for Achievement Need for Affiliation

(nPow) (nAch) (nAff)
•want to control and •sets and accomplishes •wants to belong to a
influence others challenging goals group
•want to lead •takes calculated risks •effective in a team
•likes to win arguments •likes regular feedback on •wants to be liked and
•enjoys competition and their progress demand blind loyalty and
winning •likes to work alone harmony
•motivated by status and •wants to be on top and •prefers collaboration over
recognition, self-esteem receive credit competition
•fears failure •do not like high
•called Gamblers risk/uncertainty

 Need for Power: Generally, people with high need for power turn out to be more efficient
and successful managers. Need for power should not always be taken negatively. It can
be viewed as the need to have a positive effect on the organization and to support the
organization in achieving various goals.

 Need for Achievement: The individuals who possess high achievement needs are
highly motivated by competing and challenging work. They perceive achievement of
goals as a reward, and value it more than a financial reward.

 Need for Affiliation: The individuals who get motivated by affiliation have a very high
urge for a friendly and supportive environment. Such individuals are effective
performers in a team.

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 Management and Ethics Notes for RBI Grade B

Comparison of Content Theories

Source: google images

Process Theories of Motivation

The early management scholars laid a foundation that enabled managers to better understand
their employees and the reasons for people’s actions, desires, and needs.
Later, the modern theories also explain how to influence one’s direction to behavior that allows
controlling and guiding employees’ actions.

The process theories of motivation emphasis on the actual process of motivation. They are also
known as contemporary theories of motivation.

1. Equity Theory

Given By – Stacy Adams

Basic Theory
 Individuals are motivated by perception of fairness/equity/justice at workplace
 Inequalities would be corrected by adjusting input/output

Assumptions:
 Individuals are concerned both with their own rewards and also with what others get in
their comparison.
 Employees expect a fair and equitable return for their contribution.

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 Management and Ethics Notes for RBI Grade B

 Employees who perceive themselves as being in an inequitable scenario will attempt to

reduce the inequity either by distorting inputs and/or outcomes psychologically, by directly
altering inputs and/or outputs, or by quitting the organization.

 As per this motivation theory, the motivation level of individuals is correlated to his perception
of equity, fairness and justice practiced in the organization. Higher is individual’s perception of
fairness, greater is the motivation level and vice versa.
o While evaluating fairness, employee compares the job input to outcome and also
compares this ratio with that of another individual at same level.
o Output-input ratio is used to make such a comparison.

Referents: The four comparisons an employee can make are termed as “referents”. The referent
chosen is a significant variable in equity theory. These referents are as follows:
o Self-inside: An employee’s experience in a different position inside the present
organization.
o Self-outside: An employee’s experience in a situation outside the present
organization.
o Other-inside: Another employee inside the employee’s present organization.
o Other-outside: Another employee or employees outside the employee’s present
organization.

Ratio comparison Perception Response of Result

Inputs employee
Time, effort, Reduction in input
loyalty, hard- OR
Inequity Anger,
work, Individual’s Output < Other’s output Increase own Output (get
(under- frustration,
Individual’s Input Other’s Input pay hike, promotion, etc.)
Commitment, rewarded) De-motivated
OR
Leave job
Output
abilities

Salary, bonus, Individual’s Output = Other’s output Continue to do job with

Equity Satisfied
perks, job Individual’s Input Other’s Input satisfaction
security,
recognition, Change referents (compare
Inequity Pride, over-
reputation,
Individual’s Output > Other’s output with someone else)
(over- confidence,
Individual’s Input Other’s Input OR
sense of rewarded) guilt
Re-evaluate other’s inputs
achievement

Choices: The employees who perceive inequity and are under negative tension can make the
following choices:
 Change in input
 Change their outcome
 Choose a different referent
 Quit the job
 Change self perception
 Change perception of others

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 Management and Ethics Notes for RBI Grade B

2. Expectancy Theory

Given By – Victor Vroom

Also Called – VIE Theory
Basic Theory
 It focuses on outcomes, and not on needs.
 The theory states that the intensity of a tendency to perform in a particular manner is
dependent on the intensity of an expectation that the performance will be followed by a
definite outcome and on the appeal of the outcome to the individual.

 In simpler terms, expectancy theory states that employees will be motivated to put in a
higher level of effort when they believe:
o that effort will lead to a good performance appraisal
o that a good appraisal will lead to rewards, such as a bonus, increments etc.
o that the rewards will satisfy the employee’s personal goals
Motivation = how much we want something and the likelihood of getting it
= Expectancy x Instrumentality x Valence criticism
too idealistic
 Expectancy – It is Effort-Performance Link
based on situation which
 Instrumentality- It is the Performance-Rewards Link keep varying
 Valence- It is the Rewards –personal goal link

Motivation Expectancy Instrumentality Valence

Willingness to Effort- Performance- Rewards –personal
perform; = Performance Link X Rewards Link X goal link
Drivers to perform Faith that better Belief that there is Degree to which
efforts will lead to a connection reward is valued by
better between activity the individual
performance and goal

3. Reinforcement Theory

Given By – BK Skinner
Basic Theory
 Based on law of effect i.e. individual’s behavior is a function of its consequences
 Individual’s behaviour with positive consequences tends to be repeated, but individual’s
behaviour with negative consequences tends not to be repeated.

The following methods can be used by the manager to control the behaviour of employees:

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 Management and Ethics Notes for RBI Grade B

it must be •Positive behaviour followed •Positive behaviour

notes that by positive consequences followed by removal of
more •stimulates occurence of negative consequences
spontaneous behaviour •E.g. - manager stops
is the giving •E.g. - praising performance nagging
of reward , ex-cheating, corruption
the greater Positive Negative
reinforcemen Reinforcement Reinforcement
t value it has

Punishment Extinction
•Negative behaviour followed •Negative bahaviour followed
by negative consequences by removal of positive
consequences
•E.g. - suspending employee
for breaking rule •Absence of reinforcements
•E.g. - manager ignores
behaviour

Positive Reinforcement
 Positive reinforcement implies giving a positive response when an individual shows
positive and required behavior.
 Positive reinforcement stimulates occurrence of a behavior.
 It must be noted that more spontaneous is the giving of positive response, the greater
reinforcement value it has.
Note - A reward is a positive reinforcement, but not necessarily. If and only if the employees’
behavior improves, the reward can be said to be a positive reinforcement.

Negative Reinforcement
 Negative reinforcement implies rewarding an employee by removing negative/undesirable
consequences.
Both positive and negative reinforcement can be used for increasing desirable / required
behavior.

Punishment
 Punishment reinforcement implies removing positive consequences so as to lower the
probability of repeating the undesirable behavior in future.
 In other words, punishment means applying undesirable consequence for showing
undesirable behavior.

Extinction
 Extinction reinforcement implies the absence of reinforcements.

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 Management and Ethics Notes for RBI Grade B

 In other words, extinction implies lowering the probability of an undesired behavior by

removing reward for that kind of behavior.
 Example – if an employee no longer receives praise and admiration for his good work, he
may feel that his behavior is generating no fruitful consequence.
 Extinction may unintentionally lower desirable behavior.

Implications of Reinforcement Theory

 Reinforcement theory explains in detail how an individual learns behavior.
 This theory focuses totally on what happens to an individual when he takes some action.
It overlooks the internal state of individual, i.e., the inner feelings and drives of individuals
are ignored. Thus, it does not focus on the causes of individual’s behaviour.
 The reinforcement theory suggests that managers should try to structure the
contingencies of rewards and punishments on the job in such a way that the
consequences of effective job behavior are positive while the consequences of ineffective
work behavior are negative or unpleasant.
 The focus of this approach is upon changing or modifying the behavior of people on the
job. That is why it is also regarded as organizational behavior modification.
 Managers who are making attempt to motivate the employees must ensure that they do
not reward all employees simultaneously.

4. Goal Setting Theory

Given By – Edwin Locke

Basic Theory
 Goal setting is essentially linked to task performance
 Specific & challenging goals + appropriate regular feedback = better/higher
performance
 Goals give direction to an employee about what needs to be done and how much efforts are
required to be put in.
 Goal setting can be implemented by “management by objectives” approach.
 There are 4 elements in this model:
o Goal acceptance- In order to motivate employees to achieve organization goals, they
should be made to understand the goals. This will increase the acceptance level for
goals and lead to effective achievement of goals. A participative approach towards goals
should be followed.

o Goal specificity- A specific goal identifies the target in quantitative or measurable

terms. This enables the employee to evaluate his performance.

o Challenging goal- Difficult but feasible goals motivate more than simple goals.

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 Management and Ethics Notes for RBI Grade B

o Performance feedback- Feedback helps employees to know how well they have
performed and the areas where they need to improve. This helps them to relate to goals
in a better way.

Refer self-efficacy
theory below

Figure: Goal-setting Theory

Goal setting theory has certain implications such as:

a. Self-efficiency- Self-efficiency is the individual’s self-confidence and faith that he has

thepotential of performing the task. Higher the level of self-efficiency, greater will be the
efforts put in by the individual
b. Goal commitment- Goal setting theory assumes that the individual is committed to the
goal and will not leave the goal. The goal commitment is dependent on the following
factors:
i. Goals are made known and broadcasted.
ii. Goals should be set by individual rather than designated to him.
iii. Individual’s goals should be consistent with the organizational goals and vision.

5. Self-Efficacy Theory

Given By – Albert Bandura

Basic Theory
 Self-Efficacy = one’s belief in one’s ability to succeed in specific situations or accomplish a
task
 One’s sense of self-efficacy plays a role in how one approaches goals, tasks and challenges
 Complements goal-setting theory

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 Management and Ethics Notes for RBI Grade B

Figure: Sources of Self-efficacy

Self-Efficacy and Motivation:

 Self-efficacy and motivation are deeply entwined, they are two separate things. Self-
efficacy is based on an individual’s belief in their own capacity to achieve,
while motivation is based on the individual’s desire to achieve. Those with high self-
efficacy often have high motivation and vice versa

Self-Efficacy and Self-Regulation

 Since self-efficacy is related to the concept of self-control and the ability to modulate
behavior to reach goals, it can sometimes be confused with self-regulation. They are
related, but still separate concepts.
 Self-regulation is more of a strategy for achieving one’s goals, especially in relation to
learning, while self-efficacy is the belief that he or she can succeed.

6. Cognitive Evaluation Theory/ CET Theory

Given By – Edward Deci and Ryan

Basic Theory
Providing an extrinsic reward for behavior that had been previously only intrinsically rewarding
tends to decrease the overall level of motivation.

 Environment and social-context lead to feelings of competence which, in turn, have a

positive affect on intrinsic motivation.

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 Management and Ethics Notes for RBI Grade B

 Intrinsic motivation is positively impacted when people feel competent and autonomous or
self-determined.
 When people engage in activities for internal rather than external reasons (locus of
causality), there will be a positive affect on intrinsic motivation.

Figure: Cognitive evaluation Theory

7. Porter & Lawler Model of Motivation

Given by – Porter & Lawler

 It is an extension of Expectancy Theory

Assumptions:
This model is based on four basic assumptions about human behaviour:
a) It is a multivariate model. According to this model, individual behaviour is determined by
a combination of factors in the individual and in the environment.
b) Individuals are assumed to be rational human beings
c) Individuals have different needs, desires and goals.
d) On the basis of their expectations, individuals decide between alternative behaviours
and such decided behaviour will lead to a desired outcome.

The Model:
The main point in Porter and Lawler's model is that effort or motivation does not lead directly to
performance. It is, in fact, affected by individual’s ability and belief in performing the task, as well
as the fairness of the reward. Ultimately, performance leads to satisfaction. It suggests that an
individual’s view regarding the attractiveness and fairness of the rewards will affect motivation.

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 Management and Ethics Notes for RBI Grade B

Elements:
The Various Elements of Porter and Lawler Model
 Effort: Effort refers to the amount of energy an employee exerts on a given task. How
much effort an employee will put in a task is determined by two factors: (i) value of reward
and (ii) perception of effort-reward probability.
 Performance: One's effort leads to his/her performance. However, the amount of
performance is determined by the amount of labour and the ability and role perception of
the employee.
 Satisfaction: Performance leads to satisfaction. The level of satisfaction depends upon
the amount of rewards achieved. If the amount of actual rewards meet or exceed
perceived equitable rewards, the employee will feel satisfied. On the contrary, if actual
rewards fall short of perceived ones, he/she will be dissatisfied.
 Rewards may be of two kinds - intrinsic and extrinsic rewards. Examples of intrinsic
rewards are - sense of accomplishment and self-actualization. Extrinsic rewards -bonus,
commission etc.
 Intrinsic rewards are more likely to produce higher level of satisfaction.
 Individual’s Ability to Perform the Task
 Individual’s belief in finishing the task
 Fairness of the Reward of the Task

Figure: Porter & Lawler Model

8. Self Determination Theory

Given by: Ryan and Deci

It is a relatively complex macro-theory of motivation.

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Management and Ethics Notes for RBI Grade B

Assumptions:
 Humans have innate needs for competence, autonomy, and relatedness to others,
and seek out activities that satisfy these needs.
 Intrinsic motivation should be differentiated from extrinsic motivation, with intrinsic
motivation being seen as the better type of motivation for securing personal well-being
and advancing personal growth
Model:
Motivation for a given activity is determined by the degree to which the activity provides
feelings of competence, autonomy, and relatedness.
o Autonomy: The feeling one has choice and willingly endorsing one’s behavior
o Competence: The experience of mastery and being effective in one’s mastery
o Relatedness: The need to feel connected and belongingness with others

Figure: Self Determination Theory of Motivation

 Self-determined goals are more rewarding intrinsically than goals determined under an
obligatory environment.
 Extrinsic rewards reduce intrinsic interest in a task.
 It states that extrinsic motivation can be divided into four subtypes, characterized by a
varying degree of internalization of the benefit of a target activity and how the behavior is
regulated.
o External regulation: Activities that are performed purely to satisfy an external
demand.
o Integrated regulation: activities that are performed to achieve fully internalized
instrumental outcomes and help to satisfy psychological needs.
o The two remaining subtypes, termed “introjected regulation” and “identified
regulation” lie in between the above two poles.

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Management and Ethics Notes for RBI Grade B

Leadership

Leadership Concept and Styles

Leadership is a process by which an executive can direct, guide and influence the behaviour and
work of others towards accomplishment of specific goals in a given situation. Leadership is 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.

Leadership is situation bound. There is no best style of leadership. It all depends upon tackling
with the situations. Leadership is an important function of management which helps to maximize
efficiency and to achieve organizational goals.

The Tasks of a Leader

a. Initiating action- Leader puts in motion the work by communicating the policies and
plans to the subordinates and initiating action.

b. Motivating subordinates and creating confidence in the organisation –

 Motivation of subordinates through economic and non-economic rewardsto get the
work done in most efficient manner
 Explain the roles of the subordinates clearly
 Hear the employees with regards to their complaints and problems, thereby creating
trust and confidence in the organisation

c. Providing guidance and building morale

 Guidance to the subordinates
 Instructing the subordinates the way they have to perform their work effectively and
efficiently
 Morale booster by achieving full co-operation from subordinates. In this regard, a
leader has to invite suggestions and if possible implement them into plans and
programmes of enterprise. This way, he can solicit full support of employees which
results in willingness to work and thereby effectiveness in running of a concern.

d. Achieving co-ordination
 By reconciling/integrating personal interests with organizational goals.
 Synchronization can be achieved through proper and effective co-ordination

e. Representing the organization-

 Representative of the enterprise at seminars, conferences, general meetings, etc.
His role is to communicate the rationale of the enterprise to outside public.
 He is also representative of the own department or team which he leads.

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Management and Ethics Notes for RBI Grade B

Leadership Styles

Autocratic or Authoritarian leadership

An autocratic leader centralizes power and decision-making in himself. He gives orders,
assigns tasks and duties without consulting the employees. The leader takes full authority
and assumes full responsibility. Subordinates act as he directs. He neither cares for their
opinions nor permits them to influence the decision. He believes that because of his
authority he alone can decide what is best in a given situation.

Autocratic leadership is based upon close supervision, clear-cut direction and

commanding order of the superior. It facilitates quick decisions, prompt action and unity of
direction. It depends on a lesser degree of delegation. But too much use of authority
might result in strikes and industrial disputes. It is likely to produce frustration and retard
the growth of the capacity of employees. Autocratic leadership is negative, based on
threats and punishment. The employees work as hard as is necessary to avoid
punishment. They will thus produce the minimum which will escape punishment.

This leadership style is less likely to be effective because:

 the new generation is more independent and less submissive and not amenable to
rigid control;
 people look for ego satisfactions from their jobs and
 revolution of rising expectations changed the attitude of the people.

However, it will be advantageous and suitable when employees require close supervision,
job is monotonous, unskilled and routine in nature or where the project is short-term and
risky.

