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MBA-101: Business Environment Answer any three questions. Each question carries 10 marks each: Q.

1 Explain the internal and external elements of environment effecting business. Ans : Introduction to Business Environment The formula for business success requires two elements - the individual and the environment. Remove either value and success becomes impossible. Business environment consist of all those factors that have a bearing on the business. The term 'business environment implies those external forces, factors and institutions that are beyond the control of individual business organisations and their management and affect the business enterprise. It implies all external forces within which a business enterprise operates. Business environment influence the functioning of the business system. Thus, business environment may be defined as all those conditions and forces which are external to the business and are beyond the individual business unit, but it operates within it. These forces are customer, creditors, competitors, government, socio-cultural organisations, political parties national and international organisations etc. some of those forces affect the business directly which some others have indirect effect on the business. Features of business environment • Totality of external forces: Business environment is the sum total of all things external to business firms and, as such, is aggregative in nature. • Specific and general forces: Business environment includes both specific and general forces. Specific forces affect individual enterprises directly and immediately in their dayto-day working. General forces have impact on all business enterprises and thus may affect an individual firm only indirectly. • Dynamic nature: Business environment is dynamic in that it keeps on changing whether in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market. • Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings, especially when environment changes are taking place too frequently as in the case of information technology or fashion industries. • Relativity: Business environment is a relative concept since it differs from country to country and even region to region. Political conditions in the USA, for instance, differ from those in China or Pakistan. Similarly, demand for sarees may be fairly high in India whereas it may be almost non-existent in France. TYPES OF ENVIRONMENT On the basis of the extent of intimacy with the firm , the environmental factors may be classified into different types-internal and external. INTERNAL ENVIRONMENT The internal environment is the environment that has a direct impact on the business. Here there are some internal factors which are generally controllable because the company has control over these factors. It can alter or modify such factors as its personnel, physical facilities, and organization and functional means, like marketing, to suit the environment.

The important internal factors which have a bearing on the strategy and other decisions of internal organization are discussed below. Value system The value system of the founders and those at the helm of affairs has important bearing on the choice of business, the mission and the objectives of the organization, business policies and practices. Mission and vision and objectives Vision means the ability to think about the future with imagination and wisdom. Vision is an important factor in achieving the objectives of the organization. The mission is the medium through which the objectives are achieved. Management structure and nature The structure of the organization also influences the business decisions. The organizational structure like the composition of board of directors , influences the decisions of business as they are internal factors . The structure and style of the organization may delay a decision making or some other helps in making quick decisions. Internal power relationships The relationship among the three levels of the organization also influences on the business. The mutual co-ordination among those three is a an important need for a business. The relationship among the people working in the three levels of the organization should be cordial. Human resource The human resource is the important factor for any organization as it contributes to the strength and weakness of any organization . the human resource in any organization must have characteristics like skills, quality, high morale, commitment towards the work , attitude, etc. T he involvement and initiative of the people in an organization at different levels may vary from organization to organization. The organizational culture and overall environment have bearing on them. Company image and brand equity The image of the company in the outside market has the impact on the internal environment of the company. It helps in raising the finance , making joint ventures , other alliances, expansions and acquisitions , entering sale and purchase contracts , launching new products, etc. Brand equity also helps the company in same way.


It refers to the environment that has an indirect influence on the business. The factors are uncontrollable by the business. There are two types of external environment. Micro Environment The micro environment is also known as the task environment and operating environment because the micro environmental forces have a direct bearing on the operations of the firm. “The micro environment consist of the actors in the company’s immediate environment that affect the performance of the company. These include the suppliers, marketing intermediaries, competitors, customers and the public” The micro environmental factors are more intimately linked with the company than the macro factors. The micro forces need not necessarily affect all the firms in a particular industry in the same way. Some of the micro factors may be particular to a firm. When the competing firms in an industry have the same micro elements, the relative success of the firms depends on their relative effectiveness in dealing with these elements Suppliers An important force in the micro environment of a company is the suppliers, i.e., those who supply the inputs like raw materials and components to the company. The importance of reliable source/sources of supply to the smooth functioning of the business is obvious. Customer The major task of a business is to create and sustain customers. A business exists only because of its customers. The choice of customer segments should be made by considering a number of factors including the relative profitability, dependability, stability of demand, growth prospects and the extent of competition.Competition not only include the other firms that produce same product but also those firms which compete for the income of the consumers the competition here among these products may be said as desire competition as the primary task here is to fulfill the desire of the customers. The competition that satisfies a particular category desire then it is called generic competition.. Marketing Intermediaries The marketing intermediaries include middlemen such as agents and merchants that help the company find customers or close sales with them. The marketing intermediaries are vital links between the company and the final consumers . Financiers The financiers are also important factors of internal environment. Along with financing capabilities of the company their policies and strategies, attitudes towards risk , ability to provide non-financial assistance etc. are very important. Public Public can be said as any group that has an actual or potentialinterest in or on an organization’s ability to achieve its interest. Public include media and citizens. Growth of consumer public is an important development affecting business.

Macro Environment

Privatization and Globalization (LPG model) aimed at making the Indian economy as fastest growing economy and globally competitive. Technological environment influences the business in terms of investment in technology. The series of reforms undertaken with respect to industrial sector. Legal Environment Legal environment includes flexibility and adaptability of law and other legal rules governing the business. Sociological factors such as costs structure. Some of the macro environment factors are discussed below: Economic Environment Economic environment refers to the aggregate of the nature of economic system of the country. have far-reaching impact on the business. ideology of government or party in power. consistent application of technology and the effects of technology on markets. The technology adopted by the industries determines the type and quality of goods and services to be produced and the type and quality of plant and equipment to be used.This era of reforms has also ushered in a remarkable change in the Indian . 2 Explain the impact of Globalization. Technical Environment The business in a country is greatly influenced by the technological development. trade as well as financial sector aimed at making the economy more efficient. When the macro factors become uncontrollable . The new economic reform. Social Environment The social dimension or environment of a nation determines the value system of the society which. work groups etc. With the onset of reforms to liberalize the Indian economy in July of 1991. The political environment of the country influences the business to a great extent. nature and extent of bureaucracy influence of primary groups etc. in turn affects the functioning of the business. Privatization & Liberalization on Indian economy.Macro environment is also known as General environment and remote environment. . These factors determine the work culture and mobility of labour. Political Environment The political environment of a country is influenced by the political organisations such as philosophy of political parties. Ans : Indian economy had experienced major policy changes in early 1990s. Besides. Liberalization. This period of economic transition has had a tremendous impact on the overall economic development of almost all major sectors of the economy. it also marks the advent of the real integration of the Indian economy into the global economy. anticipating prospective market situations and makes suitable to get the maximum with minimize cost. It may include the exact rulings and decision of the courts. the socio-economic infrastructure etc. business cycles. The successful businessman visualizes the external factors affecting the business. mobility of labour etc. and its effects over the last decade can hardly be overlooked. Macro factors are generally more uncontrollable than micro environment factors. customs and conventions. the success of company depends upon its adaptability to the environment. popularly known as. Q. a new chapter has dawned for India and her billion plus population. These affect the business and its managers to a great extent.

At the same time. Three of the fastest growing developing economies today." And also “Reduction of tariffs and/or removal of non-tariff barriers. in order to remain globally competitive. etc. The term “Liberalization” stands for “the act of making less strict”. as it deviates from the traditional values held since Independence in 1947. which stagnated around 3. with aspirations of elevating herself from her present desolate position in the world. selfperpetuating bureaucracy that still exists throughout much of the country" and corruption flourished under this system. Pakistan grew by 5%. IMPACT OF LIBERALISATION ON INDIAN ECONOMY The low annual growth rate of the economy of India before 1980. resulted in the isolation. less restriction on both domestic and foreign capital.mindset. have pursued the path of economic liberalization: partial or full privatization of government institutions and assets. Indonesia by 9%. Thailand by 9%. open markets. while per capital income averaged 1. This. despite the fact that India has always had the potential to be on the fast track to prosperity.Now that India is in the process of restructuring her economy. power and communications. License Raj established the "irresponsible. South Korea by 10% and in Taiwan by 12%. slow to complain. which mainly due to the inward looking restrictive form of governance.Liberalization in Economy stands for “The process of making policies less constraining of economic activity. amongst a host of other problems. such as self reliance and socialistic policies of economic development. economic liberalization refers more to liberalization or further "opening up" of their respective economies to foreign capital and investments. overall backwardness and inefficiency of the economy. Financial Liberalization PRIVITISATION The term “Privatization” refers to “The transfer of ownership of property or businesses from a government to a privately owned entity.”Economic liberalization is a very broad term that usually refers to fewer government regulations and restrictions in the economy in exchange for greater participation of private entities. The arguments for economic liberalization include greater efficiency and effectiveness that would translate to a "bigger pie" for everybody.”The transition from a publicly traded and . A huge public sector emerged.3%. License owners built up huge powerful empires. Brazil. lower tax rates for businesses. State-owned enterprises made large losses. have achieved rapid economic growth in the past several years or decades after they have "liberalized" their economies to foreign capital.5% from 1950s to 1980s. Only four or five licenses would be given for steel. And having witnessed the positive role that Foreign Direct Investment (FDI) has played in the rapid economic growth of most of the Southeast Asian countries and most notably China. Most first world countries. The task of modern governments is to ensure that our countries can rise to this challenge. China and India. British Prime Minister Tony Blair wrote that: "Success will go to those companies and countries which are swift to adapt. open and willing to change. India has embarked on an ambitious plan to emulate the successes of her neighbors to the east and is trying to sell herself as a safe and profitable destination for FDI. greater labor-market flexibility. Infrastructure investment was poor because of the public sector monopoly. the need to speed up her economic development is even more imperative.I n developing countries. the doctrine is associated with neo-liberalism.

 Since the system becomes more transparent. In recent years. manufacturing or power generation. When a publicly traded company becomes private. which its supporters argue will give the public greater choice at a competitive price. such as mining. along with business deregulation and an overall movement toward greater use of markets.owned company to a company which is privately owned and no longer trades publicly on a stock exchange. investors can no longer purchase a stake in that company.  Gets rid of employment inconsistencies like free loaders. and education have been particularly targeted for privatization in many countries.  Gets rid of employment inconsistencies like free loaders. such as land. or production activities to private ownership.” Privatization is frequently associated with industrial or service-oriented enterprises. sanitation.   Reduce the government's financial and administrative burden. Development of the general budget resources and diversifying sources of income. properties.  Private firms are less tolerant towards capitulations and appendages in government departments and hence tend to right size the human resource potential befitting the organization's needs and may cause resistance and disgruntled employees who are accustomed to the benefits as government functionaries   Permit the private sector to contribute to economic development.”The process of converting or "selling off" government-owned assets. Conversely. socialists view privatization negatively. or even rights to water. government services such as health. arguing that entrusting private businesses with control of essential services reduces the public's control over them and leads to excessive cost cutting in order to achieve profit and a resulting poor quality service. After several decades of increasing government control over productive activities.” Impact Of Privatization On Indian Economy  It frees the resources for a more productive utilization.”Privatization helps establish a "free market". privatization came into vogue in the 1980s. GLOBALISATION .  Private concerns tend to be profit oriented and transparent in their functioning as private owners are always oriented towards making profits and get rid of sacred cows and hitches in conventional bureaucratic management. as well as fostering capitalist competition. but it can also apply to any asset. Effectively minimizes corruption and optimizes output and functions. or over employed departments reducing the strain on resources. or over employed departments reducing the strain on resources. all underlying corruptions are minimized and owners have a free reign and incentive for profit maximization so they tend to get rid of all free loaders and vices that are inherent in government functions. roads.

e. and trade. Privatization and Globalization launched by the then Finance Minister Man Mohan Singh that India saw its development in various sectors. societies. The salient features of NEP-1991 are (i) liberalization (internal and external).” Globalization generally means integrating economy of our nation with the world economy. (iv) globalization of economy. (iii) redirecting scarce Public Sector Resources to Areas where the private sector is unlikely to enter. Devaluation: To solve the balance of payment problem Indian currency were devaluated by 18 to 19%. capital flows. and (v) market friendly state. Disinvestment: To make the LPG model smooth many of the public sectors were sold to the private sector. Health sector and many others. Advent of New Economic Policy After suffering a huge financial and economic crisis Dr. Consequences of Globalization: The implications of globalisation for a national economy are many. It also heralded the integration of the Indian economy into the global economy. and the spread of technology. foreign direct investment.globalization (or globalization) describes a process by which regional economies. The term is sometimes used to refer specifically to economic globalization: the integration of national economies into the international economy through trade. and pricing & institutional reforms. monetary & financial policies.1991 as it was a measure to come out of the crisis that was going on at that time. Allowing Foreign Direct Investment (FDI): FDI was allowed in a wide range of sectors such as Insurance (26%). and cultures have become integrated through a global network of communication. Globalization as a spatial integration in the sphere of social relations when he said “Globalization can be defined as the intensification of worldwide social relations which link distant locations in such a way that local happenings are shaped by events occurring many miles away and vice – versa. NRI Scheme: The facilities which were available to foreign investors were also given to NRI's. The Indian economy was in major crisis in 1991 when foreign currency reserves went down to $1 billion. Globalization had its impact on various sectors including Agricultural. The New Economic Policy (NEP-1991) introduced changes in the areas of trade policies. Industrial. Globalisation has . 4. Man Mohan Singh brought a new policy which is known as Liberalization. defense industries (26%) etc. 2. fiscal & budgetary policies. Privatization and Globalization Policy (LPG Policy) also known as New Economic Policy. It was only after the LPG policy i. The following measures were taken to liberalize and globalize the economy: 1. Liberalization. (ii) extending privatization. Financial. The economic changes initiated have had a dramatic effect on the overall growth of the economy. transportation. 3. migration.

