P. 1
Motivational Theories

Motivational Theories

|Views: 48|Likes:

More info:

Published by: Sandra_Vunganayi_608 on Nov 15, 2011
Copyright:Attribution Non-commercial


Read on Scribd mobile: iPhone, iPad and Android.
download as DOC, PDF, TXT or read online from Scribd
See more
See less





People - Theories of Motivation There are a number of different views as to what motivates workers.

The most commonly held views or theories are discussed below and have been developed over the last 100 years or so. Unfortunately these theories do not all reach the same conclusions! Taylor Frederick Winslow Taylor (1856 – 1917) put forward the idea that workers are motivated mainly by pay. His Theory of Scientific Management argued the following: Workers do not naturally enjoy work and so need close supervision and control Therefore managers should break down production into a series of small tasks Workers should then be given appropriate training and tools so they can work as efficiently as possible on one set task. Workers are then paid according to the number of items they produce in a set period of time- piece-rate pay. As a result workers are encouraged to work hard and maximise their productivity. Taylor’s methods were widely adopted as businesses saw the benefits of increased productivity levels and lower unit costs. The most notably advocate was Henry Ford who used them to design the first ever production line, making Ford cars. This was the start of the era of mass production. Taylor’s approach has close links with the concept of an autocratic management style (managers take all the decisions and simply give orders to those below them) and Macgregor’s Theory X approach to workers (workers are viewed as lazy and wish to avoid responsibility). However workers soon came to dislike Taylor’s approach as they were only given boring, repetitive tasks to carry out and were being treated little better than human machines. Firms could also afford to lay off workers as productivity levels increased. This led to an increase in strikes and other forms of industrial action by dis-satisfied workers. Mayo Elton Mayo (1880 – 1949) believed that workers are not just concerned with money but could be better motivated by having their social needs met whilst at work (something that Taylor ignored). He introduced the Human Relation School of thought, which focused on managers taking more of an interest in the workers, treating them as people who have worthwhile opinions and realising that workers enjoy interacting together.

Mayo conducted a series of experiments at the Hawthorne factory of the Western Electric Company in Chicago He isolated two groups of women workers and studied the effect on their productivity levels of changing factors such as lighting and working conditions. He expected to see productivity levels decline as lighting or other conditions became progressively worse What he actually discovered surprised him: whatever the change in lighting or working conditions, the productivity levels of the workers improved or remained the same. From this Mayo concluded that workers are best motivated by: Better communication between managers and workers ( Hawthorne workers were consulted over the experiments and also had the opportunity to give feedback) Greater manager involvement in employees working lives ( Hawthorne workers responded to the increased level of attention they were receiving) Working in groups or teams. ( Hawthorne workers did not previously regularly work in teams) In practice therefore businesses should re-organise production to encourage greater use of team working and introduce personnel departments to encourage greater manager involvement in looking after employees’ interests. His theory most closely fits in with a paternalistic style of management. Maslow Abraham Maslow (1908 – 1970) along with Frederick Herzberg (1923-) introduced the Neo-Human Relations School in the 1950’s, which focused on the psychological needs of employees. Maslow put forward a theory that there are five levels of human needs which employees need to have fulfilled at work. All of the needs are structured into a hierarchy (see below) and only once a lower level of need has been fully met, would a worker be motivated by the opportunity of having the next need up in the hierarchy satisfied. For example a person who is dying of hunger will be motivated to achieve a basic wage in order to buy food before worrying about having a secure job contract or the respect of others. A business should therefore offer different incentives to workers in order to help them fulfill each need in turn and progress up the hierarchy (see below). Managers should also recognise that workers are not all motivated in the same way and do not all move up the hierarchy at the same pace. They may therefore have to offer a slightly different set of incentives from worker to worker.

Herzberg Frederick Herzberg (1923-) had close links with Maslow and believed in a two-factor theory of motivation. He argued that there were certain factors that a business could introduce that would directly motivate employees to work harder (Motivators). However there were also factors that would de-motivate an employee if not present but would not in themselves actually motivate employees to work harder (Hygienefactors) Motivators are more concerned with the actual job itself. For instance how interesting the work is and how much opportunity it gives for extra responsibility, recognition and promotion. Hygiene factors are factors which ‘surround the job’ rather than the job itself. For example a worker will only turn up to work if a business has provided a reasonable level of pay and safe working conditions but these factors will not make him work harder at his job once he is there. Importantly Herzberg viewed pay as a hygiene factor which is in direct contrast to Taylor who viewed pay, and piece-rate in particular Herzberg believed that businesses should motivate employees by adopting a democratic approach to management and by improving the nature and content of the actual job through certain methods. Some of the methods managers could use to achieve this are: Job enlargement – workers being given a greater variety of tasks to perform (not necessarily more challenging) which should make the work more interesting.

A Theory Y manager believes that. They will blame the person first in most situations. policy. They believe that the satisfaction of doing a good job is a strong motivation. employees will show little ambition without an enticing incentive program and will avoid responsibility whenever they can. This should give a greater sense of achievement. It is believed that employees enjoy their mental and physical work duties. He or she thinks all prospective employees are only out for themselves. He thinks that Theory Y . without questioning whether it may be the system. Many people interpret Theory Y as a positive set of beliefs about workers.involves workers being given a wider range of more complex. McGregor Theory X In this theory. if the organizational goals are to be met. Usually these managers feel the sole purpose of the employee's interest in the job is money. Empowerment means delegating more power to employees to make their own decisions over areas of their working life. highly restrictive supervision. management assumes employees may be ambitious and self-motivated and exercise self-control. and a punitive atmosphere. or lack of training that deserves the blame. A close reading of The Human Side of Enterprise reveals that McGregor simply argues for managers to be open to a more positive view of workers and the possibilities that this creates. Given the proper conditions. that they would rather avoid responsibility and that it is the manager's job to structure the work and energize the employee. According to Michael J.Job enrichment . management believes that workers need to be closely supervised and comprehensive systems of controls developed. interesting and challenging tasks surrounding a complete unit of work. [edit] Theory Y In this theory. They possess the ability for creative problem solving. As a result of this. Beliefs of this theory lead to mistrust. but their talents are underused in most organizations. Papa. According to Papa. most people will want to do well at work. According to this theory. theory X managers rely heavily on threat and coercion to gain their employee's compliance. A hierarchical structure is needed with narrow span of control at each and every level. which has been proven counter-effective in most modern practice. A Theory X manager believes that his or her employees do not really want to work. One major flaw of this management style is it is much more likely to cause Diseconomies of Scale in large businesses. management assumes employees are inherently lazy and will avoid work if they can and that they inherently dislike work. The Theory X manager tends to believe that everything must end in blaming someone. theory Y managers believe that employees will learn to seek out and accept responsibility and to exercise self-control and self-direction in accomplishing objectives to which they are committed. to them work is as natural as play[1]. given the right conditions.

