Download File Course Material - Annex 2.1 - UNIDO-ICAMT

Human Resources Accounting Practices 

Real assets will not appreciate much as businesses get commoditized. Innovation and intellectual power are going to be 

the key to the future." - Mohandas Pai, Chief Financial Officer, Infosys. 

"Employees are the most valuable resources of comparison in the service (software, banking, management consultancy, 

etc.) sector. Like all other resources of the company, the employees possess value because of providing future services." - 

- Samrat Gupta, MIS Manager, DSQ Software Ltd. 

Valuing Human Resources 

In the financial year 1995-96, Infosys Technologies (Infosys) became the first software company to value its human 

resources in India. The company used the Lev & Schwartz Model and valued its human resources assets at Rs 1.86 billion. 

Infosys had always given utmost importance to the role of employees in contributing to the company's success. Analysts 

felt that human resources accounting (HRA) was a step further in Infosys' focusing on its employees. Narayana Murthy 

(Murthy), the then chairman and managing director of Infosys, said: "Comparing this figure over the years will tell us 

whether the value of our human resources is appreciating or not. For a knowledge intensive company like ours, that is 

vital information." 

The concept of HRA was not new in India. HRA was pioneered by public sector companies like Bharat Heavy Electronics 

Ltd. (BHEL) and Steel Authority of India Ltd. (SAIL) way back in the 1970s. However, the concept did not gain much 

popularity and acceptance during that time. 

It was only in the mid-1990s, after Infosys started valuing its employees, that the concept gained popularity in India. By 

2002, HR accounting had been introduced by leading software companies like Satyam Computers and DSQ Software, as 

well as leading manufacturing firms like Reliance Industries. 

HR managers were quick to respond on the above developments by stating that more and more organizations had now 

started to realize the importance of skilled workforce. They felt that to be successful in highly competitive markets, 

companies require to continuously improve the level of performance of their workforce. 

HRA enabled companies to understand whether the skill sets of their human capital was appreciating or not. R. 

Krishnaswamy, an actuarial accountant, said, "The value can be used internally by an organization to make comparisons 

from unit to unit, from year to year, as well as within its industry." 

Stock market analysts felt that the 'comprehensive disclosure policy' was becoming a differentiating factor among 

companies in various industries. Yezdi H. Malegam, managing director, S.B. Billimoria & Company commented, "In the 

last few years, people are realizing that their intangible assets are worth much more than their tangible ones. Now an 

attempt is being made to put a value to these intangibles, and to bring these hidden values to book." 

Analysts felt that HRA was an investor-friendly disclosure, and assured stakeholders that the company had the right 

human capital to meet its future business requirements. 

Background Note 

The assets of an organization could be broadly classified into tangible and intangible assets. Tangible assets referred to all 

the physical assets which could be presented in the balance sheet including plant and machinery, investments in securities, 

inventories, cash, cash equivalents and bank balance, marketable securities, accounts and notes receivables, finance 

receivables, equipment on operating leases, etc. 

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Intangible assets included the goodwill, brand value and human assets of a company. The human assets involved the 

capabilities, knowledge, skills and talents of employees in an organization. 

In the past, less importance was given by organizations to value their human assets. Moreover, it was also considered 

difficult to value them since there were no defined parameters of valuation. Companies did not value human resources as 

these were never treated as an asset in the past. All investments related to employees, including salary as well as 

recruitment and training costs were considered as expenditures. 

In addition, accountants also felt that the stakeholders 2 of a company may not accept the concept of placing a monetary 

value on human resources. 

The importance and value of human assets started to be recognized in the early 1990s when there was a major increase in 

employment in firms in service, technology and other knowledge-based sectors 3 . In the firms in these sectors, the 

intangible assets, especially human resources, contributed significantly to the building of shareholder value. The critical 

success factor for any knowledge-based company was its skilled and intellectual workforce. 

HRA in Practice at Infosys 

Infosys' HRA model was based on the present value of the employees' future earnings with the following assumptions: 

• An employee's salary package included all benefits, whether direct or otherwise, earned both in India and in a 

foreign nation. 

• The additional earnings on the basis of age and group were also taken into account. 

To calculate the value of its human assets in 1995-96, all the 1,172 employees of Infosys were divided into five groups, 

based on their average age. Each group's average compensation was calculated. Infosys also calculated the compensation 

of each employee at retirement by using an average rate of increment... 

HRA - The Benefits and Hurdles 

The benefits of adopting HRA were manifold. It helped an organization to take managerial decisions based on the 

availability and the necessity of human resources. When the human resources were quantified, it gave the investors and 

other client’s true insights into the organization and its future potential. Proper valuation of human resources helped 

organizations to eliminate the negative effects of redundant labor. 

This, in turn, helped them to channelize the available skills, talents, knowledge and experience of their employees more 

efficiently. By adopting and implementing HRA in an organization, the following important information could be 

obtained: 

• Cost per employee 

• Human capital investment ratio 

• The amount of wealth created by each employee 

• The profit created by each employee 

• The ratio of salary paid to the total revenue generated 

• Average salary of each employee 

• Employee absenteeism rates 

• Employee turnover rate and retention rate... 

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Organisational Behaviour – Case Study 

Vinod left Bombay for Surat on official work on 3 rd November, by 10.45 p.m. train. On the following day in Surat, Vinod 

received a phone call from a colleague in Bombay saying that his mother and his children had met with a car accident. He 

phoned back his sister in Bombay and got the details about the accident. As he felt concerned about the nature of injuries to 

his mother, he felt it advisable to return. He therefore, took the evening plane back to Bombay. Vinod stays in the housing 

colony of the company with his parents and his children. The company and its housing colony are situated at a place not 

easily accessible to the mainland city of Bombay. On the previous evening, when he was leaving for Surat, he had 

requisitioned the office car at 7.45 p.m. for commuting to the station. On the way to the station, he had picked up his mother 

and children from his sister’s house in the mainland city. 

After seeing him off at the railway station, his family members were returning to their company quarters by the same car. 

Half the way up, the car was hit by a truck. The driver received minor injuries. Vinod’s daughter got some bruises. His son’s 

jaw was badly hurt endangering one of his teeth. His mother was hurt on the face, her denture was thrown off and her ears 

started bleeding. The car was badly damaged. An RTO officer who was around directed the driver and Vinod’s relations to 

the nearest police station. From the police station the driver called the company’s Administrative Officer and informed him 

about the accident. Vinod’s son contacted his aunt who came and took care of the children and the mother. They were taken 

to a hospital where the children were treated and allowed to go, and the mother was hospitalized. 

The next morning that is on 4 th November, Vinod’s sister called the company’s Administrative Officer and was informed as 

to where Vinod could be contacted. She also called a colleague of Vinod and told him about the accident. On reaching his 

office on 5 th November, Vinod complained to the Chief Executive about the neglect and lack of concern shown by the 

administration regarding the accident. The Administrative Officer had not taken any immediate action consequent to the 

driver’s phone call. Vinod also complained that while commuting to the office that morning by the company’s bus. The 

Administrative Officer confirmed that he received the driver’s phone call at 11.30 p.m. He maintained that the driver had said 

that he had been slightly injured where after he had talked to the police sub-inspector on duty, who also informed him that the 

driver and Vinod’s son had received minor injuries; and that he would release the driver and the car immediately. 

The Administrative Officer further contended that the driver did not ask to be picked up also that he did not know that 

Vinod’s mother was also in the car and that she had been badly hurt. The driver submitted his report the next evening. 

The driver contended that after phoning the Administrative Officer from the police station, he went back to the car at the site 

of the accident and spent the night with his injuries untreated. He said since the police officer talked to the Administrative 

Officer in English, he did not know what conversation took place between them. In the morning, he phoned the transport incharge, 

whence he was picked up and the car towed to the company premises. The transport in-charge, Mr. Kashyap 

maintained that the car and the driver were assigned for duty only upto the railway station and back. He said he also did not 

know that Vinod’s mother had been in the car until the driver filed his report. Nor, he said, did he notice Vinod on the bus on 

the morning of 5 th November. 

On 6 th November, the Chief Executive received a memorandum from the Employees Association of the company 

complaining about the inaction of the Administrative Officer concerning the accident. 

QUESTIONS: 

(a) Identify the human relations problems in the case. 

(b) It is possible to deal with the problem through formal procedures? What are the likely consequences of dealing with 

it formally? 

(c) What may be other methods of resolving the problem? 

(d) What kind of behavioural change is required on the part of different functionaries involved?

Case on Personality: Hazards of Hills 

This case is based on an actual incident which took place in an Army Unit deployed in field area. A part of a Battery (about 

¼ of an Artillery Regiment) was deployed in a snow bound high altitude area of Kashmir. This was the first time; an artillery 

unit was deployed in an area with roads and tracks still under development. Preparation of this area for such a deployment 

needed a lot of digging for guns, pits for ammunition storage, living place of the personnel, slit trenches and weapon pits for 

local defense against any possible enemy/ terrorists’ attack on the position, place for storage of rations, cook-house and 

communication trenches, etc. 

The total strength of the party deployed there was 

a) Officer – 1 (second Lieutenant with about one year service) 

b) Junior Commissioned Officer (JCO) - 1 

c) Jawans – 40 

The Battery Commander (BC) remained with the Regiment Headquarters at Srinagar (with the remaining part of the Battery) 

as per the orders of the commanding Officer. There was a vehicle with the part of the Battery which was deployed at high 

altitude to assist in the daily administration of the troops like collection of ration, stores for preparation of defenses, water, 

ferrying of personnel from one place to another. The vehicle could go only upto a limited number of places due to bad road 

conditions and steep gradients. Only one driver was kept for this vehicle to reduce administrative problems due to more 

number of personnel. The vehicle completed about 35 to 40 kms of running daily in its routine commitments. 