intensified interdependence and competition between economies in the world market. This is reflected in Interdependence in regard to trading in goods and services and in movement of capital. As a result domestic economic developments are not determined entirely by domestic policies and market conditions. Rather, they are influenced by both domestic and international policies and economic conditions. It is thus clear that a globalising economy, while formulating and evaluating its domestic policy cannot afford to ignore the possible actions and reactions of policies and developments in the rest of the world. This constrained the policy option available to the government which implies loss of policy autonomy to some extent, in decision-making at the national level. Now for Further analysis we take up Impact of Globalization on various sector of Indian Economy. Impact of Globalization on Agricultural Sector: Agricultural Sector is the mainstay of the rural Indian economy around which socioeconomic privileges and deprivations revolve and any change in its structure is likely to have a corresponding impact on the existing pattern of Social equity. The liberalization of India’s economy was adopted by India in 1991. Facing a severe economic crisis, India approached the IMF for a loan, and the IMF granted what is called a ‘structural adjustment’ loan, which is a loan with certain conditions attached which relate to a structural change in the economy. Essentially, the reforms sought to gradually phase out government control of the market (liberalization), privatize public sector organizations (privatization), and reduce export subsidies and import barriers to enable free trade (globalization). Globalization has helped in: •Raising living standards, • Alleviating poverty, • Assuring food security, • Generating buoyant market for expansion of industry and services, and • Making substantial contribution to the national economic growth. Impact of Globalization on Industrial Sector: Effects of Globalization on Indian Industry started when the government opened the country's markets to foreign investments in the early 1990s. Globalization of the Indian Industry took place in its various sectors such as steel, pharmaceutical, petroleum, chemical, textile, cement, retail, and BPO. Globalization means the dismantling of trade barriers between nations and the integration of the nations economies through financial flow, trade in goods and services, and corporate investments between nations. Globalization has increased across the world in recent years due to the fast progress that has been made in the field of technology especially in communications and transport. The government of India made changes in its economic policy in 1991 by which it allowed direct foreign investments in the country. The benefits of the effects of globalization in the Indian Industry are that many foreign companies set up industries in India, especially in the pharmaceutical, BPO, petroleum, manufacturing, and chemical sectors and this helped to provide employment to many people in the country. This helped reduce the level of unemployment and poverty in the

country. Also the benefit of the Effects of Globalization on Indian Industry are that the foreign companies brought in highly advanced technology with them and this helped to make the Indian Industry more technologically advanced. The negative Effects of Globalization on Indian Industry are that with the coming of technology the number of labor required decreased and this resulted in many people being removed from their jobs. This happened mainly in the pharmaceutical, chemical, manufacturing, and cement industries. Impact on Financial Sector: Reforms of the financial sector constitute the most important component of India’s programme towards economic liberalization. The recent economic liberalization measures have opened the door to foreign competitors to enter into our domestic market. Innovation has become a must for survival. Financial intermediaries have come out of their traditional approach and they are ready to assume more credit risks. As a consequence, many innovations have taken place in the global financial sectors which have its own impact on the domestic sector also. The emergences of various financial institutions and regulatory bodies have transformed the financial services sector from being a conservative industry to a very dynamic one. In this process this sector is facing a number of challenges. In this changed context, the financial services industry in India has to play a very positive and dynamic role in the years to come by offering many innovative products to suit the varied requirements of the millions of prospective investors spread throughout the country. Reforms of the financial sector constitute the most important component of India’s programme towards economic liberalization. Growth in financial services (comprising banking, insurance, real estate and business services), after dipping to 5.6% in 2003-04 bounced back to 8.7% in 2004-05 and 10.9% in 2005-06. The momentum has been maintained with a growth of 11.1% in 2006-07. Because of Globalization, the financial services industry is in a period of transition. Market shifts, competition, and technological developments are ushering in unprecedented changes in the global financial services industry. Impact on Export and Import: India's Export and Import in the year 2001-02 was to the extent of 32,572 and 38,362 million respectively. Many Indian companies have started becoming respectable players in the International scene. Agriculture exports account for about 13 to 18% of total annual of annual export of the country. In 2000-01 Agricultural products valued at more than US $ 6million were exported from the country 23% of which was contributed by the marine products alone. Marine products in recent years have emerged as the single largest contributor to the total agricultural export from the country accounting for over one fifth of the total agricultural exports. Cereals (mostly basmati rice and non-basmati rice), oil seeds, tea and coffee are the other prominent products each of which accounts fro nearly 5 to 10% of the countries total agricultural exports.

Q. 3Explain the importance Small Scale Industries. Explain the problems faced by these industries and give suggestion to remove these problems. IMPORTANCE OF SMALL SCALE INDUSTRIES Small-scale industries play an important role in industrial development of a country. It is all the more important in case of developing countries like India. The socio-economic transformation of India cannot be achieved without the development of small-scale industries. It has been estimated that the small-scale industries contribute about 47 per cent of gross value of output manufactured in the country. Their importance can be further highlighted by noting that SSIs provided nearly five times the employment as compared to the large-scale sector. SSI is an important segment of the economy contributing substantially in the form of production, employment and export. Let us now discuss the various advantages of small-scale industries to highlight the importance of this sector. The main advantages are as follows: 1. Generation of Employment: The small-scale industries are labour intensive i.e. the ratio of labour to investment is very high in their case. A given amount of capital invested in a small-scale industry provided more employment than the same amount of capital invested in a large-scale industry. Since capital is scarce and labour abundant in India, the generation of employment is the advantage that can be put forward for the support of small-scale industries in India. Moreover, these industries can be set-up at the very doorstep of workers and, thereby, provide work for the unemployed, more work for the underemployed and supplementary work for the seasonally unemployed workers. 2. Self Employment: The small-scale industries offer almost limitless opportunities for self employment and hence are particularly suited to a developing country like India where there is a big problem of unemployment and underemployment. 3. Lesser Capital Requirement: Another advantage of small-scale industries is that they need relatively lesser amount of capital than that required by large-scale industries. As capital is very scarce in an underdeveloped country like India, it may be used to greater advantage in small-scale sector. 4. Mobilisation of Capital: Small-scale industries not only make economies in the use of capital but also mobilise capital that would not otherwise have come into existence. Largescale industries cannot mobilise the savings from rural areas, while this task can be effectively accomplished by setting up a network of small-scale industries in such areas. 5. Mobilisation of Entrepreneurial Skill: Another advantage of small-scale industries is the lesser requirement of skill and expertise, which is also scarce in a developing country like India. Further, large-scale industries cannot utilise a number of entrepreneurs who are spread over small towns and villages of the country. On the other hand, small-scale industries can effectively mobilise such entrepreneurial skills. 6. Equitable Distribution of Income: Small-scale industries secure a more equitable distribution of income and wealth. They are particularly suitable for the fulfillment of the objective of social justice. This is ensured because the ownership of small-scale industries is more widespread and they offer a much longer employment potential as compared to the large-scale industries. The development of large-scale industries tends to concentrate large incomes and wealth in a few hands. 7. Balanced Regional Development: Small-scale industries utilise local resources, bring about dispersion of industries and promote balanced regional development. The growth of large-scale industries on the other hand have a tendency towards concentration of industries at a few places leading to many evil consequences such as overcrowding, pollution, creation of slums, etc. Concentration of industries at a few places is undesirable

A detailed feasibility study or detailed project report is highly essential for small entrepreneurs to start their units. They should also try to give a lead. etc. etc. Study suggests that very few small entrepreneurs launch their operations on the basis of a careful plan. 5. Thus. State Technical Consultancy Organisations are engaged in provision of these facilities. Government should also intervene from time to time in arranging cheaper imports of raw materials for them. if possible financially. Saving in Foreign Exchange: Another advantages of the small-scale industries are the savings they offer in the scarce foreign exchange resources of the country. They should also believe in continuous innovation and then they can remain in their business. power arrangement. are necessary for the smooth functioning of SSIs. Without proper planning. Adequate Credit Arrangement: For SSIs. smallscale industries do not require much foreign exchange resources for their SSIs are holding a very important place in the industrial system of the country. priority sector lending scheme should be made more broad-based and credit limits is to be enhanced. These remedial measures are as follows: 1. 4. Small Industries Associations should also involve themselves in providing knowledge and skills required for them in the changing environment. Small Industries Corporation.from the point of view of national defence also. traditional sources of financing offer little scope for expansion and alternative means like venture capital are yet to be developed for them. Regular Supply of Raw Materials: Small Industries Development Corporations and other canalising agencies responsible for the supply of raw materials to small scale sector should take necessary action to maintain a continuous but proper supply of raw material to SSIs. SIDBI has formulated guidelines for venture capital and there is hope for better finance facility for this sector. under estimation of costs. Besides. suitable measures are necessary to remove these bottlenecks in the optimum operation of SSIs. 2. They have to arrange viable and modern techniques of production to them. Firstly. Besides SSIs should keep themselves in touch with development in technology. 3. So SSIs are required to initiate effective action plan for their survival. improper technology. State Development Corporation. Development of industrial estates has solved this problem to a certain extent but efforts are needed to develop more industrial estates to accommodate more small units. But their support system needs further improvement. Expenditure on training and development activities should be treated as an investment. water supply. as they are unable to expend money on this count. Effective Planning: SSIs are required to conduct detailed survey of the existing situations prevailing in small-scale sector and draw productive programmes for them. Training and Development: SSIs should make concerted efforts in imparting proper education and training to workers engaged in this sector as they are valuable asset of industry. 6. there is a greater risk of destroying different industries concentrated at one place. 8. The SSIs depend more on . Improvement in Techniques of Production and Proper Technology: SSIs should try to improve their techniques of product and adopt modern technology. in research and development efforts. inexperienced consultancy services. as during war times. they may be affected by improper location. For this purpose effective motivation and reward system is highly desirable. They should also ensure that bogus firms are to be excluded from this type of support. Workers should be encouraged to innovate themselves in the production process as it would enable the SSI’s to compete with their medium and large scale counterparts. Government consultancy organisations and laboratories have an important role to play in this context. Provision of Infrastructural Facilities: Development finance.

10. 8. So SIDBI should try to bring transparency and effectiveness in its functioning. Effective Marketing Arrangements: SSIs should focus on brand. So similar strategies should be adopted by the small industries associations to protect their members interest with the Government establishment and secondly. if small-scale industries manufacture and supply their small parts and semifinished goods required by them. efforts should be made to maintain standards and quality of the output then they will get positive support from their potential customers. SSIs have different typical problems and that have to overcome by taking offensive strategies. Development of Suitable Machinery: SSIs should try to develop separate suitable machineries for taking initiative with regard to problem faced by them. Associations like FICCI. They should also involve themselves in focusing attention on the problems being faced by their members through seminar. Assocham and CII are more powerful in maintaining their relations with the Government. These quick investment type of industries are particularly suitable for developing countries like India. small-scale industries are a must for the development of large-scale industries. The SIDBI is trying to provide these facilities but intermediaries involved in the system are creating problems for them. 9.their own funds and loaned fund from non-banking sector as they are unable to get proper support from banks and other funding agencies. They should try to remain in the market and special trust should be given on quality improvement programme. However. SSIs Association should be offensive and objectively clear in their goals in pleading their cases with the Government. conferences etc. Infact. 7. The reason is they have brands. Beneficial to large-scale industries: Large-scale industries can also prosper and develop. Products at low costs and passing on the benefits to consumers would go in long way to improve their marketing performance. product and market development. The large companies earn handsome profits from marketing the products of small units by charging a much higher price from the customers. Quick Investment: The time lag between the execution of investment project and the start of production of goods is relatively short in case of small-scale industries. . This strategy will benefit them in the long run. these industries can contribute to the foreign exchange resources of the country through adding to exports. So SSIs should try to popularise their products in the market which will provide them separate product and brand identity.

is likely to be the most fundamental determinant of demand. people probably care about how much an item costs when deciding how much to purchase. then the quantity demanded goes down when income increases and goes up when income decreases. if a person were to win the lottery. For example. Economists categorize items as normal goods or inferior goods on exactly this basis. that's a more complicated question than it might initially seem. (Determinants of demand. There are two things to note about normal and inferior goods: . in many cases.) Income People certainly look at their incomes when deciding how much of an item to buy. the quantity demanded of an item decreases when the price increases and vice versa. but the relationship between income and demand isn't as straightforward as one might think. all else being equal. private jet rides are a normal good and subway rides are an inferior good. but they are few and far between.depends on a number of different factors.MBA-103: Managerial Economics Answer any three questions. Explain demand analysis. Do people buy more or less of an item when their incomes increase? As it turns out. he would likely take more rides on private jets than he did before. and the quantity demanded goes down when income decreases. If a good is a normal good. Economists break down the determinants of an individual's demand into five categories: • • • • • Price Income Prices of Related Goods Tastes Expectations Price Price. since it's often the first thing that people think about when deciding how much of an item to buy. For example. In our example. ready and able to purchase. If a good is an inferior good. Law of demand & Elasticity of Demand) Economic demandHow much of an item one is willing. On the other hand. (There are some exceptions to this rule. The vast majority of goods and services obey what economists call the law of demandthat. They might also consider how much money they make when making purchasing decisions. Each question carries 10 marks each: Q1. then the quantity demanded goes up when income increases. the lottery winner would probably take fewer rides on the subway than before.

decreases in the prices of video game consoles serves in part to increase demand for video games. as are computers and high-speed internet access. Complementary goods. a good is normal if market demand increases when income increases. The key feature of substitutes and complements is the fact that a change in price of one of the goods has an impact on the demand for the other good.) • Goods that don't have either the substitute or complement relationship are called unrelated goods. for the people in that market.for example. • It's possible for a good to be neither normal nor inferior. In this sense. on average. and so on. gasoline is a complement to even fuel-efficient cars. consumers demand more of an item today if they expect the price to increase increase in the future. people take into account the prices of both substitute goods and complementary goods. and a good is inferior if market demand decreases when average income increases. substitute one for the other. For an overall market. (For example. EXPECTATION Today's demand can also depend on consumers' expectations of future prices. • TASTES How much of a particular good or service also depends on an individual's taste for the item. In general. and vice versa. or substitutes. an increase in the price of one of the goods will increase demand for the substitute good. Not surprisingly. a decrease in the price of one of the goods will increase demand for the complementary good. people who expect their incomes to increase in the future will often increase their consumption today Although not a determinant of individual demand. and market demand decreases when the number of buyers decreases. an increase in the price of one of the goods will decrease demand for the complementary good. economists use the term "tastes" as a catchall category for consumers' attitude towards a product. prices of related goods. incomes. or complements. are goods that people tend to use together. the number of buyers in a market is clearly an important factor in calculating market demand. In addition. • For complements.for example. Coke and Pepsi are substitutes because people tend to. well. and vice versa. Similarly. it's quite possible that the demand for toilet paper neither increases nor decreases when income changes! • Then deciding how much of a good they want to purchase. on the other hand. but a fuel-efficient car is a substitute for gasoline to some degree. if consumers' tastes for a good or service increase. Substitute goods. sometimes goods can have both a substitute and a complement relationship to some degree. are goods that are used in place of one another. . For substitutes.) It's also the case that a decrease in the price of one of the goods will decrease demand for the substitute good. For example. DVD players and DVDs are examples of complements. (It's probably not surprising that an increase in the price of Coke would increase the demand for Pepsi as some consumers switch over from Coke to Pepsi. For example. Conversely.Price of related goods What is a normal good for one person may be an inferior good for another person. market demand increases when the number of buyers increases. then their quantity demanded increases.