minimizing the difference between superiorsubordinate relationships. The reason autocratic leadership survives. A more productive group ‘while the leader is watching’. even if it is outdated. Consultation with other colleagues in minimal and decision making becomes a solitary process 5. What is Autocratic Leadership? Autocratic leadership is a classical leadership style with the following characteristics: 1.managers are more likely than Theory X managers to develop the climate of trust with employees that is required for human resource development. This is ideal for poorly motivated employees who have little concern or interest in the quality or speed of work performed. Manager seeks to make as many decisions as possible 2. creating a comfortable environment in which subordinates can develop and use their abilities. is because it is intuitive. the autocratic leadership styles offer many advantages to managers who use them. This would include managers communicating openly with subordinates. Manager seeks to have the most authority and control in decision making 3. it will comfort them and reduce their stress levels to know that they have control over their fate. Where the manager ultimately has significant legal and personal responsibility for a project. The autocratic leadership style is seen as an old fashioned technique. and comes natural to many leaders. Managers are less concerned with investing their own leadership development. This climate would include the sharing of decision making so that subordinates have say in decisions that influence them. carries instant benefits. It's human resource development that is a crucial aspect of any organization. What Are The Benefits Of The Autocratic Leadership Style? Despite having many critics. Many leaders who start pursuing leadership development are often trying to improve upon their organisations autocratic leadership style. The oversight that an autocratic manager exerts over a team improves their working speed and makes them less likely to slack. This theory is a positive view to the employees. meaning that the employer is under a lot less pressure than some one who is to influenced by a theory X management style. It has existed as long as managers have commanded subordinates. and is still employed by many leaders across the globe. These include: Reduced stress due to increased control. and prefer to simply work on the task at hand. Manager seeks to retain responsibility rather than utilise complete delegation 4. .

Having one leader with heavy involvement in many areas makes it more likely that problems are spotted in advance and deadlines met. As a result. workers lose initiative and the confidence to make decisions on their own. This is the result of a lack of time dedicated to leadership development on the employees part. or complicated work environments where efficient cooperation is key to success. but in many cases. This results in teams of workers who become useless at running operations if they loose contact with their leader. When is the Autocratic Leadership Style Effective? Following on from the merits and drawbacks listed above. autocratic leadership style is easy yet unpopular. the autocratic leadership style can result in a demotivated workforce. Short term projects with a highly technical. it is the leadership style alone that demotivates them in the first place. complex or risky element.Improved logistics of operations. This hyper-focus on work comes at the expense of good leadership development. This results in the paradox that autocratic leadership styles are a good solution for demotivated workers. which will allow the management team to respond to changes in the business environment more quickly. the manager is actually de-skilling their workforce which will lead to poorer decisions and productivity in the long run. an autocratic leader naturally works at their full capacity. decisions are made quicker. While leading autocratically will enable faster decisions to be made in the short term. which can lead to long term stress and health problems and could damage working relationships with colleagues. Generation Y employees particularly dislike this style. . and learn from their mistakes. By taking on as much responsibility and involvement as possible. Teams become dependent upon their leader. When only one person makes decisions with minimal consultation. Faster decision making. Manager perceived as having poor leadership skills. the autocratic leadership style is useful in the following work situations: 1. Increased workload for the manager. After becoming conditioned to receive orders and act upon them perfectly. While the autocratic style has merits when used in certain environments (as highlighted below). This makes autocratic leadership ideal for one-off projects with tight deadlines. They also dislike being shown very little trust and faith. Managers with poor leadership skills with often revert to this style by default. by robbing subordinates of the opportunity to gain experience and start on their own leadership development. What Are The Disadvantages Of The Autocratic Leadership Style? Short-termistic approach to management. People dislike being ordered around.

3. Manager effectively delegate tasks to subordinates and give them full control and responsibility for those tasks. Manager seeks consultation on all major issues and decisions. where time and resources devoted to leadership development would be largely wasted. they are effectively asking for people to talk behind their back and attempt to undermine or supercede them. By allowing subordinates to use their ideas and even more importantly – gain credit for them. The process of consultation and feedback naturally results in better decision making and more effective operations. Work environments where spans of control are wide and hence the manager has little time to devote to each employee. The style has the following characteristics: 1. Industries where employees need to perform low-skilled. Creative thinking. 2. To further their leadership education.e. To put it simply – people tell a democratic leader when something is going badly wrong. Companies run under democratic leadership tend to run into fewer grave mistake and catastrophes. and this is appreciated by a large majority of the workforce. a company will experience lower rates of employee turnover which has numerous benefits. monotonous and repetitive tasks and generally have low levels of motivation. because creative thinking is required to solve problems in every single organisation. . 4. Manager encourages others to become leaders and be involved in leadership development. The free flow of ideas and positive work environment is the perfect catalyst for creative thinking. 3. is investing in their future. i. When employees feel empowered through leadership development. The benefits of this aren’t just relevant for creative industries. 5. A company that invests in leadership development for its employees. you are neatly reducing the amount of tension employees generate with their manager. the exercise of delegation and continual consultation. Companies that suffer from a high employee turnover. Manager welcomes feedback on the results of intiatives and the work environment. Although one could argue that a lack of leadership development in the first place caused the high turnover. or blatantly ignore their ideas. What Are The Benefits Of The Democratic Leadership Style? Positive work environment. whatever it’s nature. What is Democratic Leadership? Democratic Leadership is the leadership style that promotes the sharing of responsibility. while employees are encouraged to simply hide it from an autocrat. Reduction of friction and office politics. Projects where the work performed needs to be completed to exact specifications and/or with a tight deadline.2. 4. A culture where junior employees are given fair amount of responsibility and are allowed to challenge themselves is one where employees are more enthused to work and enjoy what they do. When autocratic leaders refuse to listen to their workers. Reduced employee turnover. Successful initiatives. people often check the online MBA rankings to see whether MBA online is a match for them.