Autocratic leadership may be divided into three classes:

a) The hard-boiled autocrat who relies mainly on negative influences uses the force
of fear and punishment in directing his subordinates towards the organisational
goals. This is likely to result in employees becoming resentful.
b) The benevolent autocrat who relies mainly on positive influences uses the
reward and incentives in directing his subordinates towards the organisational
goals. By using praise and pats on the back he secures the loyalty of subordinates
who accept his decisions.
c) The manipulative autocrat who makes the employees feels that they are
participating in decision-making though the manager himself has taken the
decision. McGregor labels this style as Theory X.

Democratic or Participative leadership

Participative or democratic leaders decentralise authority. It is characterised by
consultation with the subordinates and their participation in the formulation of plans and
policies. He encourages participation in decision-making.

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Management and Ethics Notes for RBI Grade B

He leads the subordinates mainly through persuasion and example rather than fear and
force. Sometimes the leader serves as a moderator of the ideas and suggestions from his
group. McGregor labels this style as Theory Y.

Taylor’s scientific management was based on the inability of the ordinary employees to
make effective decisions about their work. Hence the decision-making power was vested
with the management. But recent studies indicate the need for participation by
subordinates. The modern trend favours sharing the responsibility with the employees.
This will foster enthusiasm in them. The employees feel that management is interested in
them as well as in their ideas and suggestions. They will, therefore, place their
suggestions for improvement.

Advantages for democratic leadership are as follows:

 higher motivation and improved morale;
 increased co-operation with the management;
 improved job performance;
 reduction of grievances
 reduction of absenteeism and employee turnover.

However, the disadvantage of this style is that it is time consuming and may lead to
delays in decision making.

The Laissez-faire or Free-rein leadership

Free-rein leaders avoid power and responsibility. The laissez-faire or non-interfering type
of leader passes on the responsibility for decision-making to his subordinates and takes a
minimum of initiative in administration. He gives no direction and allows the group to
establish its own goals and work out its own problems.

The leader plays only a minor role. His idea is that each member of the group when left to
himself will put forth his best effort and the maximum results can be achieved in this way.
The leader acts as an umpire. But as no direction or control is exercised over the people,
the organisation is likely to flounder.

Bureaucratic Leadership
In this styles the leaders strictly adhere to the organizational rules and policies and make
sure that the employees also strictly follow the rules and procedures.
This leadership style is more suitable when safe work conditions and quality are required
Discourages creativity and does not make employees self-contented.
This style is mostly prevalent in public or government sector entities.

Paternalistic leadership
Under this management style the leader assumes that his function is fatherly or paternal.
Paternalism means papa knows best. The relationship between the leader and his group

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Management and Ethics Notes for RBI Grade B

is the same as the relationship between the head of the family and the members of the
family. The leader guides and protects his subordinates as members of his family.

As the head of the family he provides his subordinates with good working conditions and
fringe benefits. It is assumed that workers will work harder out of gratitude. This
leadership style was admirably successful in Japan with her peculiar social background.

This leadership style has still been widely prevalent in small firms in India. However, this
paternalistic approach is unlikely to work with mature adult employees, many of whom do
not like their interests to be looked after by a “godfather.” Instead of gratitude, it might
generate antagonism and resentment in the subordinates.

An experiment conducted among Boy Scout Clubs of the USA in 1940 showed that autocratic
leadership is likely to rouse antagonism in the group and produce hostility towards the leader. In
democratic groups, the absence of the leader made little difference, while in autocratic groups
productive work dropped to a minimum, when the leader was out of the room.

Democratic leadership is more likely to win the loyalty of the group. The laissez-faire groups also
developed friendly approaches to the leader as in the democratic group. But suggestions from
the groups were very low and they were also less productive.

Transactional and Transformational Leadership

Over the year with the evolvement of leadership, leadership has been described as transactional
or transformational.

Transactional Leadership
 Transactional leaders focus on managing and supervising their employees and on group
performance. The role of a transactional leader is primarily passive, in that it sets policy
and assessment criteria and then intervenes only in the event of performance problems or
needs for exceptions. As such, they follow the ‘Management by Exception’ style.
 Transactional leaders promote success through the use of both rewards and punishments
contingent on performance. They look at leader-subordinate relation as a transaction in
which the leader focuses on task and outcome and in return provide extrinsic motivations
to the subordinates.
 Transactional leaders work within existing organizational structures and shape their work
according to the current organizational culture.

Transactional leadership is especially effective under strict time and resource constraints and in
highly specified projects, this approach adheres to the status quo and employs a form of
management that pays close attention to how employees perform their tasks.

Transformational Leadership
Transformational leadership focuses on increasing employee motivation and engagement and
attempts to link employees’ sense of self with organizational values.

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Management and Ethics Notes for RBI Grade B

 This leadership style emphasizes leading by example, so followers can identify with the
leader’s vision and values.
 A transformational approach focuses on individual strengths and weaknesses of
employees and on enhancing their capabilities and their commitment to organizational
goals, often by seeking their buy-in for decisions.
 Transformational leaders challenge followers with an attractive vision and tie that vision to
a strategy for its achievement. They engage and motivate followers to identify with the
organization ‘s goals and values.
 Transformational leadership comprises four types of behavior - individualized
consideration, intellectual stimulation, inspirational motivation, and idealized influence.

Transactional and transformational leadership are not mutually exclusive, and leaders often
demonstrate traits associated with both approaches. Depending on the objectives and the
situation, a leader may move from using one approach to the other as needed.

Some other Leadership Styles

Charismatic Leadership
 Influence others by personality
 Have great articulation and communication skills
 Appeal to the emotions of the followers by showing empathy and sensitivity to other’s
needs
 Can motivate large groups
 Are visionaries and emphasize on working towards greater good
 Can get autocratic
 Totally leader dependent and difficult to find successors
 E.g. Mahatma Gandhi

Shared leadership
 Involves multiple leaders. Occurs when managers and subordinates work together with
an emphasis on equal sharing of information and participation
 It involves ahring of power so that members can take leadership in areas of their
proficiency

Servant Leadership
 This term was given by Robert Greenleaf in 1970
 The leader focuses more on the needs of followers/subordinates as compared to his own.
The leaders have trust and confidence in the team members
 The leader serves his followers

Creative leadership
 It involves developing and fostering innovative ideas
 The enterprise is built on creativity of the people. Creative leaders are not satisfied with
the existing solutions and try to better them through creativity and ideas.

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Management and Ethics Notes for RBI Grade B

Six emotional Leadership Styles

Given by - Daniel Goleman, Richard Boyatzis, and Annie McKee(in book Primal Leadership)

a) The Visionary Leader moves people towards a shared vision, telling them where to go
but not how to get there. They openly share information.
b) The Coaching Leader connects personal goals to organizational goals, holding long
conversations that reach beyond the workplace, helping people find strengths and
weaknesses and tying these to career aspirations and actions.
c) The Affiliative Leader creates people connections and thus harmony within the
organization. It is a very collaborative style, which focuses on emotional needs over work
needs.
d) The Democratic Leader acts to value inputs and commitment through participation,
listening to both the bad and the good news.
e) The Pace-setting Leader builds challenge and exciting goals for people, expecting
excellence and often exemplifying it themselves. They identify poor performers and
demand more of them.
f) The Commanding Leader soothes fears and gives clear directions by their powerful
stance, commanding and expecting full compliance (agreement is not needed). They
need emotional self-control for success and can seem cold and distant.

Effective Leader

An effective leader is one who meets the job requirements, team requirements as well as
individual requirements.
In addition to being intelligent, self-confident, technically skilled and knowledgeable with good
communication skills, a leader should possess the following soft skills to be effective:

Strength of character
 It defines who they are, what they will do, what they would not do, and what they stand for
 Deep-rooted value system, ethical, ability to withstand pressure, commitment, honesty,
resourcefulness, determination, feeling of responsibility and accountability, judgment, etc.

Vision
 Ability to be a visionary and have a sense of future possibilities
 not threatened by the future and can show pathways to the future which the followers can
follow
 have innovative, rational, credible, clear, motivating ideas

Relationship effectiveness
 Management is all about people and the relationships that one builds with those whom
one encounters
 Does not mean that the leader should be a people pleaser, but he should be able to
nurture and incubate relationships in a way that has a positive influence on the
organisation.

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Management and Ethics Notes for RBI Grade B

 Provides work-life balance, encourages questions and ideas from subordinates, facilitates
brain-storming, has empathy, grows subordinates professionally, etc.

Difference between a successful and an effective Leader

Successful Leader Effective Leader

Uses position power Uses personal power
Have short-term influence on others Have long term influence over others
Leader mainly changes the behaviours of the Leader changes the attitudes of the
subordinates subordinates
A successful leader is not necessarily An effective leader generally is successful
effective
According to Fred Luthans, successful Effective leader focus more on managing
leaders are more focused on staying at the people and team
top

Leadership Theories

Theories of leadership have been used to explain what a leader is, since a long time and as far
back as the 1800s. These theories have noticeably changed over time and till date, and some
are now even obsolete.

The evolution of the various theories can be summarised as follows:

Transformational
Theories
Contingency
Theories
Behavioral
Theories
Trait Theory

Great Man
Theory

 The great man theory can be linked to as early as the Greek era and later developed
around 1840s. This theory sees the leader as a great hero with certain inborn qualities.
 The Trait theory originated in the 1930s and stated that anyone who has the right
characteristics or traits would be a successful leader. The major criticism of this theory
was as to what was the right combination of traits required to be a successful leader.

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Management and Ethics Notes for RBI Grade B

 This was followed by the behavioural theories that focussed on a leader’s behaviour
rather than the traits that make someone a leader. It originated in the late 1940s and early
1950s and suggests a person can learn specific leader behaviours.
 Then in the 1960s, the contingency leadership theory was established. According to
these theories, the leadership style depended on the situation. it argued that some
leaders are good only in certain situations and not in others.
 Following this, in the 1970s, the transactional and transformational leadership
theories developed.
o Transactional theory stated that the key was the relationship between the leader
and the followers. The leader has to reward or punish each follower as necessary
according to how the follower has completed a particular task.
o Transformational leadership theory argued that a leader is charismatic and able
to inspire the followers. The leader first establishes trust with the followers, and
through trust and inspiration, increases motivation and a sense of belonging.

Early Leadership theories

Great Man Theory/Great Person Theory

 The leaders are born and not made

 They possess certain traits/attributes that set them apart from others and that
 these traits are responsible for their assuming positions of power and authority
 Great leaders can arise when there is a great need

Trait Theory

Great Man Theory/

Great Person theory

Trait Theory

Gordon Allport Trait

theory

Basic Theory:
An individual who has traits relevant to leadership emerges as an effective leader. It seeks to
determine “what makes a successful leader” from the personal characteristics of the leader
himself. The following are the core traits identified:
 Achievement drive: High level of effort, high levels of ambition, energy and initiative
 Leadership motivation: an intense desire to lead others to reach shared goals
 Honesty and integrity: trustworthy, reliable, and open
 Self-confidence: Belief in one’s self, ideas, and ability
 Cognitive ability: Capable of exercising good judgment, strong analytical abilities, and
conceptually skilled
 Knowledge of business: Knowledge of industry and other technical matters

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Management and Ethics Notes for RBI Grade B

 Emotional Maturity: well adjusted, does not suffer from severe psychological disorders.
 Communication skills : coherent and objective communication
 Others: charisma, creativity and flexibility, social skills, empathy

Advantages
 It serves as a yardstick against which the leadership traits of an individual can be
assessed.
 It gives a detailed knowledge and understanding of the leader element in the leadership
process.

Limitations
 Involves subjective judgment in determining who is regarded as a ‘good’ or ‘successful’
leader
 The list of possible traits tends to be very long. More than 100 different traits of successful
leaders in various leadership positions have been identified. These descriptions are
simply generalities.
 disagreement over which traits are the most important for an effective leader
 The model attempts to relate physical traits such as, height and weight, to effective
leadership.

Gordon Allport’s Trait theory

 Gordon Allport believed that personality traits are influenced by one’s childhood
experiences, current environment, and the interaction between them
 Accordingly, the trait theory of personality has categorized traits into three dimensions:
cardinal, central, and secondary.

Cardinal Traits Central Traits Secondary Traits

•Allport believed that •They are the general •They are only seen in
cardinal traits are rare characteristics that form certain situations or
and tend to develop over the basic foundations of under specific
the years. personality. circumstances.
•They dominate and •They are relatively less •They include prefernces
shape an individual’s dominant than cardinal and atitudes of a person
behavior (e.g. Kindness in traits
Mother Teresa)

 Allport believed that internal (genotypes) and external forces (phenotypes) influence
an individual’s behavior and personality.

Behavioural Leadership Theory

 This theory is opposite to trait theory as it assumes leadership skills can be learned
rather than being inherent.

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Management and Ethics Notes for RBI Grade B

 It focuses on the behaviour of the leader and what leaders do, how they act.
 Broadly defines the leadership behaviour into two types –
o Task oriented and
o People oriented

Behavioural
Leadership
Theory

Continuum
Ohio State Michigan Lewin's Likert's Huneryager Managerial
Leadership
studies studies Theory Theory and Heckman Grid
Behavior

Ohio State studies of Leadership

 Ohio State University Leadership Study focused on identifying behaviors (as opposed
to traits) that were indicative of a strong leader.
 Studies on leadership were done at Ohio State University using the Leader Behavior
Description Questionnaire to identify the leader's observable behaviors.
 Accordingly, the study on leadership found two behavioral characteristics of
leadership - people-oriented (consideration) and task-oriented (initiating structure)
leadership style.

Consideration – People Initiating Structure – Task

Oriented Oriented

Leaders try to establish concrete

Leader has mutual respect for organizational structures, channel of
subordinates and their ideas. Due communication, etc. Leaders are
importance is given to subordinates mainly concerned with
feelings. Leaders try to fulfill the inner accomplishment of tasks through
needs of employees. set procedures.
Leaders focus on task and results They are concerned with the
without compromising on the well- employee welfare as well but no so
being of employees much as in the case of people
oriented leaders

University of Michigan studies

A series of studies on leadership were done in Michigan University in 1950s with the objective of
identifying the principles and types of leadership styles that led to greater productivity and

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enhanced job satisfaction among workers. The studies founded three critical characteristics of
effective leaders; two of which were previously observed in studies that had been conducted at
Ohio State University.
 Task-oriented behavior: Same as under Ohio Studies
 Relationship-oriented behavior: Same as under Ohio Studies
 Participative leadership: The leader encourages the particpation of employees in
decision-making. The role of a manger is more of a facilitator rather than a director in
building a cohesive team focusing on team objectives.
The manager takes recommendations/suggestions from the team into consideration
before coming up with any final decision. However, the manager remains responsible
for the results

Lewin's Leadership theory

Given By – Kurt Lewin

Probably the oldest way of categorizing leadership styles was by Kurt Lewin in the 1930s. Kurt
Lewin, a psychologist, through his research in 1939, had identified three 'styles ' of leadership
behaviour in an article in the Journal of Social Psychology. The 3 Styles are:

 Autocratic (authoritarian) leaders, who make decisions without consulting their team
members, even when their input would be useful. They use direct supervision as a way of
maintaining the environment. This may create a climate of fear, where there is little or no
room for dialogue and where complaining may be considered futile. This style can be
demoralizing, and it can lead to high levels of absenteeism and staff turnover.
 Democratic (participative) leaders, who make the final decisions, but who include team
members in the decision-making process. They encourage creativity, and people are
often highly engaged in projects and decisions. Team members usually have high job
satisfaction and high productivity. This leadership style is usually the most effective,
although it isnt so good when quick decisions need to be made.
 Laissez-faire (delegative) leaders, who let team members have lots of freedom in how
they do their work, and how they set their deadlines, although they do offer support with
resources and advice if needed, but otherwise they don’t get involved. This style works
well with highly-qualified experts, but it can lead to poorly defined roles and a lack of
motivation.