Demand Schedule A table representing the quantity intended to purchase a good at a certain price level. There are instances where the demand for an item changes at the same price level this is caused mainly by the average income of the consumer or the available disposable resource. it drives away all those good bargain hunters and cheap people if it got into a price level expensive enough for them. but if the price is more than the usual he would have to face a decision whether to still buy 10 sodas using all his available money sacrificing the chips. Individuals who have just enough cash to buy it would no longer intend to purchase the good when the price increased due to worries that they might run out of cash before payday arrives.50 cents per soda he could get 10 sodas for $5 enough for his entire crew. These are assumptions about the buyer's sentiment towards the number of intended purchases at different prices for instance. This is called the shift in demand. Demand Curve This is a graphic representation of buyer's sentiment towards a change in price. Changes in the demand curve are caused by events such as taxes which increases the price a little bit therefore decreasing total demand. This is like drawing how the demand schedule looks like when converted to an image. .Law of demand The law of demand states that when prices of goods and services rises the quantity demanded falls because first of all. It plots the degree of relationship between the price of the good and the number of items demanded at that price level. he's got $10 and he intends to buy 10 sodas and 2 chips with that money. At $0.

only began in the 1930s. In particular. Market value In order to count a good or service it is necessary to assign some value to it. The impetus for that major statistical effort was the Great Depression and the rise of Keynesian economics. The actual usefulness of a product (its use-value) is not measured – assuming the use-value to be any different from its market value. The total output . As the price of a normal good increases. Explain the methods of calculating National Income Arriving at a figure for the total production of goods and services in a large region like a country entails a large amount of data-collection and calculation. It has also been suggested that gasoline may be an example of a modern day "Giffen good". which prescribed a greater role for the government in managing an economy. [2] the systematic keeping of national accounts. and made it necessary for governments to obtain accurate information so that their interventions into the economy could proceed as well-informed as possible. in the United States and some European countries. "Giffen goods" are extremely rare but one popular historical example of this phenomenon is potato during the Irish potato famine in the mid 19th century. With "Giffen goods".The law of demand states that there is a direct relationship between the price of a good and the demand for it. Explain National Income. An example is butter. which can be substituted for margarine when the price of butter increases. However there are certain goods that defy this general rule. and the income method. This is a general rule that applies to most goods called normal goods. The product method looks at the economy on an industry-by-industry basis. the expenditure method. people generally buy more of a good when the price is low and less of it when the price is high. The value that the measures of national income and output assign to a good or service is its market value – the price it fetches when bought or sold. of which these figures are a part. people buy less of it because they are usually able to switch to cheaper goods. Three strategies have been used to obtain the market values of all the goods and services produced: the product (or output) method. Although some attempts were made to estimate national incomes as long ago as the 17th century. One such category of goods is called "Giffen goods". there are no cheap substitutes and these goods are so important to the livelihood of the consumer that he devotes overwhelmingly more of his income towards its purchase when the price increases. Q2.

• All remaining value added generated by firms is called the residual or profit. • Interest received net of interest paid. The expenditure method is based on the idea that all products are bought by somebody or some organisation. then $30 from the butchers. $100. not the sum of all those numbers. This amount must equal the value of everything produced. The value that should be included in final national output should be $60. to avoid counting the item twice we use not the value output by each industry. Therefore we sum up the total amount of money people and organisations spend in buying things. The values added at each stage of production over the previous stage are respectively $10. since an output of one industry may be used by another industry and become part of the output of that second industry. only the final value of a good or service is included in total output. a correction term must be introduced to account for imports and exports outside the boundary. the difference between the value of what it puts out and what it takes in. Since what they are paid is just the market value of their product. • Royalties paid for the use of intellectual property and extractable natural resources. The main types of factor income are: Employee compensation (cost of fringe benefits. Also. • Rental income (mainly for the use of real estate) net of expenses of landlords.intermediate consumption NNP at factor cost = GDP at market price . In the example of meat production. The output approach The output approach focuses on finding the total output of a nation by directly finding the total value of all goods and services a nation produces. including unemployment. Formulae: GDP(gross domestic product) at market price = value of output in an economy in a particular year . Wages. some of which they receive as dividends. and expenditures by government are calculated separately and then summed to give the total expenditure. However. Profit includes . and then $60 from the supermarket. expenditures by businesses. and corporate profits are the major subdivisions of income. This avoids an issue often called 'double counting'. health. Usually expenditures by private individuals. The income method works by summing the incomes of all producers within the boundary. that is. and $30. the value of the good from the farm may be $10. by counting it repeatedly in several stages of production. If a firm has stockholders. proprieter's incomes. The total value produced by the economy is the sum of the values-added by every industry. they own the residual.depreciation + NFIA (net factor income from abroad) . $20. wherein the total value of a good is included several times in national indirect taxes The income approach The income approach equates the total output of a nation to the total factor income received by residents or citizens of the nation. Because of the complication of the multiple stages in the production of a good or service.of the economy is the sum of the outputs of every industry. and retirement benefits). Their sum gives an alternative way of calculating the value of final output. their total income must be the total value of the product. but the value-added.

which stands Q3.the businessman who combines factor inputs to produce a good or service. allowing free long term adjustments to changing market conditions.Buyers and sellers do not incur costs in making an exchange of goods in a perfectly competitive market.the income of the entrepreneur . the total value of all goods is equal to the total amount of money spent on goods. Explain the price and output determination under this markets.Firms are assumed to sell where marginal costs meet marginal revenue.M) is often written as XN. where the most profit is generated. This is acceptable. a perfectly competitive market exists when every participant is a "price taker". Generally. • Perfect information . Explain Perfect Competition Market.The qualities and characteristics of a market good or service do not vary between different suppliers.All consumers and producers are assumed to have perfect knowledge of price. and then combines them to find the total output. Formulae: NDP at factor cost = Compensation of employees + Net interest + Rental & royalty income + Profit of incorporated and unincorporated NDP at factor cost The expenditure approach The expenditure approach is basically an output accounting method. • Zero transaction costs . utility. and no participant influences the price of the product it buys or sells. because like income. • Perfect factor mobility – In the long run factors of production are perfectly mobile. quality and production methods of products. • Homogenous products . Where: C = household consumption expenditures / I = gross private G= government consumption and X= gross exports of M = gross imports of goods and services Note: (X . and infinite producers with the willingness and ability to supply the product at a certain price. • personal consumption domestic gross investment goods and expenditures investment expenditures services . • Profit maximization . The basic formula for domestic output takes all the different areas in which money is spent within the region. Specific characteristics may include: Infinite buyers and sellers – An infinite number of consumers with the willingness and ability to buy the product at a certain price. It focuses on finding the total output of a nation by finding the total amount of money spent. • Zero entry and exit barriers – A lack of entry and exit barriers makes it extremely easy to enter or exit a perfectly competitive market.

Both approaches lead to the same result. perfectly competitive markets are both allocatively and productively efficient. In the long run. perfectly-competitive markets are not productively efficient as output will not occur where marginal cost is equal to average cost (MC=AC). "perfect" competition means that this adjustment takes place instantaneously. the more competitive a market.Non-increasing returns to scale . very specific conditions such as that of monopolistic competition. any profit-maximizing producer faces a market price equal to its marginal cost (P=MC). nor given equal weight. Besides product homogeneity and absence of collusion. This assumption of negligible impact of each agent on the equilibrium price has been formalized by Aumann (1964) by postulating a continuum of infinitesimal agents. This is also the reason why "a monopoly does not have a supply curve".Well defined property rights determine what may be sold. The difference between Aumann's approach and that found in undergraduate textbooks is that in the first. The second view of perfect competition conceives of it in terms of agents taking advantage of – and hence. which makes them believe that they can sell as much of the good as they wish at the equilibrium price but nothing at a higher price (in particular. Usually justified by the fact that any one firm or consumer is so small relative to the whole market that their presence or absence leaves the equilibrium price very nearly unaffected. The implication is that the more competitive a market is under this definition. firms are described as each one of them facing a horizontal demand curve). also widely accepted as part of the notion of perfectly competitive market are perfect information about price distribution and very quick adjustments (whose joint operation establish the law of one price).The lack of increasing returns to scale (or economies of scale) ensures that there will always be a sufficient number of firms in the industry. This is usually modeled via the use of the Walrasian auctioneer (see article for more information). In this view. as output will always occur where marginal cost is equal to marginal revenue (MC=MR). • In the short run. agents have the power to choose their own prices but do not individually affect the market price. eliminating – profitable exchange opportunities. This implies that a factor's price equals the factor's marginal revenue product. not all present. while in the second it is simply assumed that agents treat prices as parameters. as well as what rights are conferred on the buyer. It allows for derivation of the supply curve on which the neoclassical approach is based. The abandonment of price taking creates considerable difficulties for the demonstration of a general equilibrium except under other. Thus nowadays the dominant intuitive idea of the conditions justifying price taking and thus rendering a market perfectly competitive is an amalgam of several different notions. In perfect competition. to the point sometimes of identifying perfect . • Property rights . However. in all treatments. the faster the average market price will adjust so as to equate supply and demand (and also equate price to marginal costs). Maury Osborne as noting the inapplicability of such models to actual economies since money and the commodities sold each have a smallest positive unit. the notion more generally associated with perfect competition is the negligibility of the size of agents. They are allocatively efficient. The first emphasis is on the inability of any one agent to affect prices. Approaches and conditions In neoclassical economics there have been two strands of looking at what perfect competition is. The faster this arbitragetakes place.

In recent decades it has been rediscovered that free entry can be a foundation of absence of market power. Finally. the idea of free entry with free access to technology is also often listed as a characteristic of perfectly competitive markets. Sraffian economistssee the assumption of free entry and exit as characteristic of the theory of free competition in Classical economics. with the feeling of businessmen that "contrary to economic theory. Free entry also makes it easier to justify the absence of collusion: any collusion by existing firms can be undermined by entry of new firms. probably owing to a difficulty with abandoning completely the older conception of free competition. bringing down at the same time the price. sales are by no means unlimited at the current market price" (Arrow 1959 p. alternative to negligibility of agents. This situation is shown in this diagram. The necessarily long-period nature of the analysis (entry requires time!) also allows a reconciliation of the horizontal demand curve facing each firm according to the theory. it is possible for an individual firm to make an economic profit. denoted by P. The final outcome is that. the firm will make only normal profit (zero economic . is above the average cost denoted by C . in the long period. However.competition with an essentially instantaneous reaching of equilibrium between supply and demand. as the price or average revenue. economic profit cannot be sustained. Results In the short run. 49). an approach that is not expressed in terms of schedules of supply and demand. The arrival of new firms or expansion of existing firms (if returns to scale are constant) in the market causes the (horizontal) demand curve of each individual firm to shift downward. in the long run. the average revenue and marginal revenue curve.

is 1. Then p1=MU1. wj=piMPji. In real-world markets. if interpreted as applying also to short-period or very-short-period behaviour. Optimal factor employment by a price-taking firm requires equality of factor rental and factor marginal revenue product. and this means that factors are underutilized in the monopolized industry. so we obtain p1=MC1=wj/MPj1. Its horizontal demand curve will touch its average total cost curve at its lowest point.profit). p2=MCj2=wj/MPj2. no improvement in the utility of a consumer is possible without a worsening of the utility of some other consumer. As mentioned above. and let p 1 and p2be these goods' prices. assumptions such as perfect information cannot be verified and are only approximated in organized double-auction markets where most agents wait and observe the behaviour of prices before deciding to exchange (but in the long-period interpretation perfect information is not necessary. a firm's demand curve is perfectly elastic.e.) In a perfectly competitive market. MU1/p1=MU2/p2. this increase in utility through allocating the small increase in factor utilization to good 1 is MPj1MU1=MPj1p1=wj. and through the condition of cost minimization that marginal products must be proportional to factor 'prices' it can be shown that the cost increase is the same if the output increase is obtained by optimally varying all factors). Now choose any consumer purchasing both goods. In the absence of externalities and public goods. the perfect competition model. p2=MU2. because in a monopolized industry market price is above marginal cost. so the amount supplied of the factor too satisfies the condition of optimal allocation. and measure his utility in such units that in equilibrium his marginal utility of money (the increase in utility due to the last unit of money spent on each good). A simple proof assuming differentiable utility functions and production functions is the following. and the units of each factor are so allocated as to yield the same indirect marginal utility in all uses. (Seecost curve. and through allocating it to good 2 it is MPj2MU2=MPj2p2=wjagain. This is called the First Theorem of Welfare Economics. remember thatmarginal cost equals factor 'price' divided by factor marginal productivity (because increasing the production of good by one very small unit through an increase of the employment of factor j requires increasing the factor employment by 1/MPji and thus increasing the cost by wj/MPji. the analysis only aims at determining the average around which market prices gravitate. a Pareto improvement could be achieved by transferring a small amount of the factor to the use where it yields a higher marginal utility). and for gravitation to operate one does not need perfect information). perfectly competitive equilibria are Pareto-efficient. Let wj be the 'price' (the rental) of a certain factor j. is approximated only by markets of homogeneous products produced and purchased by very many sellers and buyers. a basic efficiency condition (if this indirect marginal utility were higher in one use than in other ones. let MP j1 and MPj2 be its marginal product in the production of goods 1 and 2. usually organized markets for agricultural products or raw materials. In equilibrium these prices must equal the respective marginal costs MC1 and MC2. The indirect marginal utility of the factor is the increase in the utility of our consumer achieved by an increase in the employment of the factor by one (very small) unit. The basic reason is that no productive factor with a non-zero marginal product is left unutilized. they have a higher indirect marginal utility than in their uses in . i. Monopoly violates this optimal allocation condition. With our choice of units the marginal utility of the amount of the factor consumed directly by the optimizing consumer is again w.