The party had just been inducted about two weeks back. The defenses were being prepared which involved lot of effort in 

digging of hardened ground due to the cold winter months of November. The defense stores were to be collected, once the 

digging was complete, from another Engineering Unit located about 5 kms to the rear. The roads were treacherous; with a 

number of stones and slides falling down occasionally during a drizzle due to precipitation in atmosphere, there were steep 

gradients, narrow roads with sheer falls on one side due to the road having been cut into the side of hills. The digging was 

complete by end November. In the month of December, snow fall at that location was expected any time, as it had already 

started snowing in the higher reaches and tops of mountains. The digging had been completed in a record time of two weeks. 

The party under the stewardship of the young officer had done a commendable job. 

In the first week of December, the only driver of the vehicle reported pain in the chest and problem in breathing. He was 

evacuated by helicopter the next day with instructions to inform the unit to send another driver for the vehicle. It took about 

three days for anyone to reach this area, with staying of two night’s enroute in order to acclimatize by stages. 

The detachment was to be without any driver for about three days. Another driver was detailed to proceed to this area, after 

having been medically examined and found fit. A day after the dispatch of the driver, the young officer with this party arrived 

in the unit and reported that the vehicle had fallen from a hill-side road and was completely damaged. 

The officer was in a complete state of disarray and shock. What actually had happened goes something like this. After the 

first driver of the vehicle was evacuated, the weather started turning bad and it seemed that it was going to snow that day. 

The officer realized that in case of snow fall all the efforts put in by the troops would go waste, if the dug-ins were not 

covered. 

Realizing this, he borrowed a driver of an ambulance from a local medical unit to direct his vehicle for collection of defense 

stores. After the stores had been collected and dumped at the site of defenses, the vehicle was being driven back to the party’s 

location. Before it could reach this location, it had to negotiate a dusty and steep track. At a steep climb the vehicle stalled 

and got switched off. All the men got down, prevented the vehicle from reversing by putting stones behind the wheels and 

started checking what had gone wrong. After the check on the engine had been carried out, the bonnet cover slipped off the 

hands of the driver while closing it and fell to closing position with a bang. Because of the jerk thus created, the stones placed

ehind the vehicle slipped off. It was later discovered that there was glassy smooth layer of ice under the thin layer of dirt 

which could not hold the stones firmly and they slipped off, with the result that the vehicle moved backwards and toppled 

thrice and stopped upside down because of the obstruction created by a big boulder. As there was no one in the vehicle, there 

were no injuries to personnel. On close inspection by the officer, it was found that the vehicle body, cabin, bonnet, steering 

wheel and two of the four wheels were badly damaged. The officer, being quite young and inexperienced, could not ascertain 

the real condition of the engine and chassis. He thought those too were damaged, whereas, because of some providential 

chance, the chassis and engine remained intact. 

The BC was given the responsibility of getting the vehicle back to the unit. He was given a vehicle fitter and recovery vehicle 

with a driver. The BC took two more Non-Commissioned Officers (NCOs) and proceeded to the location to retrieve the 

vehicle. It took two days to reach with a few hours of the last leg of the journey in complete darkness in that snow bound area 

with treacherous slippery roads. On reaching the location, the Commanding Officer of the local unit, who happened to be the 

Station Commander of that sector, expressed his happiness on their taking such a great risk. With the assistance of all ranks 

of that unit, who came in willingly, it took two days to get the vehicle out of the boulder strewn area on to a track. It was a 

minor military operation in ‘itself’ in that hostile terrain, and inclement weather of high altitude. The troops and officer had a 

very good rapport with chose of the local unit and there was not much of a problem in getting the men of that unit to assist. 

While coming back, the hazards of night journey were very obvious. There was a thick layer of snow on the road with slope 

towards the khuds as layers after layers kept on accumulating, freezing before the water could roll down the compete slope. 

There were steep falls on one side. Both these phenomena, peculiar to hilly terrain, were not very discernible because of the 

darkness. The headlights of the vehicles exposed very little. There were frozen nalas where the vehicle would skid, aligning 

itself in the direction of the frozen nala, which tended to prove quite dangerous at times. At such places, the few troops and 

officer available would get down, push the vehicle to keep it aligned to the road and in turn slip down themselves on the 

frozen snow, most of the times face-down, in an attempt to push the vehicle. Though the situation was quite grave, it 

sometimes bordered on being humorous with everyone laughing spontaneously. At one place, the BC, pushing the vehicle to 

keep its tail and aligned to the direction of road, fell down, slipped a few feet down in the frozen nala and landed up head 

down in a frozen khud about five feet deep. 

But for the direction of landing, the slip and fall could have proved quite dangerous. There was complete silence. The vehicle 

was gently stopped on the snow itself, secured with pegs along the wheels and rescue operation commenced for the ditch. 

There were several humorous remarks by the BC and the tension was relieved at once, with troops working on the vehicle 

with renewed vigour and strength once again. At another place, the recovery vehicle with the damaged vehicle behind it at 

suspension toe slipped, but because of the dexterity of the driver, it was saved from going down a nala by putting it on the 

left. The BC himself was in the recovery vehicle to give encouragement and moral support to the diver, sharing all the risks 

which his troops were facing. He did all that the troops did, while directing, controlling and executing. The party with vehicle 

reached the unit location on the evening of the second day starting from the high altitude area. The problem of recovery of the 

vehicle being resolved, the question of enquiry into the cause of accident arose. An enquiry into such an accident would have 

caused embarrassment to all those in authority in the unit and also the officers and jawans of the sub-unit/battery. Meanwhile, 

the inspection of the vehicle was carried out to assess the extent of damage. It was found that the engine and chassis were 

intact and the rest of the items of the body or fitment were damaged, either lightly or severely. To avoid embarrassment to the 

unit and loss to the exchequer, as well as in view of the administrative difficulties, the BC decided to have the vehicle put on 

road with the units’ efforts and at the earliest. Meanwhile, the cabin-hood of the vehicle had been purchased for about Rs. 

650 and was paid for by the BC, from his own pocket, thus setting an example to others. 

The JCO and jawans were also keen to pay for other damages. The offer was appreciated but declined. The Officer-in-charge 

of the local Army Workshop happened to be an officer with commendable helping attitude, positive bent of mind and with an 

understanding of peculiarities and problems of the area where such accidents were quite frequent and possible. When 

approached to assist, he listened to the whole incident very sympathetically and promised to assist in whatever way he could. 

This officer was a contemporary of the unit in a previous station and had excellent relations and interaction with the unit.

Some items were offered by the workshop officer and replaced accordingly. The vehicle was made road-worthy again within 

a fortnight and put on road for duty. All the enquiries were dispensed with and there was no loss of face by face by anyone at 

any level. It is pertinent to mention that it had snowed in that location as soon as the recovery party came out of the hills. 

QUESTION 

1. What are the qualities of a good leader? In this case, how were they applied? 

2. Which factors contributed to motivate the troops to go ahead for such a difficult task as recovering a damaged 

vehicle from such a difficult and treacherous terrain and getting it repaired in such a short time? 

3. Which incidents indicate the importance of good interpersonal relationship with juniors, peers and superiors and 

what is the importance of good interpersonal relationships? 

Case on Motivation 

Mr. Alok Banarjee is the Chief Executive of a medium- sized pharmaceutical firm in Calcutta. He holds a Ph D in Pharmacy. 

However, he has not been involved in research and development of new products for two decades. Though turnover is not a 

problem for the company, Mr. Banarjee and his senior colleagues noticed that the workers on hourly basis are not working 

upto their full potential. It is well known fact that they filled their days with unnecessary and unproductive activities and 

worked only for the sake of a pay cheque. In the recent past the situation has become quite alarming as the organization 

began to crumble under the weight of uneconomical effort. The situation demanded immediate managerial attention and 

prompt remedial measures. Mr. Banarjee knew very well that the only way to progress and prosper is to motivate workers to 

peak performance through various incentive plans. 

One fine morning, Mr. Banarjee contacted the Personnel Manager and enquired: “What is the problem with the workers on 

hourly basis? The wage bill shows that we pay them the highest in the industry. Our working conditions are fine. Our fringe 

benefits are excellent. Still these workers are not motivated. What do they require really?” The Personnel Manager gave the 

following reply: “I have already informed you a number of times, that money, working conditions and benefits are not 

enough. Other things are equally important. One of workers in that group recently gave me a clue as to why more and more 

workers are joining the bandwagon of ‘non-performers’. He felt bad that hard work and efficiency go un-noticed and unrewarded 

in our organization. Our promotion and benefit plans are tied to length of service. Even the lazy workers, 

accordingly, enjoy all the benefits in the organization, which, in fact according to workers should go only to those who work 

hard.” 

Mr. Banarjee then wanted the Personnel Manager to look into the problem more closely and find out a solution to the 

problem of workers on hourly basis. 