because only titles and roles provide any real control or power. As a result. 4. Democratic leadership is applied to an extent in the manufacturing industry. What Is Bureaucratic Leadership? The bureaucratic leadership style is concerned with ensuring workers follow rules and procedures accurately and consistently. Bureaucratic leadership normally has the following characteristics: 1. Managers gain instant authority with their position. While ‘Fordism’ is still applied in some factories across the country. Leadership development becomes pointless. Bureaucratic systems usually gradually develop over a long period of time. As previously mentioned. because rules demand that employees pay them certain priveledges. When Is The Democratic Leadership Style Effective? Now you’ve heard about the benefits and drawbacks of this leadership style. In dangerous workplaces where procedures save lives. or hazards avoided too late. Danger of pseudo participation. Many managers simply pretend to follow a democratic leadership style simply to score a point in the eyes of their subordinates. Seeking consultation over every decision can lead to a process so slow that it can cause opportunities to be missed. leaders suffer from ‘position power’. What Are The Benefits Of The Bureaucratic Leadership Style? Increased safety. . a bureaucratic management style can help enforce health and safety rules. to allow employees to give their ideas on how processes can become leaner and more efficient. In other words. they’re simply exerting autocratic leadership in disguise.What Are The Disadvantages Of The Democratic Leadership Style? Lengthy and ‘boring’ decision making. Non profit organisations also tremendously benefit from drawing upon the creative energies of all their staff to bring about cost cutting techniques or fund raising ideas. Democratic leadershp is effective in proffessional organisations where the emphasis is clearly on training. 1. Democratic procedures are simply just one cog in the effective leadership mechanisms firms like The Big Four have created over the years. and that the manager is merely following procedure in asking for suggestions. and hence are more commonly found in large & old businesses. 4. Leaders expect a employees to display a formal. but never actually implementing them. 2. 3. businesslike attitude in the workplace and between each other. creative industries such as advertising and television enjoy alot of benefits from the free flow of ideas that democratic leadership brings. Employees are quick to realise when their ideas aren’t actually valued. such as being able to sign off on all major decisions. 2. Employees are rewarded for their ability to adhere to the rules and follow procedure perfectly. truth is that production managers are now really starting to harness the motivational bonuses associated with not treating employees like robots anymore. Some tasks. Quality work. let’s look at where its actually implemented in the business world. professional & leadership development and quality of work performed. 3.

such as completing proffessional work or medical examinations. A common feature of a bureaucratic system is a complicated network of communication lines.” Parkinson’s findings suggest that bureaucratic leadership encourages inefficiency and waste of internal resources in the long run. need to be done in a meticulous fashion to be done correctly. Lack of creativity. After working in an environment that reinforces the idea that authority is created by rules which in turn support senior positions. However these cultures have evolved due to the age and size of these companies. This control can be used to cut costs or improve productivity. the board may be charging ahead with a doomed product simply because their shop floor workers cannot pass on the message that customers are giving very negative feedback. Lack of self-fulfillment. Ultimate control. arrogant leaders and little incentive to perform well once an employee has landed a top job. they ensure accountability to the tax payer and fair treatment for all. Barriers to communication can hinder the success of any company. Poor communication. Bureacratic companies tend to remove as much potential for ‘human error’ out of the picture as possible. He explains this growth by two forces: (1) “An official wants to multiply subordinates. Laziness can result in poor work. The bureaucratic way of working hampers employees efforts to become successful and independent. When Is The Bureaucratic Leadership Style Effective? Bureaucratic leadership is found in extremely large corporations such as General Electric. This may result in a lack of growth in the business due to employees simply not thinking out of the box or looking for new areas to develop. ‘Go through the formal process’. Governmental bodies often have bureaucratic systems. An environment whereby employees are intrinsically motivated to follow rules in order to be promoted and succeed results in the tightest control management can ever assume over a company. and while these are often despised by the public. 1. It goes without saying that a rule-based culture hinders creativity and encourages workers to simply perform puppet-like work rather than think independently. ‘Position power’ obessession. Unfortunately this also has the effect of removing all the enjoyment and reward that comes from deciding how to do a task and accomplishing it.”". . because the system becomes too contraining. For example. not rivals” and (2) “Officials make work for each other. Parkinson’s Law. Daimler and General Motors. Excessive form-filling also serves the purpose of passing effort from the government authority (with a tight budget) onto the individual. ‘Talk to my secretary’ and ‘My schedule is full’ are common rule-based excuses for blocked contact. and hence one solution is to enforce the rules via the bureacratic leadership style. helping to save costs. This can lead to intense office politics. 2. What Are The Disadvantages Of The Bureaucratic Leadership Style? Dehumanises the business. Employees become attached to the idea that simply being in a job position creates authority. and are generally blamed for the slow growth and recent failures at these companies. Cyril Northcote Parkinson made the scientific observation that the number of staff in bureaucracies increased by an average of 5%-7% per year “irrespective of any variation in the amount of work (if any) to be done. Managers who don’t want to be ‘bothered’ by junior staff simply create procedures that allow them to avoid communicating with those below them.

administration. benefits. oil rigs. and providing direction for the people who work in the organization. administration. Human Resource Management is also a strategic and comprehensive approach to managing people and the workplace culture and environment. performance management. ORGANISATIONAL STRUCTURE Organizational structure refers to the way that an organization arranges people and jobs so that its work can be performed and its goals can be met. In an organization of any size or complexity. wellness. Over time these definitions are assigned to positions in the organization rather than to specific individuals. Thus. The relationships among these positions are illustrated graphically in an organizational chart (see Figures 1a and 1b). its size in terms of employees. . procedures are established that assign responsibilities for various functions. and the range of its businesses (the degree to which it is diversified across markets). It is these decisions that determine the organizational structure. Effective HRM enables employees to contribute effectively and productively to the overall company direction and the accomplishment of the organization's goals and objectives. The new role of HRM involves strategic direction and HRM metrics and measurements to demonstrate value. organization development. and for managers. who reports to them. and transactional roles. construction sites and film sets all benefit from the tight control over health and safety that rules offer. Human Resource Management is moving away from traditional personnel. and the geographic dispersion of its facilities. employees' responsibilities typically are defined by what they do. employee motivation. communication. which are increasingly outsourced. and training. formal structure may be unnecessary. management of. hiring. HRM is now expected to add value to the strategic utilization of employees and that employee programs impact the business in measurable ways. revenue. Human Resource Management is the organizational function that deals with issues related to people such as compensation. safety. who they report to. When a work group is very small and face-to-face communication is frequent. Question: WHAT IS HUMAN RESOURCE MANAGEMENT Answer: Human Resource Management (HRM) is the function within an organization that focuses on recruitment of. The best organizational structure for any organization depends on many factors including the work it does. but in a larger organization decisions have to be made about the delegation of various tasks.Dangerous workplaces such as mines. Human Resource Management can also be performed by line managers.