e. By shutting down a firm avoids all variable costs. Profit In contrast to a monopoly or oligopoly. the firm must still pay fixed costs.[10] The shutdown rule states "in the short run a firm should continue to operate if price exceeds average variable costs.[12] The rationale for the rule is straightforward. it is impossible for a firm in perfect competition to earn economic profit in the long run."[11] Restated.) On the other hand if VC > R then the firm is not even covering its production costs and it should immediately shut down. Profits in the classical meaning do not tend to disappear in the long period but tend to normal profit. which is to say that a firm cannot make any more money than is necessary to cover its economic costs. the rate of profit tending to coincide with the rate of interest. i.[14] Because fixed cost must be paid regardless of whether a firm operates they should not be considered in deciding whether to produce or shutdown. and normal salary for managerial activity.[9] The shutdown point In the short run. Of course this theorem is considered irrelevant by economists who do not believe that general equilibrium theory correctly predicts the functioning of market economies. The rule is .competitive industries. With this terminology. As other firms enter the market the market supply curve will shift out causing prices to fall. Existing firms will react to this lower price by adjusting their capital stock downward.[8] It is important to note that perfect competition is a sufficient condition for allocative and productive efficiency. Classical economists on the contrary defined profit as what is left after subtracting costs except interest and risk coverage. but it is given great importance by neoclassical economists and it is the theoretical reason given by them for combating monopolies and for antitrust legislation. In order not to misinterpret this zero-long-run-profits thesis. the neoclassical zerolong-run-profit thesis would be re-expressed in classical parlance as profits coinciding with interest in the long period. the net effect of entry by new firms and adjustment by existing firms will be to shift the supply curve outward. this will act as a trigger for other firms to enter the market. including normal interest on capital plus the normal excess over it required to cover risk.[13] However. Thus in determining whether to shut down a firm should compare total revenue to total variable costs (VC) rather than total costs (FC + VC). (The size of the fixed costs is irrelevant as it is a sunk cost. thus. a firm operating at a loss [R < TC (revenue less than total cost) or P < ATC (price less than unit cost)] must decide whether to continue to operate or temporarily shutdown. The same consideration is used whether fixed costs are one dollar or one million dollars. if a firm is earning abnormal profit in the short term. If the revenue the firm is receiving is greater than its total variable cost (R > VC) then the firm is covering all variable cost plus there is additional revenue ("contribution"). but it is not a necessary condition. if one leaves aside risk coverage for simplicity. Neoclassical theory defines profit as what is left of revenue after all costs have been subtracted. it must be remembered that the term 'profit' is also used in other ways. the rule is that for a firm to continue producing in the short run it must earn sufficient revenue to cover its variable costs.[7] However. which can be applied to fixed costs.[7] The market price will be driven down until all firms are earning normal profit only.[7] This adjustment will cause their marginal cost to shift to the left causing the market supply curve to shift inward. Laboratory experiments in which participants have significant price setting power and little or no information about their counterparts consistently produce efficient results given the proper trading institutions.

The firm should continue to operate if R − VC − FC ≥ −FC. In the long run. [20]] If market conditions improve. a stock exchangeresembles this. if R ≥ VC then firm should operate. the firm will have to earn sufficient revenue to cover all its expenses and must decide whether to continue in business or to leave the industry and pursue profits elsewhere. These comparisons will be made after the firm has made the necessary and feasible longterm adjustments. Shutting down is a short-run decision. However. The long-run decision is based on the relationship of the price and long-run average costs. By design. the firm cannot leave the industry or avoid its fixed costs in the short run.[22] Short-run supply curve The short run supply curve for a perfectly competitive firm is the marginal cost (MC) curve at and above the shutdown point. A decision to shut down means that the firm is temporarily suspending production. So the firm's profit equals fixed costs or −FC. Exit is a long-term decision. then the firm will exit the industry. which simplified is R ≥ VC. and variable costs. If R < VC the firm should shut down. VC. however. the firm can resume production. R. Portions of the marginal cost curve below the shut down point are not part of the SR supply curve because the firm is not producing in that range. If P ≥ AC then the firm will not exit the industry. The operating firm's profit is R − VC − FC. The rules are equivalent (If you divide both sides of inequality TR > TVC by Q gives P > AVC). a number of approximations exist: Perhaps the closest thing to a perfectly competitive market would be a large auction of identical goods with all potential buyers and sellers present. the firm still has to pay fixed cost. a firm cannot continue to incur losses indefinitely.[21] However. If the firm decides to operate. Thus. [18][19] The difference between revenue. Another way to state the rule is that a firm should compare the profits from operating to those realized if it shutdown and select the option that produces the greater profit.conventionally stated in terms of price (average revenue) and average variable costs.[23] Examples Though there is no actual perfectly competitive market in the real world.[17] An operating firm is generating revenue. and prices increase. A firm that has shut down is not producing. It does not mean that the firm is going out of business (exiting the industry). the firm will continue to produce where marginal revenue equals marginal costs because these conditions insure not only profit maximization (loss minimization) but also maximum contribution. not as a complete description (for no markets may satisfy all requirements of the model) but as an approximation. The firm still retains its capital assets.[15][16] A firm that is shutdown is generating zero revenue and incurring no variable costs. incurring variable costs and paying fixed costs. In the long run a firm operates where marginal revenue equals long-run marginal costs. is the contribution to fixed costs and any contribution is better than none. The flaw in considering the stock exchange as an example of Perfect Competition is the fact that large institutional . A firm that has exited an industry has avoided all commitments and freed all capital for use in more profitable enterprises. Technically the SR supply curve is a discontinuous function composed of the segment of the MC curve at and above minimum of the average variable cost curve and a segment that runs with the vertical axis from the origin to but not including a point "parallel" to minimum average variable costs. If P < AC.

investors (e. and so no one bookie can offer worse odds than those being offered by the market as a whole. with the only differences between individual bets being the pay-off and the horse. there are often numerous buyers and sellers of a given street food. Of course. Furthermore. This is so since relatively few barriers to entry/exit exist for street vendors. When placing bets. violates the condition that "no one seller can influence market price". in which little to no variations in the product's nature exist. and individuals are free to behave independently. Horse betting is also quite a close approximation. there are not an infinite amount of bookies. Anyone is free to enter and leave the market at no cost. of course. consumers can just look down the line to see who is offering the best odds. Free software works along lines that approximate perfect competition as well. Some believe[who?] that one of the prime examples of a perfectly competitive market anywhere in the world is street food in developing countries. Furthermore. since consumers will just go to another bookie.g. It is often the case that street vendors may serve a homogenous product. such as a license and the capital required to set up. in addition to consumers/sellers possessing perfect information of the product in question. Free software may be bought or sold at whatever price that the market may allow. Another very near example of perfect competition would be the fish market and the vegetable or fruit vendors who sell at the same place . All code is freely accessible and modifiable. This. This makes the bookies price-takers. and some barriers to entry exist. the product on offer is very homogeneous. investment banks) may solely influence the market price.

Planning detailed programme regarding future courses of action. It is rightly said “Well plan is half done”. 1 Explain Planning & Organizing function of management in detail. It is a preparatory It is a systematic activity which determines when. it may be convenient to separate the function of management but practically these functions are overlapping in nature i. Each function blends into the other & each affects the performance of others.e. There planning takes into consideration available & prospective human and physical resources of the organization s to get effective co-ordination. they are highly inseparable. contribution & perfect adjustment. how and who is going to perform a specific job.Q. For theoretical purposes. Planning means looking ahead and chalking out future courses of action to be followed. It is the basic management function w .

Planning is deciding best alternative among others to perf different managerial functions in order to achieve predetermined goals.economic. c. management labour relations. etc. Planning premises are the assumptions about the lively shape of events in future. b. But such an objective cannot be stated in quantitative terms like performance of quality control manager. h. acceptable. Planning premises may be internal or external. When forecast are available and premises are established.controllable. Planning requires a systematic approach. They serve as a basis of planning. objectives provide nucleus to the planning process. precise and unambiguous language. Moreover objectives focus the attention of managers on the end results to be achieved. how to do and who is to do it. For example. Establishment of Planning Premises i. workable and achievable. to think before acting to act in the light of facts rather than guesses”. m. d. objectives should be stated in quantitative terms. Steps in Planning Function Planning function of management involves following steps:Establishment of objectives a. Planning bridges the gap between where we are to. Internal includes capital investment policy. As a matter of fact. Number of men working. l. Planning starts with the setting of goals and objectives to be achieved. philosophy of management. According to Koontz & O’Donell. Internal premises are controllable whereas external are non. Hence objectives should be practical. “Planning is deciding in advance what to do. Choice of alternative course of action p. . According to Urwick. e. Such goals should be specified in qualitative terms. Whereas external includes socio. effectiveness of personnel manager. n. o.includes formulation of one or more detailed plans to achieve optimum balance of needs or demands with available resources. where we want to go. g. Establishment of planning premises is concerned to take such steps that avoids these obstacles to a great extent. political and economical changes. It is to find out what obstacles are there in the way of business during the course of operations. “Planning is a mental predisposition to do things in orderly way. Therefore. Establishment of planning premises is concerned with determining where one tends to deviate from the actual plans and causes of such deviations. a number of alternative course of actions have to be considered. f. Objectives provide a rationale for undertaking various activities as well as indicate direction of efforts. etc. objectives should be stated in a clear. units produced. Otherwise the activities undertaken are bound to be ineffective. k. It makes possible things to occur which would not otherwise occur”. As far as possible. j. wages given.

Secondary plans will flow from the basic plan. After the selected plan is implemented. ORGANISING FUNCTION OF MANAGEMENT . Derivative plans indicate time schedule and sequence of accomplishing various tasks. c. and cost minimization. Securing Co-operation y. procedures. if profit maximization is the main aim of the enterprise. Subordinates may feel motivated since they are involved in decision making process. it is put into action. programmes. After the plans have been determined. w. These detail plans include policies. dd. derivative plans will include sales maximization. r. rules. demerits as well as the consequences of each alternative must be examined before the choice is being made. Also the employees will be more interested in the execution of these plans. future plans can be made more realistic. The merits. The planners should take help of various quantitative techniques to judge the stability of an alternative. it is important to appraise its effectiveness. x. Formulation of derivative plans u. s. For example. After choosing a particular course of action. budgets. These are meant to support and expediate the achievement of basic plans. After objective and scientific evaluation.q. etc. Derivative plans are the sub plans or secondary plans which help in the achievement of main plan. ee. it is necessary rather advisable to take subordinates or those who have to implement these plans into confidence. production maximization. The purposes behind taking them into confidence are :a. The follow up must go side by side the implementation of plans so that in the light of observations made. t. b. bb. The organization may be able to get valuable suggestions and improvement in formulation as well as implementation of plans. cc. z. This step establishes a link between planning and controlling function. v. each and every alternative will be evaluated by weighing its pros and cons in the light of resources available and requirements of the organization. This enables the management to correct deviations or modify the plan. ff. schedules. This is done on the basis of feedback or information received from departments or persons concerned. Follow up/Appraisal of plans aa. For this purpose. the best alternative is chosen.

in avoidance of duplication or overlapping of efforts and this helps in bringing smoothness in a concern’s working. Maslow's ideas surrounding the Hierarchy of Needs concerning the responsibility of employers to provide a workplace environment that encourages and enables employees to fulfil their own unique potential (selfactualization) are today more relevant than ever. a significant and relevant commentary. This organization of dividing the whole concern into independent units and departments is called departmentation. Each individual is made aware of his authority and he/she knows whom they have to take orders from and to whom they are accountable and to whom they have to report. which has been revised in recent times by . the jobs related and the co. This activity of giving a rank in order to the managerial positions is called hierarchy. According toChester Barnard.Once the departments are made. 2. 4. Q2. and personal development. Identification of activities .Relationships are established among various groups to enable smooth interaction toward the achievment of the organizational goal. money. This helps in avoiding wastage of time. Therefore. the middle level management into departmental supervision and lower level management into supervision of foremen.Organizing is the function of management which follows planning. 3.ordination between authority and responsibility. the manager tries to combine and group similar and related activities into units or departments. The clarification of authority help in bringing efficiency in the running of a concern. effort. Abraham Maslow's book Motivation and Personality. Indeed. Departmentally organizing the activities . A manager performs organizing function with the help of following steps:1. The top management is into formulation of policies. For example. All these activities have to be grouped and classified into units. Classifying the authority . quality control. Explain Maslow’s need hierarchy and Alderfer’s ERG theory of motivation Abraham Maslow's Hierarchy of Needs motivational model Abraham Maslow developed the Hierarchy of Needs model in 1940-50s USA. etc. All the three resources are important to get results. Co-ordination between authority and responsibility . published in 1954 (second edition 1970) introduced the Hierarchy of Needs. This helps in achieving efficiency in the running of a concern. the manager likes to classify the powers and its extent to the managers. organizational function helps in achievement of results which in fact is important for the functioning of a concern. “Organizing is a function by which the concern is able to define the role positions.In this step. It is a function in which the synchronization and combination of human. making sales. record keeping. notably his later book Toward A Psychology Of Being. a manager always has to organize in order to get results. Hence. A clear organizational structure is drawn and all the employees are made aware of it. and the Hierarchy of Needs theory remains valid today for understanding human motivation. management training. and Maslow extended his ideas in other work. physical and financial resources takes place.All the activities which have to be performed in a concern have to be identified first. preparation of accounts. inventory control.

who is in his own right a leading academic in the field of motivational psychology. which first introduced the Hierarchy of Needs. The Maslow's Hierarchy of Needs five-stage model below (structure and terminology . Maslow's PhD in psychology in 1934 at the University of Wisconsin formed the basis of his motivational research. starting with the first. . Maslow's hierarchy of needs Each of us is motivated by needs. Maslow later moved to New York's Brooklyn College. These augmented models and diagrams are shown as the adapted seven and eight-stage Hierarchy of Needs pyramid diagrams and models below. Maslow's Hierarchy of Needs states that we must satisfy each need in turn.Richard Lowry. Where Maslow's Hierarchy of Needs is shown with more than five levels these models have been extended through interpretation of Maslow's work by other people. having evolved over tens of thousands of years. Abraham Maslow was born in New York in 1908 and died in 1970. although various publications appear in Maslow's name in later years. Abraham Maslow's Hierarchy of Needs helps to explain how these needs motivate us all. there is not a pyramid to be seen. There have been very many interpretations of Maslow's Hierarchy of Needs in the form of pyramid diagrams. These extended models have instead been inferred by others from Maslow's work. later versions of the theory with added motivational stages are not so clearly attributable to Maslow. Interestingly in Maslow's book Motivation and Personality. The diagrams on this page are my own interpretations and are not offered as Maslow's original work. Specifically Maslow refers to the needs Cognitive. Only when the lower order needs of physical and emotional well-being are satisfied are we concerned with the higher order needs of influence and personal development. which deals with the most obvious needs for survival itself. initially studying rhesus monkeys. Aesthetic and Transcendence (subsequently shown as distinct needs levels in some interpretations of his theory) as additional aspects of motivation. but not as distinct levels in the Hierarchy of Needs.not the precise pyramid diagram itself) is clearly and directly attributable to Maslow. Our most basic needs are inborn.

