CBSE Class 12 Business Studies - Principles of Management 

Any fundamental statement of truth that establishes a cause and effect relationship between two or more variables is called principle. Principles are a guide to thought and action. Principles of management are not rigid prescriptions which have to be followed by the managers. They are broad and general guidelines for decision- making and behaviour of managers.


  • Management principles are not as rigid as principles of pure science.
  • Management principles deal with human behaviour, therefore they cannot be tested in laboratories.


  • Techniques are methods, which involve a series of steps to be taken to accomplish desired goals.
  • Principles are guidelines to take actions while practising techniques.


  • Values are something which are acceptable or desirable. Values are formed through common practises.
  • Management principles are basic truths or guidelines for behaviour. Management principles are formed after research in work situations.


1. Universal Applicability:

Management principles apply to all types of organisations, business as well as non- business, small as well as large, public sector as well a private sectors.

2. Formed by practise and experimentation:

The principles of management are not developed overnight they are formed by experience and observation.

3. General guidelines:

The management principles are general guidelines and does not ensure any readymade solution to all the problems. Because the environment in which a business runs is very complex and dynamic.

4. Flexible:

The principles of management are not rigid prescriptions, which have to be followed absolutely. They are flexible and can be modified by the manager when the situation demands.

5. Cause and effect relationship:

The principles of management established establishes cause and effect relationships so that they can be used in similar situations in a large number of cases. The principles of management are less than perfect, since they mainly apply to human behaviour.

6. Behavioural:

Management principles aim at influencing behaviour of human beings. Therefore, principles of management are mainly behavioural in nature.


1. Optimum utilisation of resources and effective administration:

  • A company has limited resources therefore they must put these resources to optimum use. Principles equip the managers to forecast the cause and effect relationship of their decisions and actions.
  • Therefore, the wastages associated with trial and error approach and reduced.

2.Provide useful insights into reality:

  • The principles of management provide the managers with useful insights into real world situations.
  • These principles will increase the knowledge, ability and understanding of the managers.
  • It will also help managers to learn from past mistakes.

3.Fulfilling social responsibility:

Management principles also guide the managers to perform social responsibilities. For example. One of the principle states that each employees should be treated equally in the company.

4. scientific/thoughtful decisions:

Management principles are based on the objective assessment of the situation. They emphasise on logic rather than blind faith, this help management to take unbiased decisions.

5. Management training, education and research:

  • Management principles are used as a base for management training, education and research.
  • These principles provide basic groundwork for the development of management as a discipline.
  • Professional courses such as MBA, BBA also teach these principles as a part of their curriculum at the beginner’s level.



Lifetime – 1841 to 1925

Education – Graduated from mining academy at St. Entinne in 1880

                                    Profession – Mining engineer and management theorist

The 14 principles of management are given by Henri Fayol, he developed the principles based on his own experience.

These principles were discussed in detail in his book which was published in 1917 as ‘Administration Industrielle et Generale.’ It was published in English as General and Industrial Management’ in 1949 and is widely considered a foundational work in classical management theory. He is also known as ‘Father of General Management’ for his contribution.

Following are the 14 principles of management:

1. Division of work:

According to Fayol, “The intent of division of work is to produce more and better work for the same effort. Specialisation is the most efficient way to use human effort”

What he wanted to say by this statement is that, work should be divided into small tasks and a trained employee who is competent is required to perform each job. This will result in increased efficiency and effective output. Thus, in a company we have various separate departments like finance, human resource, marketing etc.

This principle can be applied to both technical as well as managerial work.

2. Authority and responsibility:

The concepts of Authority and responsibility are closely related. Authority was defined by Fayol as the right to give orders and the power to extract obedience. Responsibility involves being accountable, and is therefore naturally associated with authority. Whoever assumes authority also assumes responsibility.

Managers require authority in proportion with responsibility. There should be a balance between authority and responsibility.

FOR EXAMPLE- Ria is the marketing manager of Lenovo is assigned a responsibility of advertising of companies product and now she is required to Rs.5,00,000 to the advertising agency but she don’t have the authority to transfer any funds exceeding Rs.2,00,000 . This shows that there is imbalance in authority and respoinsibility in the organisation.

A manager must have the right to punish his subordinate for wilfully not obeying orders but only after sufficient opportunities has been given to a subordinate for presenting his case.

3. Discipline:

According to Fayol, discipline requires good superiors at all levels, clear and fair agreements and judicious application of penalties.

  • It implies respect for agreements (rules and regulations) designed to secure obedience.
  • It must prevail throughout an organization to ensure its smooth functioning.
  • Discipline ensures fair and clear agreements, good supervision and judicious application of penalties

4. Unity of command:

According to Fayol there should be one and only one boss for every individual employee. He felt that if this principle is violated “authority is undermined, discipline is in jeopardy, order disturbed and stability threatened”. The principle states that in a formal organisation each participants should receive orders from one and be responsible to only one superior.

  • If an employee gets orders from two superiors at the same time the principle of unity of command is violated.
  • Dual subordination should be avoided. 