Blake and Mouton’s Managerial Grid/Leadership Grid

Given By – Robert Blake & Jane Mouton

Basic Theory - The grid depicted two dimensions of leader behavior,
 concern for people (accommodating people’s needs and giving them priority) on y-axis
and
 concern for production (keeping tight schedules) on x-axis,
with each dimension ranging from low (1) to high (9), thus creating 81 different positions in which
the leader’s style may fall

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 Management and Ethics Notes for RBI Grade B

However, there are five distinct styles of leadership discussed in the theory as follows:

Country Club (1,9)

Team Management (9,9)
 collegial style
 high people and task focus
 low task and high people  based on theory Y of McGregor
orientation  Most effective style according to
 leader believes that a friendly Blake and Mouton
and comfortable treatment  Result = team atmosphere with
with employees = self- high employee satisfaction and
production
motivation to work hard
 low focus on tasks =
questionable results

Impoverished Mgt. (1,1) Task Management (9,1)

 Low concern for people and  Dictatorial/Perish style
low concern for work  Based on Theory X of McGregor
deadlines  more concern for production and
 Result = disharmony in firm less concern for people
Middle of the Road (5,5)
 Leader = ineffective  Result = high output in short run,
 compromising style
high labor turnover & cost in long
 leader tries to maintain a
balance between goals of run
company and the needs of
people
 Result = average
performance for
organization

Likert’s Management System

Given By – Rensis Likert

Basic Theory –
 The efficiency of the organization is influenced by their system of management.
 The theory identifies 4 management systems based on the organizational
variables
System 1 System 2 System 3 System 4
Exploitative Benevolent
Leadership Style Consultative Participative
Authoritative Authoritative
Variables
managerial levels
Top
Responsibility but not at the lower spread widely Widespread
management
levels
condescending
Trust in
Nil confidence (master- Substantial Complete trust
subordinates
servant relationship

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 Management and Ethics Notes for RBI Grade B

System 1 System 2 System 3 System 4

with superiors; with superiors; Some amount of Goals based on
Decision Making orders to instructions to discussion with participation by
subordinates subordinates subordinates subordinates
Very little; always Little; always Extensive
Communication Moderate
distrust caution interaction; friendly
Motivational Fear, threats and Rewards and Rewards, Goal setting and
forces punishment punishment involvement in job improvement in job

A firm should aim to move from System 1 to System 4

Continuum Leadership Behavior

Given By - Tannenbaum and Schmidt

Basic Theory –
 continuum of possible leadership behavior available to a manager and along which
many leadership styles may be placed
 can be related to McGregor’s supposition of Theory X and Theory Y. Boss-centered
leadership is towards theory X and subordinate-centered leadership is towards theory
Y
 Choice of leadership style depends on 3 factors –
o Forces in manager (leader’s value system, confidence in subordinates,
leadership inclination, feelings of security in an uncertain situation, etc.)
o Forces in subordinates (Readiness to assume responsibility, degree of
tolerance for ambiguity, Interest in the problem, needs for independence,
Knowledge and experience, Understanding and identification with the goals of
the organization, etc.)
o Forces in the situation (type of organisation, group effectiveness, nature of
problem, time pressure, etc.)

Boss-centered leadership

Use of authority by manager

Area of freedom for subordinates

Subordinate-centered leadership

Styles of
leadership based
on degree of
control
maintained by
the leader

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Management and Ethics Notes for RBI Grade B

Huneryager and Heckman Four styles of management

They propounded 4 styles of leadership which are given below

Dictatorial style Autocratic style Democratic style Laissez-Faire style

Leader threatens the Leader believes in Decision making is Subordinates given
subordinates and centralized decision decentralized and absolute freedom to
punishes and making. All sort of participation in set up their own
penalizes in case of participation is decision making is goals and to take
any deviation discouraged. encouraged. their own decisions.

Situational Leadership Theory

 Situational Leadership is an adaptive leadership style.

 This strategy encourages leaders to take stock of their team members, weigh the many
variables in their workplace and choose the leadership style that best fits their goals and
circumstances
 It is a flexible style of leadership and a leader follows leadership style based on prevailing
environment in an organization.
Fiedler's
contingency
model

Vroom-Yetton Hersey
Decision Blanchard
Model Situational model
Theories

Cognitive
Path Goal
Resource
Theory
Theory

Hersey Blanchard Model

Given by – Paul Hersey and Kenneth Blanchard

Also called – Life cycle Theory of leadership, Situational Leadership Theory
Basic Theory –

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 Management and Ethics Notes for RBI Grade B

 The leader has to match the leadership style according to the readiness of subordinates
 Readiness of subordinates = ability (knowledge, experience, skill) and willingness
(motivation, commitment) to accomplish a specific task
 The leadership style is defined on two parameters – task behaviour (extent to which the
leader spells out the duties
and responsibilities of a
subordinate) and
relationship behaviour
(Extent to which the leader
listens to the followers, and
provides encouragement to
them)
 4 styles of leadership exist
corresponding to the
readiness of the subordinate
as Telling (Directive), Selling
(or Coaching), Participating and delegating.

Fiedler’s Contingency Model

Given by – Fred E. Fiedler

Basic Theory
 Leaders are categorized on a LPC (least preferred co-worker) scale.
 leaders with high LPC scores are relationship-oriented and the ones with low scores are
task-oriented
 Leader’s behavior is dependent upon the favorability of the leadership situation which is
determined from 3 situational variables (given below in table).

Situation Variables:
Leader – member
relation - degree to
which the leaders is
trusted and liked by
the group members
Task Structure -
degree to which the
group’s task has
been described as
structured or
unstructured
Position Power -
degree to which the
leader can exercise
authority on group
members

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Management and Ethics Notes for RBI Grade B

Cognitive Resource theory (CRT)

Given By - Fiedler and Joe Garcia

 CRT emphasizes how intelligence and experience are each best under different
stress situations.
 The assumption behind this theory is that stress impacts the ability to make decisions.
A leader’s intelligence and experience to effectiveness varies in low and high-stress
circumstances
 Intelligence is more important in low stress situations while experience is vital in high
stress situations.
 A leader which has good cognitive abilities like intelligence, planning, and decision-
making must pursue a directive approach to enhance the performance of the team.
 For simple tasks, intelligence and experience of a leader is immaterial

Vroom-Yetton-Jago Decision Model

Based on this decision model, not all decisions are created equal. Some decisions are extremely
important and will require input from many people, while other decisions can be made quickly as
they won’t have long-lasting effects on the company as a whole

3 factors which determines style of leadership are:

Decision Quality Subordinate Commitment Time Constraints

•This involves how •This involves how much •This involves the
important is the decison. impact a decison has on availability of time before
Channelizing too much team morale finalizing a decision. More
resources for decisions time offers the advantage
which do not have of better planning,
important bearing on the research before arriving at
organzation is not any decision
justifiable

3 General Leadership styles under this model

 Autocratic AI – Leader solves the problem or make decisions using readily available
information
 Autocratic AII – Leader makes decision by obtaining additional information from group
members. However, the group members are not necessarily informed about the reason
for seeking information from them
 Consultative CI – Leader asks opinions of members individually. However, the group is
not brought together and leader makes the decision ‘
 Consultative CII – Group members are brought together for coming to a decision.
However, the final decision is made by the leader alone
 Collaborative GII – The leader along with the team members make the decision. The
decision arrived may take a longer time but is generally a well-thought and planned one

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 Management and Ethics Notes for RBI Grade B

House’s Path Goal Theory

Given By: The path-goal theory was first introduced by Martin Evans (1970) and then further
developed by Robert House in 1971.

Employee contingencies
Directive:  employees’ needs,
 Leader provides guidelines, lets subordinates  locus of control,
know what is expected of them, sets
 experience,
performance standards for them, and controls
behavior when performance standards are not Environmental contingencies  perceived ability,
met.  outside the control of  satisfaction,
 He makes judicious use of rewards and employee  willingness to leave the
disciplinary action.  Task structure & team organization,
 The style is same as task-oriented  anxiety
dynamics
For example, For example,
Supportive:
 The leader is friendly towards subordinates and  Supportive style - for Supportive style - if followers’
displays personal concern for their needs, employees performing ability is perceived to be low
welfare, and well-being. simple and routine tasks
 This style is same as people-oriented  Participative style - non-
leadership. routine tasks
 Supportive style - When
Participative:
 The leader believes in group decision-making team cohesiveness is low
and shares information with subordinates.  Directive style - to
 He consults his subordinates on important counteract team norms that
decisions. oppose the team’s formal
objectives
Achievement-oriented:
 Achievement-oriented style -
 The leader sets challenging goals and
performance-oriented team
encourages employees to reach their peak
performance. norms exist
 The leader believes that employees are
responsible enough to accomplish challenging
goals.
 This is same as goal-setting theory.

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Management and Ethics Notes for RBI Grade B

Basic Theory
 Servant leadership i.e. leadership is not viewed as a position of power but leaders act as
coaches and facilitators to their subordinates.
 Expectancy theory of motivation i.e. an employee’s perception of expectancies
between his effort and performance is greatly affected by a leader’s behaviour
 This theory gives a guide map to the leaders about how to increase subordinates
satisfaction and performance level.
 A leader’s effectiveness depends on several employee and environmental contingent
factors and certain leadership styles
 To maximize performance, a leader will:
o Help staff identify and achieve their goals.
o Clear away obstacles, thereby improving performance.
o Offer appropriate rewards along the way.
 House and Mitchell (1974) defined four types of leader styles:

Action Centred Leadership (Functional Approach of Leadership)

Given By – John Adair

 Also called 3 circles Model
 According to John Adair, leadership does not rely on a person’s characteristics, but
can be learned
 The model emphasises on the process of leadership and thus is a functional approach
of leadership
 The model comprises of three elements which are represented as three overlapping
circles.

 Defining Task using SMART

(Specific, Measurable,
Achievable, Realistic and
Time)
 Identifying Resources
 Maintain discipline  Establish roles and
 Develop morale, team Task responsibilities
working, cooperation,  Delegate work to team
and the team’s spirit members
 Provide training  Monitor & control
 Develop performances
communications Group Individual
 Identify and develop
roles

 Provide Counselling
 Give recognition and praise to
individuals
 Reward individuals

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Management and Ethics Notes for RBI Grade B

Leadership Style Matrix

Given By - Eric Flamholtz and Yvonne Randle (in book Growing Pains)
Basic Theory – leaders to choose the most appropriate leadership style based on the type of
task they are involved in and the people they are leading.
 The Y-axis of the matrix defines the programmability of the task. A programmable
task has specific steps or instructions to complete. A non-programmable task needs a
more creative solution.
 The X-axis describes the individual’s capability and preference for autonomy.
 With high programmability and low job autonomy, there are two leadership styles
autocratic and benevolent autocratic.
 With high programmability and high job autonomy, the leadership styles are
consultative and participative.
 With low programmability and low job autonomy, the leadership styles are
consultative and participative.
 And with low programmability and high job autonomy, the leadership styles are
consensus and laissez-faire.

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Management and Ethics Notes for RBI Grade B

Transformational Leadership Theory

Burns Bass Leadership Transformational

Transformational Transformational Participation
Leadership
theory theory Inventory
Theories

Burns' Transformational Leadership Theory

Given By – James MacGregor Burns

 The transformational leadership approach was first introduced by James V. Downton in

1973. Subsequently, it was expended by Macgregor Burns in 1978 and further Bernard M.
Bass had made additions to it in 1985
 Assumptions of Burns’ Transformational Theory
o A leader with a position of high morals motivates people which makes people
follow him/her in full enthusiasm
o It is better to work as a team for a shared vision for better results and performance
as compared to work as individuals.
 Transformational leadership theory has been defined by Burns as a process where both
leaders and followers mutually raise one another to higher levels of morality and motivation
 Transformational leaders raise the bar by appealing to higher ideals and values of
followers.

Bass Transformational theory

Also known as - 4 I’s of transformational Leadership

Given By – Bernard A. Bass

In 1985, Bass extended the ideas of transformational leadership theory. He suggested that
transformational leadership encompasses several different aspects, including:
o Emphasizing intrinsic motivation and positive development of followers
o Raising awareness of moral standards
o Highlighting important priorities
o Fostering higher moral maturity in followers
o Creating an ethical climate (share values, high ethical standards)
o Encouraging followers to look beyond self-interests to the common good
o Promoting cooperation and harmony
o Using authentic, consistent means
o Using persuasive appeals based on reason

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Management and Ethics Notes for RBI Grade B

o Providing individual coaching and mentoring for followers

o Appealing to the ideals of followers
o Allowing freedom of choice for followers

According to Bass, four elements make up a Transformational Leader, which became known
as the 4 I's. These are:
 Idealized Influence (II) the leader serves
as an ideal role model for followers; the
leader walks the talk, and is admired for
this. Idealised Intellectual
Influence Stimulation
 Inspirational Motivation (IM) leaders
have the ability to inspire and motivate
followers. II and IM constitute the
transformational leaders charisma.
 Individualized Consideration (IC) Inspirational Individualised
leaders demonstrate genuine concern for Motivation Consideration
the needs and feelings of followers. This
personal attention to each follower is a
key element in bringing out their very best
efforts.
 Intellectual Stimulation (IS) the leader challenges followers to be innovative and
creative

Bass identified three ways in which leaders transform subordinates

Increasing
Getting subordiantes to
subordinates' Activating subordiantes'
focus first on team or
awareness of task higher-order needs
organizational goals
importance and value.

Leadership Participation Inventory

Given By – James Kouze and Barry Posner

The theory is based on a survey published by James Kouzes and Barry Posner in their book, The
Leadership Challenge (Jossey Bass Publishers, 2002), that asked persons what characteristics
of a leader they admire. Accordingly, 5 characteristics are important for a transformational leader

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Management and Ethics Notes for RBI Grade B

Inspire the Shared Vision

Challenge the Process Enabling Others to Act
Leaders inspire
Leaders try to bring Supports Subordinates by
subordinates to put their
change by using new creating an environment
best for achieving vision
procdures and processes of trust and motivation
of the organization

Encouraging the Heart

Modeling the Way
Leaders motivates
Leaders ac ts as role
subordinates through
models. They lead by
system of rewards and
examples with their acts
recognition

Other Theories

French & Raven's

5 forms of Power Leadership-Member
Exchange (LMX)
Theory

French & Raven's 5 forms of Power

According to this theory, there are 5 powers available to the leader

a) Reward Power: Leader compensates subordinates if they follow instructions

b) Coercive Power: Leader can impose penalty on subordinates for non-compliance of
instructions
c) Legitimate Power: Leader gets power due to his position in an organization. Power
arises because of one’s job title
d) Expert Power: Power arises from having knowledge, experience or expertise which one
possesses
e) Referent Power: Power arises due to one’s traits or charisma

Subsequently, Raven added another source of power which is called informational power which
results from one’s ability to control information

Leadership-Member Exchange (LMX) Theory

Given By – George B Graen

Also called – Vertical Dyadic linkage theory
Basic Theory –
 Focuses on two way (dyadic) relationship between leaders and followers
 Leaders form different kinds of relationships with various groups of subordinates.

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 The quality of the relationship is reflected by the degree of mutual trust, loyalty,
support, respect, and obligation.
 One group, referred to as the in-group, is favored by the leader while the other
subordinates fall into the out-group (disfavoured by leader)
 LMX Theory focuses on the significance of communication in leadership.

Emotional Intelligence, Johari Window and Conflict

Emotional Quotient

“Emotional intelligence is the ability to sense, understand, and effectively apply the power and
acumen of emotions as a source of human energy, information, connection, and influence.” –
Robert K. Cooper

Emotional Intelligence also known as emotional quotient or EQ is the ability to comprehend, use,
and manage your own emotions in positive ways to relieve stress, communicate effectively,
empathize with others, overcome challenges and defuse conflict.

Emotional Intelligence helps you build stronger relationships, succeed in life per se and achieve
your career and personal goals.

Emotional intelligence is the gateway to living a more fulfilled and happy life.

Importance of Emotional Intelligence

 Internal awareness: Making sound decisions requires an understanding of how your

feelings are affecting judgment, productivity, attitudes, and more. The best leaders are
self-aware of not only their emotions, but also their weaknesses and limitations, as well as
their strengths.

From Swami Vivekananda to Gautama Buddha all of the sages, with help of meditation or
internal awareness have reached the heights or enlightenment.

 Self-regulation: Leaders who make impulsive decisions or fail to control their emotions
and lash out can quickly lose the respect of their subordinates.

 Increased empathy: People with high emotional intelligence have a good understanding
of their own emotional states, which helps them to accurately understand the emotions of
others.

 Less-stress: Workplace stress may be unavoidable, but people with emotional

intelligence manage it better and don’t let it consume them. They also refuse to take any
negative feelings out on their coworkers or families.

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Five Dimensions of Emotional Intelligence

Goleman (1998) introduced the five dimensions of emotional intelligence - self–awareness, self–
regulation, motivation, empathy, and relationship management.

 Self–awareness: Self–awareness occurs when the individual knows what he is feeling in

the moment, and uses that knowledge to guide decision-making, makes realistic
assessments. Self-awareness instills self-confidence in a person.

Example: You know you are inclined towards art, this knowledge can help you choose the
field of work in which you can see future.

 Self-regulation: Self-regulation is all about staying in control. Leaders who regulate

themselves effectively, rarely make verbal attacks on others or make rushed decisions.
This involves handling our emotions so that they facilitate rather than interfere with the
task at hand.

Example: During the Terrorist attack on Taj Mahal Palace, Mumbai we saw many staff
members of the hotel help the guests of the hotel escape, as they knew the internal way
around. This is a classic example of staying in control.

 Motivation: Self- motivated people work consistently toward their goals. People who are
emotionally intelligent are motivated by things beyond external rewards like fame, money,
recognition, and acclaim.

Example: Many painters are self-motivated. They put their thoughts and emotions in
paintings, irrespective of the money, recognition, fame that may or may not follow.

 Empathy: The ability to understand how others are feeling, is absolutely critical to
emotional intelligence. This is related to sensing what other people are feeling, and your
response towards it.

Example: Joy that a mother feels on the achievement of their kids.

 Social Skills: Being able to interact and connect well with others is another important
aspect of emotional intelligence. It is handling emotions in relationships well and
accurately reading social situations and networks, interacting smoothly etc. In
professional settings, managers benefit by being able to build relationships and
connections with employees.