At this time the Hierarchy of Needs model comprised five needs.level need.level need aggravates. then an individual might be motivated to accomplish the relatedness need and if there are issues in accomplishing relatedness needs. Thus. if the things that satisfy our lower order needs are swept away. His rework is called as ERG theory of motivation.These include need for basic material necessities. Difference between Maslow Need Hierarchy Theory and Alderfer’s ERG Theory ERG Theory states that at a given point of time. it includes an individual’s physiological and physical safety needs. we are no longer concerned about the maintenance of our higher order needs. ERG Theory also shows that if the fulfillment of a higher-level need is subdued. then he might be motivated by the existence needs. Clayton Alderfer redefined it in his own terms. Alderfer’s ERG Theory To bring Maslow’s need hierarchy theory of motivation in synchronization with empirical research.These include need for self-development and personal growth and advancement. there is an increase in desire for satisfying a lower-level need. getting public fame and recognition. According to Maslow.when growth need aggravates. if a higher. This is called frustrationregression aspect of ERG theory. Maslow’s self-actualization needs and intrinsic component of esteem needs fall under this category of need. and first widely published in Motivation and Personality in 1954. • Growth needs. peers or superiors). In short. an individual remains at a particular need level until that need is satisfied. • Relatedness needs. Maslow’s social needs and external component of esteem needs fall under this class of need. an individual may revert to increase the satisfaction of a lower. more than one need may be operational. This original version remains for most people the definitive Hierarchy of Needs. • The significance of the three classes of needs may vary for each individual. For instance. While according to ERG theory. He recategorized Maslow’s hierarchy of needs into three simpler and broader classes of needs: Existence needs. Maslow's original Hierarchy of Needs model was developed between 1943-1954. .Conversely.These include the aspiration individual’s have for maintaining significant interpersonal relationships (be it with family.

ERG Theory of motivation is very flexible as he perceived the needs as a range/variety rather than perceiving them as a hierarchy. he gives explanation to the issue of “starving artist” who can struggle for growth even if he is hungry.frustration/aggravation can result in regression to a lower-level need. According to Alderfer. an individual can work on growth needs even if his existence or relatedness needs remain unsatisfied. an individual cannot proceed to the higher-level need. Thus. . While Maslow’s need hierarchy theory is rigid as it assumes that the needs follow a specific and orderly hierarchy and unless a lower-level need is satisfied.

Kurt Lewin (1943. Secondary group: When large number of people get together. education. social work. (ii) Dynamics. anthropology. primary groups and secondary groups. and other forms of social prejudice and discrimination. within an organization a primary group is a small group that gets together and interacts regularly. creating effective therapy techniques. other groups and larger institutions. who do not normally get together.(i) Group. Based on their feelings and emotions. these are called secondary groups. When a secondary group is formed. 1951) is commonly identified as the founder of the movement to study groups scientifically. Within the primary group. informal groups. 1948. The phrase "Group Dynamics" contains two words. What do you understand by group dynamics? Explain the types of groups. tasks or goals. A team leader with a small team is an example of a primary group. . or between social groups (intergroup dynamics). He coined the term group dynamics to describe the way groups and individuals act and react to changing circumstances. Some groups maybe deliberately formed. Group dynamics refers to a system of behaviors and psychological processes occurring within a social group (intragroup dynamics). tracking the spread of diseases in society. business. the laws of their development and their interrelations with individuals. beliefs and culture are all very important. The members of the group share a set of common purpose. lead the group towards the establishment of its set goals. follow the same norms and works for an establishable common aim. Group dynamics can be defined as a field of enquiry dedicated to the advancing knowledge about the nature of groups. A family also is a primary group. Informal groups are established by individuals within the organization that a need to interact with one another and who also believe that these informal groups meet a need that formal groups cannot meet within the firm. Primary groups . A formal group is created within an organization to complete a specific role or task.a social unit of two or more individuals who have in common a set of beliefs and values. epidemiology. coherent activities which as envisaged. will. members of a group form a common perception. values. The study of group dynamics can be useful in understanding decision-making behavior. sociology. political science. Below we discuss briefly four forms of groups which are found within a company. and following the emergence and popularity of new ideas and technologies. This may be to oversea a launch of a particular product or service. Group dynamics are at the core of understanding racism. The interactive psychological relationship in which members of a group form this common perception is actually "Group Dynamics". Within a secondary group.Q3. formal groups. in toto. Within many organisations different groups are formed at different levels. sexism. These applications of the field are studied in psychology. people to do not get to know each other as well as those in a primary group. some groups are formed through an informal setting. andcommunication studies.the flow of.

The relationship they form is not long term and there probably will not be much social interaction within a secondary group.individuals usually have their own agenda and goals. .

1929 was introduced for the settlement of industrial disputes.MBAHR-101: Industrial Relations & Labour Laws Answer any three questions. we are going to discuss the Industrial Disputes Act. The workers resorted to strikes to fulfill their demands and the employers retaliated by declaring lockouts. This unit encompasses the different authorities and their duties in the settlement of disputes. It also provides statutory norms besides helping in the maintaining of cordial relation among the employers and employees . 1947 is to ensure fair terms between employers and employees. by making the awards of adjudicators legally binding on the parties. later this defect was overcome by empowering under Rule 81-A. this Act failed to create favorable atmosphere in the industry and settle the disputes. by prohibiting strikes and lock-outs during the pendency of conciliation or arbitration proceeding. Rule 81-A was about to lapse on 1st October. 1947. Thus. Each question carries 10 marks each: Q. But. The rule provide speedy remedies for industrial disputes by compulsory reference of disputes to conciliation or adjudication. 1947 and its importance. e main purpose of the Industrial Disputes Act. This Trade Union Act gave the trade unions a legal status.reflecting socio-economic justice. Through this unit. The Act provides self-contained code to compel the parties to resort to industrial arbitration for the resolution of disputes. workmen and workmen as well as workmen and employers. The Trade Dispute Act. With the termination of the Second World War. The main object of the Act was to make provision for the establishment of Courts of Enquiry and Boards of Conciliation with a view to investigating and settling trade disputes. But. but it was kept alive by recourse to Government’s Emergency Powers. of the Defense of Indian Rules to refer industrial disputes to adjudicator for settlement during the Second World War (1938-1945). It ensures harmony and cordial relationship between the employers and employees. you will be able to know about the different award given by the different authorities under the Act. 1947 makes provision for the investigation and settlement of disputes that may hamper the peace of the industry. During the period 1928-29 the numerous strikes and lock-outs forced the Government to enact the Trade Disputes Act. The main provision was retained in the Industrial Disputes Act. It also discuss about the reference of disputes. 1 Explain provisions of Industrial Dispute Act 1947. In this unit. 1929. he Industrial Dispute Act. The main defect of the Act was that no provision was has been made to render the proceedings institutable under the Act while restraint had been imposed on the right of strike and lock-out in the public utility services. he World War I (1914-1919) brought a new awakening among the working class people who were dominated by the employers regarding the terms and conditions of service and wages. you will able to understand through this unit. the procedures of settlement of the disputes as well as the duties of different authorities as well as the way of reference of disputes. 1946. The act provides for the following authorities for Investigation and Settlement of industrial disputes: . It helps not only in preventing disputes between employers and employees but also help in finding the measures to settle such disputes so that the production of the organization is not hampered.

It consists of the representatives of employers and workmen engaged in the establishment. He may be appointed for a specified area or for specified industries in a specified area or for one or more specified industries and either permanently or for a limited period. appoint such number of conciliation officer as it thinks fit. The main objective of appointing conciliation officer is to create congenial atmosphere within the industry and reconcile the disputes of the workers and the employers. constitute a Board of Conciliation for the settlement of industrial disputes. The conciliation officer is entitled to enter an establishment to which the dispute relates. investigate the disputes and do all such things as he thinks fit for the purpose of inducing the parties to arrive at a fair settlement of the disputes. It shall be the duty of the working committee to promote measures for securing and preserving amity and good relations between the employers and workmen and. He has to send a report and memorandum of settlement to appropriate Government. to comment upon matters of their common interest or concern and to endeavour to compose any material difference of opinion in respect of such matters and decision of the works committees are not binding.(i) Works Committee (ii) Conciliation Officer (iii) Boards of Conciliation (iv) Court of Inquiry (v) Labour Court (vi) Labour Tribunals (vii) National Tribunals Let us discuss these authorities in detail: WORKS COMMITTEE (Section 3): The works committee is a committee consisting of representatives of employers and workmen (section3). CONCILIATION OFFICER (Section 4): For promoting and settlement of industrial disputes the appropriate Government may by notification in the Official Gazette. BOARDS OF CONCILIATION (Section 5): The appropriate Government may by notification in the Official Gazette. A person is “independent” for the purpose of appointment to a Board. Court or Tribunal if he is . The duty of the conciliation officer is not judicial but administrative. The report by the conciliation officer has to be submitted within 14 days of the commencement of the conciliation proceeding or shorter period as may be prescribed by the appropriate Government. The function of the working committee is to ascertain the grievances of the employees and to arrive at some agreement. The committee is formed by general or special order by the appropriate Government in an industrial establishment in which 100 or more workmen are employed or have been employed on any day in the preceding 12 months. after reasonable notice and also to call for and inspect any document which he consider relevant.The main objective of the works committee is to solve the problems arising in the dayto-day working of a concern and to secure industrial harmony. He has to hold conciliation proceedings. The conciliation officer has the power to enter the premises as well can call for and inspect documents. The works committee is a forum for explaining the difficulties of all the parties. The Chairman shall be an independent person. The Board shall consist of a chairman and 2 or 4 other members in equal numbers representing the parties to the disputes as the appropriate Government thinks fit. to that end.

This period is not mandatory and it may be extend. constitute one or more labour court for adjudication of industrial disputes relating to any matters specified in the Second Schedule. LABOUR COURT (Section 7): The appropriate Government may by notification in the Official Gazette. The report of the Board shall be in writing and shall be signed by all the members of the Board. issuing commissions for the examination of witnesses. been a District Judge or an Additional District Judge or c. He has to send a report and memorandum of settlement to appropriate Government. The main function of the labour court is to hold its proceedings expeditiously and submit its award as the proceeding concludes. The Report together with the dissenting note must be published by the appropriate Government within 30 days from its report. The court consists of two or more members one of whom shall be appointed by the Chairman. It has the same powers as are vested in a Civil Court under the Code of Civil Procedure 1908. The Board of Conciliation has to communicate the reasons to the parties if no further reference is made. But in such a case he must disclose to the Government the nature and intent of his share [Section 2(i)]. a Judge of the High court. A member can submit a note of dissent. A court of enquiry has no power to improve any settlement upon the parties. the court has to send a report thereon to the appropriate Government from the commencement of its any inquiry. b. The report of the Court must be signed by all the members. The Board has to submit its report within 2 months of the date on which the dispute was referred to it within the period what the appropriate Government may think fit. COURT OF INQUIRY (Section 6): The appropriate Government may by notification in the Official Gazette. A labour court consists of one person only to be appointed by the appropriate Government. or d. enforcing the attendance of any person and examining him on oath. c. d. He may be a shareholder of a company connected with or likely to be affected by such disputes. he has for a period of not less than three years. He has to send a full report to the Appropriate Government setting for the steps taken by the Board in case no settlement is arrived at. compelling the production of documents and material objects. he has held any judicial office in India for not less than seven years. constitute a court of inquiry into any matter appearing to be connected with or relevant to settlement of industrial disputes having an independent person or of such independent persons as the appropriate Government may think fit. A person shall be presiding officer of a labour court unless— a. in the following matters— a.uncommitted with the dispute or with any industry directly affected by such dispute. in respect of such other matters as may be prescribed. he has been the presiding officer of a Labour Court constituted under any provincial Act or . Where the appropriate Government is of the opinion that any industrial disputes exist in an industry. it may refer by order in writing to the Board of Conciliation for settling industrial disputes. b. The Board of Conciliation has to bring about a settlement of the dispute. Within a period of 6 months. he is or has been.