5. Unity of direction:

  • All the units of an organisation should be moving towards the same objectives through coordinated efforts.
  • Each group of activities having the same objectives must have one head and one plan.

FOR EXAMPLE- Honda produces cars as well a motorcycles therefore to avoid any  confusion it has two separate divisions for both of them . Each divisions have  a separate  incharge, plans and resources.

6. Subordination of Individual Interest to General Interest:

According to Fayol, The interests of an organisation should take priority over the interests of any one individual employee. Every individual have different interests for working in a company. But the company has its own objective. In all the situations the interest of company should supersede the interest of any one individual because larger interests of workers and stakeholders are more important than interest of any one person.

7. Remuneration of employees:

Remuneration should be just and equitable i.e. overall compensation or pay should be fair to both employees and the organisation. The employees should be paid fair wages so that they can at least afford a reasonable standard of living.

A fair compensation will ensure good relations between workers and management.

8. Centralisation and Decentralisation:

According to Fayol, “There is a need to balance subordinate involvement though decentralisation with managers’ retention of final authority through centralisation.”

The concentration of decision – making authority is called centralisation whereas its dispersal among more than one person is known as decentralisation. 

The degree of decentralisation depends on many factors such as size of the organisation, generally large organisations have more decentralisation.

9. Scalar chain:

The formal lines of authority from highest to lowest ranks are known as scalar chain.

According to Fayol, “organisations should have a chain of authority and communication that runs from top to bottom and should be followed by managers and the subordinates.”

An organisation consists of superiors and subordinates, let us consider a situation where there is one head ‘A’ who has two lines of authority under him. One line consists of B-C-D-E-F. Another line under ‘A’ is L-M-N-O-P.

If E has to communicate with ‘O’ who is at the same level of authority then he has to traverse the route E-D-C-B-A-L-M-N-O. This is due to the principle of scalar chain being followed in this situation.

According to Fayol, this chain should not be violated in the normal course of formal communication. However in the case of emergency then E can directly contact O through ‘Gang bang

10. Order:

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

If everything will be at fixed place, then there will be no hindrance in the action of business. This will lead to increased efficiency and productivity.

11. Equity:

This principle emphasises kindliness and justice in the behaviour of managers towards workers. There should be no discrimination on account of sex, religion, language, belief, nationality, caste, etc. This will ensure loyalty and devotion. There will be cordial relations between managers and workers. For example now-a-days in MNC’S we find people from different background working under same roof in a discrimination free environment.

12. Stability of personnel:

According to Fayol “Employee turnover should be minimised to maintain organisational efficiency.” A personnel should be selected after rigorous procedures and checks. But once they are selected they should be kept for at least a minimum fixed tenure.

They should be given reasonable time to show results. Recruitment, selection and training cost will be high if there’s insecurity among employees.

13. Initiative:

According to Fayol workers should be encouraged to develop and carry out their plans for improvements. Initiative means taking the first step with self-motivating.

A good company should have an employee suggestion system whereby suggestions which result in substantial cost/time reduction should be awarded.

14. Espirit De Corps:

According to Fayol, management should promote a team spirit of unity and harmony among employees. Management should promote team work especially in large organisation because otherwise objective would be difficult to realise. 

A manager should replace ‘I’ with ‘We’ in all his conversations with workers to foster team spirit. 

Principle of Scientific Management

F.W. Taylor

Lifetime – 1856 to 1915

Profession: American mechanical engineer

Education: Degree in mechanical engineering from Stevens institute of technology in 1883.

Taylor is known as ‘Father of Scientific Management’. He proposed scientific management as opposed to rule of thumb. Taylor believed that there was only one best method to maximise efficiency which can be developed through scientific study and analysis of each element of a job. It implies conducting business activities according to standardised tools, methods and trained personnel in order to increase the output, improve its quality and reduce costs and wastes. 

“Scientific management means knowing exactly what you want men to do and seeing that they do it in the best and the cheapest way.” – F.W. Taylor

Scientific management means conducting business activities according to standardised tools, methods and trained personnel in order to increase the output, improve its quality and reduce the costs and wastes.

Principles of scientific management:

  1. Science not rule of thumb: According to Taylor there is only one best method to maximise efficiency. This method can be developed through study and analysis. The method so developed should substitute ‘rule of thumb’ throughout the organisation.

Scientific method involves investigation of traditional methods through work study, unifying the best practices and developing a standard method.

The more sophisticated the processes, greater would be the savings.

  1. Harmony, not discord: There should be complete harmony between the management and the workers. Both should realise that each one is important. Taylor called for complete ‘mental revolution’ on the part of both management and workers.
  • Management should share the gains of the company with the workers. At the same time the workers should work hard and should be welcome changes for the good of the company.
  • Japanese work culture is a classic example of such a situation. Companies in Japan have paternalistic style of management. There is complete openness between the management and the workers. If workers go on a strike they wear a black badge but work more than normal working hours to gain sympathy of the management.
  1. Cooperation, not individualism:

This principle is an extension of principle of ‘harmony and discord’.