Answer the following questions 

1. Explain the motivational problem in this case. 

2. What would be your response to Banarjee’s statement, if you were the Personnel Manager of the Company? 

3. If you were the manager, how would you motivate the employees so that they work better?

“Middle Management Development” 

for 

BMTMN 

Session Title: Human Resource 

Management and Organisational 

Behaviour 

Session Speaker: Prof. Nagesha HN

Session Contents 

1. Overview of HRM and Role and 

Responsibilities of a Manager 

2. Rudiments of Organisational Behaviour 

3. Leadership 

4. Motivation 

5. Managing Change 

6. Performance Management

Overview of HRM and 

Role and Responsibilities 

of a Manager

Human Resource Management 

• HRM is the process of acquiring, training, 

appraising, and compensating employees, and 

attending to their labour relations, health and 

safety, and fairness concerns. 

• ‘ People or Personal aspects’ 

• It is “Nurturing”

HRM Functions 

1. Societal Objectives 

2. Organisational Objectives 

3. Functional Objectives 

4. Personal Objectives

HRM Functions 

Societal 

Objectives 

Organisational 

Objectives 

Legal compliance 

Benefits 

Union-management relations 

Human resource planning 

Employee relations 

Selection 

Training and development 

Appraisal 

Placement 

Assessment

HRM Functions 

Functional 

Objectives 

Personal 

Objectives 

Appraisal 

Placement 

Assessment 

Training and development 

Appraisal 

Placement 

Compensation 

Assessment

Good HR Practices 

i. Attract and retain talent 

ii. Train people for challenging 

jobs 

iii. Develop skills and 

competencies 

iv. Develop loyalty and 

commitment 

v. Promote team spirit 

vi. Increase productivity and 

profits 

vii. Improve job satisfaction 

viii.Enhance standard of living 

ix. Generate employment 

opportunities 

x. HRA in Practice at 

Infosys.doc

HR Organisational Chart: Small Company 

Manager 

Labour Relations and 

Human Relations 

Human Resources 

Administrative 

coordinator 

Human Resource 

Coordinator 

Office Generalist

Organisation for HRM: Large Company 

Vice President 

Human 

Resources 

Administrative 

assistant 

Director 

Employee 

health services 

Wage / Salary 

administration 

Recruitment & 

placement 

Director- 

Training 

and education 

Employee 

relations 

services 

Director 

Benefit 

services 

Manager- 

Labour 

relations 

Safety 

manager 

Appraisal and 

Performance 

management 

Personal 

records, 

/ payroll 

processing 

/ mgmt search 

Orientation / 

Training / 

Management 

development 

Employee 

Counselling / 

Employee 

Recognition 

programs 

Benefit payroll 

/ 

Employee 

benefit

Development of HRM 

• In 1950’s, people were recruited ‘to do and die’ 

• In 1960’s, concept of managing people was 

introduced 

• In 1970’s, realised that productivity depended on 

people 

• Employees started demanding over and above their 

salaries

Development of HRM 

• Personnel department – renamed as Human 

resources 

• Management theories were introduced 

• Concepts of participative management, Kaizen, 

Total quality management, empowerment, etc,

HRM Model 

1. They provide an analytical frame work for studying 

HRM 

2. They legitimate certain HRM practices (distinctness 

of HRM practices) 

3. Provide characteristics of HRM 

4. That serve as a heuristic (Process of Involving) 

device - something to discover and understand the 

nature & significance of key HR practices

The Harvard Model 

Shareholders Interests: 

•Shareholders 

•Management 

•Employee groups 

•Government 

•Community 

•Unions 

Shareholders Factors: 

•Workforce characteristics 

•Business strategy and 

conditions 

•Management philosophy 

•Labor market 

•Task technology 

•Laws and societal values 


management policy 

choices:: 

•Employee influences 

•Human resource flow 

•Reward systems 

•Work systems 


outcomes: 

•Commitment 

•Competence 

•Congruence 

•Cost-effectiveness 

Long-term 

consequences: 

•Individual well being 

•Organisational 

effectiveness 

•Societal well being

Human Resources as a Core 

Competency

Manager 

• The people responsible for supervising the use of an 

Organisation’s resources to meet its goals 

• Resources include people, skills, knowledge, 

machinery, computers and I.T., and financial capital 

• Manager aims to create surplus

Organisational Performance 

Efficiency: A measure of how well or how 

productively resources are used to achieve a goal 

Effectiveness: A measure of the appropriateness of the 

goals an Organisation is pursuing and the degree to 

which they are achieved.

Organisational Performance 

Efficiency = Maximum Output 

For Minimum Input 

Effectiveness = The Ability To Create 

And Keep Customers

Efficiency V/s Effectiveness 

Inefficient 

Ineffective 

Die quickly 

Effective 

Survive 

Efficient 

Die slowly 

Thrive

Types of Managers 

• First line Managers: Responsible for day-to-day 

operations. Supervise people performing activities 

required to make the product or service 

• Middle Managers: Are responsible to find the 

best way to use departmental resources to achieve 

goals

Types of Managers 

• Top Managers: Responsible for the performance 

of all departments and have cross-departmental 

responsibility. 

Establish Organisational goals and monitor middle 

managers

New HR Manager 

• New proficiencies 

• The need to “Know Employment Law” 

• Ethics and HR 

• HR and Technology 

• HR Certification

New Proficiencies 

HR Proficiencies: Knowledge and skills In 

employee selection, training and compensation 

• Business Proficiencies: 

• Leadership Proficiencies: 

• Learning Proficiencies:

Employment Law 

• EEO: Equal Employment Opportunities laws 

• OSHA: Occupational Safety and Health Acts / 

administration 

• Labour laws

Ethics and HR 

• Serious ethical issues 

• Workplace safety and Welfare 

• Security of privacy rights

HR and Technology 

• Self –service 

• Improving HR productivity 

• Data warehouse 

• Employee portal

Responsibilities of Managers 

• Global view 

• Speedy operation 

• Cope with on-line revolution 

• Manage demographic changes and increasing 

cultural diversity 

• Total quality manager 

• Challenging role in restructuring and downsizing

Responsibilities of Managers 

• Reengineering –thinking beyond TQM 

• Flexibility 

• Manage comparatively high compensation 

contingent on Organisational performance 

• Extensive training 

• Reduced differences in status 

• Sharing of information

Responsibilities 

i. Fundamental Management Responsibilities 

ii. Administrative Responsibilities 

iii. Guiding Performance 

iv. Using Resources Effectively 

v. Personal Development 

vi. Employee Development and Training 

vii. Performance Evaluation

Responsibilities .contd. 

viii.Communication Skills 

ix. Developing Group Expectations 

x. Quality Leadership 

xi. Equal Employment Opportunity 

xii. Customer Service Within the Organisation 

xiii.Outside Employment or Business

Rudiments of 

Organisational Behaviour

Organisational Behavior 

• OB studies three determinants of behavior in 

organisations: individuals, groups, and structure. 

• OB applies the knowledge gained about 

individuals, groups, and the effect of structure on 

behavior in order to make organisations work 

more effectively.


• OB is concerned with the study of what people do 

in an organisation and how that behavior affects 

the performance of the organisation.


Study that investigates the impact of 

individuals, groups, and structure on 

behavior within organisations for the 

purpose of applying such knowledge toward 

improving an organisation's effectiveness.

Some Generalised Statements 

About Work Related Behaviour 

1. Happy workers are productive workers. 

2. All individuals are most productive when their boss is friendly, 

trusting, and approachable. 

3. Interviews are effective selection devices for separating job applicants 

who would be high-performing employees from those who would be 

low performers. 

4. Everyone wants a challenging job. 

5. You have to scare people a little to get them to do their jobs. 

6. Everyone is motivated by money. 

7. Most people are much more concerned with the size of their own 

salaries than with others. 

8. The most effective work groups are devoid of conflict.


• Behavior of individuals in an organisation are 

shaped by individual- level-variables such as: 

A. Biographical characteristics, 

B. Ability, 

C. Personality, and 

D. Learning


A. Biographical characteristics are age, gender, 

marital status, number of dependents, tenure,… 

B. Ability refers to individuals capability to perform 

various tasks in a job. An individual’s overall 

abilities are made of: 

a) Intellectual abilities, 

b) Physical abilities


C. Personality is the sum total of ways in which an 

individual reacts and interacts with others. 

• This is most often described in terms of 

measurable personality traits that a person 

exhibits. 

• Personality determinants are: heredity, 

environment and situation,


D. Learning is any relatively permanent change in 

behavior that occurs as a result of experience.


• Personality traits: Enduring characteristics that 

describe an individual behaviour. 

• Popular characteristics include shy, aggressive, 

submissive, lazy, ambitious, loyal, and timid

Myers-Briggs Type Indicator: MBTI 

• One of the most Widely used personality 

frameworks is called the Myers-Briggs Type 

Indicator (MBTI). 

• It is essentially a 100 question personality test that 

asks people how they usually feel or act in 

particular situations.


• Individuals are classified as:- 

Extroverted or Introverted (E or I), 

Sensing or Intuitive (S or N), 

Thinking or Feeling (T or F), 

Perceiving or Judging (P or J), 

• Individuals are then classified into16 personality 

types.


• INTJs are visionaries 

• They have original minds and great drive for their 

own ideas and purposes. 

• They are characterized as skeptical, critical, 

independent, determined, and often stubborn.


• ESTJs are organizers. 

• They're practical, realistic, matter-of-fact, with a 

natural head for business or mechanics. 

• They like to organize and run activities.


• The ENTPs type is a conceptualizer. 

• He or she is quick, ingenious, and good at many 

things. 

• This person tends to be resourceful in solving 

challenging problems, but may neglect routine 

assignments.