Example: In the zomato delivery boy case, the management opted to support both the
victim and the employee of zomato. The management covered the legal expenses for the
employee and medical expense of the victim. Sending a strong message for the fairness
to prevail and unbiased outlook.

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Interpersonal Relationship:

Interpersonal relationships (IRPs) takes place between two or more persons, in which trust,
mutual understanding, respect and support are brought out. The foundation for such relationships
are interactions. Interactions between individuals, be it at personal level or professional level
does not limit itself only to the communication. About 55% of communication happens through
nonverbal messages.

Analyzing and understanding relationships through Transactional Analysis & Johari Window

Transactional analysis

Transactional analysis:
Developed by psychiatrist Eric Berne, is a form of modern psychology that examines a
person's relationships and interactions. He highlighted the fact that facial expressions, gestures,
body language, and tone may be regarded as more important by the receiver than any spoken
words. Many a time interpersonal conflicts arise due to misinterpretation or misunderstandings
the simple method for understanding and rectifying oneself towards a stronger relationship is
through Transactional Analysis.

Transactional Analysis proposes that each individual possesses three ego states, viz. Parent
(P), Adult (A), and Child (C). An individual may assume any of these roles in transactions with
another person or in internal conversation.

The Parent ego state

When we are in Parent ego state we think, feel and behave as our real parents or caregivers did
when we were children. We play back what we saw the parents do without question.

The Child ego state

The Child ego state plays back thoughts, feelings and behaviours that we experienced as a child.
From the joy of Diwali to the scare of being lost this ego state is rooted in the past.

The Adult ego state

The Adult ego state deals with the here and now reality. It is the processing Centre and
important because it the only ego state that is not connected to the past.

COMMUNICATION USING TRANSACTIONAL ANALYTIC THEORY

Any indication (speech, gestures or other nonverbal cues) that acknowledges the presence of
another person is called a transactional stimulus.

The key to successful person-to-person communication generally lies in identifying which ego
state (speaker) initiated and which ego state (receiver) provided response.

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Due to the typically rational and reasonable nature of the Adult, Berne believes that the easiest
and simplest transactions occur between Adult ego states, but transactions may occur between
any of the three ego states.

When the communication originates from a particular component of individual and intends to
stimulates a specific component of the other person and it happens in expected lines, that the
transaction is said to be ‘complimentary transaction’ which contributes to strengthening the
relationships.

On the other hand when the communication intended at one ego state of the other person but the
response from receiver is from another ego state the interaction enters into ‘cross transaction’.
A cross transaction consists of negative emotions and attitudes which contributes to weakening
the interpersonal relationships.

Complicating the interactions further, people sometimes do not state what they mean and do not
mean what they state. When the interaction consists of this characteristic from both the initiator
and respondent, it characterizes what is called ‘duplex transaction’.
This is dangerous in the sense that it paves the path for entering into ‘games with each other’.

For the purpose of strengthening interpersonal relationships, it is essential that one strives
towards increasing the number of complimentary transactions and rectifying if not avoiding cross
transactions and duplex transactions by analyzing the unit of transactions, diagnosing the
problem therein and repositioning oneself to replace the cross transaction with complimentary
transaction.

Depending upon one’s relationship with the other person (be it a professional colleague, friend or
a family member), a person positions himself/herself in one of the life positions as described in
the table below.

1. I am Ok 2. I am Not Ok
You are Not Ok You are Ok

3. I am Ok 4. I am Not Ok
You are Ok You are Not Ok

Positioning oneself in cell 1, 2 or 4 does not help in building strong relationships. If the efforts are
towards remaining in cell 3 for longer periods through complimentary transactions the
relationships would be stronger.

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Johari window

Johari window:
 Is a technique that helps people better understand their relationship with themselves and
others
 It is also denoted as feedback/disclosure model of self-awareness.
 This model is based on two ideas-
- 1. trust can be acquired by revealing information about you to others
- 2. learning yourselves from their feedbacks.
 Each person is represented by the Johari model through four quadrants or window pane.
 Each four window panes signifies personal information, feelings, motivation and whether
that information is known or unknown to oneself or others in four viewpoints.

The method of conveying and accepting

feedback is interpreted in this model.

1. Open/self-area or arena – Here the

information about the person his attitudes,
behaviour, emotions, feelings, skills and
views will be known by the person as well
as by others. The size of the arena can also
be increased downwards and thus by
reducing the hidden and unknown areas
through revealing one’s feelings to other
person.

2. Blind self or blind spot – Information

about yourselves that others know in a
group but you will be unaware of it. Others
may interpret yourselves differently than
you expect. The blind spot is reduced for an
efficient communication through seeking feedback from others.

3. Hidden area or façade – Information that is known to you but will be kept unknown from
others. This can be any personal information which you feel reluctant to reveal. This includes
feelings, past experiences, fears, secrets etc. we keep some of our feelings and information as
private as it affects the relationships

4. Unknown area – The Information which are unaware to yourselves as well as others. This
includes the information, feelings, capabilities, talents etc. This can be due to traumatic past
experiences or events which can be unknown for a lifetime. The person will be unaware till he
discovers his hidden qualities and capabilities or through observation of others.

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Conflict:

What Is Conflict?

Conflict is a disagreement between two or more parties, such as individuals, groups,

departments, organizations or countries, who perceive that they have incompatible concerns.
Conflict exist whenever an action by one party is perceived as interfering with the goals, needs or
actions of another party.

Conflicts can arise for several reasons, some of them are: 1) Incompatible goals,2) Differences in
the interpretation of facts, 3) Negative feelings, 4) Variations in values and philosophies etc.

Conflict can be destructive to a team and to an organization. Disadvantages can include:

 Teams lose focus on common goals

 Winning eclipses any other goals of the group
 Judgement gets distorted
 There is a lack of cooperation
 Losing members, lack of motivation to continue participation

But if managed well, conflict can be healthy and spark creativity as parties try to come to
consensus. Some of the benefits of conflict include:

 High energy
 Task focus
 Cohesiveness within the group
 Discussion of issues

Types of Conflicts

Conflict in organizations manifests itself in different forms. Broadly there are 3 types of conflict:
personal, group, and organizational. All these types can be further classified in terms of being
“intra” meaning within, and “inter”, meaning across

Conflict

Personal Group Organizational

(intra and inter) (intra and inter) (intra and inter)

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 Intrapersonal Conflict
The intrapersonal conflict is conflict experienced by a single individual, when his or her
own goals, values or roles diverge. A lawyer may experience a conflict of values when he
represents a defendant he knows to be guilty of the charges brought against him. A
worker whose goal it is to earn her MBA might experience an intrapersonal conflict when
she’s offered a position that requires her to transfer to a different state. Or it might be a
role conflict where a worker might have to choose between dinner with clients or dinner
with family.
 Interpersonal Conflict
As you might guess, interpersonal conflict is conflict due to differences in goals, value,
and styles between two or more people who are required to interact. As this type of
conflict is between individuals, the conflicts can get very personal.
 Intragroup Conflict
Intragroup conflict is conflict within a group or team, where members conflict over goals or
procedures. For instance, a board of directors may want to take a risk to launch a set of
products on behalf of their organization, in spite of dissenting opinions among several
members. Intragroup conflict takes place among them as they argue the pros and cons of
taking such a risk.
 Intergroup Conflict
Intergroup conflict is when conflict between groups inside and outside an organization
disagree on various issues. Conflict can also arise between two groups within the same
organization, and that also would be considered intergroup conflict.
Within those types of conflict, one can experience horizontal conflict, which is conflict with
others that are at the same peer level as you, or vertical conflict, which is conflict with a
manager or a subordinate

Management of Conflict

The 5 conflict management styles

Avoiding - Avoiding is when people just ignore or withdraw from the conflict. They choose this
method when the discomfort of confrontation exceeds the potential reward of resolution of the
conflict. While this might seem easy to accommodate for the facilitator, people aren’t really
contributing anything of value to the conversation and may be withholding worthwhile ideas.
When conflict is avoided, nothing is resolved.

Competing - Competing is used by people who go into a conflict planning to win. They’re
assertive and not cooperative. This method is characterized by the assumption that one side
wins and everyone else loses.

Accommodating - Accommodating is a strategy where one party gives in to the wishes or

demands of another. They’re being cooperative but not assertive. This may appear to be a
gracious way to give in when one figures out s/he has been wrong about an argument. It’s less

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helpful when one party accommodates another merely to preserve harmony or to avoid
disruption.

Collaborating - Collaborating is the method used when people are both assertive and
cooperative. A group may learn to allow each participant to make a contribution with the
possibility of co-creating a shared solution that everyone can support.

Compromising - Another strategy is compromising, where participants are partially assertive

and cooperative. The concept is that everyone gives up a little bit of what they want, and no one
gets everything they want. The perception of the best outcome when working by compromise is
that which “splits the difference.” Compromise is perceived as being fair, even if no one is
particularly happy with the final outcome.

Conflict is an unavoidable reality in the workplace. Smart organizations know this and prepare
their management with the proper conflict management skills to handle and resolve workplace
conflicts quickly and peacefully.

Organisation Structure and Organisation Change

An organizational structure is a set of rules, roles, relationships and responsibilities that
determine how a company's activities should be directed to achieve its goals. It also governs the
flow of information through levels of the company and outlines the reporting relationship among
midlevel staff, senior management, executives and owners. It is effectively a hierarchy for a
company, though some organizational structures emphasize a near-total lack of hierarchy.

Line Organization:

According to this type of organization, the authority flows from top to bottom in a concern.
The line of command is carried out from top to bottom. This is the reason for calling this
organization as scalar organization which means scalar chain of command is a part and parcel
of this type of administrative organization.Specialized and supportive services do not take place
in these organization.

Managing Director

Production Manager

Plant Superintendent

Foreman

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Advantages of Line Organization:

 This kind of organization always helps in bringing efficiency in communication and

bringing stability to a concern.
 It is the most simple and oldest method of administration.
 In this type of organization, every line executive has got fixed authority, power and
fixed responsibility attached to every authority.
 Due to the factors of fixed responsibility and unity of command, the officials can take
prompt decision.

Disadvantages of Line Organization:

 A line organization flows in a scalar chain from top to bottom and there is no scope for
specialized functions.
 Authority leadership- The line officials have tendency to misuse their authority
positions. This leads to autocratic leadership and monopoly in the concern.

Line and Staff Organization

Line and staff organization is a modification of line organization and it is more complex than
line organization. According to this administrative organization, specialized and supportive
activities are attached to the line of command by appointing staff supervisors and staff
specialists who are attached to the line authority. The power of command always remains
with the line executives and staff supervisors guide, advice and council the line executives.

There are two lines of authority which flow at one time in a concern :
 Line Authority
 Staff Authority

Advantages of Line and Staff Organization:

 Relief to line of executives- In a line and staff organization, the advice and
counseling which is provided to the line executives divides the work between the two.

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The line executive can concentrate on the execution of plans and they get relieved of
dividing their attention to many areas.
 Benefit of Specialization- Line and staff through division of whole concern into two
types of authority divides the enterprise into parts and functional areas. This way
every officer or official can concentrate in its own area.
 Better co-ordination- Line and staff organization through specialization is able to
provide better decision making and concentration remains in few hands. This feature
helps in bringing co-ordination in work as every official is concentrating in their own
area.

Demerits of Line and Staff Organization:

 Lack of understanding- In a line and staff organization, there are two authority
flowing at one time. This results in the confusion between the two. As a result, the
workers are not able to understand as to who is their commanding authority. Hence
the problem of understanding can be a hurdle in effective running.
 Line and staff conflicts- Line and staff are two authorities which are flowing at the
same time. The factors of designations, status influence sentiments which are related
to their relation, can pose a distress on the minds of the employees. This leads to
minimizing of co-ordination which hampers a concern’s working.
 Costly- In line and staff concern, the concerns have to maintain the high
remuneration of staff specialist. This proves to be costly for a concern with limited
finance.

Functional Organization

Functional organization has been divided to put the specialists in the top position throughout
the enterprise. This is an organization in which we can define as a system in which functional
department are created to deal with the problems of business at various levels. Functional
authority remains confined to functional guidance to different departments. This helps in
maintaining quality and uniformity of performance of different functions throughout the
enterprise.

 The concept of Functional organization was suggested by F.W. Taylor who

recommended the appointment of specialists at important positions.
 The entire organizational activities are divided into specific functions such as
operations, finance, marketing and personal relations.
 Complex form of administrative organization compared to the other two.
 Three authorities exist- Line, staff and function.
 Each functional area is put under the charge of functional specialists and he has got
the authority to give all decisions regarding the function whenever the function is
performed throughout the enterprise.
 Principle of unity of command does not apply to such organization as it is present
in line organization

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Advantages of a Functional structure:

 Efficiency- Greater efficiency is achieved because of every function performing a limited
number of functions.
 Economy- Specialization compiled with standardization facilitates maximum production
and economical costs.

Disadvantages of a Functional structure:

 Confusion- The functional system is quite complicated to put into operation, especially
when it is carried out at low levels. Therefore, co-ordination becomes difficult.
 Lack of Co-ordination- Disciplinary control becomes weak as a worker is commanded not
by one person but a large number of people. Thus, there is no unity of command.
 Difficulty in fixing responsibility- Because of multiple authority, it is difficult to fix
responsibility.

Divisional Structure

The centralized structure, known as a divisional organization, is more common in companies

with many large departments, markets or territories. For example, a food conglomerate may
operate on a divisional structure so that each of its food lines and products can have full
autonomy.

Advantages of a Divisional structure:

 The different departments have some flexibility to operate separately from the company at
large.
 It is more adaptable to customer needs.
 Individual departments have more autonomy and room for innovation.

Disadvantages of a Divisional structure:

 It risks accidental duplication of resources.
 It brings in poor communication and low interaction among different departments.
 It encourages internal competition across departments rather than uniting the
company against outside competitors.

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Flat structure

A flat structure is a decentralized organizational structure in which almost all employees

have equal power. This organizational structure is common in startups that take a modern
approach to work or don't yet have enough employees to divide into departments.

Advantages of a flat structure:

 Employees have more responsibility and independence.
 It improves communication and interaction among employees.
 It is faster to implement new practices or ideas, with less risk of error.

Disadvantages of a flat structure:

 Employees lack supervision.
 There could be confusion around reporting procedures.
 Employees lack or don't develop specialized skills.
 It has poor scalability as the company grows.

Matrix structure

The matrix structure is a fluid form of the classic hierarchical structure. This centralized
organization structure allows employees to move from one department to another as
needed.

Advantages of a matrix organization:

 Supervisors have the flexibility to choose the best employees for a project.
 It allows a dynamic org chart with varying responsibilities for employees.
 Employees have the opportunity to learn and foster skills outside their primary roles.

Disadvantages of a matrix organization:

 There could be conflicts of interest between the needs for project organization and
department organization.
 The organizational chart is prone to regular changes.

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Network Structure

A network structure is especially suitable for a large, multi-city or even international

company operating in the modern era. It organizes not just the relationships among
departments in one office location, but the relationships among different locations and each
location's team of freelancers, third-party companies to whom certain tasks are outsourced, and
more.
A network organization is a collection of autonomous firms or units that behave as a single
larger entity, using social mechanisms for coordination and control. The entities that make
up a network organization are usually legally independent entities (separate firms) but not always

Advantages of a network structure:

 It improves understanding of how functional roles are distributed among onsite
employees, offsite employees, freelancers and outsourced third parties.
 It boosts flexibility for one department or location to delegate tasks to another.
 It drives employee communication, collaboration and innovation.
 It clearly outlines workflows and chains of commands in large businesses.
Disadvantages of a network structure:
 It is complex, especially in regard to out-of-office processes.
 It is vague as to which employee, department or office should make the final
decisions.

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Organisational Change

Lewin's 3-Stage Model of Change:

Kurt Lewin developed a change model involving three steps: unfreezing, changing (Moving) and
refreezing. The model represents a very simple and practical model for understanding the
change process.

For Lewin, the process of change entails:

 Unfreezing – i.e. creating the perception that a change is needed. Before a change can
be implemented, it must go through the initial step of unfreezing. Because many people
will naturally resist change, the goal during the unfreezing stage is to create an
awareness of how the status quo, or current level of acceptability, is hindering the
organization in some way.
 Changing – i.e. moving toward the new, desired level of behavior. Lewin recognized
that change is a process where the organization must transition or move into this new

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state of being. This changing step, also referred to as 'transitioning' or 'moving,' is

marked by the implementation of the change. This is when the change becomes real.
Change is a process that must be carefully planned and executed. Throughout this
process, employees should be reminded of the reasons for the change and how it will
benefit them once fully implemented.
 Refreezing i.e. solidifying that new behavior as the norm. Refreezing symbolizes the act
of reinforcing, stabilizing and solidifying the new state after the change. The changes
made to organizational processes, goals, structure, offerings or people are accepted and
refrozen as the new norm or status quo. Lewin found the refreezing step to be especially
important to ensure that people do not revert back to their old ways of thinking or doing
prior to the implementation of the change.