The second section provides additional details of traditional. function. Organizational structure determines the manner and extent to which roles. The discussion concludes by addressing emerging and potential future organizational structures. FORMAL AND INFORMAL ORGNAL STRUCTURE The span of control is said to be wide if a superior is in charge of many employees and narrow if the superior is in charge of a few employees. The first section addresses organizational structure in the twentieth century. power. A formal organisation structure shows a recognisable chain of command. vertically-arranged organizational structures. An organizational chart illustrates the organizational structure. with very few levels of management. the decision making power is concentrated in the top layer of the management and tight control is exercised over departments and divisions. and how information flows between levels of management. In a centralized structure. or matrix organizations. An structure depends entirely on the organization's objectives and the strategy chosen to achieve them.There are multiple structural variations that organizations can take on. SPAN OF CONTROL This term is used to describe the number of employees that each manager/supervisor is responsible for. within which an organization arranges its lines of authority and communications. Next is a discussion of combination structures. typically hierarchical. and allocates rights and duties. the decision making power is distributed and the departments and divisions have varying degrees of autonomy. organizational structure The framework. This makes comunication much easier between levels and decisions anr made faster. and geographical or product markets. it also has many levels of management. The following sections explain these patterns and provide the historical context from which some of them arose. controlled. An informal structure is much more relaxed. . This is followed by descriptions of several alternate organizational structures including those arranged by product. but there are a few basic principles that apply and a small number of common patterns. and responsibilities are delegated. In a decentralized structure. This make comunication slower and decision making harder to implement. and coordinated.

it is usually set out in writing. They promote communication among members. and create footpaths showing where the formal organization may someday need to pave a way Functions of Informal Organization: They perpetuate the cultural and social values that the group holds dear. Role conflict Rumor . interactions. enable people to solve problems that require collaboration across boundaries. they may be little more than an empty formalism. It consists of a dynamic set of personal relationships. such rules may be strictly followed. and the complex social dynamics of its members. Informal organization is the interlocking social structure that governs how people work together in practice. and emotional sources of motivation. communities of common interest. In some societies and in some organization. social networks. personal and professional connections through which work gets done and relationships are built among people who share a common organizational affiliation or cluster of affiliations. the informal organization complements the more explicit structures.Formal organization is a fixed set of rules of intra-organization procedures and structures. plans. As such. the flux of people through its porous boundaries. The informal organization evolves organically and spontaneously in response to changes in the work environment. and processes of the formal organization: it can accelerate and enhance responses to unanticipated events. Tended effectively. It is the aggregate of behaviors. in others. with a language of rules that ostensibly leave little discretion for interpretation. foster innovation. norms. They provide social control by infjuencing and regulating behavior inside and outside the Group Disadvantage of informal Groups: Resistance to change. They provide social status and satisfaction that may not be obtained from the formal organization.

sympathies and behaviors of the individual workers — so that the practical everyday life of an organization becomes organizations represent some mix of formal and informal. Formal rules are often adapted to subjective interests — social structures within an enterprise and the personal goals. Lighten management workload 3. when attempting to legislate for an organization and to create a formal structure. formal organizational structures arise in highly institutional contexts Key characteristics of the informal organization: • evolving constantly • grass roots • dynamic and responsive • excellent at motivation • requires insider knowledge to be seen • treats people as individuals • flat and fluid • cohered by trust and reciprocity • . Fill gaps in managemnt abilities The nature of the informal organization becomes more distinct when its key characteristics are juxtaposed with those of the formal organization. or. But in modern societies. However. desires. Blend with formal system 2. Formal organizations are typically understood to be systems of coordinated and controlled activities that arise when work is embedded in complex networks of technical relations and boundary-spanning exchanges. informal organization can fail. Consequently. if already set in order.Conformity Benefits to the Formal Organization: 1. can work against mismanagement. it is necessary to recognize informal organization in order to create workable structures.

Organization structure concentrates on the jobs to be performed and not the individuals who are to perform jobs. some have regarded the informal organization as the byproduct of insufficient formal organization—arguing. recognizing the strengths and limitations of each. the pioneer of community centers and author of influential works on management philosophy—is to integrate the informal organization and the formal organization. unless deliberately altered • top-down • static • excellent at alignment • plain to see • equates “person” with “role” • hierarchical • bound together by codified rules and order • easily understood and explained • critical for dealing with situations that are known and consistent Historically. . for example. the contemporary approach—one suggested as early as 1925 by Mary Parker Follett. The organization does not take into consideration the sentiments of organizational members.” However.difficult to pin down • essential for situations that change quickly or are not yet fully understood Key characteristics of the formal organization: • enduring. FEATURES OF FORMAL STRUCTURE (i) (ii) (iii) (iv) Organization structure is laid down by the top management to achieve organizational goals. Organization structure is based on division of labor and specialization to achieve efficiency in the operations. that “it can hardly be questioned that the ideal situation in the business organization would be one where no informal organization existed.

the more clear cut the chain of command. the more effective the decision making process and greater the efficiency. . Developed through delegation of authority Organization structure concentrates on the jobs to be performed and not the individuals who are to perform jobs. Main characteristics of formal organisation • • • • • • • • • • Deliberately planned and created Concerned with the co-ordination of activities Hierarchically structured with stated objectives Based on certain principles such as the specification of tasks Organization structure is laid down by the top management to achieve organizational goals. as it requires preliminary (informal) contact and interaction before establishment chain of command Definition The order in which authority and power in an organization is wielded and delegated from top management to every employee at every level of the organization. Organization structure is based on division of labor and specialization to achieve efficiency in the operations. Instructions flow downward along the chain of command and accountability flows upward.(v) The authority and responsibility relationships created by the organization structure are to be honored by everyone. The authority and responsibility relationships created by the organization structure are to be honored by everyone. groupings & interactions Repeated contacts but without any conscious joint purpose Involves the human need to socialize Includes both friendly and hostile relationships and interactions Informal association precedes formal organization. According to its proponent Henri Fayol (1841-1925). Main characteristics of informal organisation • • • • • • • • • The informal organisation is flexible and loosely structured Relationships may be left undefined Membership is spontaneous and with varying degrees of involvement Involves two or more people Informal relationships. The organization does not take into consideration the sentiments of organizational members.