Five Factor Model of Personality 

1. Extraversion 

2. Agreeableness 

3. Conscientiousness 

4. Emotional stability 

5. Openness to experience


1. Extraversion: Sociable talkative and assertive 

2. Agreeableness: One who is good-natured, 

cooperative and trusting 

3. Conscientiousness: Responsible, dependable, 

persistent and achievement oriented


4. Emotional stability: Calm, nervous, enthusiastic, 

depressed and insecure 

5. Openness to experience: Imaginative, artistically 

sensitive and intellectual

Personality attributes influencing OB 

1. Locus of control: Internals or Externals 

2. Machiavellianism: Degree to which an individual 

is pragmatic 

3. Self-esteem: 

4. Self-monitoring: 

5. Risk taking:

Organisational Culture 

• Organisational culture describes the psychology, 

attitudes, experiences, beliefs and values (personal 

and cultural values) of an Organisation. 

• “The specific collection of values and norms that are 

shared by people and groups in an Organisation and 

that control the way they interact with each other and 

with stakeholders outside the Organisation”


“Beliefs and ideas about what kinds of goals 

members of an Organisation should pursue 

and ideas about the appropriate kinds or 

standards of behavior Organisational 

members should use to achieve these goals”.


• Organisational values develop into Organisational 

norms, guidelines or expectations that prescribe 

appropriate kinds of behavior by employees in 

particular situations and control the behavior of 

Organisational members towards one another.

Dimensions of Culture 

• Hofstede identified five dimensions of National 

Culture:- 

1. Power distance index 

2. Individualism V/s Collectivism 

3. Uncertainty avoidance index 

4. Masculinity V/s Femininity 

5. Long V/s short term orientation


Power distance Index: 

• Measures the power inequality between superior & 

subordinate with in a social system 

• High PDI scores: Tend to be hierarchical, members 

citing social role, manipulation and inheritance as a 

source of power and social status 

• Low PDI: Tend value equality, and cite knowledge and 

respect as source of power


Individualism / Collectivism index: 

• Focuses on self-orientation. (‘I’ or ‘We’ mentality) 

• Cultures that score high in IDV index reflect ‘I’ 

mentality. 

• Personal initiative and independence are endorsed 

• Collectivism reflects strong cohesive groups


Uncertainty avoidance index: 

• Measures the tolerance of uncertainty & ambiguity 

among members of a society 

• High UAI: Highly intolerant of uncertainty and tend to 

be distrustful of new ideas or behaviour. Tend to have 

high level of anxiety and stress and a concern with 

security and the rule following. Always seek: absolute 

truth.


• Low UAI: Associated with a low level of anxiety and 

stress, tend to have tolerance for deviation and 

dissent and a willingness to take risks. Takes a more 

empirical approach to understanding of knowledge. 

Masculinity / Femininity Index: 

• Focuses on assertiveness and achievement

How is Culture Created? 

External adaptation and survival 

‣Mission and strategy 

‣Goals 

‣Means 

Internal Integration 

‣Measurement 

Language concepts 

Group and team boundaries 

Power and status 

Reward and punishment

Mechanistic V/s Organic Culture 

Mechanistic Culture: 

• ‘We’ versus ‘They’ perception 

• Values of bureaucracy and feudalism 

• Authority flow: Top to Bottom (Downwards) 

• Departmental loyalty and interdepartmental 

animosity

Mechanistic V/s Organic Culture 

Organic Culture: 

• Formal hierarchies of authority and departmental 

boundaries 

• Task accomplishment, team work and free flow of 

communication 

• Stresses for flexibility, consultation, change and 

innovation

Authoritarian V/s Participative 

Culture 

Authoritarian Culture: 

• Power is concentrated on the leader 

• Obedience to orders and discipline are stressed 

• Leader is aware of Organisational interest

Authoritarian V/s Participative 

Culture 

Participative culture: 

• Committed to the decisions 

• Suitable where Organisational members are 

professional

Dominant V/s Sub Cultures 

Dominant Culture: 

• Refers to the established language, religion, 

behavior, values, rituals, and social customs. 

• These are often the norm for the society as a 

whole.


• The dominant culture is usually but not always is 

in the majority 

• Achieves its dominance by controlling social 

institutions such as communication, educational 

institutions, artistic expression, law, political 

process, and business 

• Consists of several cells of sub cultures


Sub Cultures 

• Is a group of people with a Culture (whether 

distinct or hidden) which differentiates them 

from the larger culture to which they belong. 

• Is characterized by a systematic opposition to the 

dominant culture

Strong V/s Weak Culture 

Strong Culture: 

• Core values are strongly, widely shared and eagerly 

embraced 

• Strong cultures help firms operate like well-oiled 

machines, cruising along with outstanding 

execution

Strong V/s Weak Culture 

Weak Culture: 

• There is little alignment with Organisational values 

• Control must be exercised through extensive 

procedures and bureaucracy

Sources of Organisational Culture 

Critical 

incidents 


structure 

Identification 

with leaders 


Culture 


ethics 

Property rights 

system 

Characteristics 

of Employees

Critical Incidents 

• Norms and beliefs arise around the members 

response to critical incidents 

• “We do not attract the leader in this group; 

Authority is sacred”

Identification with leader 

• Founder’s biases and assumptions 

• Original members initially employ and learn 

subsequently from their own experiences 

Ex: JRD Tata typifies this type of Culture creation.

Property Rights 

Rights and responsibilities inside stakeholders group 

Manager’s Rights 

Stock option 

Attractive compensation 

Control over Organisational resources 

Decision making

Property Rights 

Employee’s Rights 

o 

o 

o 

o 

o 

No unjustifiable lay offs 

Adequate compensation 

Participation in decision making 

Pension and benefits 

Stock options

Organisational Ethics 

Moral values, beliefs and rules 

Outlines the right and wrong ways to behave in a 

situation 

Whistle blowing

Characteristics of people within 

the Organisation 

• People are attracted to an Organisation whose 

values match theirs 

• Organisation selects people who share its values 

• “People make the place” distinct from that of 

similar Organisation

Sustaining Organisational Culture 

1. Selecting and socializing employees 

2. Actions of founders and leaders 

3. Culturally consistent rewards 

4. Managing the cultural network 

5. Maintaining a stable workforce

Selecting and Socialising Employees 

• Hire right people for right jobs 

• Individual employee learn values, expected 

behaviors, and social knowledge

Selecting and Socialising Employees 

• It is a three stage process 

1. Pre arrival 

2. Encounter 

3. Metamorphosis

Actions of Leaders and Founders 

Transformational leaders strengthen 

Organisational culture 

Leaders are expected to behave in consistent with 

the vision of the Organisation

Culturally Consistent Rewards 

• Aggressive cultures offer performance based 

individual incentives and rewards. 

• Paternalistic cultures offer employee assistance 

programs. 

Rewards

Managing Cultural network 

Cultural network exists through the Organisational 

grapevine 

Enacted through story sharing and re-enact rituals 

Company magazines and other medias

Maintaining a Stable Workforce 

• Workforce behavior during rapid expansion and 

weak periods 

• Moderating employment growth and checking 

turnover problems

Leadership

Leadership 

Leadership: The ability to influence a group toward 

the achievement of a vision or a set of goals 

• Leadership is about coping with change 

1. Establish direction by Developing a vision of the future 

2. Align people by communicating vision and inspiring 

them to overcome hurdles 

• Leaders can Emerge from within a group or by formal 

appointment to lead a group

Trait Theories 

Leaders have been described in 

terms of their traits 

Trait Theories: Theories that 

consider personality, social, 

physical, or intellectual traits to 

differentiate leaders from nonleaders 

Leadership Traits: 

• Ambition and energy 

• The desire to lead 

• Honesty and integrity 

• Self-confidence 

• Intelligence 

• High self-monitoring 

• Job-relevant knowledge

Trait Theories 

Limitations: 

• No universal traits found that predict leadership in all 

situations. 

• Traits predict behavior better in “weak” than “strong” 

situations. 

• Unclear evidence of the cause and effect of relationship 

of leadership and traits. 

• Better predictor of the appearance of leadership than 

distinguishing effective and ineffective leaders.

Behavioral Theories 

Behavioral Theories of Leadership: 

Theories proposing that specific behaviors 

differentiate leaders from non-leaders. 

• Trait theory: 

Leaders are born, not made. 

• Behavioral theory: 

Leadership traits can be taught.

Ohio State Studies 

• Research carried out in the late 1940’s at Ohio state 

University 

• Sought to identify independent dimensions of 

leadership behaviour 

• Grouped dimensions into two categories: 

1. Initiating structure 

2. Considerations


Initiating Structure: The extent to which a 

leader is likely to define and structure his or her 

role and those of sub-ordinates in the search for 

goal attainment.


• It includes attempts to organise works, work relationship, 

and goals 

• Characteristics of Leader: 

i. Assigns group members to particular tasks 

ii. Expect workers to maintain definite standards of performance 

iii. Emphasizes the meeting of deadlines 

• Examples: Larry Ellison (CEO - Oracle ) 

Tom Siebal (Chairman - Siebal systems)


Consideration: The extent to which a leader is likely to have 

job relationships characterized by mutual trust, respect for 

subordinate’s ideas, and regard for their feelings. 

