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ASSIGNMENT 1: Henri Fayol’s 14 Principle of Management and it’s applications to a Bank

Henri Fayol, the father of the school of Systematic Management, realized that organizations were
becoming more complex and required their managers to work more professionally. His motivation was to
create a theoretical foundation for an educational program for managers who lacked formal training in
those days. Basing his work on his experience as a successful managing director of a mining company, he
developed generic 'Principles of Management' to help organizations achieve optimum performance
working toward their goals.

Fayol described his fourteen Principles of Management with the understanding that his list was neither
exhaustive, nor universally applicable. He developed the 14 principles of management in order to help
managers learn how to organize and interact with their employees more effectively. The 14 principles
have been a significant influence on modern management theory, although they are not widely used
today (or are being interpreted differently), they can still offer guidance for today’s managers. Many of
the principles are now considered to be common sense, and are rarely considered as directly important
to the well being of any organization.

Therefore, we will be analyzing the Henri Fayol’s 14 principles of management and its direct/indirect
applications to the activities and performance of a bank of today.

1. Division of Work
According to Henry Fayol under division of work, work should be divided among individuals and groups
to ensure that effort and attention are focused on special portions of the task. Fayol presented work
specialization as the best way to use the human resources of the organization. Division of work promotes
efficiency because it permits an organizational member to work in a limited area reducing the scope of
his responsibility. Looking at today’s bank, you will agree with me that this is still being practiced, where
you have the bank employees assigned to specific job functions. For example, those receiving cash
deposits from customers are most times different from those processing the transactions and those
authorizing it. You also have funds transfer units, customer service units, e-business units, etc. These
units are manned by different bank staff performing different functions with a common goal – service to
the customer.

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 exact obedience. Responsibility involves being accountable, and is
therefore naturally associated with authority. Whoever assumes authority also assumes responsibility.

Fayol’s principle of management in this regard is that an efficient manager makes best possible use of
his authority and does not escape from the responsibility. In other awards when the authority is
exercised the responsibility is automatically generated. This is very much applicable in the bank of today
where every supervisor exacts his authority to ensure prompt and quality service delivery to the bank’s
customers by his subordinates. He also takes responsibility for their successes, misconducts, service
failures as well as their career progression in the bank.

3. Discipline
According to Henry Fayol discipline means sincerity about the work and enterprise, carrying out orders and
instructions of superiors and to have faith in the policies and programmes of the business enterprise. In other
words, a successful organization requires the common effort of workers and, penalties, sanctions, etc should
be applied judiciously to encourage this common effort. A well disciplined workforce is essential for improving
the quality and quantity of the production. This is very relevant in a bank without which there will be poor
service deliveries, service failures to customers and even frauds. Sanctions in the form of warning/caution
letters, suspension without pay, dismissal or termination of appointments, depending on the gravity of the
offense are normally applied to maintain discipline and ensure quality service delivery to their customers at all

4. Unity of Command
A subordinate should take order from only one manager and he should be responsible and accountable
to him. Fayol claimed that if the unit of command is violated, authority is undermined; discipline is in
danger, order disturbed and stability threatened. The violation of this principle will face some serious
consequences. In this way, the principle of unity of command provides the enterprise a disciplined,
stable and orderly existence. It creates harmonious relationship between officers and subordinates,
congenial atmosphere of work. It is one of the Fayol’s important essential principles of management.
This is also very much applicable in a bank where the bank employees take order from only their direct
supervisor, who takes full responsibility for what goes on in his unit.

5. Unity of direction
Fayol advocates “One head and one plan” which means that group efforts on a particular plan be led and
directed by a single person. This enables effective co-ordination of individual efforts and energy. This
fulfils the principles of unity of command and brings uniformity in the work of same nature. In this way
the principle creates dedication to purpose and loyalty. It emphasizes the attainment of common goal
under one head. This is also applicable in a bank where for instance, a unit head, eg operations manager
directs the affairs of the operations unit/staff towards the bank’s common goal. You also have the
Managing Director spearheading the affairs of the bank ensuring that the various units, the entire
organization and the staff are moving towards the organizational goal of the bank in the same direction.

6. Subordination of individual interests to general interests

The interest of the business enterprise ought to come before the interests of the individual workers. In
other words, the principle states that employees should surrender their personal interest before the
general interest of the enterprise. Sometimes the employees due to ignorance, selfishness, laziness,
carelessness and emotional pleasure overlook the interest of the organization. This attitude proves to be
very harmful to the enterprise. This is also applicable to bank where the interests of one staff should not
take priority over the interests of the bank as a whole, otherwise it will lead to compromise, frauds,
service failures, etc.
7. Fair Remuneration to employees
According to Fayol wage-rates and method of their payment should be fair, proper and satisfactory. Both
employees and employers should agree to it. Logical and appropriate wage-rate and methods of their
payment reduces tension and differences between workers and management, it creates harmonious
relationship and a pleasing atmosphere of work. This is also very applicable in banks where variables,
such as cost of living, supply of qualified personnel, general business conditions, annual profits of the
banks among other things are considered in determining workers’ rate of pay. They also have various
motivational incentives and end of year bonuses for their employees.