Planning Change

Resistance to change is a natural human response. With the relentless change that is occurring
in organization, knowing the causes of resistance as well as the strategies to cope with
resistance is one of the essential skills of a leader. Resistance and change go together. It is
virtually impossible to have significant change without resistance. Unfortunately, resistance is
usually viewed as bad and as something that is to be overcome. Resistance plays a positive role
too, by bringing attention to some of the neglected aspects.

An important strategy in dealing effectively with resistance is to understand its intensity. There
could be three levels for the resistance. Level 1 is the resistance to the change itself. People
simply oppose, question, or are confused by the change. Level 2 resistance is always deeper
and it indicates that there are other forces at work. This level of resistance appears in a number
of ways. Level 3 represents the deepest, most entrenched level of resistance. The problems are
big and may seem overwhelming. The various sources of resistance and the coping
mechanisms include the following.

 Perceived Peripherality of Change: Implementation of change can be effective if the

introduced change is seen as critical and useful, which can be achieved by the
participation of the concerned people in the diagnosis of the issues or problems.
 Perception of Imposition: When people see the change as being imposed, they tend to
resist it. The resistance can be overcome by involving people in the introduction of
change at several stages.
 Indifference of the Top Management: The mangers are the role models. If their attitude
shows indifference, people also tend to resist change. The best way to overcome
resistance is by the commitment of the leader and by his/her active support for change
management.
 Vested Interests: The vested interests of people cause resistance to change. Once
people experience the change, they often enjoy it and may see its positive aspects.
 Complacency and Inertia: As change produces discomfort, it is resisted. The solution to
the problem is to introduce the change and help people experience new conditions.

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 Fear of Large Scale Disturbance: The fear that the proposed change is likely to lead to
some other changes with unpredictable consequences might result in resistance.
Phasing out the change could help overcome the resistance.
 Fear of Inadequate Resources: Whenever the change requires additional resources in
the form of new skills, additional manpower, or budget, resistance is likely to be greater.
Genuine need for the resources need to be supported by the top management for
overcoming resistance.
 Fear of Obsolescence: People resist change as they fear that they may become
obsolete as they lack those skills which are required for coping with the change.
Organizations should provide opportunities to those people in the development of the
required skills, which could help to overcome resistance.
 Fear of Loss of Power: Any change would result in some roles in the organization to
lose power. This feeling of loss of power could lead to resistance. In order to overcome
this resistance, there is a need to redefine and redesign the roles.
 Fear of Overload: If the change is perceived to increase the work load of people, they
tend to resist the change. There is a need to bring in more of role clarity to overcome
the resistance.

Various tactics have been suggested to deal with resistance. These include education and
communication, participation, facilitation and support, negotiation, manipulation, and coercion. In
order to appropriately deal with resistance, it is necessary to understand the cause of resistance
and use appropriate strategies that may help to reduce the resisting forces in order to sustain the
change over a long time.

Ethics at workplace

Ethics at workplace
Meaning of ethics:

Ethics simply explained is what is good for individuals and society and is also described as
moral philosophy. The term is derived from the Greek word ethos which can mean customs,
habits, characters or dispositions.

Business ethics is the study of the moral problems that confront members of business
organizations and others who are engaged in business transactions. Business ethics is not a
special set of ethical ideas different from ethics in general and applicable only to business.

Why ethical problems occur in business.

Before we dive in ethical practices - there is a need to understand the reason a conflict occurs.
Possible reasons are

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Personal Gain and Selfish Interest: Businesses put their own welfare ahead of all others,
regardless of the harm done to their employees, the company, or society. A manager or an
employee who puts his or her own self- interest above all other considerations is
called ethical egoist.

In Corporate world selfish interest takes over, when a senior takes

away the credit for the work done by junior.

Competitive Pressure on Profits: When companies are squeezed by tough competition, they
sometimes engage in unethical activities to protect their profits. This may be especially true in
companies whose financial performance is already substandard.

Business Goals versus Personal Values: Ethical conflicts in business sometimes occur when
a company pursues goals or uses methods that are unacceptable to some of its employees.
Whistle-blowing may be one outcome if the employee goes to the public with a complaint after
failing to convince the company or correct the alleged abuse.

Ethical Issues faced within the Organization

1. Harassment and Discrimination in the Workplace: Harassment and discrimination are

arguably the largest ethical issues that impact business owners today. Discrimination could be
based on;

 Age: applies to those 40 and older, and to any ageist policies or treatment that takes
place.
 Disability: accommodations and equal treatment provided within reason for employees
with physical or mental disabilities.
 Equal Pay: compensation for equal work regardless of sex, race, religion, etc.
 Pregnancy: accommodations and equal treatment provided within reason for pregnant
employees.
 Race: employee treatment consistent regardless of race or ethnicity.
 Religion: accommodations and equal treatment provided within reason regardless of
employee religion.
 Sex and Gender: employee treatment consistent regardless of sex or gender identity.

2. Health and Safety in the Workplace: Safety, hygiene, protection, or any hazard that puts a
threat to the physical existence of the employee comes under the purview of health and safety in
workplace. Some of prominent ones are:

 Fall Protection, e.g. On construction sites proper signs of unprotected sides and edges
and leading edges should be there.
 Hazard Communication, e.g. In chemical factories, classifying harmful chemicals is a
must.

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 Lockout/Tagout, e.g. controlling hazardous energy such as oil and gas.

 Electrical, Wiring Methods, e.g. On construction sites, following a particular protocol
with regards to the electrical and wiring methods becomes imperative.

3. Whistleblowing or Social Media Rants

The widespread nature of social media has made employees conduct online a factor in their
employment status. The question of the ethics of firing or punishing employees for their online
posts is complicated. However, the line is usually drawn when an employee’s online behavior is
considered to be disloyal to their employer. This means that a Facebook post complaining about
work is not punishable on its own but can be punishable if it does something to reduce business.

Example

Opinion / Rating published by an employee on Glassdoor with reference to the

companies work life balance and other parameters are not punishable. However, a sales
executive in Software-company announcing on social platform about a merger with other
company before the official announcement can lead to termination.

4. Ethics in Accounting Practices

Any organization must maintain accurate bookkeeping practices. Conducting unethical

accounting practices, is a serious concern for organizations, especially in listed companies.

Example

An infamous example of this was the 2001 scandal with American oil giant Enron,
which was exposed for inaccurately reporting its financial statements for years, with its
accounting firm Arthur Andersen signing off on statements despite them being
incorrect. The deception affected stockholder prices, and public shareholders lost over
$25 billion because of this ethics violation. Both companies eventually went out of
business, and although the accounting firm only had a small portion of its employees
working with Enron, the firm’s closure resulted in 85,000 jobs lost.

5. Non-disclosure and Corporate Espionage

Many employers are at risk of current and former employees stealing information, including client
data used by organizations in direct competition with the company. Companies may put in place
mandatory nondisclosure agreements, stipulating strict financial penalties in case of violation, in
order to discourage these types of ethics violations.

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6. Technology and Privacy Practices

Employers now have the ability to monitor employee activity on their computers and other
company-provided devices, and while electronic surveillance is meant to ensure efficiency and
productivity, it often comes dangerously close to privacy violation.

Theories of Ethics
Three major areas of study within ethics recognized today are:

1. Meta-ethics - concerning the theoretical meaning and reference of moral propositions,

and how their truth values can be determined.
2. Normative ethics - is the study of ethical behaviour, and is the branch
of philosophical ethics that investigates the questions that arise regarding how one ought
to act, in a moral sense.
3. Applied ethics - concerning what a person is obligated (or permitted) to do in a specific
situation or a particular domain of action.

Normative

Teleological Virtue Ethics Ethics of Care Deontology

Broadly the theories are classified as Teleological and Deontological.

A deontological approach advocates for doing certain things on principle or because they are
inherently right. Deontological theories thus stress the concepts of obligation, ought, duty, and
right and wrong,

A teleological approach advocates that certain kinds of actions are right because of the goodness
of their consequences. Teleological theories lay stress on the good, the valuable, and the
desirable.

Deontological Teleological
First proposed by Immanuel Kant Introduced by Jeremy Bentham and developed by
John Stuart Mill
also known as Kantian ethics Also known as Utilitarianism
Rule-based view of ethics Consequence-based view of ethics
Goodness or badness is determined by the action Goodness or badness is determined by the results
or outcomes
Ethical behavior is the only one that has goodwill Ethical behavior is one that produces greatest
behind it good for the greatest number

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Utilitarianism or Teleological ethics

1. Utilitarianism: is a tradition of ethical philosophy that is associated with Jeremy Bentham

and John Stuart Mill, two late 18th- and 19th-century British philosophers, economists,
and political thinkers.
2. Utilitarianism or consequentialism is a general term for the view wherein, actions and
policies should be evaluated on the basis of the benefits and costs they will impose on
society.
3. Utilitarianism is a class of consequentialist ethics.
4. It holds that the consequences of one's conduct are the ultimate basis for any judgment
about the rightness or wrongness of that conduct.
5. Thus, from a consequentialist standpoint, an act is morally correct if it produces a good
outcome even if the cost paid for the same or the act done to receive the desired outcome
is painful, unhappiness or sickness.
6. In any situation, the “right” action or policy is the one that will produce the greatest net
benefits or the lowest net costs.

Example

Ford knew that Pinto (car) would explode when the rear ended at only 20 mph, but they also knew that
it would cost $137 million to fix the problem. Since they would only have to pay $49 million in damages
to the injured victims and families of those who died, they calculated that it was not right to spend the
money to fix the cars when the society set such a low price on the lives and health of the victims.
The kind of analysis that Ford used in their cost benefit analysis is a version of what has been
traditionally called utilitarianism.

Given a particular situation, how does one determine what is the moral thing to do?

There are 3 considerations to follow:

1. You must determine what alternative actions are available.

2. You must estimate the direct and indirect costs and benefits the action would produce for
all involved in foreseeable future.
3. You must choose the alternative that produces the greatest benefit.

Traditional utilitarian deny, that any kind of actions are always right or always wrong.

If, in a certain situation more good consequences would flow from being dishonest than speaking
the truth, then, according to traditional utilitarian theory, dishonesty would be morally right in that
particular situation.

Example

A hunter asks a passerby if he has seen the Baby elephant he is chasing to sell to circus and the
passerby shows the opposite direction as to where the elephant actually is. In this scenario passerby is
morally right as he saved the life of the animal.

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Shortfalls of this theory

1. It is not always possible to measure the cost and the benefit of a particular situation. For
example; cost of human life.
2. The estimates of the cost and benefits of an action can not necessarily be relied upon.
The predictions may be incorrect.
3. It is unclear what exactly can be counted as benefit or cost. With the change in the people
the perspectives and point of views also change.
4. Utilitarian measurement implies that all goods can be traded for equivalents of each other.
However, non-economic goods like life, freedom, equality, health etc cannot be valued.

Problems with Rights & Justice:

The major difficulty with Utilitarianism is that it is unable to deal with two kinds of moral issues:

a) Rights
b) Justice
That is the utilitarian principle implies that certain actions are morally right when in fact they are
unjust or violate people’s rights.

Rights: meaning individuals entitlements to freedom of choice and well – being.

Justice: looks at how benefits and burdens are distributed among people.

Example

Say a hospital has four people whose lives depend upon receiving organ transplants: a heart, lungs,
a kidney, and a liver. If a healthy person wanders into the hospital, his organs could be harvested to
save four lives at the expense of his one life. This would arguably produce the greatest good for the
greatest number. But few would consider it an acceptable course of action, let alone an ethical one.

In response to the above criticism Rule Utilitarianism has been devised.

 When trying to determine whether a particular action is ethical

 one is never supposed to ask whether that particular action will produce the greatest
amount of utility
 The correct question would be whether the action is required by the correct moral rules
that everyone should follow.

Duty-based or Deontological ethics

Deontological (duty-based) ethics are concerned with what people do, not with the consequences
of their actions.

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Immanuel Kantian proposed this duty-based ethics. Kant thought that it was possible to develop
a consistent moral system by using reason.

Under this form of ethics you can't justify an action by showing that it produced good
consequences, which is why it's sometimes called 'non-Consequentialist'.

The word 'deontological' comes from the Greek word deon, which means 'duty'.

Duty-based ethics teaches that some acts are right or wrong because of the sorts of things they
are, and people have a duty to act accordingly, regardless of the good or bad consequences that
may be produced.

Deontologists live in a universe of moral rules, such as:

 It is wrong to kill innocent people

 It is wrong to steal
 It is wrong to tell lies
 It is right to keep promises
Someone who follows Duty-based ethics should do the right thing, even if that produces more
harm than doing the wrong thing:

Right – based Ethics:

The concept of rights based ethics is that there are some rights, both positive and
negative, humans have.
These rights can be natural or conventional.
That is, natural rights are those that are moral while conventional are those created by
humans and reflect society's values.

Examples The right to life, The right to liberty, The right to pursue happiness, The right to a jury
trial, The right to a lawyer The right to freely practice a religion of choice, The right to express
ideas or opinions with freedom as an individual ,The right to work etc.

ETHICS OF CARE

Ethics of care differs from two dominant normative moral theories of the 18thand 19thcentury. The
first is deontology, best associated with Immanuel Kant. And the second utilitarianism, attributed
to Jeremy Bentham and improved upon by John Stuart Mill.

Promoter of feminist care ethics include 20thcentury theorists Carol Gilligan and Nel Noddings.

Ethics of Care uses a relational and context-bound approach toward morality and decision
making. It holds that moral action centers on relationships and care or benevolence as a virtue

In this view, there is no contrast between reason and the emotions – as some emotions may be
reasonable and morally appropriate in guiding good decisions or actions.

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Instead of asking the moral decision maker to be unbiased, the caring moral agent will consider
that one’s duty may be greater to those they have particular bonds with, or to others who are
powerless rather than powerful.

Example

As per the ethics of care theorist should a moral agent steal the required medicine he
cannot afford to buy to give to his very sick wife, or stick to the rule ‘do not steal’,
regardless of the circumstances?

A tricky dilemma to be sure as there are competing duties here (namely, a positive duty to
help those in need as well as a negative duty to avoid stealing).Arguably, the caring
person would place the relationship with one’s spouse above any relationship they may or
may not have with the pharmacist, and care or compassion or love would outweigh a rule
(or a law) in this case, leading to the conclusion that the right thing to do is to steal the
medicine.

Note: The Utilitarian may also claim a moral agent should steal the medicine because saving the
wife’s life is a better outcome than whatever negative consequences may result from stealing.

Ethics of care has been influential in areas such as education, counselling, nursing and medicine.
Yet there have also been feminist criticisms. Some worry that linking women to the trait of caring
maintains a sexist stereotype and encourages women to continue to nurture others, to their own
detriment, and even while society fails to value carers as they ought. While Noddings claims
moral agents also need to care for themselves, this is so they are better able to continue caring
for others.

Integrating utility, rights, justice and caring

So far, the notes have outlined four main kinds of basic moral considerations:

1. Utilitarian standards - When we do not have the resources to attain everyone's objectives,
we are forced to consider the net social benefits and social costs consequent on the actions by
which we can attain these objectives.

2. Standards of Rights - Moral reasoning of this type forces consideration of whether the
behavior respects the basic rights of the individuals involved and whether the behavior is
consistent with one's agreements and special duties.

3. Standards of justice - Indicate how benefits and burdens should be distributed among the
members of a group. When evaluating actions whose distributive effects differ this standard of
justice should be considered.

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4. Standards of caring - Indicate the kind of care that is owed to those with whom we have
special concrete relationships. Standards of caring are essential when moral questions arise that
involve persons of relationships, especially those of dependency.

One simple strategy for ensuring that all four kinds of considerations are incorporated into one's
moral reasoning is to inquire systematically into the utility, rights, justice, and caring involved in a
given moral judgment. One might, for example, ask a series of questions about an action that
one is considering:

(a) Does the action, as far as possible, maximize social benefits and minimize social
injuries?
(b) Is the action consistent with the moral rights of those whom it will affect?
(c) Will the action lead to a just distribution of benefits and burdens?
(d) Does the action exhibit appropriate care for the well-being of those who are closely
related to or dependent on oneself?

Unfortunately, there is not yet any comprehensive moral theory to show when one of these
considerations should take precedence.

Alternative to Moral Principles

Virtue Approach

 The virtue ethical theory judges a person by his/her character rather than by an action
that may deviate from his/her normal behavior.
 It takes the person’s morals, reputation, and motivation into account when rating an
unusual and irregular behavior that is considered unethical.

Example

There is a student who is very brilliant in his studies and has earned scholarships on various
levels, if he is caught stealing medicine or money. Then the cops can go easy on him giving
him a chance to explain the reason for the act of stealing and if the act is justified leave him
with a warning.

Here, the morals, reputation of the character is taken into account instead of plainly looking at
the act only.

One weakness of virtue ethical theory is that it does not take into consideration a person’s
change in moral character.