• The leader: 

a) Shows concern follower’s comfort, well being and satisfaction, 

b) Helps employees with personal problems, is friendly and 

approachable and treats all employees as equals 

c) EX: Richard Parsons (AOL Time Warner)

University of Michigan Studies 

• Studies came up with two-dimensions of leader ship 

behaviour 

1. Employee-Oriented Leader: Emphasizing interpersonal 

relations; taking a personal interest in the needs of 

employees and accepting individual differences among 

members. 

2. Production-Oriented Leader: One who emphasizes 

technical or task aspects of the job.

The Managerial Grid 

(Blake and Mouton)


(Blake and Mouton) 

• The grid has 9 possible positions along each axis, 

creating 81 different positions in which leader may 

fall. 

• Grid shows dominating factors in a leader’s thinking 

in regard to getting results.


(Blake and Mouton) 

1, 9- Country Club 

Management: Satisfying 

relationships, friendly 

atmosphere 

9,9 - Team Management: 

Committed people, highly 

motivated group, 

excellent relationships 

Concern 

for 

People 

5,5- Middle of the road 

1,1 - Impoverished 

Management: Minimum efforts 

to get Jobs done 

9,1 - Autocratic: Task oriented, 

Authority compliance. 

Concern for 

Production

Situational Leadership Theory 

(Hersey and Blanchard’s ) 

• A contingency theory that focuses on followers’ readiness. 

• Successful leadership is achieved by selecting the right leadership 

styles. 

Unable and 

Unwilling 

Unable but 

Willing 

Able and 

Unwilling 

Able and 

Willing 

Follower readiness: 

ability and willingness 

Leader: decreasing need 

for support and supervision 

Directive 

High Task and Relationship 

Orientations 

Supportive 

Participative 

Monitoring

Situational Leadership Theory 

(Hersey and Blanchard) 

Follower 

Readiness 

Unwilling 

Willing 

Able 

Supportive 

Participative 

Monitoring 

Leadership 

Styles 

Unable 

Directive 

High Task and 

Relationship 

Orientations

Leader-Member Exchange Theory 

• Leaders often act very differently 

towards different people 

• Leaders tend to have favorites who 

made up his/her “in-group” 

LMX Theory: The creation by leaders of in-groups and outgroups; 

subordinates with in-group status will have higher 

performance ratings, less turnover, and greater job satisfaction.

Leader-Member Exchange Theory 

• In groups: Because of time pressures, leaders establish 

a special relationship with a small group of followers 

• They are trusted, get a disproportionate amount of 

leader’s attention, and are likely to receive special 

privileges 

• Others followers fall into out-groups 

• Leaders choose in-group members because they have 

attitude and personality characteristics similar to them

Leader-Member Exchange Theory

Path-Goal Theory 

The theory that it is the leader’s job to assist followers in 

attaining their goals and to provide them the necessary 

direction and/or support to ensure that their goals are 

compatible with the overall objectives of the group or 

organization.

The Path-Goal Theory 

Environment 

Leader 

Employee

Leader-Participation Model 

(Vroom and Yetton) 

Task structures have varying demands 

for routine and non-routine activities, 

and leader behaviour must adjust to 

reflect the task structure 

A leadership theory that provides a 

set of rules to determine the form and 

amount of participative decision 

making in different situations.

Inspirational Approaches to 

Leadership 

Inspirational leadership theories view 

leaders who inspire followers through 

their words, ideas, and behaviour. 

Two Theories: 

1. Charismatic Leadership 

2. Transformational leadership 

Martin Luther King Jr.

Charismatic Leadership 

• Charisma: “ a certain quality of an individual 

personality, by virtue of which he or she is set apart 

from ordinary people and treated as endowed with 

supernatural, superhuman, or at least specially 

exceptional powers or qualities – Max Weber 

• Charismatic leadership is one of several ideal types 

of authority

Charismatic Leadership 

Followers make attributions of heroic or extraordinary 

leadership abilities when they observe certain behaviors. 

1. An individual needs to develop an aura of charisma 

by maintaining an optimistic view, using passion 

and communicating 

2. An individual draws others by creating a bond that 

inspires others to follow 

3. An individual brings out the potential in followers 

by tapping into their emotions

Key Characteristics of 

Charismatic Leaders 

1. Vision and articulation: Has a vision—expressed as an 

idealized goal—that proposes a future better than the status quo; and 

is able to clarify the importance of the vision in terms that are 

understandable to others. 

2. Personal risk: Willing to take on high personal risk, incur high 

costs and engage in self-sacrifice to achieve the vision. 

3. Environmental sensitivity: Able to make realistic assessments 

of the environmental constraints and resources needed to bring about 

change.

Key Characteristics of 

Charismatic Leaders 

4. Sensitivity to follower needs: Perceptive of others’ abilities 

and responsive to their needs and feelings. 

5. Unconventional behavior: Engages in behaviors that are 

perceived as novel and counter to norms.

Beyond Charismatic Leadership 

Level 5 Leaders 

• Possess a fifth dimension - A paradoxical blend of 

‘personal humility and professional will’ in 

addition to the four basic leadership qualities. 

• (Individual capability, team skills, managerial competence, 

and the ability to stimulate others to high performance) 

• Channel their ego needs away from themselves and into 

the goal of building a great company.

Transactional Leadership 

• Leaders who guide or motivate their followers 

in the direction of established goals by 

clarifying role and task requirements 

• Most of the Leadership theories discussed so 

far have concerned transactional leaders

Transactional Leadership 

Characteristics of Transactional leaders 

Contingent Reward 

Management by 

Exception (active) 

Management by 

Exception (passive) 

Laissez-Faire 

Contracts exchange of rewards for effort, promises 

rewards for good performance, recognises 

accomplishments 

Watches and searches for deviations fro rules and 

standards, takes corrective action 

Intervenes only if standards are not met 

Abdicates responsibilities, avoid making decisions

Transformational Leadership 

• Leaders who provide individualized consideration 

and intellectual stimulation, and who possess 

charisma. 

• Inspire followers to go beyond their self-interests for 

the good of the organisation and capable of having a 

profound and extraordinary effect on their followers 

• Andrea Jung (Avon), Richard Branson (Virgin 

Group)

Transformational Leaders 

Characteristics of Transactional leaders 

Charisma 

Inspiration 

Intellectual 

Stimulation 

Individualized 

Consideration 

Provides vision and sense of mission, instills pride, gains 

respect and trust. 

Communicates high expectations, uses symbols to focus 

efforts, expresses important purposes in simple ways. 

Promotes intelligence, rationality, and careful problem 

solving. 

Gives personal attention, treats each employee 

individually, coaches, advises.

Transformational Leadership 

• Leaders are more creative and encourage their 

followers to be more creative and to take more risks 

• Purse more ambitious goals, be familiar with and 

agree on the strategic goals of the organisation 

• Believe that the goals they are pursuing are 

personally important 

• Leaders try to choose followers who have the same 

level of passion, commitment, and competitiveness

Authentic Leadership 

• To be an authentic person, an individual needs to be 

honest with oneself, and avoid self-deception 

• Authentic leaders know who they are, know what 

they believe in and value, and act on those values and 

beliefs openly and unequivocally 

• They build trust by sharing information, encourage 

open communications, and stick to their ideas

Ethics and Leadership 

• Top executives set the moral tone for an organisation, 

they need to set high ethical standards, 

• Also demonstrate through their behaviour, encourage 

and reward integrity in others 

• Leadership effectiveness needs to address: 

a) The means that a leader uses in trying to achieve goals 

b) The contents of those goals

Ethical Leadership 

• Work to positively change the 

attitudes and behaviors of employees. 

• Engage in socially constructive 

behaviors. 

• Do not abuse power or use improper 

means to attain goals.

Trust 

• Trust is a positive expectation that 

another will not—through words, 

actions, or decisions—act 

opportunistically 

• Trust is a history-dependent process 

(familiarity) based on relevant but 

limited samples of experience (risk)

Dimensions of Trust 

1. Integrity: honesty and 

truthfulness. 

2. Competence: an individual’s 

technical and interpersonal 

knowledge and skills. 

3. Consistency: an individual’s 

reliability, predictability, and 

good judgment in handling 

situations. 

4. Loyalty: the willingness to 

protect and save face for another 

person. 

5. Openness: reliance on the 

person to give you the full 

truth.

Trust and Leadership 

• Trust is a primary attribute associated leadership 

• When trust is broken, it can have serious adverse effects 

on a group’s performance 

• Trust and trust-worthiness modulate the leaders' access to 

knowledge and cooperation 

• Honesty is absolutely essential to leadership 

Leadership 

TRUST 

and 

INTEGRITY

Basic Principles of Trust 

• Mistrust drives out trust. 

• Trust begets trust. 

• Growth often masks mistrust. 

• Decline or downsizing tests the highest levels of trust. 

• Trust increases cohesion. 

• Mistrusting groups self-destruct. 

• Mistrust generally reduces productivity.

Employees’ Trust in Their CEOs 

Employees who believe in senior management:

Contemporary Leadership Roles 

1. Providing Team Leadership 

2. Mentoring 

3. Self-Leadership 

4. Online Leadership

Providing Team Leadership 

Team Leadership Roles: 

• Team leaders are liaisons with external constituencies such 

as upper management, other internal teams, customers, and 

suppliers 

• Serve as troubleshooters – when team has problems, try to 

resolve problems 

• Managing conflict. 