The proceedings before an Industrial Tribunal are quasi-judicial in nature with all the attributes of a Court of Justice. Reference of disputes to various Authorities: A matter is referred to the Conciliation Board for promoting the settlement of the disputes. On the other hand. c. e. Its power is different from that of a Civil Court. The person shall be not qualified unless— a. on reference of any industrial disputes.e. Where the disputes relate to a public utility service and a notice of the same is given. The functions of the Tribunals are very much like those of a body discharging judicial functions. such industrial disputes. he has for a period of not less than three years. Any industrial disputes should have to referred by the Appropriate Government under section 10 for adjudication.A): The appropriate Government may by notification in the Official Gazette. constitute one or more Industrial Tribunals for adjudication of industrial disputes. The Government is empowered under Section 7-A of the Act to constitute for a limited time which comes to an end automatically on the expiry of the said period for any particular case. it becomes mandatory of the Appropriate Government or the Central Government to refer the . National Industrial Tribunals are involve only incase of the questions of national importance or if they are of such a nature that industrial establishments situated in more than one State are likely to be interested in. a Judge of a High Court. Beside these. if it thinks fit.State Act for not less than five years. appoint two persons as assessors to advise the National Tribunal in the proceedings before it. Again. it is referred to the Labour court. The duties of Industrial Tribunal are identical with the duties of Labour Court. the Central Government may.. Labour Court. by notification in the Official Gazette. But if the purpose of reference of the matter is investigatory instead of conciliatory or adjudicatory. any matter of the industrial disputes which may relate to the Second Schedule or Third Schedule may refer to the Industrial Tribunal. or affected by. if the matter is related to the Second Schedule or Third Schedule. A Tribunal shall consist of one person to be appointed by the appropriate Government. Court of Inquiry or Industrial Tribunal or National Tribunal. to the Conciliation Board. The Conciliation Board is to promote settlement and not to adjudicate. NATIONAL TRIBUNALS ( Section 7 B) The Central Government may. LABOUR TRIBUNALS (Section 7.The person shall not be qualified for appointment as the presiding officer unless he is. The Appropriate Government may appoint two persons as assessors to advise the Tribunel. He must be an “ independent “ person and must not have attained the age of 65 years. although it is not a Court. It consists of one person only to be appointed by the Central Government. the Tribunal shall hold its proceedings expeditiously and submit its award to the appropriate Government. constitute one or more National Industrial Tribunals for the adjudication of industrial disputes. it should be referred to Court of Inquiry. been a District Judge or an Additional District Judge. a Judge of the High court. may appoint two persons as assessors to advise the Tribunal in the proceeding before it. i. or has been. The appropriate Government may. A. he is. b. if it so thinks fit.

it is not lawful to refer any matters which are under adjudication before the National Tribunal to Labour Court or Tribunal. etc: When industrial disputes are of national importance or they are likely to be affect the industrial establishments situated in more than one State then they are referred to the National Tribunal by the Appropriate Government for adjudication. B. iv) The arbitrator or arbitrators shall have to investigate the disputes and submit to the Appropriate Government the award. Industrial Tribunal or National Tribunal after giving notice can enter the premises occupied by any establishment to which the disputes relate and follow such procedure as the arbitrator or other authority concerned may think fit. Industrial Tribunal or National Tribunal for adjudication. Time limit for submission of awards: Section 10 (2A) of the Act specifies the time period for submitting award by the Appropriate Government. enforcing the attendance of any person and examining him on oath. d. . They have the same power as are vested in the Civil Court under the Code of Civil Procedure. Reference of disputes to National Tribunal involving question of importance. Labour Court. PROCEDURE AND POWERS OF AUTHORITIES Section 11 provides that every Conciliation Officer or member of a Board or Court or Presiding Officer of a Labour Court. VOLUNTARY REFERENCE OF DISPUTES TO ARBITRATION: The settlement of industrial disputes may be done through voluntary reference under section 10-A. v) The award should be signed by the arbitrator or the arbitrators. Labour Court. compelling the production of documents and material objects. C. On the other hand. when any reference is made to the Labour Court. But the power of the Appropriate Government to make a reference is discretionary and it is open to judicial review. Industrial Tribunal or National Tribunal for adjudication and the Appropriate Government on being satisfied on the same specifies such time limit as it these proper to submit the award. and Court of Inquiry. Industrial Tribunal or National Tribunal for adjudication. the employer and the workmen through a written agreement forward the matter for arbitration specifying the names of the arbitrator. and Court of Inquiry. Again if any matter referred to National Tribunal is pending in a proceeding before a Labour Court or Tribunal. vi) The strike or lock-out in connection with the disputes should be prohibited by an order of the Appropriate Government. the proceeding before Labour Court or Tribunal becomes invalid.matter for adjudication. i) When an industrial dispute is not referred to Conciliation Board. a. b. a copy of the same has to be published in the Official Gazette. Reference on application of parities: If a person individually or jointly applies any matter in a prescribed manner to the Conciliation Board. in respect of other such other matters as may be prescribed. D. issuing commissions for the examination of witnesses. ii) The arbitration agreement should be made in prescribed form and should be signed by the parties. 1908 while trying a suit in matters like. c. iii) Within one month from the receipt of the arbitration agreement which should be forwarded to Appropriate Government and the Conciliation Officer.

The Conciliation Officer may enforce the attendance of any person for the purpose of examination of such person or call for and inspect the documents. his heirs. Industrial Tribunal or National Tribunal. if the Central Government get the opinion regarding the award given by the National Tribunal. Labour Court. Tribunal or National Tribunal and includes an arbitration award made under section 10A Section 2 (b). and Court of Inquiry. The Conciliation Board. and Industrial Tribunal or National Tribunal is binding on— a. it is authorised to issue direction that the award takes effect retrospectively. if it appears that the award given by the Industrial Tribunal is fair and just. Industrial Tribunal or National Tribunal in the settlement of industrial disputes AWARD AND SETTLEMENT Award means an interim or a final determination of any industrial disputes or of any question relating thereto by any Labour Court. records the opinion that they were so summoned without proper cause. Industrial Tribunal or National Tribunal in the settlement of industrial disputes as the case may be. An arbitration award is binding on the concerned parties of the agreement who referred the disputes to arbitration. All the parties to the disputes. Persons on whom settlements and awards are binding (Section 18): 1. Labour Court. An arbitration award or settlement award or award of Labour Court. Industrial Tribunal or National Tribunal for advice having special knowledge on that matter. Labour Court. the Appropriate Government or the Central Government may within 90 days from the date of publication of the award under section 17 make an order rejecting or modifying the award. and Court of Inquiry. by whom and subject to what conditions costs are to be paid. But. . unless the Board. successors assigned in respect of the establishment to which the dispute relates. Again. Section 21 requires certain matters to be kept confidential and it is further provided by the section that certain matters are not disclosed without the written consent of the secretary of the trade union or firm or company in question as the case may be of any information obtained by Conciliation Board. Labour Court. Thus. c. An award usually is enforceable on the expiry of 30 days from the date of its publication except when the Appropriate Government declares that the award given by the Labour Court and Industrial Tribunal shall not be enforceable on the expiry of 30 days from the date of its publication. it is seen that section 11 (1) has given wide power to the Conciliation Board. Industrial Tribunal or National Tribunal has the full power to determine to what extent. On all other parties who are summoned to appear in the proceeding as parties to the disputes. and Court of Inquiry.An assessor or assessors may be appointed by the Conciliation Board. 2. Labour Court. it may not be enforceable on the expiry of 30 days from the date of its publication. In such case.The report of the Board of Conciliation or the Court of Inquiry shall be in writing and shall be signed by all the members and the award of a Labour Court and Industrial Tribunal shall be in writing and shall be signed by the Presiding Officer. Settlement and awards are binding on all the parties under the agreement arrived at between the employers and workers in the course of conciliation proceedings. and Court of Inquiry. 3. Arbitrator. b. Where a party referred to Clause (a) and Clause (b) is an employer.

The main objectives of the Act are. if a person breaches any term of any settlement or award which is binding on him he shall be punishable with imprisonment for a term which may extend to 6 months or with fine or both. 6. 10. . But if the parties referred to in Clause (a) or Clause (b) is of workmen. A settlement arrived at in the course of conciliation proceedings before a Conciliation Officer shall come into operation on such date as is agreed upon by the parties to the disputes and on the date on which the memorandum of the settlement is signed by the parties to the disputes when no date is agreed. allowances etc of the workers. Q.d. 2. To assists in collective bargaining to protect the interest of the workers. 7. The passing of The Trade Unions Act. To protects the working condition of the workers. 8. to which the disputes relates on the date of the dispute and all persons who subsequently become employed in that establishment or part. 5. 4. trade union is a continuous association of wage earner for the purpose of maintaining and improving the conditions of their working lives. 1. 2 Explain provisions of Trade Unions ACT 1926 According to Sidney and Webb. 1926 is beginning for the labour unrest dating back to 1877. To secures the payment of salaries. wages. as the case may be. The origin of trade unionism in India can be traced back to the year 1890 when for the first time an association of mill workers was formed for the redressal of grievances of the Bombay mill workers. To promote both individual and collective welfare. 3. To help the workers in introducing themselves in participatory movement in the different discussion of the management of the organization. To secures the employment of the workers. To identify the different roles and responsibilities of the workers in the industry. The setting up of large scale industries creates exploitative tendencies in the mind of the employers which increase the demand for protecting the rights of the workers. 9. To secure the opportunities related to the promotion of the workers. all person who were employed in the establishment or part of the establishment. To enlarges the training opportunities. 1926 is the results of formal recognition to the workers’ right to organize. recreational and cultural facilities. To help in providing the educational. The origin of The Trade Unions Act. But.

(b) The name of the Trade Union and the address of its head office. · but not exceeding half of the total number of the persons who made the application. addresses and occupations of the Trade Union. occupations and addresses of the members making the application. namely:(a) The names. a general statement of the assets and liabilities of the Trade Union prepared in such form and containing such particulars as may be prescribed.some of the applications. merely by reason of the fact that. together with the application. The appropriate Government may appoint as many Additional and Deputy Registrars of Trade Unions as it thinks fit. Mode of registration (Section 4):(1) Any seven or more members of a Trade Union may be subscribing their names to the rules of the Trade Union complying with the provisions of this Act with respect to registration. have ceased to be members of the Trade Union or · have notice in writing to the Registrar dissociating themselves from the application under sub-section (1). and the rules thereof provided for following matters. 1938. and (c) The title. The executive should be constituted in accordance with the provisions of this Act to form a Trade Union. there shall be delivered to the Registrar. and shall be accompanied by a copy of the rules of the Trade Union and a statement of the following particulars. apply for its registration. · but before the registration of the Trade Union . (2) Where a Trade Union has been in existence for more than one year before the making of an application for its registration. names. (2) Where an application has been made for the registration of a Trade Union shall not be deemed to have become invalid. ages. Application for registration (Section 5): (1) Even application for registration of a Trade Union shall be made to the Registrar. Provisions to be contained in the rules of Trade Union (Section 6):Every registered trade union is required to have written rules dealing with certain matters specified in Schedule II of the Central Trade Union Regulation. namely:- . the Appropriate Government shall appoint a person to be the Registrar of Trade Unions for each State. at any time— · after the date of the application.REGISTRATION OF TRADE UNION Under Section 3.

One percent per annum for rural workers. of the account books by and members of the Trade Union. (h) The manner in which the members of the executive and the other of the Trade Union shall be appointed and removed. has willfully and after notice from the Registrar contravened any provision of this Act . fraud or mistake. (g) The manner in which the member shall be amended. (ee) The payment of a subscription by members of the Trade Union which shall be not less than— i. The workmen of an industrial establishment can form as many unions as they like. and also the admission of the number of honorary or temporary members as required under Section 22 to form the executive of the Trade Union. in such manner as may be prescribed. (b) The whole of the object for which the Trade Union has been established.(a) The name of the Trade Union. provision for which is required by Section 6:Provided that not less than two months previous notice in writing specifying the ground on . ii. already unlawful. Registration (Section 8):The Registrar. (c) The whole of the purposes for which the general funds of the Trade Union shall be applicable. or iii. varied or rescinded. or (b) If the Registrar is satisfied that the certificate has been obtained by— i. Certificate of Registration (Section 9):The Registrar registering a Trade Union under Section 8 shall issue a certificate of registration in the prescribed form which shall be conclusive that the Trade Union has been duly registered under this Act. shall register the Trade Union by entering in a register to be maintained in such form as may be prescribed. that the Trade Union has ceased to exist. all of which purposes shall be purpose. has rescinded any rule providing for any matter. union under a new name. ii. on being satisfied that the Union has complied with all the requirements of this Act. v. An application for registration cannot be rejected on the ground that it is an attempt to revive an old. Twelve rupees per annum for workers in any other case. (e) The admission of ordinary members who shall be persons actually engaged or employed in an industry with which the Trade Union is connected. allowed any rule to continue in force which is inconsistent with any such provision. (d) The maintenance of a list of the members of the Trade Union and adequate facilities for the inspection thereof. (f) The conditions under which any member shall be entitled to any benefit assured by the rules and under which any fine or forfeiture may be imposed on members. Three rupee per annum for workers in other unorganized sector. to which such funds are lawfully applicable under this Act. Cancellation of Registration (Section 10): A certificate of registration of a Trade Union may be withdrawn or cancelled by the Registrar (a) On the application of the Trade Union to be verified in such manner as may be prescribed. and iii. (i) The safe custody of the funds of the Trade Union. and (j) The manner in which the Trade Union may be dissolved. and annual audit.or iv.