Virtue ethics has been advocated by Plato, Aristotle, Socrates and Gandhiji.

 According to Aristotle virtue is acquired through education and training.

 Gandhiji advocated for virtues of practicing non-violence, being courageous and speaking
honestly. He also talked about seven deadly sins. These seven sins as per Gandhiji are

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1. Wealth without work,

2. Pleasure without conscience,
3. Science without humanity,
4. Knowledge without character,
5. Politics without principle,
6. Commerce without morality,
7. Worship without sacrifice

Teleological Ethical Theories

 The basic standards for our actions being morally right or wrong depends on the good or
evil generated
 It is basically concerned with the consequences of actions
 Utilitarianism is a type of Teleological theory.

Ethical egoism

 It holds that moral agents ought to act in their own self-interest

 Ethical egoism, focuses on what is in the company’s best interest and hence the most
debated topics amongst business ethics.
 Companies focusing solely on profit maximization seem thus to be acting in accordance
with ethical egoism.
 As per the Ethical Egosim theory the Ford Company in Ford and Pinto case acted
ethically.

Ethical relativism is the theory that holds that morality is relative to the norms of one's culture.

 That is, whether an action is right or wrong depends on the moral norms of the society in
which it is practiced.
 The same action may be morally right in one society but be morally wrong in another.
 Some claim that while the moral practices of societies may differ, the fundamental moral
principles underlying these practices do not.
 For example, in some societies, mercy killing is a common practice, ideology being
freeing the person from unbearable pain. However, such a practice would be condemned
in our society.

Ethical Principles in Business

Moral issues in Business Ethics

Meaning of Business Ethics – Business ethics (also known as corporate ethics) is a form
of applied ethics or professional ethics, that examines ethical principles and moral or ethical
problems that can arise in a business environment.

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Ethics needs to be applied in various areas of the organizations. Each area needs to clear and
concise communication of the same.

Ethics in Technology –

 Every day we have innovative products and services that announce their arrival in the
market.
 It is this technology and innovation that leads to ethical issues, considering the
competition to stay ahead by innovating is immense.
 Issues like data mining, invasion to privacy, data theft and workplace monitoring are
common and critical.

In technology ethics can be referred in two contexts:

a) One is whether the pace of technological innovation is benefiting the humankind or not,
b) Other is either severely empowering people while choking others for the same.

With the advent of internet technology the world has got interconnected and data can be
accessed remotely by those who are otherwise unauthorized to do the same.

Example

2020 should have been a massive success for Zoom, but the glitches and lack of
security caused substantial company problems. When Covid initially hit, its popularity
skyrocketed as a massive influx of employees began working from home. Zoom was the
go-to service for hosting video meetings.

However, their security holes were quickly discovered as meetings were infiltrated by
spammers streaming offensive content for all to see.

In addition to the offensive content, it was discovered that Zoom neglected to use end-
to-end encryption for video meetings, which exposed the personal information of millions
of users.

Many had forgotten about July 15, 2020, when Elon Musk, Barack Obama, Kim Kardashian,
and other verified accounts tweeted out a Bitcoin scam. When the activity on these verified
accounts was discovered, Twitter shut down all tweets from its verified accounts while it
investigated.

The large social media company began investigating a possible elaborate security breach.
The company later discovered an employee at Twitter inadvertently provided the credentials
needed to reset account passwords and their email addresses to a Florida teenager.

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The other major issue in technology that brings in ethics is interface between technology and the
computers.

No doubt technology has replaced people at work and made certain others redundant. On the flip
side many people have been raised to power while others have been severely handicapped,
especially third world countries. New manufacturing processes that are outsourced either replace
manpower there or either exploits the latter in the name of employment by engaging them
cheaper prices.

Whereas we cannot talk of controlling technology and innovation, the better way is to adapt and
change. The role of ethics in technology is of managing rather controlling the same. Continuous
monitoring is required to keep track of latest innovations and technological changes and for
ensuring fair practices.

Ethics in finance

It consists of the moral norms that apply to financial activity.

That finance be conducted according to moral norms is of great importance, not only because of
the crucial role that financial activity plays in the personal, economic, political, and social realms
but also because of the opportunities for large financial gains that may tempt people to act
unethically.

Many of the ethical norms in finance are embodied in laws and government regulation and
enforced by the courts and regulatory bodies.

The ethical norms that apply in finance can be grouped under two main heads:

(1) Fairness in making contracts

(2) Observance of contractual obligations.

Ethical issues in the financial services industry and in the financial management of corporations
mainly involve agents, who have an obligation to act in the interests of other parties, called
principals, and fiduciaries, who have a fiduciary duty to act in the interest of beneficiaries. When
agents and fiduciaries have a personal interest that interferes with their ability to serve others,
they are said to have a conflict of interest.

Financial Markets - In financial markets, insider trading, trigging the market price of a stock, non-
disclosure of information which could have an influence on the investors, etc are unethical
practices which need to be cautioned of.

ETHICS in HRM

The human resources function deals with a variety of ethical challenges.

 Breaches of ethics in human resources can lead companies into a world of legal trouble,
in both the civil and criminal arenas.

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 Occupations in which the market conditions do not favor the employees, it becomes
necessary to have government and labor union interventions for controlling the possible
exploitation of employees.

 Free market systems empower employees and the employers equally; negotiations are
used to create win-win situations for both of these parties. Government or labor union
interventions are often harmful in free market systems because they stall the operations
and create unnecessary hindrances.

 With the growth of globalization, the concept of globalizing labor has gained importance.
Trade unions have ceased to exist and the role of HR as such in issues like employee
management, desirable policies and practices has become debatable topics.

 Many people now have the opinion that HR is nothing but a part of the stakeholders,
which initiates major strategic and policy decisions to divulge the organization and gear it
towards profit making.

There cannot be a single opinion about ethics in HR that is completely convincing. However, the
need of these policies and procedures cannot be denied or ignored because human development
is the ultimate aim of all human initiatives.

Employees
Responsibility
Cash and
Compensation
Ethical Issues in HR

Performance
Appraisal

Privacy Issues

Race and
Disability

Safety and Health

Employment
Issues
Restructuring and
Layoffs

Ethics in Marketing:

 There are different schools of thought for ethics in marketing

 One school of thought says that all marketing efforts should be focused on maximizing
the shareholder value.

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Management and Ethics Notes for RBI Grade B

 The other believes that marketing and market is equally responsible to consumers, other
stake holders and the shareholders.

Lots of marketing and promotion was carried out for goods and services that were not a need till
yesterday and only a luxury. Today smart speakers like Alexa and Google mini have become a
need. These are issues that are being discussed in marketing ethics nowadays.

But like other ethics there is also the difficulty of deciding the agency responsible for ethical
practice. Since there is not one single agency responsible for ethics this gives the independence
to an individual or to any marketing agency to act on its own and be ethical!

Marketing ethics unlike other business ethics is not only restricted to the field of marketing alone.
It influences many aspects of our life and especially in developing perceptions in the minds of
people. The visual channels of communication used for marketing sometimes lead to closure of
knowledge, opinions, ideas and beliefs. It creates prejudices in the mind of people.

Ethics in IPR:

 The tightening of laws governing intellectual property has been paralleled by a steady
increase in the economic and cultural importance of intellectual-property rights.
 The entertainment industry has long been heavily dependent on intellectual property; the
fortunes of record companies and movie studios are closely tied to their ability to enforce
the copyrights on their products.
 Similarly, pharmaceutical companies have used the monopoly power created by their
patent rights to charge high prices for their products, which has enabled them both to
cover the enormous costs of developing new drugs and to make considerable profits.
 Other, newer industries have become equally or even more dependent on intellectual-
property rights. The developers and distributors of computer software, for example, insist
that their ability to remain in business is dependent on their power to prevent the
unauthorized reproduction of their creations.

The fans that download music free and many times illegally have a say in it as well as they are
obviously against more protection yet it is a form of piracy, or stealing, which is unethical.

Role of Board of Directors

 Business ethics are good for company performance, but the tone has to be set from the
top.
 A board is responsible for determining, articulating and communicating the values and
standards of the business, and for ensuring that the policies, procedures and controls in
place act to embed, rather than hinder, ethical values throughout the business.

But can boards demonstrate that they are committed to ethical standards and their application to
the way they govern and conduct themselves?

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In today’s environment, stakeholders have high expectations that companies should be run in
accordance with good corporate governance practices – it is the directors which bear ultimate
responsibility for the business. So if corporate governance lies at the very heart of the way
businesses are run, it is imperative that ethical values should be part of what makes those hearts
beat.

The right choices

Boards take decisions which have far-reaching consequences and directly affect the lives of their
employees and other stakeholders, a recent example being tax avoidance.
But business ethics also includes the way the board conducts itself and the way board members
choose to behave in carrying out their role. The culture of an organization will be strongly
influenced by the nature as well as the quality of the leadership shown by the board.
It should go without saying that members of boards should have personal integrity, as well as
being champions of the company’s values.

Best Practices in Ethics Programme

Employees could resort to unethical behavior like:

 Disconnecting sales and service calls to reduce the average time per call
 Adding unordered items to customer requests to increase the average dollars per sale
 Deleting customers from the market research sample when they have been the subject of
the preceding behaviors.

These practices require a desire on the part of all involved to build a working environment based
on respect and concern for doing the right things in the right ways.

The 12 elements of a best-practices ethics program include the following. Each element is
described in reference to the pressure-to-perform scenario.

1. Vision statement. A vision statement defines the long-term, most desirable future state
for the organization. For example, “stretch” goals can further the vision in ways that are
inconsistent with company values. A better measurement of the appropriateness of a goal
would be: If meeting the goal will require unethical actions, the goal should be rejected.

2. Values statement. A values statement defines general principles of required behavior.

3. Organizational code of ethics. A code of ethics gives organization-specific definitions of

what’s expected and required. The code of ethics should clarify the organization’s
expectations. Example: In detailing the values of honesty or integrity, the code of ethics
would specify that reporting of sales and work times be accurate and truthful, and that
failure to meet this standard can be cause for dismissal.

4. Ethics officer. An ethics officer ensures that the ethics systems are in place and
functioning. This person monitors the organization to determine if it’s making a good faith
effort to abide by its stated values,

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5. Ethics committee. The ethics committee oversees the organization’s ethics initiative and
supervises the ethics officer. It’s the final interpreter of the ethics code and the final
authority on the need for new or revised ethics policies.

6. Ethics communication strategy. If employees are to know what’s expected of them and
what resources are available to them, the ethics officer must create a cohesive ethics
communication strategy. This strategy ensures that employees have the information they
need in a timely and usable fashion and that the organization is encouraging employee
communication regarding the values, standards and the conduct of the organization and
its members.

7. Ethics training. Ethics training teaches employees what the organization requires, gives
them the opportunity to practice applying the values to hypothetical situations and
challenges, and prepares them to apply those same standards in the real world.

8. Ethics help line. Help lines aren’t just for reporting unethical conduct. They also make it
easier for the organization to provide guidance and interpretation.

9. Measurements and rewards: If ethical conduct is assessed and rewarded, and if

unethical conduct is identified and dissuaded, employees will believe that the
organization’s principals mean it when they say the values and code of ethics are
important.

10. Monitoring and tracking systems. If employees suspect that managers know
employees are cheating to reach goals and are looking the other way, this may suggest
that looking good on the sales reports is more important to managers than doing the right
things in the right ways.

11. Periodic evaluation.

12. Ethical leadership. The bottom line is that ethics is a leadership issue. Leaders set the
tone, shape the climate and define the standards. If managers are trustworthy and
trusted, if their motivations are honorable and their expectations crystal clear, and if
they’re paying attention to ethics as an integral element of every business decision, then
ethical problems will be rare.

These 12 best practices can prevent the vast majority of ethics violations, large and small. If
they’re systemically applied these practices can ensure that an organization is doing nothing to
encourage good people to do bad things.

Organizational Structure & Business Ethics:

Organizational structure is the typical hierarchical arrangement of lines of authority,

communications, rights and duties of an organization. There are two types of the same.

Centralized organizations; Decentralized organizations

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Management and Ethics Notes for RBI Grade B

Each structure has a unique influence on ethical decision making & behavior.

1. Centralized Organizations - In centralized organizations, decision making authority is

concentrated in the hands of top level managers & little authority is delegated to lower
levels.

Stress formal rules, policies & procedures supported with systematic control systems
Codes of ethics may specify the techniques for decision makers.

It tends to be very bureaucratic & The division of labor is well defined

Issues faced: Specialization limits the ability of the individual to understand how their
actions affect the overall organization ◦ Because of minimal upward communication, top
level managers may not be aware of problems.

2. Decentralized Organizations – In decentralized organizations, decision making authority

is delegated as far down the chain of command as possible.

It has few formal rules, and coordination and control are usually informal and personal.
Managers can react quickly to changes in the external and internal environment.

Issues faced: Difficulty in responding quickly to change in policy & procedures established
by top management. Employees have extensive decision making authority. Some
occasions consider only human side instead of owner's profit

3. Corporate Culture in Ethical Business – A company's history & unwritten rules are a
part of its culture

Some cultures are so strong they dictate the character of the entire organization to
outsider. Eg: TATA group of companies stand for Trust and Ethics.

It may be explicit statements of values, beliefs, and customs coming through memos,
codes, handbooks, manuals, forms & ceremonies. It may be expressed informally
through direct & indirect comments that convey management's wishes, dress codes,
promotions, legends, extracurricular activities.

A failure to monitor & manage corporate culture may lead to questionable behavior
Rewards & punishment need to be consistent with the corporate culture.

4. Corporate Culture in Ethical Business - Four Different Cultures Can Emerge

 Apathetic - shows minimal concern for people or performance

 Caring - exhibits high concern for people, but minimal concern for performance
 Exacting - shows little concern for people, but high concern for performance.
 Integrative - high concern for people and performance.

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Management and Ethics Notes for RBI Grade B

Code of Ethics and Code of Conduct

 Code of Ethics: It is a set of guidelines containing core ethical values, principles and ideals
of the organization. It gives a general idea of what types of behavior and decisions are
acceptable and encouraged at a business or organization.
For example, it might stipulate that ABC Corporation is committed to environmental
protection and green initiatives.
 Code of Conduct: It is more focused and defines how employees or members should act in
specific situations. It outlines specific practices and behavior that are required or restricted
under the organization.
For example, it might forbid sexual harassment, racial intimidation or viewing inappropriate or
unauthorized content on company computers.

Differences between Code of Ethics and Code of Conduct:

Code of Ethics Code of Conduct

1. It governs decision making It governs actions
2. It is focused on values and principles It is focused on compliance and rules
3. It is general and broad in nature It is well defined and specific in nature
4. It is put on public domains of the company, for It is addressed to employees of the company
everyone to see and understand only
5. They are non-specific enabling employees to make It sets a clear set of expectation of the behavior
independent judgments about the most appropriate and the consequences of the same in case the
course of action rules are not adhered to.

Similarities between Code of Ethics and Code of Conduct:

 Both are similar as they are used in an attempt to encourage specific forms of behaviour by
employees.
 Code of Conduct originates from the code of ethics, and it converts the rules into specific
guidelines that must be followed by the members of the organization.
 Both can serve as a guide to handle situations like avoiding conflict of interest, protecting
the organization's assets, anti-bribery and corruption and improving work culture ethics.

Hence, there is a significant overlap between the two codes.

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Management and Ethics Notes for RBI Grade B

Corporate Governance

Meaning

 Corporate Governance can be defined as the relationship between the shareholders,

stakeholders, and the organization’s management.
 Policies and procedures a company implements to control and protect the interests of
internal and external business stakeholders.
 The need to have Corporate Governance is to maintain financial and operational discipline.
 And running the business with ethics, integrity, transparency and fairness.

Accountability Good
Transparency Fairness in
of Operations
towards corporate
Stakeholders Dealings
governance

There are various theories of corporate governance which addressed the challenges of
governance of firms and companies from time to time. The most common theory of corporate
governance include Shareholder (or agency theory) and Stakeholder theory.
 Shareholder theory is narrow in its approach and based on self-interest. As per this
theory, the directors of company are hired to act as agents of shareholders and perform in
the best interest of shareholders.
 On the other hand, the stakeholder theory of corporate governance focuses on the
effect of corporate activity on all identifiable stakeholders of the corporation. This theory
posits that corporate managers (officers and directors) should take into consideration the
interests of each stakeholder in its governance process, and not the shareholders alone.

The stakeholder theory of corporate governance has developed over the years and is widely
accepted and also included as part of the law.

Stakeholder Theory
This theory looks further than the traditional members of the corporation (managers, directors,
and shareholders) and also focuses on the interests of any third party that has some level of
dependence upon the corporation. Stakeholders are generally divided into internal and external
stakeholders.
 Internal Stakeholders - the shareholders and the corporate directors and employees, who
are actually involved in corporate governance process
 External Stakeholders - May include creditors, lenders, auditors, customers, suppliers,
government agencies, and the community at large.