• Coaching to improve team member performance

Mentoring 

• Mentor is a senior 

employee who sponsors 

and supports a lessexperienced 

employee (a 

protégé) 

• Mentors are good 

teachers 

Mentoring Activities: 

• Present ideas clearly 

• Listen well 

• Empathize 

• Share experiences 

• Act as role model 

• Share contacts 

• Provide political guidance

Mentoring 

• Some organisations have formal mentoring 

programs where mentors are assigned to new or 

high-potential employees 

• Most organisations relay on informal mentoringsenior 

managers personally selecting an employee 

and selecting as protégé 

• Boss-subordinate relationship may limit openness 

and meaningful communication

Self-Leadership 

• Self-Leadership: A 

set of processes 

through which 

individuals control 

their own behavior 

• Effective leaders 

help their followers 

to lead themselves 

Creating self leaders: 

• Model self-leadership. 

• Encourage employees to create 

self-set goals. 

• Encourage the use of self-rewards. 

• Create positive thought patterns. 

• Create a climate of self-leadership. 

• Encourage self-criticism.

Online Leadership 

Managers need to ensure correct tone of their message 

• The lack of face-to-face contact in electronic 

communications removes the nonverbal cues that support 

verbal interactions. 

• There is no supporting context to assist the receiver with 

interpretation of an electronic communication. 

• The structure and tone of electronic messages can strongly 

affect the response of receivers.

Online Leadership 

• An individual’s verbal and written communications may 

not follow the same style. 

• On-line negotiation may experience lower level of trust 

• In this new world of communication, writing skills will 

likely to become an extension of interpersonal skills

Finding & Creating Effective Leaders 

Selection 

• Review specific requirements for the job 

• Use tests that identify personal traits associated with 

leadership, measure self-monitoring, and assess emotional 

intelligence 

• Conduct personal interviews to determine candidate’s fit 

with the job

Finding & Creating Effective Leaders 

Training 

• Recognize that all people are not equally trainable 

• Teach skills that are necessary for employees to become 

effective leaders 

• Provide behavioral training to increase the development 

potential of nascent charismatic employees

Leadership Style 

• Autocratic 

• Democratic (Participative) 

• Laissez Faire (free rein) 

• Paternalistic


Autocratic 

• Leader makes decisions without reference to anyone else 

• High degree of dependency on the leader 

• Can create de-motivation and alienation 

of staff 

• May be valuable in some types of business where 

decisions need to be made quickly and decisively


Democratic (Participative) 

• Encourages decision making from different perspectives – 

leadership may be emphasised throughout the organisation 

1. Consultative: process of consultation before decisions are 

taken 

2. Persuasive: Leader takes decision and seeks to persuade 

others that the decision is correct


Democratic (Participative) 

• May help motivation and involvement 

• Workers feel ownership of the firm and its ideas 

• Improves the sharing of ideas 

and experiences within the business 

• Can delay decision making


Laissez-Faire 

• ‘Let it be’ – the leadership responsibilities are shared by all 

• Can be very useful in businesses where creative ideas are 

important 

• Can be highly motivational, as people have control over 

their working life 

• Can make coordination and decision making timeconsuming 

and lacking in overall direction 

• Relies on good team work 

• Relies on good interpersonal relations


Paternalistic 

• Leader acts as a ‘father figure’ 

• Paternalistic leader makes decision but may consult 

• Believes in the need to support staff

Motivation

Motivation 

Definition: The processes that account for an 

individual’s intensity, direction, and persistence of effort 

toward attaining a goal. 

Focus is on organisational goal. 

Key Elements 

1. Intensity: how hard a person tries 

2. Direction: toward beneficial goal 

3. Persistence: how long a person tries

Motivation 

Most important factor of the study of Organizational 

behavior that concerns each & every Manager of today. 

A Managerial Challenge from time immemorial to achieve 

the goals of the Organization. 

A psychological factor. 

A process of stimulating people to action to accomplish 

desired goals.

Characteristics of Motivation 

The inner desire of an individual to accomplish something 

more. 

A continuous Process. 

Anticipated perceived value from an action. 

Till unsatisfied needs are fulfilled, tension causes 

in equilibrium in human behavior. 

More motivation levels, the higher will be the efforts. 

Individual is motivated by positive motivation, like, 

monetary & non-monetary awards.

Characteristics of Motivation 

Unsatisfied 

needs 

Tension 

Drives 

Ends with 

no tension 

Satisfied 

need 

Search 

behavior

Importance of Motivation 

High Level of Performance. 

Low employee turnover & absenteeism. 

Acceptance of Organizational Change. 

Organizational Image.

Motivational Theories 

1. Early Theories of Motivation 

a. Hierarchy of needs Theory – (Maslow’s) 

b. ERG theory 

c. Theory X and Y (McGregor’s) 

d. Two Factor Theory (Herzberg) 

2. Contemporary Theories 

i. McClelands Three – Needs Theory 

ii. Cognitive Evaluation Theory 

iii. Goal-setting Theory 

iv. Self Efficacy Theory 

v. Reinforcement Theory 

vi. Equity Theory. 

vii. Expectancy Theory

Hierarchy of Needs Theory 

• This theory provides theoretical foundations for 

remuneration and reward strategies. 

• It considers the proposition that workers are motivated to 

satisfy their personal needs at their place of work 

• Abraham Maslow hypothesized that within every human 

being there exists a hierarchy of five needs

Maslow’s Hierarchy of Needs 

1 Physiological 

2 Safety 

3 Social 

4 Esteem 

5 Self-Actualization 

Includes hunger, thirst, shelter, sex and other 

bodily needs 

Includes security and protection from physical 

and emotional harm 

Includes affection, belongingness, acceptance 

and friendship 

Need for self respect, confidence, autonomy 

and achievement, recognition, respect from 

others, status 

Self-fulfillment, individual growth, and the 

realization of potential.

Hierarchy of Needs Theory 

Self-actualization 

Higher Order 

Needs 

Esteem 

Social 

Safety 

Physiological 

Lower Order 

Needs

ERG Theory (Clayton Alderfer) 

There are three groups of core needs 

1. Existence: provision of basic material requirements 

2. Relatedness: desire for relationships 

3. Growth: desire for personal development 

• Concepts: 

• More than one need can be operative at the same time. 

• If a higher-level need cannot be fulfilled, the desire to satisfy a 

lower-level need increases.

Theory X and Theory Y 

(Douglas McGregor) 

Douglas McGregor proposed two distinct views of human 

beings: Theory X and Theory Y 

Theory X 

Assumes that employees: 

• Dislike work and will 

attempt to avoid work 

• Lack ambition, 

• Avoid responsibility, 

• Must be directed and 

coerced to perform. 

Theory Y 

Assumes that employees 

• Like work, 

• Seek responsibility, 

• Are capable of making 

decisions, 

• Exercise self-direction and 

self-control when 

committed to a goal.

Two-Factor Theory 

(Frederick Herzberg) 

Frederick Herzberg conducted a study of need satisfaction 

What do people want from their jobs? 

What motivates them ? 

• Describe situations in which they found their jobs 

“exceptionally good” (and therefore motivating). 

• Describe situations in which they found their jobs 

“exceptionally bad”



• When they were dissatisfied, they tended to give factors 

outside the Job. Known as “Extrinsic Factors” or 

“Maintenance factors” 

1. Company policy and administration. 

2. Technical supervision. 

3. Interpersonal relations with 

supervisors. 

4. Status. 

5. Interpersonal relationship with peers. 

6. Interpersonal relationship with 

subordinates. 

7. Salary. 

8. Job security. 

9. Personal life. 

10.Work condition.



• When they feel good, the factors seemed to be related 

to Job Satisfaction. They tended to attribute those 

factors to themselves. Known as “Intrinsic Factors” 

or Motivational factors”. 

1. Achievement. 

2. Recognition. 

3. Advancement 

4. Work itself. 

5. Growth. 

6. Responsibility.



Two-Factor (Motivation-Hygiene) Theory 

Intrinsic factors are related to job satisfaction, while 

extrinsic factors are associated with dissatisfaction. 

Hygiene Factors 

Factors—such as company policy and administration, 

supervision, and salary—that, when adequate in a 

job, placate workers. When factors are adequate, 

people will not be dissatisfied.

Theory of Needs 

(David McClelland’s ) 

Need for Achievement 

The drive to excel, to achieve in 

relation to a set of standards, to 

strive to succeed. 

Need for Affiliation 

The desire for friendly 

and close interpersonal 

relationships. 

Need for Power 

nPow 

The need to make others behave 

in a way that they would not 

have behaved otherwise. 

nAch 

nAff



Personal Responsibility 

Achievers prefer 

jobs that offer 

Feedback 

Moderate Risks



What do employees want? 

i. A learning activity and choice of assignment 

ii. 

Flexible working hours and time-off 

iii. Personal praise 

iv. Increased autonomy and authority 

v. Time with their manager

Cognitive Evaluation Theory 

• Providing an extrinsic reward for behavior that had been 

previously only intrinsically rewarding tends to decrease 

the overall level of motivation 

• Extrinsic Rewards: pay, benefits, promotion,.. 