1908.It has perpetual succession and a common seal. (2) The Appellate Court may dismiss the appeal. depending on the country. A collective agreement functions as a labor contract between anemployer and one or more unions. Explain its procedure. (3) For the purpose of an appeal under sub-section (1) an Appellate Court shall. Collective Bargaining Process Collective bargaining generally includes negotiations between the two parties (employees’ representatives and employer’s representatives). to reach an industry wide agreement. 3 Explain the concept of collective bargaining. for the purpose of such appeal. and about the rights andresponsibilities of trade unions. such as wages. It also has the power to acquire and hold both movable and immovable property an contract. or (b) Where the head office is situated in any outer area. (4) The person aggrieved shall have a right of appeal to the High Court and the High Court shall. in some countries[which?] by an employers' organization) in respect of the terms and conditions of employment of employees. as they may appoint in this behalf for that area. Collective bargaining consists of . Explain its advantages and disadvantages. The parties often refer to the result of the negotiation as a collective bargaining agreement (CBA) or as a collective employment agreement (CEA).overtime. working conditions. by the said name sues and be sued. training. Appeal (Section 11): (1) Any person aggrieved by any refusal of the Registrar to register a Trade Union or by the withdrawal or cancellation of a certificate of registration may. and rights to participate in workplace or company affairs. hours of work. grievance-procedures. or pass an order directing the Registrar to register the Union and to issue a certificate of registration. Q. so far as may be. not inferior to the Court of an additional or assistant Judge of a principal Civil Court of original jurisdiction.which it is proposed to withdraw or cancel the certificate shall be given by the Registrar to the Trade Union. health and safety. have all the powers of an Appellate Court under subsections (2) and (3) and the provisions of that sub-section shall apply accordingly Incorporation of registered Trade Unions (Section 13): Every registered Trade Union shall be a body corporate by the name under which it is registered . Collective bargaining is a process of negotiations between employers and a group of employees aimed at reaching agreements that regulate working conditions. and shall.[1] The union may negotiate with a single employer (who is typically representing a company's shareholders) or may negotiate with a group of businesses. to such Court. may appeal – (a) Where the head office of the Trade Union is situated within the limits of Presidency-town to the High Court. follow the same procedure and have the same powers as it follows an has when trying a suit under the Code of Civil Procedure. Collective bargaining consists of the process of negotiation between representatives of a union andemployers (generally represented by management. grievance mechanisms. The interests of the employees are commonly presented by representatives of a trade union to which the employees belong. The collective agreements reached by these negotiations usually set out wage scales. working hours.

etc. Settlement: Once the parties are through with the bargaining process. This will normally include procedures in respect of individual grievances. production norms and other relevant conditions is required. The negotiation team should consist of representatives of both the parties with adequate knowledge and skills for negotiation. Discuss: Here. 5. A correct understanding of the main issues to be covered and intimate knowledge of operations. the parties decide the ground rules that will guide the negotiations. working conditions. 3. a consensual agreement is reached upon wherein both the parties agree to a common decision regarding the problem or the issue. This stage comprises the time when ‘what ifs’ and ‘supposals’ are set forth and the drafting of agreements take place. bonus arrangements. agreements have a fixed time scale and a collective bargaining process will review the procedural agreement when negotiations take place on pay and conditions of employment. In many companies. such as basic pay. this phase could be described as ‘brainstorming’. . procedural agreements are put into the company rule book which provides information on the overall terms and conditions of employment and codes of behavior. The first thing to be done is to determine whether there is actually any reason to negotiate at all. hours of work. Collective agreements may be in the form of procedural agreements or substantive agreements. strategic planning and negotiated change. Frequently. holiday entitlements. 2. An environment of mutual trust and understanding is also created so that the collective bargaining agreement would be reached. A substantive agreement deals with specific issues. Often employees are represented in the bargaining by a union or other labor organization. In a word. The collective bargaining process comprises of five core steps: 1. Bargain: negotiations are easy if a problem solving attitude is adopted. 4. This stage is described as consisting of effective joint implementation of the agreement through shared visions. Procedural agreements deal with the relationship between workers and management and the procedures to be adopted for resolving individual or group disputes. A process well begun is half done and this is no less true in case of collective bargaining. In this phase both the employer’s representatives and the union examine their own situation in order to develop the issues that they believe will be most important. overtime premiums. The result of collective bargaining procedure is called the collective bargaining agreement (CBA). disputes and discipline. The exchange of messages takes place and opinion of both the parties is sought. Propose: This phase involves the initial opening statements and the possible options that exist to resolve them.negotiations between an employer and a group of employees that determine the conditions of employment. Prepare: This phase involves composition of a negotiation team.

Process exists to question manager’s authority if member feels something was done unjustly 5. All union members and management must conform to terms of contract without exception 4. Promotes fairness and consistency in employment policies and personnel decisions within different organizations Disadvantages 1. addressing issues on an equal standing 6. Increased wages and improved facilities for workers can indirectly result in high prices for goods and services 6. Everyone involved must pay union dues even if they do not support unionization 4. All union members and management must conform to terms of contract without exception 3. Contract to guide standards 2. Creates significant potential for polarization between employees and managers 5.Advantages and Disadvantages of Collective Barganing Advantages: 1. Can lead to high-performance workplace where labor and management jointly engage in problem solving. Restricts management’s ability to deal effectively with a troubled employee individually . It opens participation in decision-making process 3. Reduced individuality 2.

If you can give someone something of positive value or remove something of negative value. (For example. • At the organizational level. • Similarly. others become dependant on them. or the threat of application. you have reward power over that person. Coercive power and reward power are actually counterparts of each other. if A can assign B work activities that B finds unpleasant or treat B in a manner that B finds embarrassing." Expertise has become a powerful source of influence as the world has become more technological. A has coercive power over B if A can dismiss. you have coercive power over that person. These rewards can be anything that another person values. People comply because doing so produces positive benefits.Q. special skill. It represents the power a person receives as a result of his/her position in the formal hierarchy. Legitimate Power: • In formal groups and organizations. b. Refers to power that comes from access to and control over information. The opposite of coercive power is reward power. It includes acceptance of the authority of a position by members of an organization. one who can distribute rewards that others view as valuable will have power over those others. 2. Coercive Power: • The coercive power base is being dependent on fear. or knowledge. When people have needed information. a. It rests on the application. or demote B. the generation of frustration through restriction of movement. Legitimate power. • • 4. Information Power: • B. or the controlling by force of basic physiological or safety needs. 2. Referent Power: . therefore. assuming that B values his or her job. Positions of authority include coercive and reward powers. managers have access to data that subordinates do not have). If you can remove something of positive value from another or inflict something of negative value upon him/her. Reward Power: • • • • 3. As jobs become more specialized. the most frequent access power is one’s structural position. suspend. Expert Power: • • Expert power is "influence wielded as a result of expertise. of physical sanctions such as the infliction of pain. Personal Power 1. 1 Explain different sources of power in detail. is broader than the power to coerce and reward. we become increasingly dependent on experts to achieve goals. A possesses coercive power over B. however.

Process of Change Stage 1: Unfreezing The Unfreezing stage is probably one of the more important stages to understand in the world of change we live in today. Q4. B. of course! If you understand procrastination (like I do!) then you'd recognise that the closer the deadline. Explain the change process in detail. The more we feel that change is necessary. This first stage is about preparing ourselves. Referent power explains why celebrities are paid millions of dollars to endorse products in commercials. 3. Change simply means alteration in status quo. the more urgent it is. Personal Power (cont. you can exercise power over me because I want to please you. before the change (and ideally creating a situation in which we want the change). But often they resist change in their work places. the more motivated we are to make the change. etc. they frequently discover that employees remain unconvinced of the need for it. Human beings are certainly familiar with change and they have the ability to adapt to it. Right? Yes. Others follow because they can articulate attractive visions.• Its base is identification with a person who has desirable resources or personal traits. Charismatic Power: • • Is an extension of referent power stemming from an individual’s personality and interpersonal style. take personal risks. and getting ready to move away from our current comfort zone. When managers use their most logical arguments and persuasive skills to support a change. If I admire and identify with you. demonstrate follower sensitivity. It involves getting to a point of understanding that change is necessary. This stage is about getting ready to change. it is a lot like charisma. or others.) • • Referent power develops out of admiration of another and a desire to be like that person. the more likely you are to snap into action and actually get the job started! .

You may have convinced yourself that there is a great benefit for you to make the jump. This is the basis of what Kurt Lewin called the Force Field Analysis. Imagine bungey jumping or parachuting. If there's no deadline. This second stage occurs as we make the changes that are needed. People are 'unfrozen' and moving towards a new way of being. People form new relationships and become comfortable with their routines. Support is really important here and can be in the form of training. If not. If the factors for change outweigh the factorsagainst change we'll make the change. There's much lower motivation to make a change and get on with it. As the name suggests this stage is about establishing stability once the changes have been made.and if we feel pushed to change we're likely to get grumpy and dig in our heels. And it's just this that's drawn criticism to the Kurt Lewin model. but rather a process. then there's low motivation to change . The Kurt Lewin Force Field Analysis is a useful way to understand this process and there are plenty of ideas of how this can be done. He called that process a transition. then the urge to change is lower than the need to change. Scary stuff! But when you do it you may learn a lot about yourself. This first 'Unfreezing' stage involves moving ourselves. It's often at this point that people laugh and tell me that practically there is never time for this 'freezing' stage. Force Field Analysis is a fancy way of saying that there are lots of different factors (forces) for and against making change that we need to be aware of (analysis). and expecting mistakes as part of the process. This can take time.or Transition Kurt Lewin was aware that change is not an event. Unfreezing and getting motivated for the change is all about weighing up the 'pro's' and 'con's' and deciding if the 'pro's' outnumber the 'con's' before you take any action. coaching. This is not an easy time as people are learning about the changes and need to be given time to understand and work with them. . The changes are accepted and become the new norm. It's also really useful to keep communicating a clear picture of the desired change and the benefits to people so they don't lose sight of where they are heading. or a department. That said this stage is often the hardest as people are unsure or even fearful. Transition is the inner movement or journey we make in reaction to a change. or an entire business towards motivation for change. Stage 2: Movement . but now you find yourself on the edge looking down. Freezing (or Refreezing) Kurt Lewin refers to this stage as freezing although a lot of people refer to it as 'refreezing'.With the deadline comes some sort of reward or punishment linked to the job. Using role models and allowing people to develop their own solutions also help to make the changes.

in the current favourite flavour. Instead. we should think about this final stage as being more flexible. rather than a rigid frozen block. So popular thought has moved away from the concept of freezing. sometimes chaotic process in which great flexibility is demanded. There is just no time to settle into comfortable routines. . This rigidity of freezing does not fit with modern thinking about change being a continuous. something like a milkshake or soft serv icecream.In todays world of change the next new change could happen in weeks or less. This way 'Unfreezing' for the next change might be easier.

Such situation occurs when the proposed change is not consulted with the employees and supposed to be enforced as an order. Resistance may be active or passive. the members of a group develop understanding and interpersonal relationship. Fear of failure: The change may require advanced skill and abilities that may be beyond employees’ capabilities. SOCIOLOGICAL RESISTANCE Group Norms: Over a period of time. fear and resistance developed.Resistance to change: Most people don't like change because they don't like being changed. Disturbance in established pattern: The employees and management are tending to develop a pattern of working. People like to know what going on in their organization. and this uncertainty builds up discomfort. especially if something is related with their jobs. When they recognize that the proposed change can force them to modify their established pattern. Misinterpretation of change: People resist change when they do not understand it. The group members resist the change when they believe that it will alter interpersonal relation and coordination among group. Resistance to change is the action taken by individuals and groups when they recognize that the change may threat their interest. Not agreed with the impact of changes: When employees feel that the change would increase their working hors and duties and disturb but the benefits and rewards are not seen as adequate. aggressive or timid. individual or organized. Types of resistance: PSYCHOLOGICAL RESISTANCE Fear of the unknown: No one can say precisely about the consequences of change. When change comes into view. In such situation. . overt or covert. they resist the change. the employee may feel that his interests regarding jobs. they resist. power or status in an organization are at risk and this fear lead him to resist the change. The uncertainty and discomfort cause negative reactions among people and they are encouraged to resist change. LOGICAL RESISTANCE TO CHANGE Power and Conflict: Resistance to change also occurs when a change may benefit one department within the organization while harming another.


They feel that. structures that are internally and externally consistent have the greatest chances of affecting overall satisfaction. • Productivity. But a large number of them seek to be competitive in their wage programme. Including CIVICS RIGHTS ACT. • The prevailing market rate. Other factors. Under reward. They do so to attract and retain the highest caliber of labour force. • Supply and demand of labour. those that are usually taken into consideration for wage and salary administration are: • The organizations ability to pay. provided that such a system is understood and accepted by most employees. systematic. Over-reward and inconsistency of reward not only tend to lead to lower satisfaction but encourage behaviour that often proves dysfunctional to organizational objectives. This problem is enormously complicated by such factors as Supply and Demand. Hence. by paying high wages. a systematic and orderly process for establishing the worth of job. some units pay well about going rates in the labour market. • Trade unions bargaining power. and recruit marginal labour. It is a valid system if it results in a structure acceptable to both employee and employer. Explain factors affecting wage and salary determination in detail The first and the most important problem in wage and salary administration is the establishment of base compensation for the job. i. Factors influencing wage and salary structure and administration The wage policies of different organization vary some what.1. these units pay minimum wage rates required by labour legislation. This greater production per employee means greater output per man hour. The importance of a pay system to an event of major importance to employees and its effects upon them cannot be ignored. labour costs may turn those existing in firms using marginal labour. job requirements and the prevailing rates of wages in the labour market. In general. Often. viz. higher ability to pay and the bargaining power of trade union. consistent system of compensation determination will do much to promote equity and satisfaction. In order to attract and retain needed personnel for the organization. Beside the basic factors provided by a job description and job evaluation. A sound wage policy is to adopt a job evaluation programme in order to establish fair differentials in wages based upon differences in job contents. such as changes in the cost of living the supply and demand of labour. Some units pay high wages because of a combination of a favourable product market demand. they would attract better workers who will produce more than average worker in the industry. A sound. The most likely to be used method to solve this problem at present would be job evaluation. • Living wage. Variations in productivity and Cost of living. Government legislation.. • The cost of living. At the other extreme. and ability to pay are accorded a secondary importance.e. Some managers believe in the economy of higher wages. they aim at paying somewhere near the going rate in the labour they employ. Most units give greater weight to two wage criteria. employees must perceive that compensation offered is equitable in relation to their inputs and relative contributions. Labor organization. the firm’s ability to pay. . Marginal units pay the minimum necessary to attract the required number of kind of labour.