Unless they recognize what they don't do well. less-than-robust health has been responsible for more than a few bankruptcies. When others throw in the towel. On the other hand.if not love -. and are skilled at taking charge when a creative or intelligent solution is needed." You thrive on independence. This is especially important when under strict time constraints. purchasing. you'd better think again. integrity. Head. and seek . production. Failures don't defeat you.Military forces are an example of straight chain of command that extends in unbroken line from the top brass to ranks. Poor ManagementMany a report on business failures cites poor management as the number one reason for failure. if you start your business for these reasons.your fellow man." on using failures as a "learning process. and hiring and managing employees. You get along with and can deal with all different types of individuals. You are physically fit and possess the needed mental stamina to withstand potential challenges. A system whereby authority passes down from the top through a series of executive positions or military ranks in which each is accountable to the one directly superior. determination. selling. Also called line of command. Chain of command concerns how many levels of manager exist from the CEO to the lowest level of management. you'll have a better chance at entrepreneurial success: • • • • • • You have a passion and love for what you'll be doing. 2. DIFFERENCE BTWN A CHAIN OF COMMAND AND SPAIN OF CONTROL Span of control has to do with how many people report to one supervisor or manager. You like -. New business owners frequently lack relevant business and management expertise in areas such as finance. patience and a positive attitude.that your product or service would fulfill a real need in the marketplace. and interactions with others. You learn from your mistakes. and strongly believe -based on educated study and investigation -. SBA economist. What causes failure to new products Would the sole reason you would be starting your own business be that you would want to make a lot of money? Do you think that if you had your own business that you'd have more time with your family? Or maybe that you wouldn't have to answer to anyone else? If so. and show this in your honesty. you are more determined than ever. You have drive. and use these lessons to succeed the next time around. Often overlooked. noted that studies of successful business owners showed they attributed much of their success to "building on earlier failures.

business owners may soon face disaster. This means you will need enough funds to cover all costs until sales can eventually pay for these costs. able to make a vision a reality. They must also be educated and alert to fraud. parking and lighting Location of competitors Condition and safety of building Local incentive programs for business start-ups in specific targeted areas The history. This includes the continuing study of market research and customer data. They also may have an unrealistic expectation of incoming revenues from sales. organize. strategic planning -. but the costs of staying in business. . a bad location could spell disaster to even the bestmanaged enterprise. and envision new possibilities for the future. Insufficient CapitalA common fatal mistake for many failed businesses is having insufficient operating funds. Some factors to consider: • • • • • • Where your customers are Traffic. and put into place measures to avoid it. Lack of PlanningAnyone who has ever been in charge of a successful major event knows that were it not for their careful. 4. an area which may be more prone to disregard once a business has been established. 3.help. It is imperative to ascertain how much money your business will require. Location. Care must be taken to regularly study. A successful manager is also a good leader who creates a work climate that encourages productivity. Neglect of a business can also be its downfall. make transitions. plan and control all activities of its operations. A good leader is also skilled at strategic thinking. Business owners underestimate how much money is needed and they are forced to close before they even have had a fair chance to succeed. Location. not only the costs of starting. community flavor and receptiveness to a new business at a prospective site 5. Whereas a good location may enable a struggling business to ultimately survive and thrive. methodical.and hard work -success would not have followed. training them and is able to delegate. accessibility. This business startup calculator will help you predict how much money you'll need to launch your business. He or she has a skill at hiring competent people. LocationYour college professor was right -.location is critical to the success of your business. The same could be said of most business successes. and able to confront change. It is important to take into consideration that many businesses take a year or two to get going.

research and analysis. Once you have an established solid customer base and a good cash flow. Later. At the same time. i. according to the US Department of Commerce) continue to rise and are expected to increase with each passing year. alone. Components may include: • • • • • • • Description of the business. balance sheet. No WebsiteSimply put. sales and expense forecast Analysis of competition Marketing. the number of internet users (approximately 77 percent of the population) and e-commerce sales ($165. OverexpansionA leading cause of business failure. and keys to success Work force needs Potential problems and solutions Financial: capital equipment and supply list. income statement and cash flow analysis. overexpansion often happens when business owners confuse success with how fast they can expand their business. not on doing everything in it yourself. At the very least. Many a bankruptcy has been caused by rapidly expanding companies. you need a website. let your success help you set the right measured pace. It must be realistic and based on accurate. Some indications that an expansion may be warranted include the inability to fill customer needs in a timely basis. Then with the right systems and people in place.. If expansion is warranted after careful review. vision. A focus on slow and steady growth is optimum.It is critical for all businesses to have a business plan. In the U. current information and educated projections for the future. and employees having difficulty keeping up with production demands. 6. 7.4 billion in 2010. drop-shipping products. every business should have a professional looking and well-designed website that enables users to easily find out about their business and how to avail themselves of their products and services. Many small businesses fail because of fundamental shortcomings in their business planning.e. or recommending affiliate products. you do not want to repress growth. advertising and promotional activities Budgeting and managing company growth In addition. . selling ad space. most bankers request a business plan if you are seeking to secure addition capital for your company. identify what and who you need to add in order for your business to grow. goals. if you have a business today. you can focus on the growth of your business.S. Period. additional ways to generate revenue on the website can be added.

Remember. Armed with drive. failure was never an option.are ultimately the "secret" to your success. What do you do that can help or benefit me? Once you understand it. And make sure that website makes your business look good. If you don't have enough cash to carry you through the sales cycles and downward trends. ask yourself if you are communicating it effectively. Cash is king. if you don't have a website. Two easy questions: Who are your customers? And why do they spend their money with you? You should be able to clearly answer in one or two sentences. Trying to do everything for everyone is a sure road to failure. you'll most likely be losing business to those that do. ask yourself what would happen if they left or went out of business. watch out. What sets them apart is their openness to new knowledge and their willingness to learn whatever it takes to succeed. not decrease them. 5. Having a large base of small customers is a safer beat. Pay attention to your revenue sources. Overdependence on a single customer. Excellent results come from doing what you do and doing it well over and over again.you want to increase revenues. 4. Inadequate financing. Spreading yourself too thin diminishes quality. Does your market connect with what you are saying? 3. Failure to define your product/service offering. Most self-made millionaires possess average intelligence. not bad -. The market pays excellent rewards for excellent results. you will not survive. you -. Without them. Do you still do things the same way despite new market demands and changing times? What is your competition doing differently? What new technology is available? Those who fail to do this end up obsolete. For many successful business owners. Challenge the factors that led to your success. or other changes in the marketplace. determination. your prospects for success are not good. they quickly find that funding sources are finicky and difficult to please. Failure to anticipate or react to competition. controlling. Failure to understand and communicate what you are selling. Management of a business encompasses a number of activities: planning. 2. Customers are the only people that put money in your account. and a positive mindset. Failure to understand your market.the business owner -. You must clearly define your value proposition. these individuals view any setback as only an opportunity to learn and grow. organizing. directing and communicating. your customers. technology. It is dangerous to assume that what you have done in the past will always work. 6. When it comes to the success of any new business. If you have a customer that is providing a majority of your income. 1. The . and your customers' buying habits. When businesses go looking for lenders to provide that cash. Poor management. 7. Where would you be? Whenever you have one customer so big that losing them would mean closing up shop.