• Intrinsic Rewards: achievement, responsibility, 

competence, … 

• The theory may only be relevant to jobs that are neither 

extremely dull nor extremely interesting

Goal-Setting Theory 

(Edwin Locke) 

The theory that specific and difficult goals, with feedback, 

lead to higher performance 

“Just do your Best” is vague and not appropriate 

Factors influencing the goals–performance 

relationship: specific goals, Feed back, Goal 

commitment, adequate self-efficacy, task characteristics, 

and national culture

Self Efficacy Theory 

Self-Efficacy: The individual’s belief that he or she is 

capable of performing a task 

Higher self-efficacy will lead to higher commitment

Joint Effect of Goals and 

Self Efficacy Theory 

Individual has confidence that 

given performance level can be 

achieved (self-efficacy) 

Manager sets 

difficult, specific 

goal for job or task 

Individual has higher 

level of job or task 

performance 

Individual sets higher personal 

(self-set) goal for their 

performance

Concepts: 

Reinforcement Theory 

• The assumption that behavior is a function of its 

consequences that follow one’s behaviour 

• This theory argues that reinforcement conditions 

behaviour 

Behavior is environmentally caused. 

Behavior can be modified (reinforced) by providing 

(controlling) consequences. 

Reinforced behavior tends to be repeated.

Equity Theory 

• A theory that individuals compare their job inputs and 

outcomes with those of others and then respond to 

eliminate any inequalities 

• Inputs: effort, experience, education, competence,… 

• Outcomes: salary levels, raises, recognition…. 

• Employees may compare themselves with friends, 

neighbors, co-workers, or colleagues in other 

organisations or compare present V/s past jobs.

Equity Theory (cont’d) 

Choices for dealing with inequity: 

1. Change inputs (slack off) 

2. Change outcomes (increase output) 

3. Distort/change perceptions of self 

4. Distort/change perceptions of others 

5. Choose a different referent person 

6. Leave the field (quit the job)


Propositions relating to inequitable pay: 

1. Overrewarded hourly employees produce more than 

equitably rewarded employees. 

2. Overrewarded piece-work employees produce less, 

but do higher quality piece work. 

3. Underrewarded hourly employees produce lower 

quality work. 

4. Underrewarded employees produce larger quantities 

of lower-quality piece work than equitably rewarded 

employees


Distributive Justice: 

Perceived fairness of the amount and allocation of rewards 

among individuals. 

Procedural Justice: 

The perceived fairness of the process to determine the 

distribution of rewards.

Expectancy Theory 

(Victor Vroom) 

Expectancy Theory: The strength of a tendency to act in a 

certain way depends on the strength of an expectation that 

the act will be followed by a given outcome and on the 

attractiveness of that outcome to the individual. 

Employee will be motivated to exert a high level of effort 

when they believe good performance will lead to 

organisational rewards 

Ex: Salary raise, promotion, bonus, personal goals,…


• Effort–Performance Relationship: The probability that 

exerting a given amount of effort will lead to performance. 

• Performance–Reward Relationship: The belief that 

performing at a particular level will lead to the attainment 

of a desired outcome. 

• Rewards–Personal Goals Relationship: The degree to 

which organizational rewards satisfy an individual’s goals 

or needs and the attractiveness of potential rewards for the 

individual.


(Victor Vroom) 

Individual 

Effort 

Effort–Performance 

Relationship 

Individual 

performance 

Performance-Reward 

Relationship 


rewards 

Reward-Personal Goals 

Relationship 

Personal 

Goals

Managing Change

Change 

‘Change or Perish’ 

. 

“Moving from their present state to 

some desired future state to increase 

the effectiveness”

Change 

1920-1990 

• Efficient manufacturing 

• Classical organisation and methods 

• Effective mass marketing 

• Rapid adoption of technology 

• Financial acumen Theory

Change 

1990 – The Future 

• Distributing power while increasing self-discipline 

• Systematic thinking skills 

• Well developed skills 

• Improved conversation

Types of Change 

1. Strategies, positions, policies, programmes, ploys 

and patterns 

• Performances: competitiveness, added values, 

responsiveness, productivities, results and innovations 

• Alliances, sustain abilities, and movement 

• Structures and groupings 

• Processes and work arrangements 

• Resource allocations and savings

Types of Change Contd.. 

2. People – individual and groups 

• Behaviours: performances, conformities, creativities 

• Competencies: mastery in performance 

• Attitudes, Values and Beliefs 

3. Distributions of opportunity

Levels of Change 

• International 

• National 

• Industry - Market 

• The firm 

The collective/the hive 

The function/department 

The group-team 

The individual 

• The supply chain 

• The network

Why Change is Required? 

• To avoid stagnation 

• Increase competitive business 

• Evolutionary reaction to external circumstances 

and pressures 

• Radical shift from current to new processes

Change Readiness and Comfort 

• Comfort with the current state: 

1. Do not underestimate the power of “Comfort” 

with how things are today 

2. The Natural response to change is pause and 

reaction

Change Readiness and Comfort 

“Many change agents are surprised by the 

reaction to change, when in fact, they 

should plan for many reactions.”

Phases of Change 

Current 

State 

Transition 

State 

Future 

State

Current State 

Employees generally prefer the current state 

Current 

State 

Transition 

State 

Future 

State

Future State 

Future state is unknown to employees 

Current 

State 

Transition 

State 

Future 

State

Why Change Projects Fail? 

(Source: John Kotter 1996) 

Eight Common reasons: 

1. Too much complacency: No sense of urgency early on 

2. Failing to create a strong guiding coalition: One person 

with energy/commitment is seldom enough. A coalition of 

corporate leaders capable of overcoming inertia/opposition. 

3. Underestimating the power of vision: To direct, align and 

inspire 

4. Under communicating the vision by a power of 10 (or 

100, or 1,000): People will commit to benefits and 

achievable. Communicate sufficient information to reach 

these conclusions

Why Change Projects Fail? Contd.. 

5. Permitting Obstacles to block the new vision: If not 

anticipated or removed, reasons to slip back into comfort 

zones. 

6. Failing to create short term wins: Many transformations 

take years. People become dispirited if they do not see some 

concrete signs of progress. 

7. Declaring Victory too soon: Major changes take time to 

'bed down'. Teething problems occur – declaring victor loses 

credibility 

8. Neglecting to anchor changes firmly in the corporate 

culture: Temptation to dust hands and walk away. Old habits 

and processes return.

Change Management 

• Change management is a structured process and set 

of tools for leading the people side of change. 

• Individual change is managed through the ADKAR 

model. 

• Supervisors are the lynchpin to change management 

success.


• Change management is defined as the process of 

achieving the smooth implementation of change by 

planning and introducing it systematically, taking 

into account the likelihood of it being resisted.


• Superior performance – top down to bottom up 

• Improve quality – TQ movement 

• For customers – to delight, not lose 

• For competitive advantage 

• Need of the hour 

• Critical threats for survival and interdependencies


• For energised, committed workforce 

– Learn to act in the interests of the whole organisation 

– To extend mastery and self-determination across the 

organisation 

• To help people embrace change 

• Freedoms to speak out (release creative capacity)


• At an Organisational level 

– Using a structured change management approach 

– Engaging sponsors in the change process 

• At an individual level 

– Building change competency of managers and supervisors 

– Equipping employees to have the right conversations about 

change and how the change impacts them

Change Management Approach 

Phase 1: Preparing for Change 

• Define your change Management 

Strategy 

• Prepare your change Management Team 

• Develop your sponsorship model 

Phase 2: Managing Change 

• Develop change management plans 

• Take action and implement plans 

C 

Phase 3: Reinforcing Change 

• Collect and analyze feedback 

• Diagnose gaps and manage readiness 

• Implement actions and celebrate success

ADKAR is useful for individual 


Awareness 

Desire 

Knowledge 

Ability 

Reinforcement

ADKAR 

ADKAR is based on basic human truths that are 

present even in the absence of change. 

• Awareness of surroundings and self. 

• The need to have control over our life. 

• A quest for growth and knowledge. 

• A hope to make a meaningful contribution. 

• The need to be recognised and appreciated

ADKAR 

• Awareness of the need for change (why?) 

• Desire to support and participate in the change (our 

choice). 

• Knowledge about how to change (the learning 

process). 

• Ability to implement the change (turning knowledge 

into action). 

• Reinforcement to sustain the change (celebrating 

success).

Mapping ADKAR to Change 

Management Tools 

Communications 

Sponsor Roadmap 

Training 

These channels are critical for 

change management 

Readiness Mgmt 

Supervisory Coaching

Mapping ADKAR (cont’d) 

These channels enable project team to facilitate 

Organisation through phases of ADKAR. 

Communications 

Sponsor Roadmap 

Training 

Readiness Mgmt 

Supervisory Coaching 

Awareness 

Desire 

Knowledge 

Ability 

Reinforcement

Best Practices to Reinforcing 

Change 

Preferred Senders: Immediate supervisor 

Best Practices: 

• Repeat messages 5 to 7 times 

• Use face-to-face interaction 

• Answer WIIFM (What’s In It For Me?) 

• Utilize question and answer format 

• Understand their interpretation

Change Management Error 

• A common mistake Change Management teams 

make is: “Not to train Managers and Supervisors 

in the basic principles and tools for managing 

change” 

• These Managers will be instrumental in overall 

success of change management.

Sizing the Change 

• Scope the Change: Workgroup, department, 

division and Enterprise 

• Determine Number of Individuals Impacted: 

• Define Change Type: Policy, process, system, 

Organisation, job roles, etc 

• Determine Amount of Change: Incremental 

improvement v/s dramatic change

Management and Organisation 

• Role of line management shifts from ‘Autocrat’ to 

‘Facilitator’ 

• Boundaries between jobs, divisions, and departments 

become blurred 

• Increase in project and group work 

• Employees are required to be ‘Customer Centric’

Types of Change 

• Evolutionary change: Increase the effectiveness, 

incremental change 

• Revolutionary change: Dramatic shift, new way of 

doing things, new goals, new structure.