There should be complete cooperation between the management and the workers instead of individualism.

Competition should be replaced by cooperation.

Both should realise that they need each other.

Management should not close its ears to any constructive suggestions made by employees infact it should reward them for their suggestions if it results in substantial reduction in costs.

Workers should be part of the management and if any important decisions are taken they should be taken into confidence.

Workers should also avoid going on strikes and making unreasonable demands.

  1. Development of each and every person to his/her greatest efficiency and prosperity:

According to this principle, management should aim to develop workers to their greatest efficiency and prosperity.

  • The concern for efficiency should start from the selection process. Every organisation should follow a scientific system of selection. The selected workers should be assigned job as per their capabilities.
  • To increase the efficiency and to achieve the maximum potential of workers, they should be provided scientific training. The increase in efficiency will benefit both the workers and the organisation.


1.Functional Foremanship-

Functional foremanship is an extension of the principle of division of work. Foremen should have intelligence, education, tact, judgement, special knowledge, honesty, energy, and good health. Since all these qualities could not be found in a single person this prompted Taylor to suggest functional foremanship through eight persons. Each specialist is to be assigned work according to his/her qualities.

Under the factory manager there was a planning incharge and a production incharge.

  1. Instruction card clerk: Draft instructions for workers
  2. Route clerk: Specify the route of production
  3. Time and cost clerk: Prepare time and cost sheet
  4. Disciplinarian worked: Ensure discipline.

Under production incharge there are four personnel namely:

  1. Speed boss: Timely and accurate completion of job
  2. Gang boss: Keeping machines and tools etc. ready for operation by workers
  3. Repair boss: Ensure proper working condition of machines and tools
  4. Inspector: Check the quality of work.
  1. Standardisation and simplification of work

Standardisation of work refers to the process of setting standards for every business activity, example standardisation of process, raw materials, time, product, machinery and working conditions.

Objectives of standardisation of work are:

  • To establish standards of excellence and quality in materials.
  • To establish standards of performance of men and machines.
  • To establish interchange ability of manufactured parts and products.
  • To reduce a given line or product to fixed types, sizes and characteristics.

Simplifications of work aims at eliminating unnecessary diversity of products.

  • It implies reduced inventories, fuller utilisation of equipment and increasing turnover.
  • It results in savings of cost of labour, machines and tools.
  1. Method study: there are various methods of doing a particular job, the objective of method study is to find out one best way of doing the job. Right from the procurement of raw materials till the final product is delivered to the customer every activity is a part of method study. The objective of the whole exercise is to maximise the quality and satisfaction of the customer.
  1. Motion study: it refers to the study of movements like sitting, lifting, putting objects and changing positions which are undertaken while doing a typical job.

Unnecessary movements should be eliminated so that it takes less time to complete the job efficiently.

On close examination of body movements Taylor found that there are three types of motions as follows:

        1. 1.Motions which are productive
        2. 2.Motions which are incidental (e.g. Going to store)
        3. Motions which are unproductive

Taylor used various methods like using symbols and colours and stopwatches to identify different motions. Through which he was able to design suitable equipment and tools to educate workers. The results achieved by him were remarkable.

  1. Time study: time study determines the standard time taken to perform a well-defined job. Time measuring devices are used for each element of task. The standard time is set after taking several readings. The objective of time study is to determine the number of workers to be employed; frame incentive schemes and determine labour cost.

FOR EXAMPLE- A worker takes 1 hour to type 20 pages assuming that the Jon is of 8 hours shift deducting one hour for rest and lunch. It is determined that in 7 hours a worker will type 140 pages i.e 20 pages in an hour of work. Now this will be the standard according to which task is to be performed and wages are decided accordingly.

  1. Fatigue study: A person is bound to feel tired physically and mentally if he/she does not rest while working. The rest intervals will help the worker to regain stamina and work with the same capacity which will result in increased productivity.

There can be many causes for fatigue like long working hours, doing unsuitable work, bad working conditions etc. such hindrances should be removed for better performance. Fatigue study seeks to determine the amount and frequency of rest intervals in completing a task.

  1. Differential piece wage system:

It is a technique which differentiates between efficient and less efficient workers. It rewards the efficient workers and motivates the less efficient ones to improve their efficiency.

In this system, there are two piece rate- one who produces the standard output or more the other is those who produce less than the standard output. The difference in wages between both the workers is enough to motivate the less efficient one.

FOR EXAMPLE-Standard output per worker in a day 200

Wage rate I: Rs.5/unit (for output above or equal to 200)

Wage rate II: Rs. 4/unit (for output below 200)

                                                  Worker A                                    Worker B

Actual output -                                  220 units                                     180 units

Total wages -                                    220 x 5 = 1100                              180 x 4 = 720

Difference in units produce   =   40

Difference in wages               = Rs.380

According to Taylor, this loss will be the strongest motivating factor for worker B to complete work according to standards in future.