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Key to the stakeholder theory is the realization that all stakeholders engage in some manner with
the corporation with the hope or expectation that the corporation will deliver the type of value
desired or expected. The benefits may include dividends, salary, bonuses, additional orders, new
jobs, tax revenue, etc.

Need for corporate governance?

The need for Corporate Governance arises because the owners of the company and the people
who manage it are different.

The possibility of keeping the interest of the company secondary over its own personal gains is
high.

1. Separation of ownership and management: The shareholders of the company are the
true owners of the company but they are also fragmented and wide spread in nature. So
the shareholders appoint management team who is responsible for the day – to – day
transactions of the company. The company also has a Board of Directors that ensure the
company is run in an ethical manner keeping in mind the interest of all the stakeholders.
They ensure that all information is presented honestly and transparently and no misuse of
information for personal interest is done.

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2. Protect interest of Minority shareholders: Amongst the owners of the company or to

say shareholders of the company too, the right of the say in the decision making depends
on the number of the shares held.
Various decisions are taken based on majority votes which may sometimes not lead to
proper representation of minority shareholders’ interest.
The need to protect Minority shareholders against issues like the disproportionate
influence over decisions, extending favors to the group companies or relatives of the
management, generous directors remuneration etc., gives rise to the need of corporate
governance in a company.

3. Improved financial performance

A lack of corporate governance can lead to loss, corruption, fraud, not only to the
corporation, but to the society, as a whole.
Good corporate governance, increases trust, morale and motivation of employees in the
organization. This leads to higher productivity and commitment of the employees towards
achievement of organizational goals. This translates into better financial performance like
higher profitability and returns which has a positive impact on the market value of the
company.

High morale,
Good corporate
increased employee Higher productivity
governance
motivation

Higher market value

Higher profitability,
= value creation for
RoE, dividends
stakeholders

Thus corporate governance management is also designed to limit risk and eliminate corrosive
elements within an organization

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Factors of corporate Governance

Board of Independent, diverse, well-qualified

Directors
Compliance with various laws
and regulations of SEBI, RBI,
Promoters & Equitable treatment of minority
other regulatory bodies Regulatory
Ownership shareholders
compliance
Structure

Factors of
corporate
governance
Organisation
Timely, accurate disclosures Disclosures
objectives, Delegation of roles and power,
regarding financials, and
policies and
transparency internal control systems, accounting
performance, management, structure
Board, objectives, Management policies, risk management policies
subsidiaries, related party culture and etc.
role of
transactions, etc. professionals

Attitude of management, audit

committee, company secretary, etc.

 Board of Directors:
 Competency of board of directors for making decisions in the shareholders’ interests,
board should have required skills and well aware of its responsibilities
 Independent and well diversified directors on board ensure that company’s policies,
decisions and performance are in interest of all the stakeholders.

 Promoters & Ownership Structure:

 Ownership structure in the hands of few leads to biased decisions which may not turn out
to be in the interest of the company.
 Equitable treatment of minority shareholders is a must.

 Policies & Structure of Organization

 Policies and Law of the Country in which company operates, shareholders rights
mentioned in company law of the country, bankruptcy laws, accounting policies, risk
management policies etc. impact governance
 Delegation of roles and power to each employee of the company and especially top
management of the company.

 Management role and Audit Committee

 Remuneration of directors should be in a way to incentivize them enough to work
diligently.
 Effective financial reporting strengthens internal audit function and reduces the
opportunity for fraud. It is a link with the external auditors.

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 Disclosures and Transparency

 Timely and accurate disclosures regarding financials, performance, management, Board
of Directors appointed, objectives and visions of the company, subsidiaries, related party
transactions, etc. should be disclosed.

 Regulatory Compliance
 Compliance with whistle blower policy as per Clause 49 of the Listing Agreement
 Addressing Grievances of Shareholders: SEBI’s code for CG stipulates creation of
Shareholder’s committee and similarly, Companies Act, 2013 mandates constitution of
Shareholders Relationship Committee to address such issues

Mechanisms of corporate Governance

Corporate Governance
Mechanisms to ensure

Internal
Mechanism
External
Mechanism

Internal Mechanism:

 The sets of controls for a corporation should foremost come from its internal procedures /
mechanisms.
 These controls monitor the progress and activities of the organization and take corrective
actions when the business goes off track.

 The objectives include

 Ownership structure.
 Right mix of independent and non – independent directors.
 Independent internal audits.
 Segregation of control and policy development.

 Board of Directors - There are three types of directors: internal, external and independent
directors.
 Internal directors work within the organization and include promoter directors and
whole time directors

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Management and Ethics Notes for RBI Grade B

 External director’s work from outside business and may be on Boards of several
companies. They may be part time directors or Nominee directors
 Independent directors do not have any fiduciary relation with the company and
present an objective and independent view in decision making
A right mix of these directors maintain business performance on track.

 Committees - It depends on the country’s laws and regulations whether the creation of
committees should be mandatory for the firm or not. For example, In India the Companies
Act, 2013 mandates an Audit committee for certain types of companies. Other Committees
required include the Nomination and Remuneration committee and Stakeholder Relationship
Committee, Small shareholders committee, CSR committee, etc.

 Financial Statements and Auditors - Every company needs to present their financial
reports on the quarterly and annual basis and get them checked with the auditors. The real
picture presented by the auditors reveals the true financial picture of the firm which is the
most vital information for the parties involved with the firm either directly or indirectly.

 Ownership Structure - This is another means of controlling the management part of the
company. This way a business can maintain its best monitoring and controlling system for the
better performance of all the functioning of the business firm.

External mechanism:

Internal mechanism fall short while performing the best for the company. This time external
factors play a vital role in controlling the corporate governance mechanism of the business firm

 External control mechanisms serve the objectives of entities such as regulators,

governments, trade unions and financial institutions.
 These objectives include adequate debt management and legal compliance.
 Example - Forms of union contracts or regulatory guidelines.
 Audited financial statement and the accompanying auditor’s report helps internal as
well as external stakeholders and regulators determine the financial performance of
the corporation
 Financial Markets too plays an important role. There is a direct relation between the
market value of the firm and the efficiency of the managers
 Regulatory guidelines like Clause 49 of the listing agreement by SEBI and Companies
Act, 2013 by MCA forces companies to comply with corporate governance rules.

Corporate Social Responsibility (CSR)

 Corporate Social Responsibility (CSR) - Refers to practices and policies undertaken by

corporations that are intended to have a positive influence on the world.
 The key idea behind CSR is for corporations to pursue other pro-social objectives, in addition
to maximizing profits.

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Management and Ethics Notes for RBI Grade B

 Examples of common CSR objectives include minimizing environmental externalities,

promoting volunteerism among company employees, and donating to charity.

The four types of corporate responsibility are: environmental, human rights, philanthropic and
economic.

1. Corporate Environmental Responsibility:

Environmentally responsible companies need to analyze their processes and voluntarily
do everything in their power to reduce the environmental impact – especially when it
comes to waste disposal and carbon footprints. Global warming poses a real threat, and
corporations bear a large part of the blame.

2. Corporate Human Rights Responsibility:

Human rights responsibility for companies usually involves enacting fair labor practices,
condemning child labor and establishing fair trade practices.
Many companies are beginning to end business relationships with companies that use
child labor. Disney, Mattel and Walmart are a few companies that came under intense
scrutiny after it was revealed that the factory that produces their toys uses child labor.

3. Corporate Philanthropic Responsibility:

Corporate philanthropic responsibility typically involves making investments in the local
community, whether it is for educational programs, scholarship programs, health
initiatives or supporting notable causes in general.

4. Corporate Economic Responsibility:

The fact remains that if the companies do not make profit they will not survive. However,
time today requires that profits should not come at the expense of ethics. Unethical
practices may benefit a company in the short term, but their long-term effects can be
disastrous. The 2008 financial crisis is an example of by a few companies creating the
worst financial crisis since the Great Depression.

CSR as per Companies Act 2013

The CSR provisions are covered under the Section 135 and Schedule VII of the Companies
Act, 2013.

As per the provisions of this section, a Company having

 Net-worth of Rs.500 crore or more, or
 Turnover of Rs.1000 crore or more or
 net profit of Rs.5 crore or more
in previous financial year, should:
 spend at least 2% of the average net profits of three immediately preceding years on
CSR activities
In case the company do not fully spend the funds of In case the company spends in
CSR excess of CSR requirement
Company must disclose the reasons for non-spending companies which spend any
in their annual report. amount in excess of their CSR

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Management and Ethics Notes for RBI Grade B

Any unspent annual CSR funds must be transferred to obligation in a financial year
one of the funds under Schedule 7 of the Act (e.g., can set off the excess amount
PM Relief Fund) within six months of the financial year. towards their CSR obligations in
However, if the CSR funds are committed to certain subsequent financial years
ongoing projects, then the unspent funds will have to be
transferred to an Unspent CSR Account within 30 days
of the end of the financial year, and spent within three
years. Any funds remaining unspent after three years
will have to be transferred to one of the funds under
Schedule 7 of the Act.

If a company is in default in complying with these

provisions,
o the company shall be liable to a penalty of twice
the amount required to be transferred by the
company to the Fund specified in Schedule VII or
the Unspent Corporate Social Responsibility
Account, as the case may be, or one crore
rupees, whichever is less, and
o every officer of the company who is in default
shall be liable to a penalty of one-tenth of the
amount required to be transferred by the
company to such Fund specified in Schedule VII,
or the Unspent Corporate Social Responsibility
Account, as the case may be, or two lakh
rupees, whichever is less.

 Constitute a CSR Committee (consisting of 3 or more directors of which at least 1 is

independent director) and
Note - Where the amount to be spent by a company on CSR activity does not exceed
Rs.50 lakh, the requirement of constitution of the CSR Committee shall not be
applicable and the functions of such Committee will be carried out by the Board of
Directors

Functions of the CSR Committee shall,—

 formulate and recommend to the Board, a CSR Policy which shall indicate the activities to
be undertaken by the company in areas or subject, specified in Schedule VII:
(i) eradicating extreme hunger and poverty;
(ii) promotion of education;
(iii) promoting gender equality and empowering women;
(iv) reducing child mortlity and improving maternal health;
(v) combating human immunodeficiency virus, acquired immune deficiency
syndrome, malaria and other diseases;
(vi) ensuring environmental sustainability;
(vii) employment enhancing vocational skills;
(viii) social business projects;

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Management and Ethics Notes for RBI Grade B

(ix) contribution to the Prime Minister's National Relief Fund or any other fund set up
by the Central Government or the State Governments for socio-economic
development and relief and funds for the welfare of the Scheduled Castes, the
Scheduled Tribes, other backward classes, minorities and women;
(x) such other matters as may be prescribed

 recommend the amount of expenditure to be incurred on the activities referred above

 monitor the CSR Policy of the company from time to time.

Corporate Governance – regulatory framework

Regulatory Framework in India

RBI and Banking

The Companies Act, Other Professional Regulation Act
SEBI Guidelines
2013 Body's standards
(in case of banks)
•Board Constitution •regulates listed •Accounting •RBI guidelines
•Board Meetings companies standards by •Banking Companies
•Board Processes •rules and guidelines Institute of (Acquisition and
to protect investors Chartered Transfer of
•Board sub- Accountants of India
committees •SEBI (Listing undertakings) Act,
Obligations and (ICAI) 1969
•Independent •Secretarial standards
directors Disclosure •Banking Regulation
Requirements) by Institute of Act, 1949 (Sec 10 A)
•audit committee Regulations, 2015 Company Secretaries •various committee
•related party of India (ICSI) recommendations on
transactions (RPT) Corporate
•disclosures in Governance
financial reports, etc.

Various Committees on Corporate Governance in India

Uday Kotak Committee: (By SEBI – June 2017)

Propositions by the committee:

 Separation of Roles of CMD - Chairman and MD/CEO at listed firms should be separate
and chairmanship should be limited to only non-executive directors. (w.e.f. April 1, 2022
for top 500 listed companies)
 Minimum Board Length - 6 members and at least one woman as independent director.
At least five board meeting for listed firms. Board should at least once a year discuss
succession planning and risk management.
 Independent Directors – In listed companies number of independent directors to be
increased from 33% to 50%., while all directors must attend at least half of the meetings.
Age shall be max 75 years.

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Management and Ethics Notes for RBI Grade B

 Shareholder’s Meeting - Top 100 firms by market capitalization should webcast

shareholder meeting and all listed firms should have cash flow statement every six
months.
 Credit ratings - All credit ratings obtained by the listed entity must be made available at
one place.
 Remuneration - Independent directors must get minimum remuneration of Rs. 5 lakh per
annum and sitting fee of Rs 20,000-50,000 per meeting.
 Risk management and IT committee - Top-500 listed companies should have risk
management committee and IT committee of boards.
 Maximum directorship - Listed entities: a director should not hold directorship position in
more than
o eight listed entities by April 01, 2019
o seven listed entities by April 01, 2020

Also, a person shall not serve as an independent director in more than seven listed
entities
If a person is a MD/WTD in a listed co. then he can be independent director in max. 3
listed companies
 For government companies, the board have final say on the appointment of independent
directors and not the nodal ministry.
 Tweak the definition of a “material” subsidiary to one whose net worth or income exceeds
10% (currently 20%) of the consolidated income, or net worth of the listed entity

The recommendations that were rejected by SEBI were:

 One of the 18 suggestions rejected by the board was that of sharing information with
promoters or other shareholders.
 Matrix organization.
 Companies not having to disclose meetings with institutional investors
 Enhanced disclosure on depositary receipts

Other Committees on Corporate Governance in India

Confederation of Kumar Mangalam Naresh Chandra

Indian Industry Birla Committee Committee by MCA
(1998) (2000) (2002)

Narayan Murthy Dr. R.H. Patil – Dr. Ganguly Group

Committee (2003) Advisory group Committee (2002)
(2001)

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Management and Ethics Notes for RBI Grade B

Communication

Communication Process
Communication is the process of exchanging information, ideas, thoughts, feelings, emotions,
etc. between individuals, through a medium/channel. Communication plays an important role in
the smooth and effective functioning of any organization.

A breakdown in the communication channel leads to an inefficient flow in information. For

example, if employees are unaware of what the organization expects of them, this could cause
employees to become suspicious of motives and changes in the company. This could negatively
affect productivity in the workplace. If productivity decreases, eventually this will harm the
organization as a whole. Therefore, in order for an organization to run well, a good manager
should be able to effectively communicate to employees what is expected of them, make sure
they are fully aware of company policies and inform them of any upcoming changes. This should
help to optimize employee productivity and ensure that the organization runs smoothly.

Meaning and Process

 Communication requires at least two parties – sender of information (who sends the
message) and receiver of information (who gives feedback).
 Two-way process; includes feedback
 A communication is effective or successful, when it produces the desired result
 Essence of management; necessary to perform functions of management

The process of communication would start with sender and ends with the feedback from the
receiver which completes the communication loop.

Barriers/Noise

FEEDBACK/
RESPONSE

Figure: Communication loop

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Management and Ethics Notes for RBI Grade B

 Messenger/Sender – the person who wants to communicate, has an idea,

information, feeling, etc. that he wants to share
 Coding/encoding – preparing the content of the message by use of words, symbols,
etc.
 Channel/Medium – the means used to transmit the message like speaking face-to-
face, over a phone, through letter, email, etc.
 Barriers/Noise - the various obstacles or hurdles that arise in between of an effective
communication leading to misinterpretation by the receiver
 Receiver – the person for whom the message is intended/targeted
 Decoding - The message is decoded/understood by the receiver
 Feedback – the receiver responds to the sender after decoding the message

Communication Channels/Medium

Communication channels refer to the way the information flows within the organization. There are
many different types of communication channels available for managers to use like face-to-face
communication, mobile technology, electronic bulletin boards, fax machines and video
conferencing.

As organizations grow, managers cannot rely on face-to-face communication alone to get their
message across. A challenge that managers face today is to determine what type of
communication channel to use in order to carry out effective communication.

In the current scenario of ‘work from home”, video conferencing has gained importance as a
medium of communication for many organisations.

face-to-face
conversations/
personal
meeting
Speeches telephone
conversation

Formal written
documents like video
reports, manuals Communicati conferencing
on Channels

messaging on
Written letters hand-held devices
& memos like mobiles,
tablets

Fax Emails

Figure: Communication channels

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Management and Ethics Notes for RBI Grade B

Effective communication

Communication is said to be effective when both the sender and the receiver of the information
understand the message in same aspect.

When the sender sends a message, he/she has an intended meaning of what he/she wants to
communicate. The receiver has his/her own interpretation of what has been communicated.
When the intended message is understood by the receiver in same manner, the communication
becomes effective and leads to the desired result. The medium of communication chosen here
by him/her also affects the quality and impact of communication.

For example, a manager tells his subordinate to complete the project report started by the
manager soon. The subordinate starts working on the project report given by his manager
without a set timeline. The manager was expecting the project report in 3 days and was
disappointed to know that the subordinate had not completed it by then. Here the communication
was not effective, as the urgency of the project report was not understood by the subordinate.