Resistance to Change 

• Individual resistance to Change 

• Organisational Change

Individual Resistance 

• Perceptions 

• Personality 

• Habit 

• Threats to power and influence 

• Fear of the unknown 

• Economic reasons

Organisational Resistance 

• Organisation design 

• Organisational culture 

• Resource limitations 

• Fixed investments 

• Inter Organisational agreements

Organisational Resistance 

SOURCES OF RESISTANCE TO CHANGE 

ORGNAISATIONAL 

LEVEL 

FORCES 

GROUP LEVEL 

FORCES 

INDIVIDUAL 

LEVEL 

FORCES 

SUB UNIT 

LEVEL 

FORCES

Overcoming Resistance 

Resisting force 

• Group norms for output 

• Familiarity with present 

equipment 

• Complacency 

• Need to learn new skills 

• Fear of reduced influence and 

rewards 

Current level of 

group performance 

Desired level of group 

performance 

Driving force 

• High performance goals 

• New equipment 

• Competition 

• Employees with new skills 

• Desire for increased influence 

and rewards

Forces for Change 

• External forces 

• Internal forces

Internal Forces 

• Organisational salience 

• Falling effectiveness 

• Crisis 

• Changing employee expectations 

• Change in the work climate

External Forces 

• Globalization 

• Workforce diversity 

• Technological change 

• Managing ethical 

behavior 

• Government politics 

• Competition 

• Scarcity of resources 

• Social trends 

• World politics 

• Economic shocks

Why do People Resist Change? 

• Habits:- We are creatures of habit. 

• Fear of the unknown. 

• Security:– The higher the need for security, the 

stronger the resistance. 

• Economic factors. 

• Selective information processing – We all have 

our own ideas of what is right.

Why Do Organisations Resist 

Change? 

• Group inertia: Peer pressure, group norms. 

• Security: 

– Threat to established power relationships. 

– Threat to established resource allocations. 

• Limited focus of change – Change affects others in the 

Organisation. 

• Poor communication 

• Threat to expertise

Lewin’s 3- Step Change Model 

1. 

Unfreezing 

3 

Refreezing 

2 

Changing

3- Step Change Model (Lewin) 

• Unfreezing – altering the present stable equilibrium 

that supports existing behaviours and attitudes. 

• Changing – developing new responses based on 

new information. 

• Refreezing – stabilizing the change by introducing 

the new responses into the personalities of those 

concerned.

Options 

Three options to bring about change: 

1. Increase the driving forces. 

2. Decrease the restraining forces. 

3. Do a combination of the two approaches.

Role of Change Agents 

Technology 

Structure 

People 

Physical 

setting


• Structure – Change agents can alter one or more of 

the key elements in an Organisation’s design. 

• Technology – Competitive factors or innovations 

within an Organisation often require change agents 

to introduce new equipment, tools, or methods.


• Physical Settings – Change agents can affect their 

environment. 

• People – Change agents help individuals and groups 

within the Organisation work more effectively 

together.

People as Change Drivers 

• People who drive change are change agents. 

1. Change-agent skills are important to the success of 

change management. 

2. The purpose of people is to change what is 

possible as individuals by adding value every day.

Implementing Change: Guidelines 

• Education and Communication 

• Participation and Empowerment 

• Facilitation 

• Bargaining and Negotiation 

• Manipulation 

• Coercion

Performance 

Management

Performance Appraisal 

• Performance Appraisal: Evaluating an 

employee’s current or past performance relative to 

his or her performance standards 

• Performance Management: A process that 

consolidates goal setting, performance appraisal 

and development into a single common system

Performance Appraisal 

Key Elements of Performance Appraisal: 

• Define the Employee’s Goals and work efforts: 

Set Goals (Make the Company successful) 

• Communicate 

• Measure (Goal accomplishment) 

• Assessment (Performance Appraisal) 

Set Goals 

Evaluate 

Communicate 

Observe

Process of Performance 

Management 

• Define performance 

• Facilitate performance 

• Encourage performance

Purpose of Performance Appraisal 

• Clarify expectations and 

shape behavior to meet 

strategic goals. 

• Basis for Personnel 

Decisions (e.g., promotion, 

pay, discipline, benefits, etc.)

Purpose of Performance Appraisal 

• Provide feedback for improvement 

• Document Employee behavior for legal compliance

Employment 

Decision 

Employee 

feedback 

Diagnosis of 

Organisation 

problems 

Purpose of 

Performance 

Appraisal 

Criteria in 

test 

Validation 

Objective for 

training 

programs

Performance Management and 

Appraisal 

Six primary criteria on which the value of 

performance may be assessed: 

1. Quality 

2. Quantity 

3. Cost effectiveness 

4. Need for Supervision 

5. Interpersonal impact 

6. Timeliness

Facilitate Performance 

• Eliminate roadblocks to performance 

• Provide resources 

• Get the job done right time and right way 

• Careful selection of employee

Encourage Performance 

• Sufficient amount of rewards and compensation 

• Timely reward 

• Fair reward

Requirements of effective 

appraisal system 

a) Relevance 

b) Performance standards 

c) Sensitivity 

d) Reliability 

e) Acceptability 

f) Practicality

Methods of Appraising Employee 

Performance 

• Traditional 

• Modern

Traditional 

• Ranking method 

• Paired comparison 

• Grading 

• Forced distribution 

• Forced choice method 

• Checklist method 

• Critical incidents 

method 

• Graphic scale method 

• Essay method 

• Field review method 

• Confidential report

Modern Methods 

• Management By Objectives (MBO) 

• Behaviorally anchored rating scales 

• Assessment centers 

• 360 degree appraisal 

• Cost Accounting method

Ranking Method 

• Employees are ranked from the highest to the 

lowest or from the best to the worst 

• The next highest and the next lowest are chosen till 

all employees are covered

Paired Comparison 

• Raters are provided with bunch of slips each 

containing a pair of names, the rater puts tick mark 

again the employee whom he considers the better of 

the two

Grading Method 

• Employee performance compared with grade 

definitions as outstanding, very good, good, 

satisfactory and unsatisfactory

Forced Distribution Method 

• Eliminate the central tendency of rating most of the 

employees at a higher end of the scale. 

• A < 5% 

• B about 30% 

• C about 40% 

• D about 20% 

• E < 5%

Forced Choice Method 

• Positive and negative statements are used to assess 

employees performance 

• Positive statement: gives good and clear 

instructions 

• Negative statement: makes promises beyond his 

limit to keep those promises

Check-list method 

• Attempt is to determine the degree of consistency of 

the rater by asking the same question twice 

• Questions carries a weight age in relationship to 

their importance

Critical Incidents Methods 

• Focusing is on the critical behaviors that make the 

difference between performing a job in a effective 

and ineffective manner

Graphic Rating Scale Method 

• Based on the five point scale – linear rating scale 

• It contains quality and reliability

Essay Method 

• Rater writes a narrative description on an employee’s 

strengths, weaknesses, past performance, potential and 

suggestions for improvement

Field Review Method 

• Identify areas of inter rater disagreement 

• Help the group arrive at a consensus 

• Ensure that each rater conceives of the standard 

similarity

Management By Objective (MOB) 

• Goal setting 

• Performance standards 

• Goal attained are compared with standards 

• Periodic review step is taken

Assessment Centers 

• Evaluation of executive and supervisory potential 

• Managers participate in a simulated exercise

360 Degree Appraisal 

• Employee’s skills, abilities and behaviors, is 

collected “all around” an employee in a correct and 

realistic way

360 Degree Feedback 

Supervisors 

Peers 

Outsiders 

Subordinates

Cost Accounting Method 

• Evaluates employee’s performance from the 

monetary benefits the employee yields to his/her 

Organisation

Performance Evaluator 

• Immediate supervisor 

• Peers 

• Subordinates 

• Self-appraisal 

• Customers served 

• Computers

Appraisal Error 

1. Negative approach: Catching them doing 

something wrong! 

2. Conducting an “annual” review (as opposed to 

the ongoing review) 

3. Poor interviewer (poor environment, poor use of 

time,…)


4. Lacking truth 

5. Inadequately defined and/or misunderstood 

standards/goals 

6. Recency effect: Over emphasis on recent 

performance


7. Biases 

• Similar to me 

• Positive leniency: Want to give everyone high 

scores 

• Negative leniency: Want to give everyone low 

scores 

• Halo effect: the employee is a "saint" so must have 

high scores


7. Biases (contd.) 

• Attribution: Tending to see poor performance more 

within control of the individual and superior 

performance as more of an influence of external factors 

• Stereotyping: 

• Contrast effect: Contrasting one employee's 

accomplishments against another

Appraisal error 

8. Improper preparation and Poor documentation 

9. Lack of follow-up 

10. “Gut” feeling (subjectiveness)

Secrets of Effective Performance 

Supervisory activities before, during and after 

performance: 

1. Before 

2. During 

3. After

Before 

• Communicate frequently with subordinates about 

their performance 

• Provide Training in performance appraisal 

• Use problem solving approach 

• Prepare performance feedback interviews

During 

• Encourage subordinates to participate 

• Judge performance, not personality and mannerisms 

• Be specific 

• Be an active listener 

• Mutually agreeable goals for future improvements 

• Avoid destructive criticism

After 

• Communicate frequently with subordinates about 

performance 

• Periodically assess progress towards goals. 

• Make Organisational rewards contingent on 

performance

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