Decentralisation does not exist in its pure sense. Greater efficiency and output—Decentralisation gives emphasis on care. 4. decentralisation is present. There is a mixture of the two because some activities are centralised and some are decentralised. This is possible because it involves delegation of authority and responsibility. 3. decentralisation in relation to office may include departmentation of activities. Decentralisation helps to increase employees morale because it involves delegation. availability of managers also affects the degree of decentralisation. Diversification of Activities—Decentralisation helps in diversification of activities. Increased motivation and morale — The morality of the employees are increased because of delegation of authority. Distribution of burden of top executive—Decentralisation enables to its executive to share his burden with others at lower levels because here authority is delegated. caution and enthusiastic approach to the work which in turn results in increased efficiency and output. The top executive is relieved of some burden and concentrates his activities to think for the future of the organisation. the authority is not decentralised. It crests more employment opportunities because new managers are to be entrusted with new assignments. 2. DECENTRALISATION Decentralisation means diffusion of authority. The dispersal of authority of decisionmaking to the lower level management is termed as decentralisation. Thus." Decentralisation in relation to office denotes disperse of office services and activities. Decentralisation of authority is a fundamental phase of delegation and the extent to which authority is not delegated is called centralisation. The technological development. The necessity of decentralisation of office services occurs when official activities are performed at functional departmental level. Decentralisation occurs at the time of decisions of routine nature but if decisions are vital. Advantages of Decentralisation Advantages of Decentralisation: 1. According to Fayol "Everything that goes to increase the importance of the subordinate's role is called decentralisation. . The need for decentralisation is felt when the business grows in its size which necessiates diversification of office activities.cardinal rule of small business management is to know exactly where you stand at all times. A common problem faced by successful companies is growing beyond management resources or skills. political factors. When authority is dispersed. The employees are motivated to work.

For example functions such as accounting and purchasing may be centralised to save costs. More cost—Decentralisation is costly because it encourages duplication of functions and equipments. No equitable distribution of work — It becomes difficult to distribute workload equitably among different employees. Conversely decentralised organisations will spread responsibility for specific decisions across various outlets and lower level managers. including branches or units located away from head office/head quarters. Whilst tasks such as recruitment may be decentralised as units away from head office may have staffing needs specific only to them. Better Co-ordination—The various operations and activities are co-ordinated in a decentralised set up. as they are large in numbers. DECENTRALISATION VS CENTRELISATION In a centralised organisation head office(or a few senior managers) will retain the major responsibilities and powers. Each store of Tesco has a store manager who can make certain decisions concerning their store. The store manager is responsible to a regional manager . Maintenance of Secrecy — Decentralisation enables to maintain secrecy without much cost and unnecessary trouble. 5. The services of specialists are not utilised effectively and efficiently. 4. 2. Organisations may also decide that a combination of centralisation and decentralisation is more effective. 6. An example of a decentralised structure is Tesco the supermarket chain. As it is costly.5. 7. it cannot be adopted by small organisations. So specialisation is affected. Facilitate effective control and quick decision-Decentralisation enables to measure the work according to standard easily and quickly. Disadvantages of Decentralisation: A decentralised organisation suffers from the following disadvantages: 1. . This facilitate taking up quick decision. Need more specialists-In decentralisation more specialists are needed. Certain organisations implement vertical decentralisation which means that they have handed the power to make certain decisions. No specialisation — Specialisation suffers in decentralisation because everyone becomes jack-of-all-trades but master of none. down the hierarchy of their organisation. 3. No uniform action — It becomes difficult to maintain uniformity in action because routine and methods differ from organisation to organisation and department to department.

This departments. Whereas a greater understanding of the decision made by a department environment they work in and the manager may benefit their people (customers and colleagues) department. people at the bottom of the organisation chart have in decision making. . Whereas it may take senior managers longer to appreciate that business needs have changed. empowerment. It is believed of more responsibility. Empowerment can increase motivation and therefore mean that staff output increases. that strong leadership is often best given from above. Horizontal decentralisation spreads responsibility across the organisation. respond faster to changes and new challenges. • • • • Advantages of Decentralised Structure For Organisations • Senior managers have time to concentrate on the most important decisions (as the other decisions can be undertaken by other people down the organisation structure. In uncertain times the organisation • Empowerment makes it easier for will need strong leadership and pull people to accept and make a success in the same direction. The organisation can benefit from • Empowerment will enable the decision making of experienced departments and their employees to senior managers. but disadvantage other that they interact with. Decisions can be made to benefit the • People lower down the chain have a organisations as a whole. The use of standardised procedures • Decision making is a form of can results in cost savings. knowledge skills and experience may enable them to make more effective decisions than senior managers. This implementation will be the sole responsibility of technology specialists Advantages of Centralised Structure For Organisations • Senior managers enjoy greater control over the organisation. A good example of this is the implementation of new technology across the whole business.Vertical decentralisation increases the input.

There might be lack of uniformity and inconsistent procedures as each department might have the authority to formulate its own policies and procedures. It speeds up communication. Decision making is quicker. It facilitates growth and diversification. As each product division is given sufficient autonomy for innovation and creativity. participation and status. Disadvantages of Decentralisation • Decentralisation increases the administrative expenses and each division or department has to be sufficient in terms of physical facilities and trained .Centralisation and Decentralisation Centralisation implies the concentration of authority at the top level of the organisation while decentralisation means dispersal of authority throughout the organisation According to Allen Centralisation is systematic and consistent reservation of authority at central points within an organisation. It gives opportunity to subordinates to exercise their own judgment. As each department or division enjoys substantial autonomy it might lead to coordination problems. Decentralisation increases the administrative expenses and each division or department has to be sufficient in terms of physical facilities and trained personnel. Decentralisation applies to the systematic delegation of authority in an organisation context. Decentralisation requires wider span of control and fewer levels of organisation. It improves job satisfaction and morale of lower level managers by satisfying their needs for independence. Advantages of Decentralisation • • • • • • • • • Decentralisation reduces the workload of top executives. They develop managerial skills which will be useful to the organisation in the longer run.