8. Centralization and Decentralization

There should be one central point in the organization which exercises overall direction and control of all
the parts. But the degree of centralization of authority should vary according to the needs of situation.
Fayol defined centralization as lowering the importance of the subordinate role, while decentralization is
increasing the importance. The degree to which centralization or decentralization should be adopted
depends on the specific organization in which the manager is working. Further, Fayol does not favor
centralization or decentralization of authorities but suggests that there should be proper and effective
adjustment between centralization and decentralization in order to achieve maximum objectives of the
business. The choice between centralization and decentralization should be made after taking into
consideration the nature of work and the efficiency, experience and decision-making capacity of the
executives. In the bank of today, this principle of management is being practiced where some of the
bank’s processes have been centralized and others decentralized depending on the bank’s objective. For
instance, there are some banks where the ATM cards are still being processed and issued from their
head office while some banks have decentralized the process and their customers can walk into any of
their branches and get the ATM cards issued to them instantly. There are so many other processes and
transactions in the banks today that have been centralized or decentralized depending on the banks’
considerations, experiences and objectives.

9. Scalar chain
Scalar chain is a chain of supervisors from the highest to the lowest rank. It should be short-circuited. An
employee should feel the necessity to contact his superior through the scalar chain. The authority and
responsibility is communicated through this scalar chain. Fayol defines scalar chain as “the chain of
superiors ranging from the ultimate authority to the lowest rank. In banks for instance, managers, area
managers, divisional heads, etc in hierarchies are part of a chain-like authority scale. Each manager, from
the first line supervisor to the managing director, possesses certain amounts of authority. The MD
possesses the most authority; the first line supervisor the least. Lower level managers should always
keep upper level managers informed of their work activities. The existence of a scalar chain and
adherence to it are necessary if the organization is to be successful. This is very evident in today’s banks.

10. Order
According to Fayol there should be proper, systematic and orderly arrangement of physical and social
factors, such as land, raw materials, tools and equipments and employees respectively. In other words,
the principle states that every piece of land and every article should be used properly, economically and
in the best possible way. Selection and appointment of the most suitable person to every job is also part
of this principle. The principle stresses scientific selection and appointment of employees on every job.
Therefore, for the sake of efficiency and coordination, all materials and people related to a specific kind
of work should be treated as equally as possible. This principle is also being applied in the bank today,
where materials and human resources are being optimally managed and allocated for effective results.

11. Equity
The principle of equality should be followed and applicable at every level of management. There should
not be any discrimination as regards caste, sex and religion. An effective management always accords
sympathetic and human treatment. The management should be kind, honest and impartial with the
employees. In other words, kindness and justice should be exercised by management in dealing with
their subordinates. This will create loyalty and devotion among the employees. Thus, workers should be
treated at par at every level. This principle is very important for the well being of any organization and
banks are not exceptions. Although it is very difficult to treat every staff at par at every level, given the
capitalist nature of these organizations, but most organizations including banks takes care to ensure
most staff are treated fairly to prevent disloyalty and de-motivation. However, with the recent massive
retrenchments in Nigerian banks, we may be tempted to say that the principle of equity in non-existent
in Nigerian banks.

12. Stability of use of personnel

Principle of stability is linked with long tenure of personnel in the organization. And since production is a
team work, an efficient management always builds a team of good workers. If there is high turnover of
members of the team, the entire process of production will be disturbed. It is always in the interest of
the enterprise that its trusted, experienced and trained employees do not leave the organization.
Stability of job creates a sense of belonging and ownership among workers and this feeling encourages
workers to improve the quality and quantity of work. Retaining productive employees should always be a
high priority of management since recruitment and selection costs, as well as increased product-reject
rates are usually associated with new hires. This principle of management should be an ideal
consideration by every organization including banks considering its relevance to the well being of the
organization. Banks in years back attached so much importance to long service and made every effort to
encourage it. However, one cannot exactly say with recent happenings in the banking industry if this is
still being encouraged directly or indirectly. We have witnessed massive sackings, early or premature
retirements in the industry in the recent time.

13. Initiative
Under this principle, management provides an opportunity to its employees to suggest their new ideas,
experiences and more convenient methods of work. Management should take steps to encourage
worker initiative, which is defined as new or additional work activity undertaken through self direction.
This is also practiced in the banks where employees are encouraged to apply their initiatives in rendering
quality services to their customers. However, there are always processes, procedures and policies in
place to guide the employees to ensure successful implementation and prevent abuse of the

14. Spirit of Co-operation (Spirit de crops)

In order to achieve the best possible results, individual and group effort are to be effectively integrated
and coordinated. Production is a team work for which the whole-hearted support and co-operation of
the members at all levels is required. Everyone should sacrifice his personal interest and contribute his
best energies to achieve the best results. It refers to the spirit of loyalty, faithfulness on the part of the
members of the group which can be achieved by strong motivating recognition and importance of the
members for their valuable contribution, effective coordination, informal mutual social relationship
between members of the group and positive and constructive approach of the management towards
workers’ welfare. If this principle is absent in banks given the nature of their business, it will be a miracle
for the bank to survive. Therefore, every staff of the bank work together in harmony for the sole purpose
of rendering quality services to their customers with a view to achieving the bank’s organizational
goal. This principle is very much evident in the bank and it will continue to be a priority to the


Although Principles such as Division of labour and Stability of jobs and positions seem to be a
product of their times, other aspects such as the need to specialize, unity of command, clear
reporting relationships in a formal structure, and the need to coordinate activities among
specialized groups, are relevant today. Today’s managers have access to an amazing array of
resources which they can use to improve their skills, but Henri Fayol’s 14 principles can and it is still
offering guidance directly or indirectly for today’s managers