This communication could have been made effective by following certain rules. There are 7 C’s
of effective communication which are applicable to both written as well as oral communication.
These are as follows:

1. Completeness - The communication must be complete. It should convey all facts

required by the audience. Complete communication develops and enhances reputation of
an organization.
 It is cost saving as no crucial information is missing and no additional cost is
incurred in conveying extra message.
 It leaves no questions in the mind of receiver.

2. Conciseness - Conciseness means communicating what you want to convey in least

possible words without forgoing the other C’s of communication.
 It is both time-saving as well as cost-saving.
 It underlines and highlights the main message as it avoids using excessive and
needless words.

3. Consideration - Effective communication must take the audience into consideration, i.e.,
the audience’s view points, background, mind-set, education level, etc.
 Empathize with the audience and exhibit interest in the audience. This will
stimulate a positive reaction from the audience.

4. Clarity - Clarity in communication makes understanding easier.

 Clear message makes use of exact, appropriate and concrete words. For
example, in the above case, rather than saying that the project report is needed
soon, the manager could have given an exact date for completion of the report.

5. Concreteness - Concreteness strengthens the confidence as it is backed by logical

statements, evidence, facts and figures etc.

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Management and Ethics Notes for RBI Grade B

 It makes use of words that are clear and that build the reputation.
 Concrete messages are not misinterpreted.

6. Courtesy - The sender of the message should be sincerely polite, judicious, reflective
and enthusiastic.
 Courtesy implies taking into consideration both viewpoints as well as feelings of
the receiver of the message.
 Courteous message is positive and focused on the audience.

7. Correctness - Correctness in communication implies that there are no grammatical errors

in communication. The message is exact, correct and well-timed.
 Correct message has greater impact on the audience/readers.

Awareness of these 7 C’s of communication makes you an effective communicator. The onus of
clarification that the intended message has been received is on both the ends - sender and
receiver

•message should give complete information

Completeness •message should provide all required facts and figures

•short and precise; to the point

Conciseness •avoid repetition, unnecessary details

•clear mesage by using precise , familiar and easy words

Clarity •emphasize on specific goals at a time

•use of right level of language, gramaticaly correct

Correctness •non-discriminatory language

•consider the receiver's interest/intention

Consideration •draft message by keeping in mind the target group

•positive and focussed; consider receiver's feelings

Courtesy •sincere, polite, judicious, unbiased message

•be specific, definite, image building words

Concreteness •avoid general and vague comments

Figure: 7 C’s of Effective Communication

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Management and Ethics Notes for RBI Grade B

Organisational Communication – verbal, oral, written, non-verbal, upward,

downward, lateral

Formal and informal Communication

Companies need to be able to communicate effectively. This is especially true of large

companies where personal interaction may not be practical. This is where formal communication
comes into play.

Formal communication involves utilizing the formal communication channels of an organization.

The flow of information is controlled and needs deliberate effort to be properly communicated.
Formal communication follows a hierarchical structure and chain of command. Formal
communication can move vertically in an organization. Information is collected and flows up to
the top levels of management for review and decision making, while orders flow down from the
top to the place where it will be implemented. For example, employees may be given a
presentation from the human resources department on new policies and procedures. Formal
communication can also flow horizontally across the organization.

Employees are bound to follow formal communication channels while performing their duties.
Formal communication is considered effective as it is a timely and systematic flow of
communication.

In comparison, informal communication refers to communication which is multi-dimensional.

Informal communication moves freely within the organization and is not bound by pre-defined
channels and communication routes. Informal communication is particularly quick. Informal
communication is far more relational than formal communication and is by nature, a very natural
form of communication as people interact with each other freely and can talk about a diverse
range of topics, often extending outside of their work duties. Due to the inherent nature of
informal communication, it moves a lot faster and does not have a paper trail.

Informal communication in the workplace is often called the ‘grapevine’ and generally begins with
employees through social relations. In many cases informal communications can turn to formal
communication if they are added into the formal communication information flow of a company.
Informal communication is considered effective as employees can discuss work-related issues
which saves the organization time and money. It also helps to build more productive and healthy
relationships in the workforce.

The key difference between the two are:

Formal Communication Informal /Grapevine
Based on formal organization structure relation Based on inter personal relations between
of superior and subordinate individuals in an organization
Systematic, structured and follows the Unsystematic and erratic and free flow of
organizational structure information
It is time consuming as follows the organization It is quick as there are no line of commands to
structure follow
Official and planned communication regarding Unofficial, personal communication
work related matters

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 Management and Ethics Notes for RBI Grade B

Formal Communication Informal /Grapevine

Needed to achieve organizational objectives Needed to fulfill social, interpersonal, affiliation
needs of individuals
E.g. – email from superior, reports, performance Conversations at office parties, rumours and
appraisal, instructions for job, etc. gossips
Both formal and informal communication have their time and place in the workplace, and both are
effective when used correctly. Communication also has a role to play in building a culture of work
ethic.

Formal communication and Direction of Communication within Organizations

Some of the most important types of direction in formal communication are:

1. Downward
2. Upward
3. Horizontal or Lateral and
4. Diagonal or Cross-wise

The basic purpose of designing such communication is to connect various departments of an

organisation and coordinating their functioning for achieving smooth functioning.

Upward Communication
 From subordinates to superiors
 Provides feedback/ suggestions/
grievances to superiors
Diagonal Communication  E.g. – complaints/suggestions
 Between subordinates and boxes, reports, surveys, open
superiors of different door policy, etc.
departments/ workgroups
 E.g. – HR Head interacting with Lateral/ Horizontal Communication
operations personnel to design  Between co-workers/peers at
training program same organizational level
Communication  Facilitates co-ordination
between various departments
 Helps build emotional and social
connect

Downward Communication
 From superiors to subordinates
 E.g. - Used to give instructions,
convey policies and procedures,
training, explain job,
performance appraisal, etc.

Figure: Formal communication flow directions

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Management and Ethics Notes for RBI Grade B

1. Downward communication: It is based on the assumption that the people working at higher
levels have the authority to communicate to the people working at lower levels. Communication
in the first place, flows downwards. This direction of communication strengthens the authoritarian
structure of the organisation. This is also called Down Stream Communication. It is the most
common form of formal communication. Downward communication includes orders and
instructions represented in oral or written format. Reports, emails, letters and manual
communication are commonly used downward communication tools.

2. Upward communication: The function of upward communication is to send information,

suggestions, complaints and grievances of the lower level workers to the managers above. It is,
therefore, more participative in nature. Common forms of upward communication include (from
employees to managers and above) reports, suggestions, requests, instructions and complaints.

3. Lateral or horizontal communication: Functional managers operating at the same level, in

different departments, through their communication, present a good example of lateral
communication. This type of communication can be seen taking place between persons
operating at the same level or working under the same executive. Horizontal communication is
slightly more fluid and dependent on cross-individual communication. Typical examples exist as
communication between managers of different departments (HR, Marketing, Sales, etc.).

4. Diagonal or crosswise communication:

Diagonal or crosswise communication takes place when people working at the same level
interact with those working at a higher or lower-level of organizational hierarchy and across the
boundaries of their reporting relationships. This occurs when employees of different departments
at different levels communicate with each other irrespective of the chain of command.
Communication between a floor manager and a Sales team is a prime example of diagonal
communication.

Verbal and Non-verbal Communication

Communication can be divided between verbal and non-verbal communication. Verbal

communication is communication using words (spoken or written) that is understood by all
parties to the communication. Non-verbal communication is sending a message without using
words to convey meaning.

Communication

Non-
Verbal
verbal

Oral Written

Figure: Verbal and non-verbal communication

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Management and Ethics Notes for RBI Grade B

Verbal Communication can take the form of oral (spoken) or written communication
 Oral Communication: This is the most common and primary mode of communication. It
involves communication through spoken words which involves talking and listening. Oral
communication can be the day-to-day chat that is informal and spontaneous and the
formal ones which is useful when message is of temporary nature or of confidential nature
or when direct interaction is required. Feedback is immediate. E.g. – face-to-face or over
the phone conversation, lectures, conference, speech, presentation, discussion, video-
calls.

 Written Communication: Communication through written words is known as written

communication. It involves writing and reading, it is time consuming and rigid. However, it
is authentic and credible as it is documented records. Usually formal, more structured and
precise, it is useful when message is formal and fact based requiring recorded reference
for future use. In this form of communication feedback is delayed E.g. – Letters, Memos,
handbooks, manual reports etc.

Non-verbal Communication is communication of feelings, emotions, attitudes, and thoughts

through body movements / gestures / eye contact, etc. The components of Non-verbal
communication are:
 Kinesics: It is the study of facial expressions, postures & gestures. Did you know that
while in Argentina to raise a fist in the air with knuckles pointing outwards expresses
victory, in Lebanon, raising a closed fist is considered rude?
 Oculesics: It is the study of the role of eye contact in non-verbal communication. Did you
know that in the first 90 sec - 4 min you decide that you are interested in someone or not.
Studies reveal that 50% of this first impression comes from non-verbal communication
which includes oculesics. Only 7% of comes from words - that we actually say.
 Haptics: It is the study of touching. Did you know that acceptable level of touching vary
from one culture to another? In Thailand, touching someone's head may be considered as
rude.
 Proxemics: It is the study of measurable distance between people as they interact. Did
you know that the amount of personal space when having an informal conversation
should vary between 18 inches - 4 feet while, the personal distance needed when
speaking to a crowd of people should be around 10-12 feet?
 Chronemics: It is the study of use of time in non-verbal communication. Have you ever
observed that while AN employee will not worry about running a few minutes late to meet
a colleague, a manager who has a meeting with the CEO, a late arrival will be considered
as a nonverbal cue that he / she does not give adequate respect to his superior?
 Paralinguistics: It is the study of variations in pitch, speed, volume, and pauses to
convey meaning. Interestingly, when the speaker is making a presentation and is looking
for a response, he will pause. However, when no response is desired, he will talk faster
with minimal pause.

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Management and Ethics Notes for RBI Grade B

 Physical Appearance: Your physical appearance always contributes towards how

people perceive you. Neatly combed hair, ironed clothes and a lively smile will always
carry more weight than words.

The key differences between verbal and non-verbal communication is as follows:

Verbal Non-verbal
Communication through words, spoken or Communication through body movements,
written gestures, facial expressions, eye contact
Structured Unstructured

Explicit and easy to comprehend Not always explicit and difficult to understand

Can be used as evidence in future No documentary evidence

Emphasis on “What we say” Emphasis on “how we say it”

E.g. – discussion, telephone conversation, E.g. – facial expressions, body language,
speech, interview, letter, email, memo, etc. gestures, voice modulation, eye contact,
posture, etc.

Communication Networks

The pattern of contacts among the members of the organisation and flow of information among
them is communication network. Network helps managers to establish contacts in different
patterns through communication flows. The network depends upon the magnitude of the
organisation, nature of communication channels in the organisation and the number of persons
involved in the process.

There can be many patterns of communication network. Some of them include:

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Management and Ethics Notes for RBI Grade B

Vertical Network:
The vertical network is usually between the superior and
subordinate and vice versa. It is two-way communication.
The immediate feedback is possible in this type of
communication network. It is formal network.

2. Circuit Network:
Under this network two persons communicate with each other.
Say Mr. ‘A’ sends message to Mr. ‘B’. After receiving message
Mr. ‘B’ communicates the feedback message to Mr. ‘A’. So
communication takes the form of a circuit. Therefore it is known
as circuit network. It is similar to vertical network but in circuit
network ‘A’ and ‘B’ are not necessarily superior and
subordinates.

3. Chain Network:
This network of communication follows the organisational
hierarchy and chain of command. All subordinates receive
commands or instructions from their superior. B, C, D and E,
F, G are the subordinates to A in the organisational hierarchy
and receive commands from ‘A’ which follows the way shown
in the diagram.

Another form of this can be the line network.

4. Wheel Network:
Here all subordinates receive commands from one superior.
This is highly centralized type of communication network where
each subordinate receives commands or instructions from a
single authority or superior ‘A’ and wants the immediate
feedback.

5. Star or all-channel Network:

Under star communication network all members of the
group communicate with each other and exchange
information. This network is a must for group
communication or where teamwork is involved. This
network channel of communication is open to all members
of the group. The members communicate with each other
without hesitation.

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Management and Ethics Notes for RBI Grade B

The effectiveness of the above networks of communication channels depend upon their users i.e.
the managers at all levels, their subordinates and other members of the organisation and above
all the seriousness with which all these human resources make use of the facilities provided to
them by the organisation to accomplish its objectives.

Barriers to Communication
Barriers to communication refers to any form of hindrance in the flow of communication or the
various obstacles or hurdles that arise in between of an effective communication leading to
misinterpretation by the receiver. Barriers can exist at any stage of communication process.
When the message sent and received are not clear or not interpreted accurately or as intended, it
can be due to some barriers in communication making the communication ineffective. It is
therefore, important to understand the different types of barriers and remove them so as to
increase the effectiveness of the communication.

Some of the common types of barriers to communication include:

 Lack of planning: Lack of planning is the cause of most failures. It refers to not
structuring the communication, or choosing the right medium or timing of communication
which leads to breakdown of effective communication.
 Semantic or language Barriers – The Semantic Barriers refers to the misunderstanding
between the sender and receiver arising due to the different meanings of words, and
other symbols used in the communication. The semantic barriers usually arise when the
information is not in the simple language and contains those words or symbols that have
multiple meanings. Too much use of technical jargons or faulty translations are other
examples of semantic barriers.
 Organizational Barrier: Complex organization structure with too many levels leads to this
barrier. Most of these barriers arise because of misinformation or lack of appropriate
transparency available to the employees. It could include too many rules and policies,
barriers arising due to hierarchical positions of power and status, information overload at
some levels, etc.
 Psychological/ Emotional/ Attitudinal and Personal: Some people have stage fear,
speech disorders, phobia, depression etc. All of these conditions are very difficult to
manage sometimes and will most certainly limit the ease of communication. Personal
biases, poor retention, distrust, fear of loss of authority (insecurity), lack of awareness or
motivation are some other types of psychological barriers in communication.
 Poor Listening and premature-evaluation – this is also a type of psychological barrier.
In case of poor listening, the communication is not decoded well by the receiver due to
ignorance, pretense listening or selective listening. Active listening is important for the
effective communication. In case of pre-mature evaluation, the receiver may jump to
conclusion before the completion of full message which may lead to misunderstanding or
incomplete understanding of the message.
 Environmental or Physical barriers: There are several environmental barriers in
communication including external noise, time, physical distance, space, climate and

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Management and Ethics Notes for RBI Grade B

place. If the temperature is too high or too cold, then people can become agitated,
frustrated and uncomfortable. The physical distance between two people will also affect
the way that they are able to communicate with one another.
 Technological barriers: Barriers due to use of outdated technology or equipment, or
proper infrastructure to support latest technology can post as barrier too. For example a
presentation made on latest version of Microsoft fails to work in a meeting where the
other person’s laptop did not support it.
 Cultural barriers – barriers arising to differences in the culture of the parties to
communication can also pose as barrier. These may be more prominent in global
settings. For example, a handshake may not be a form of greeting in every culture.

Barriers - Reasons for breakdown in communication

Category Caused by Examples Solution
Semantic Varied • symbols with different • Use simple common words
connotative meaning to communicate
meanings • badly expressed message • Avoid jargons
• Unclear assumptions • Draft message as per the
• faulty translations audiences’ level of
• Language difference understanding
Organisational Structure of  Policies and rules  Proper induction to
organization,  Complex organization familiarize with organizational
diversity of structure with too many policies
culture levels  Simple organizational
 Diverse cultural structure with manageable
backgrounds of the span of control
individuals  Avoid information overload
 Information overload by prioritizing the information
 Time pressure – meeting to be shared
tight deadlines  Flexible work environment
Psychological/ Moods,  Difference in perception  Recruit right individuals as
Emotional/ attitudes,  Inattention per job with required skill
Attitudinal and relationships,  Poor retention levels
Personal level of  Premature evaluation  Training programs
understanding  Distrust  Encourage and practice
and  Personal emotions and active listening
comprehension, biases  Promote constructive
motivation  Fear of loss of authority in feedback
superiors  Effective use of non-verbal
 Lack of awareness communication
 Lack of motivation
 Ignoring or
misunderstanding the
importance of
communication
Environmental Physical  Noise  Eliminate noise levels
barriers disturbances in  Distance  Choose the right medium of
external  Climate communication according
environment  Wrong choice of medium to the message
of communication
 Technological
malfunctions

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Management and Ethics Notes for RBI Grade B

Role of Information technology

Benefits
 Improves productivity through an integrated telecommunications and computer systems
 Online training sessions from global experts possible
 Use of smart phones offers diverse set of skills on the go
 Faster communication
 Reduces costs
 videoconferencing connects geographically scattered individuals in real time thereby
reducing travel expense
 digital files and back-up reduces paper work and storage issues

Risks
 Cyber security issues
 Data management is a huge responsibility and cost for the organisation
 An employee is always expected to be available for work which may reduce morale and
motivation due to low work life balance
 Information overload

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