It is the HR of an organization that helps in the implementation of all these managerial activities. directing and controlling are based upon the manpower. but not the least. This results into minimum waste of time. Efficient utilization of resources: With manpower planning. clear communication. Importance of Manpower Planning • • • • • þÿ Forming a base to managerial functions: The four managerial functions like planning. Growth and diversification of business. right place. also referred as Human Resource Planning. Why is Manpower Planning Needed? Manpower Planning is needed for a variety of reasons like as follows: • • • • • • Any shortage or surplus can easily be identified and the problem can be rectified. productivity level increases when proper resources are used in the right way. Reduce the labor cost as overstaffing is avoided. efforts and energies. . Motivation: Through manpower planning. incentive plans are an important part of manpower planning. All the recruitments in any organization are based on manpower planning. Higher productivity: Last. organizing. Better human relations: Human relations become strong through efficient control. it implies the entire process of selecting and putting right number of people. Identify the available talents. Helps in the stability of a concern. but also it helps in overall motivating the employees of the organization. efficient supervision and leadership in any company. money. When we talk about manpower planning. Manpower planning also looks after training and development of the employees which leads to co-operation and better human relations. Today. this concept has occupied an important place in the corporate world and industrialization. Like for instance. there is an efficient management of personnels in the organization. is a very important concept today for the success of an organization.MAN POWER PLANNING Manpower Planning. right kind of people at the right time. doing the right things for which they are selected which in turn help in achieving the goals of the organization. you not only put the right men on right job.

It helps the organization to realize the importance of manpower management which ultimately helps in the stability of a concern. Design training programs: The training programs depend on the extent of advancement in technology to take place. All the recruitment and selection programmes are based on manpower planning. Objectives of Human Resource Planning . Developing employment programs: Once the forecast program is made. Manpower Forecasting Techniques The Manpower forecasting techniques usually applied are as follows: • • • • • Expert Forecasts: Formal expert surveys. 2. development programs etc. capabilities of the employees. and statistical analysis. 1. the employment programs can be developed accordingly. total number of departments. human resources can be readily available and they can be utilized in best manner. Planning and forecasting for future manpower: Once the present scenario is known. new venture analysis. 5. selection procedures and placement plans. Informal decisions. expansion plans. which include factors like recruitment. Work Load Analysis: Nature of work load in a department. It also helps to identify the available talents in a concern and accordingly training programmes can be chalked out to develop those talents. Shortages and surpluses can be identified so that quick action can be taken wherever required. Training needs to be imparted to improve upon the knowledge. regression. using base year as basis. It helps in growth and diversification of business. the future manpower forecasts and planning can be done. 3. Other methods: Budget.Manpower Planning Process and Steps • • • • Analysing the present manpower inventory: Before recruiting new personnel. skills. which include factors like type of organization. It also helps to reduce the labor cost as excess staff can be identified and thereby overstaffing can be avoided. Through manpower planning. Manpower planning is advantageous to firm in following manner. Work Force Analysis: Due allowances have to be made for getting net manpower requirements. the current manpower inventory should be carefully studied and analyzed. 6. Trend Analysis: Projecting past trends. 4. number of employees in such departments etc. which include diversification.

right number in right time and right place. ability. It provides help for career development of the employees. It boosts the geographical mobility of labor. 4. It is useful both for organization and nation. It generates facilities to educate people in the organization. It opens possibility for workers for future promotions. It provides smooth working even after expansion of the organization. 5. 1. knowledge. It brings about fast economic developments. (f) To minimize imbalances caused due to non-availability of human resources of the right kind. 3. It creates healthy atmosphere of encouragement and motivation in the organization.(a) To recruit and retain the human resource of required quality and quantity (b) To foresee the employee turnover and make the arrangements for minimizing turnover and filling up of consequent vacancies (c) To meet the needs of the programmes of expansion. Training becomes effective. (g) (h) To make best use of its human resources and To estimate the cost of human resources Advantages of Manpower Planning: Manpower planning ensures optimum use of available human resources. 7. diversification (d) To foresee the impact of technology on work. 9. discipline etc. skills. 6. 8. existing employees and future human resource requirements (e) To improve the standards. Benefits of Human Resource Planning Human Resource Planning(HRP) does not stop with finding the required kind and number of employees but also determines the action plan for all the function of personnel management. thus providing incentive. The major benefits of human resource planning are: . 2..

benefits and all the cost of human resources. It generates facilities to educate people in the organization. sales. aptitude. facilitating the formulation of budgets in an organization etc. It helps to anticipate the cost of salary. It causes the development of various sources of human resources to meet the organizational needs. contribution and cost of human resources. intelligence. Advantages of manpower planning: Manpower planning ensures optimum use of available human resources. It facilitates the control of all the functions. turnover etc. qualifications. 1.It offsets uncertainty and change. 2. To foresee the changes in values. But HRP offsets uncertainties and changes to the maximum extent possible and enables the organization to have right men at the right place and in right time. It is useful both for organization and nation. of future human resources. development etc. It helps to take steps to improve human resources contributions in the form of increased productivity. operations. values etc. It gives an idea of the type of tests to be used and interview techniques in selection based on the level of skills. It boosts the geographical mobility of labor. It brings about fast economic developments. and attitude of human resource and to change the techniques of interpersonal management etc. . 4. It provides scope for advancement and development of employees through training. 3.

thus providing incentive. 14. It creates healthy atmosphere of encouragement and motivation in the organization.Training and Development helps in optimizing the utilization of human resource that further helps the employee to achieve the organizational goals as well as their individual goals. People have to work in multidimensional areas . which usually demand far more from their area of specialisation. . Not just to equip them with latest tools your company has implemented.I have sorted down them in a list. Training your emplyess is important because 1. For employee motivation and retention 11. This is a must read if you employ or mean to employ in future atleast one person. For career advancement. there is a lot more to it. 6. 8. Rapid technological innovations impacting the workplace have made it necessary for people to consistently update their knowledge and skills 2. 8. Training becomes effective. 4. It opens possibility for workers for future promotions.5. 7. For survival and growth of organisation and nation Importance Of Training and Development • Optimum Utilization of Human Resources . To make the job challenging and interesting 9. Lack of proper and scientific selection procedure. Importaance of training Training your employees do have a significant role in modern business era. It provides smooth working even after expansion of the organization. For self and development 10. 9. To bridge gap between skills requirement and skills availability 16. To improve organisational climate 12. 7. Prevention of obsolescence 13. To keep in pace with times 15. To help an organisation to fulfil its future manpower needs. Change in the style of management. For higher motivation and productivity. 5. 3. It provides help for career development of the employees. Due to non-practical collage education. 6.

