ABFM CAIIB notes – Unit 1

Dear CAIIB Aspirants,

These notes are a part of 2024 CAIIB Video library course of ADVANCED BUSINESS & FINANCIAL MANAGEMENT  (ABFM)  by Motivational Banker. These notes are intended to help you prepare better for your CAIIB exam.

These notes are a sample version of the full PDFs prepared by team Motivational Banker.

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Module A :  UNIT 1- Basics of Management

Definitions of Management

“Management is an art of Getting things done through People”

Fayols Definition of Management

According to Henri Fayol “management is a process of forecast followed by planning, organization, command, coordination and control of activities of others.

In simpler terms, management refers to proper organization and delegation of work along with ensuring its completion.

Henri Fayol, widely acknowledged as the founder of modern management methods, was an early management writer who was instrumental in contributing immensely to ‘formal organisation theory’.

Henri Fayols Five Functions of Management

1. Planning 2. Organizing 3. Command   4. Coordination     5. Control.

Taylor’s Definition of Management

According to Taylor, “Scientific Management is an art of knowing exactly what you want your men to do and seeing that they do it in the best and cheapest way”.

In Taylors view, if a work is analyzed scientifically it will be possible to find one best way to do it.

Scientific management, also known as “Taylorism’, is a management theory which was used for analysing and synthesizing workflows with the main objective of improvement of economic efficiency and labour productivity.

Six elements of scientific management as formulated by Taylor:

1. Work Study
2. Standardization of tools and equipment
3. Scientific selection, placement and training
4. Development of functional foremanship
5. Introducing costing system
6. Mental system

Functions of Management

1. Planning
2. Organising
3. Staffing
4. Directing
5. ControllingPlanning

Planning is the basic function of management. It deals with chalking out a future course of action & deciding in advance the most appropriate course of actions for achievement of pre-determined goals.

According to KOONTZ, “Planning is deciding in advance – what to do, when to do & how to do. It bridges the gap from where we are & where we want to be”.

A plan is a future course of actions. It is an exercise in problem solving & decision making.

      Organising

Organizing is the process of bringing together physical, financial and human resources and developing productive relationship amongst them for achievement of organizational goals.

Organizing as a process involves:

1. Identification of activities.
2. Classification of grouping of activities.
3. Assignment of duties.
4. Delegation of authority and creation of responsibility.
5. Coordinating authority and responsibility relationships.Staffing

Staffing is the function of manning the organization structure and keeping it manned. The main purpose of staffing is to put right man/woman on right job i.e. square pegs in square holes and round pegs in round holes.

Staffing involves:

1. Manpower Planning (estimating man power in terms of searching, choose the person and giving the right place).
2. Recruitment, Selection & Placement.
3. Training and Development
4. Remuneration
5. Performance Appraisal
6. Promotions & Transfer.Directing

Directing is that part of managerial function which actuates the organizational methods to work efficiently for achievement of organizational purposes.

It is considered life-spark of the enterprise which sets it in motion and action of people, because planning, organizing and staffing are the mere preparations for doing the work.

Direction has following elements:

• Supervision
• Motivation
• Leadership
• Communication

Controlling

Controlling implies measurement of accomplishment against the standards and correction of deviation if any to ensure achievement of organizational goals.

The purpose of controlling is to ensure that everything occurs in conformities with the standards. An efficient system of control helps to predict deviations before they actually occur.

Therefore controlling has following steps:

• Establishment of standard performance.
• Measurement of actual performance.
• Comparison of actual performance with the standards and finding out deviation if any.
• Corrective action.

Importance of Management

1. a) Effective Change Management Tool
2. b) Helps achieve group goals
3. c) Optimum utilisation of resources
4. d) Improved functioning of business
5. e) Development of various resources
6. f) Contributes towards better organisation
7. g) Proper Direction to the organization
8. h) Integration of various interests
9. i) Management of fluctuations
10. j) Innovation
11. k) Inculcation of team spirit
12. l) Problem solving
13. m) Helps Employee Growth

Behavioural Studies of Management

1. Classical School Behaviour of Management

The classical school believes in the use of technology for increasing efficiency of the

employees, and  lays down more emphasis on the organization, looks at the organization as a machine and the employees  as its parts, who are important only as a means of production.

The salient features of the classical or traditional school include:

(a) Having an integrated and centralized system

(b) Greater emphasis on production

(c) Concentration on errors and their rectification

(d) Assuming employees’ continuity irrespective of organizational changes

(e) Based on an accounting model and

(f) Giving equal weightage to different types of jobs and employees.

2. Neo- Classical School Behaviour of Management

An organisation, according to this theory, comprises of both formal and  informal forms of organization, a fact which was overlooked by the Classical theorists.  This School of

Thought had the following salient features:

(a) Focus on motivation.

(b) Different persons get motivated diversely for satisfying their specific needs.

(c) For efficiency measurement, communication is a critical input.

(d) For organizational performance, team-work is essential.

(e) The thought has two different perspectives, viz. Human Relations perspective and Psychological  perspective.

This school of thought was also the originator of Maslow’s hierarchy of needs, Douglas McGregor’s X  and Y Theory and Motivation-Hygiene Theory.  MASLOW’S HEIRARCHY OF NEEDS  Self-actualization

Maslow’s Hierarchy of Needs

The theory can be summarized as follows:

• Human beings have wants and desires which influence their behavior. Only unsatisfied needsinfluence behavior, satisfied needs do not.
• Since needs are many, they are arranged in order of importance, from the basic to the complex.
• The person advances to the next level of needs only after the lower-level need is at least minimally satisfied.
• The further the progress up the hierarchy, the more individuality, humanness and psychological health a person will exhibit.