• Health and Safety .Training and Development helps in creating a better corporate image.Training and Development helps building the positive perception and feeling about the organization. It helps in inculcating the zeal to learn within the employees. and peers. • Productivity .Training and Development helps in improving the health and safety of the organization thus preventing obsolescence. • Morale . • Team spirit .Training and Development helps in improving upon the quality of work and work-life. It helps to build good employee. It helps in understanding and . It also helps the employees in attaining personal growth.Training and Development leads to improved profitability and more positive attitudes towards profit orientation.Training and Development helps in increasing the job knowledge and skills of employees at each level. • Development of skills of employees . Organization gets more effective decision making and problem solving.Training and Development helps in creating the healthy working environment.Training and Development helps in inculcating the sense of team work. • Quality . It helps in creating the learning culture within the organization.Training and Development helps to provide an opportunity and broad structure for the development of human resources' technical and behavioral skills in an organization. • Healthy work-environment . • Image . • Organization Culture .Training and Development helps to develop and improve the organizational health culture and effectiveness. subordinates. relationship so that individual goals aligns with organizational goal. The employees get these feelings from leaders. • Organization Climate . • Profitability .e. team spirit.Training and Development helps in increasing the productivity of the employees that helps the organization further to achieve its long-term goal.Training and Development helps in improving the morale of the work force. It helps to expand the horizons of human intellect and an overall personality of the employees. • Training and Development aids in organizational development i.• Development of Human Resources . and inter-team collaborations.

carrying out organisational policies • Training and Development helps in developing leadership skills.  Organization Climate – Training and Development helps building the positive perception and feeling about the organization. motivation. • Training and Development demonstrates a commitment to keeping employees on the cutting edge of knowledge and practice.  Quality – Training and Development helps in improving upon the quality of work and work-life. better attitudes. It also helps the employees in attaining personal growth. It helps in creating the learning culture within the organization.  Healthy work environment – Training and Development helps in creating the healthy working environment. loyalty. and other aspects that successful workers and managers usually display. The employees get these feelings from leaders. Development of Human Resources – Training and Development helps to provide an opportunity and broad structure for the development of human resources’ technical and behavioral skills in an organization. It helps to build good employee. . and peers. Development of skills of employees – Training and Development helps in increasing the job knowledge and skills of employees at each level. • •  Productivity – Training and Development helps in increasing the productivity of the employees that helps the organization further to achieve its long-term goal.  Team spirit – Training and Development helps in inculcating the sense of team work. It helps to expand the horizons of human intellect and an overall personality of the employees. and inter-team collaborations. relationship so that individual goals aligns with organizational goal.  Organization Culture – Training and Development helps to develop and improve the organizational health culture and effectiveness. team spirit. subordinates. • Optimum Utilization of Human Resources – Training and Development helps in optimizing the utilization of human resource that further helps the employee to achieve the organizational goals as well as their individual goals. It helps in inculcating the zeal to learn within the employees.

 Profitability – Training and Development leads to improved profitability and more positive attitudes towards profit orientation. It helps in understanding and carrying out organisational policies  Training and Development helps in developing leadership skills. Other Motives: Other Motives: • to expand marketing and management capabilities. • to obtain a tax carry-forward benefit. to expand marketing and management capabilities. better attitudes. • . to reduce risk (the portfolio effect). • to eliminate competition & enhance profitability.  Image – Training and Development helps in creating a better corporate image.  Training and Development aids in organizational development i. • to increase operating efficiency. Health and Safety – Training and Development helps in improving the health and safety of the organization thus preventing obsolescence.e. loyalty.  Morale – Training and Development helps in improving the morale of the work force. to increase operating efficiency. Why Merge? 44 Financial Motives: Financial Motives: • to reduce risk (the portfolio effect). to improve access to financial markets. motivation. • to improve access to financial markets. to obtain a tax carry-forward benefit. to eliminate competition & enhance profitability. and other aspects that successful workers and managers usually display. Organization gets more effective decision making and problem solving.

It can also be considered “hostile” if the bidding company does not inform the target company’s board before the offer is made. Once this has happened. It is often referred to as a “takeover”. a bidder would contact the Board of Directors of that company to inform them that they are making a bid on the company. In a friendly acquisition. except that in the case of a merger existing stockholders of both companies involved retain a shared interest in the new corporation. If the board does not cooperate with the bidder then the only information that is available to the bidding company is what is available to the public. Acquisitions happen in business all the time. By contrast. To revive sick industry and render accelerated economic growth ACQUISATION 77 Acquisition comes from the word “acquire” which means to get as one’s own or to come into possession of something. WHY DO COMPANIES MERGE . A merger is very similar to an acquisition or takeover. in an acquisition one company purchases a bulk of a second company's stock. There are some investors. the acquisition is now considered “hostile”.to allow for new product development through R & D. There are several types of takeovers or acquisitions that can occur. a bidder will bypass the target company’s board who is already rejected their bid. to provide synergistic benefits (the “2+2=5” effect). Because of this risk. creating an uneven balance of ownership in the new combined company. banks are not as willing to back hostile bids in order to finance a takeover. In a hostile takeover or acquisition. • To revive sick industry and render accelerated economic growth. It is the process that a company will go through to purchase another company – the target company. to allow for new product development through R & D. however. If the board thinks that the offer is in the best interest of the shareholders then the Board will recommend that the offer be accepted. In a private company. A hostile takeover involves more risk. • to provide synergistic benefits (the “2+2=5” effect). the shareholders and the board are usually made up of the same people so private acquisitions are usually friendly. who will want to proceed if they have reliable knowledge of the Board’s mismanagement and want to hold them to public and legal scrutiny. WHAT IS MERGE A merger occurs when two companies combine to form a single company.

enabling the smaller company to make more beer and sell more to its brand-loyal customers. It is not uncommon for the acquiring company's shareholders to sell their shares and push the price lower in response to the company paying too much for the target company. Growth: Mergers can give the acquiring company an opportunity to grow market share without having to really earn it by doing the work themselves . 2. a beer company may choose to buy out a smaller competing brewery. 4. Increase Supply-Chain Pricing Power: By buying out one of its suppliers or one of the distributors.. A company that merges to diversify may acquire another company in a seemingly unrelated industry in order to reduce the impact of a particular industry's performance on its profitability.1. this is known as a vertical merger. 5. Companies seeking to sharpen focus often merge with companies that have deeper market penetration in a key area of operations. The downside of this is that a large premium is usually required to convince the target company's shareholders to accept the offer. it may be able to ship its products at a lower cost.. to eliminate a competitor that may merge with another competitor and so they can stop racing to the bottom on pricing due to competition with each other 2. these are called horizontal mergers. So that the top 10 stockholders in the co can make a killing as well as the few bankers and insiders on the deal. Usually. . they buy a competitor's business for a price. If a company buys out a distributor. it is able to save on the margins that the supplier was previously adding to its costs.instead. If a company buys out one of its suppliers. a business can eliminate a level of costs. Eliminate Competition: Many M&A deals allow the acquirer to eliminate future competition and gain a larger market share in its product's market. For example. 3. Diversification / Sharpening Business Focus: These two conflicting goals have been used to describe thousands of M&A transactions.

You're Reading a Free Preview

/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->