DOUGLAS MCGREGOR’S X AND Y THEORY

This Theory gave an insight into the two aspects of human  behaviour. Theory X stated that humans do not work without close supervision, while Theory Y propounded  that humans love to work and there is no need of coercing them to work for achieving organisational goals.

Theory X Assumptions:

• The average human being is inherently lazy by nature and desires to work as little as possible. He dislikes the work and will like to avoid it, if he can.
• He avoids accepting responsibility and prefers to be led or directed by some other.
• He is self-centered and indifferent to organizational needs.
• He has little ambition, dislikes responsibility, prefers to be led but wants security.
• He is not very intelligent and lacks creativity in solving organizational problems. • He, by nature, resists change of any type.

Theory Y Assumptions:

• Work is as natural as play, provided the work environment is favourable. Work may act as a source of satisfaction or punishment. An average man is not really against doing work.
• People can be self-directed and creative at work if they are motivated properly.
• Self-control on the part of people is useful for achieving organizational goal. External control and threats of punishment alone do not bring out efforts towards organizational objectives.
• People have capacity to exercise imagination and creativity.

• People are not by nature passive or resistant to organizational needs. They have become so as a result of experience in organisations.

Strategic Management   

Strategy is the pattern of decisions in a company that determines or reveals its objectives, purposes or  goals and plans for achieving those goals, and defines the range of business the company is to pursue,  the kind of economic and human organization it is or intends to be, and the nature of the economic and  noneconomic contribution it intends to make to its shareholders, employees, customers, and communities.

This definition links strategy to such activities assetting objectives, determining policies, and the formation  of action plans.  A study of the definitions given above shows that a strategy combines explicit statements and implicit  beliefs and understandings in and around an organization about:

• Mission: Its core purpose (mission) and how, if at all, its mission will (or must) change in future.
• Vision: An image of its future direction and what it intends to achieve.
• Clientele: Its scope, meaning, thereby, its main clientele now and those in the future (and consequently the potential clienteles that are and will remain outside its scope).
• Resources: The resources and competences that create value for its clientele and how these will (or must) change to maintain and enhance the future value created.
• Present and Future: The foundations of its present competitive standing and future sustainability. Hambrick and Fredrickson define strategy as “the central, integrated, externally oriented

Strategies

The strategy followed by a business entity can be equated with a master plan, which contains details as  to how the mission and business goals of the entity shall be achieved. The purpose of the strategy of the  organization is maximizing the competitive advantages and, at the same time, minimizing the competitive  disadvantages.

A typical business entity normally considers three different types of strategies, as under:

(a) Corporate strategy of a company covers the overall direction followed by the company. It would spell  out the general attitude of the company towards growing and managing its different business lines,  products and services.

(b) Business strategy would normally be prepared at the level of the business unit or at the level of  product or service and it normally highlights the improvement in the specific industry or market  ranking of the business entity’s products or services produced or delivered by that business unit.

(c) Functional strategy refers to the approach adopted by functional areas for achieving the objectives  of the business unit and the company by maximizing the productivity of available resources. It  involves the development and fostering a distinctive capability to create a competitive advantage.

Elements of Strategic Management

1. Environmental Scanning: This refers to monitoring, evaluation and dissemination of information received from the internal and external environments. The information is provided to the key people in the organisation with the overall  objective of identifying both internal as well as external strategic factors, which can impact the future of the organisation. SWOT Analysis is one of the easiest ways of conducting environment scanning. The acronym  SWOT refers the Strengths, Weaknesses, Opportunities, and Threats, applicable to a specific organisation.  Strengths and Weaknesses form part of the internal environment of an organisation and could cover the  organisation structure, the resources available to an organisation and the overall organisational culture.  The core competencies of an organisation depend on its strengths. The internal environment can usually  be controlled by the top management in the short run.  The Opportunities and Threats form part of external factors and are generally outside the ambit of the  top management’s short-term control. These factors could be general, as well as specific factors. The  general factors generally impact the entire economy or an industry whereas the specific factors might  impact a specific industry or an organisation.  The internal and external environmental factors form the context within which an organisation exists.
2. The Strategy Formulation: Strategy formulation requires, on the basis of information gathered from situation analysis, to set  strategic direction through business mission and vision statements, and establish strategic objectives to  reach there, and generate, evaluate and select corporate, business and functional strategies to pursue.
3. Strategy Implementation: Successful strategies are dependent on effective implementation. Strategy implementation is the fine art of detailing: what all is to be done, when various tasks are to be performed, where are they to be  performed, how they are to be performed and who will perform.
4. Strategy Evaluation and Control: Strategy evaluation is a logical step to obtain feedback from strategy’s performance and taking corrective actions, if needed, in the light of constant external and internal changes. Strategy evaluation is needed  because success today does not guarantee success tomorrow.

Benefits of Strategic Management

The three most important benefits of strategic management are as under:

(a) The management gets a clearer sense of strategic vision of the business entity.

(b) Management is able to clearly focus on strategically important issues, faced by the entity.

(c) The dynamic environment can be better understood by management.