• Job requirements. The other alternative is to pay higher wages if the labour supply is scarce. pay high wages to carry on profitable operations and because of their increased ability to pay. the ability to pay is important. The supply and demand compensation criterion is very closely related to the prevailing pay. and • Psychological and sociological factors. (3) Prevailing market rate: This is known as the ‘comparable wage’ or ‘going wage rate’. This results in a considerable uniformity in wage and salary rates. the result is a rise in the price to be paid to these skills. high profits tend to pay higher those which running at a loss or earning low profits because of higher cost of production or low sales. equal work and geographical differences may be eliminated. and is the widely used criterion. Marginal firms and non profit organization (like hospitals and educational institutions) pay relatively wages because of low or non profits. When prolonged and acuter. In the long run. First. • Managerial attitudes. Finally. various government laws and judicial decisions make the adoption of uniform wage rates an attractive proposition. Similarly. Third. This criterion calls for pay adjustments based on increases or decreases in an acceptable cost of living index. the economic influence on the ability to pay is practically nil. . comparable wage and on going wage concepts since.” escalator clauses” are written into labour contracts. Fourth. functionally related firms in the same industry requires essentially the same quality of employees. (1) The organizations ability to pay: Wage increases should be given by those organizations which can afford them. If the demand for certain skills is high and supply is low. Companies that have good sales and. • Levels of skills available in the market. if the same or about the same general rates of wages are not paid to the employees as are paid by the organizations competitors. in essence. In recognition of the influence of the cost of living. while other organizations pay lower wages because economically they have to or because by lowering hiring requirements they can keep jobs adequately manned. (2) Supply and demand of labour: The labour market conditions or supply and demand forces operate at the national. trade union encourages this practice so that their members can have equal pay. All employers. all of these remuneration standards are determined by immediate market forces and factors. Some companies pay on a high side of the market in order to obtain goodwill or to insure an adequate supply of labour. if there is a great demand for labour expertise. This is done for several reasons. When the cost of living increases. (4) The cost of living: The cost of living pay criterion is usually regarded as an automatic minimum equity pay criterion. An organization compensation policy generally tends to conform to the wage rate payable by the industry and the community. these labour market pressures probably force most organizations to reclassify hard to fill jobs at a higher level” that suggested by the job evaluation. and determine organizational wage structure and level. Second. with same skill and experience. must pay no less than their competitors and need to pay no more if they wish to attract and keep workers. irrespective of their profits or losses. competition demand that competitors adhere to the same relative wage level. wages rise. In the short run. and lower wages when it is excessive. wages are cut because the funds are not available. it will not be able to attract and maintain the sufficient quantity and quality of manpower. the wages will be relatively low. regional and local levels. but if the demand for manpower skill is minimal. But during the period of depression. During the time of prosperity. therefore.

(5) The living wage: Criterion means that wages paid should be adequate to enable an employee to maintain himself and his family at a reasonable level of existence. the over all plan is first prepared by the Personnel Manager in consultation and discussions with senior members of other departments. The major functions of such Committee are: a) Approval and/or recommendation to management on job evaluation methods and findings. automation has been affecting the skill levels at faster rates. or in the wages they get. (6) Psychological and Social Factors:These determine in a significant measure how hard a person will work for the compensation received or what pressures he will exert to get his compensation increased. colour. The technological development. they feel that the level of living prescribed in a workers budge is open to argument since it is based on subjective opinion. who in turn submit their recommendations to higher authority and the .”that“they are not exploited. Psychologically. and e) Review of budget estimates for wage and salary adjustments and increases. employers do not generally favor using the concepts of a living wage as a guide to wage determination because they prefer to base the wages of an employee on his contribution rather than on his need.workers and trade unions demand adjusted wages to offset the erosion of real wages. people feel that “equal work should carry equal wages”that“wages should be commensurate with their efforts. Also. Since the problem of wages and salary is very delicate and complicated. ADMINISTRATION OF WAGES AND SALARIES Wage and salary administration should be controlled by some proper agency. it is usually entrusted to a Committee composed of high-ranking executives representing major line organizations. However. It is then submitted for final approval of the top executive. seem inadequate or feel the reverse of all these. However. Sociologically and ethically. these things should not be overlooked by the management in establishing wage rate. its implementation becomes a joint effort of all heads of the departments. have an inferiority complex. there is shortage of skilled resources. for the wage and salary structure and the rules for administration. Alternatively. people may feel secure. (7) Skill Levels Available in the Market:With the rapid growth of industries business trade. and for a review of present wage rates procedure and policies. The actual appraisal of the performance of subordinates is carried out by the various managers. d) Co-ordination and review of relative departmental rates to ensure conformity. Thus the wage levels of skilled employees are constantly changing and an organization has to keep its level up to suit the market needs.” To satisfy the conditions of equity. This Committee should be supported by the advice of the technical staff. persons perceive the level of wages as a measure of success in life. This responsibility may be entrusted to the personnel department or to some job executive. Once he has given his approval. when living costs are stable or decline. a management should take these factors into consideration. and that no distinction is made on the basis of caste. Such staff committees may be for job evolution. fairness and justice. wage and salary surveys in an industry. Job description. c) Help in the formulation of wage policies from time to time. Therefore. They may not take pride in their work. b) Review and recommendation of basic wage and salary structure. merit rating. sex or religion. the management does not resort to this argument as a reason for wage reductions.

g) The employees and the trade union. A job carries a certain wage rate. regardless of who fills them. this may take the from of rate ranges. have an inferiority complex. Workers should receive a guaranteed minimum wage to protect them against conditions beyond their control. i) The wage and salary structure should be flexible so that changing conditions can be easily met. depending upon his ability and contributions. The labour market criterion is most commonly used. Exceptions sometimes occur in very high level jobs in which the job holder may make the job large or small. if there is one. in others. It has been recognized that “money is the only form of incentive which is wholly negotiable. appealing to the widest possible range of seekers. i. b) The general level of wages and salaries should be reasonably in line with that prevailing in the labour market. For some units. e) An equitable practice should be adopted for the recognition of individual differences in ability and contribution. f) There should be a clearly established procedure for hearing and adjusting wage complaints. seem inadequate or feel . and of the wage and salary structure. (10) Psychological and Social Factors:These determine in a significant measure how hard a person will work for the compensation received or what pressures he will exert to get his compensation increased. d) Equal pay for equal work. in still others. to reduced turnover. and a person is assigned to fill it that rate. in turn. In unusual cases of serious disagreement. k) For revision of wages. the pay should be the same. Desires to improve or maintain morale. with in grade increases. l) The wage and salary payment must fulfill a wide variety of human needs. The personnel department ordinarily reviews recommendations to ensure compliance with established rules of administration. people may feel secure. if it exists. j) Prompt and correct payments of the dues of the employees must be ensured and arrears of payment should not accumulate. Psychologically. however unbiased. c) The plan should carefully distinguish between jobs and employees. it may take the from of closely integrated sequences of job promotion. it may be a wage incentive plan. This may be integrated with the regular grievance procedure. responsibility or job or working conditions and mental and physical requirements. or a manager. such as skill effort. the president makes the final decision. Secrecy in wage matters should not be used as a cover up for haphazard and unreasonable wage programme. a Wage Committee should always be preferred to the individual judgement. to attract high caliber employees. and to provide a high living standard for employees as possible also appear to be factors in management’s wage policy decisions. Monetary payment often acts as motivation and satisfies interdependently of other job factors.latter. Every employee should be informed of his own position. h) The wage should be sufficient to ensure for the worker and his family reasonable standard of living. Desire to maintain or enhance the company’s prestige has been a major factor in the wage policy of a number of firms. should be informed about the procedure used to establish wage rates. if two jobs have equal difficulty requirements.. PRINCIPLES OF WAGES AND SALARY ADMINISTRATION The generally accepted principles governing the fixation of wages and salary are: a) There should be definite plan to ensure that differences in pay for jobs are based upon variations in job requirements. persons perceive the level of wages as a measure of success in life.e. to the personnel department. including the need for self-actualisation.

faster. (11) Skill Levels Available in the Market:With the rapid growth of industries business trade. It goes beyond competitive analysis to understanding not just the competitor’s output. Thus the wage levels of skilled employees are constantly changing and an organization has to keep its level up to suit the market needs. time and cost. or in the wages they get. In this way. It enables organizations to outperform competitors. management identifies the best firms in their industry. ew Paradigms A permanent benchmarking program forces organizations out of their comfort zones and provides specific and measurable short-term improvement plans based on current reality rather than historical performance. benchmarking is a key tool of business performance management and finds use by enhancing the competitiveness of the organization. and that no distinction is made on the basis of caste. Therefore.[citation needed] Also referred to as "best practice benchmarking" or "process benchmarking". In the process of benchmarking. benchmarking ensures the basic survival of the business. The technological development. usually with the aim of increasing some aspect of performance. or in another industry where similar processes exist. they learn how well the targets perform and. By showing how to better competitors. Benchmarking is the process of comparing one's business processes and performance metrics to industry bests or best practices from other industries. more importantly. and cheaper. opens minds to ideas from new sources. organizations set goals based on past trends and established internal patterns. time. and cost dimensions. usually within a peer group defined for the purposes of comparison. these things should not be overlooked by the management in establishing wage rate. the business processes that explain why these firms are successful. Sociologically and ethically. They may not take pride in their work. and making such comparisons the basis to do things better. This then allows organizations to develop plans on how to make improvements or adapt specific best practices. . and places the organization in a continuous improvement mode. there is shortage of skilled resources.” To satisfy the conditions of equity. colour. sex or religion.the reverse of all these. Benchmarking may be a one-off event. and compare the results and processes of those studied (the "targets") to one's own results and processes. but also the process of obtaining such output. but is often treated as a continuous process in which organizations continually seek to improve their practices. in which organizations evaluate various aspects of their processes in relation to best practice companies' processes. Benchmarking helps remove such “paradigm blindness” and forces the organization to take a fresh approach to goal setting based on a broader perspective. Benchmarking is used to measure performance using a specific indicator (cost per unit of measure. cycle time of x per unit of measure or defects per unit of measure) resulting in a metric of performance that is then compared to others. this process is used in management and particularly strategic management. fairness and justice. Performance Improvement A primary advantage of benchmarking is that it sets the foundation of performance improvement aimed at enhancing competitiveness. First introduced by Xerox Corporation in the mid-1990s. productivity per unit of measure. Dimensions typically measured are quality. people feel that “equal work should carry equal wages”that“wages should be commensurate with their efforts. a management should take these factors into consideration. Very often. automation has been affecting the skill levels at a faster rate. Benchmarking is the systematic process of comparing business processes and performance metrics to industry best practices in terms of quality.”that“they are not exploited.

discounts. Most organizations include benchmarking as a part of continuous improvement initiatives such as Total Quality Management and Six Sigma. are considered taxable income. Fringe benefits such as holiday gifts or bonuses. it remains inadequate to measure the overall effectiveness of such metrics. when considerable scope for further improvements remains. holidays. Benchmark heralds change by: 1.For Employment Security : Benefits under this head include unemployment. health insurance. many organizations make the mistake of undertaking benchmarking as a stand-alone activity. Benchmarking is only a means to an end. cost of living bonus. The 2008 Global Benchmarking Network survey finds organizations preferring benchmarking over any other performance analysis tools. Disadvantages • A major limitation of benchmarking is that while it helps organizations in measuring the efficiency of their operational metrics. including SWOT. and certain types of retirement and insurance benefits. and it is worthless if not accompanied by a plan to change. retirement plans.For Health Protection: Benefits under this head include accident insurance. the most critical factor that drives customer expectations. The fringe benefits are classified under four heads as given here under: 1.including the external perspective. call-back pay. Providing new ideas and better ways of doing things. leave for grievances. Many employers offer specific fringe benefits packages. • A bigger disadvantage of benchmarking is the danger of complacency and arrogance. technological adjustment pay. allowing complacency to develop. but are not limited to. or paid for by the employee. however. level for negotiation. disability insurance. 2. while others allow workers to select or create a plan. If the competitor’s goals and visions were flawed or severely restricted due to some specific factor. various insurances. Organizations provide a variety of fringe benefits. 2. heralding a process of continuous learning that leads to a learning organization. • Finally. overtime pay. retiring rooms. paid or unpaid leave. and tuition assistance. Benefits offered can include. leave travel pay. the advantages of benchmarking overshadow disadvantages. Making explicit the competitors' standards that provide the organization with minimum standards of excellence. Many organizations tend to relax after excelling beyond competitors' standards. . Change Benchmarking help place organizational focus on change and provides the direction for the change process. lay-off. Benchmarking reveals the standards attained by competitors but does not consider the circumstances under which the competitors attained such standards. Most are not subject to income tax because they are either specifically excluded by law. jobs to the sons/daughters of the employees and the like. insurance. Benchmarking opens minds to new ideas. an organization by benchmarking such standards runs the risk of trying to ape such flawed standards or settling for extremely low standards. • Comparing the pros and cons of benchmarking. leave for maternity. Fringe benefits are typically insurance policies and other perks provided by an employer to employees as part of a comprehensive compensation package. The realization of having become the industry leader soon leads to arrogance.

Lay-off Compensation: In case of lay-off. safety measures etc. hoists and lifts. An effective training needs assessment will help direct resources to areas of greatest demand. housing. Deewali or Pooja bonus. grievance time. b)Extra Pay for time Worked: This category covers the benefits such as: premium pay. Christmas bonus. it explores the causes and reasons for the gap and methods for closing or eliminating the gap.For Personnel Identification.hospitalization. old age insurance. and provide quality products and services. improve productivity. incentive bonus. striking gear and devices for cutting off power. food cost subsidy. Organizational assessment takes into consideration various additional factors. cooperative credit societies. work on or near machinery in motion. quality bonus. over-crowding. housing subsidy. counseling. the Factories Act. 1947 provides for the payment of compensation in case of lay-off and retrenchment. medical benefits for retired employees. chains ropes and lifting tackles. 4. Workers are eligible for compensation as stated above even in case of closing down of undertakings. stress counseling. 1948. technology. gratuity. safety of buildings and machinery etc. disposal of waste and effluents. employees are entitled to lay-off compensation at the rate to 50% of the total of the basic wage and dearness allowance for the period of their lay-off except for weekly holidays. These provisions relate to cleanliness. Participation and Stimulation: This category covers the following benefits: anniversary awards. pension. floors. unhealthy working conditions and to protect worker’s capacity. When a difference exists. dust and fume. including changing demographics. and the economy. and spittoons. income tax aid. Retrenchment Compensation: The Industrial Disputes Act. The compensation is paid at the rate of 15 days wage for every completed year of service with a maximum of 45 days wage in a year. It determines what is required to alleviate the problems and weaknesses of the agency as well as to enhance strengths and competencies. and abilities an agency needs. Employee Security Physical and job security to the employee should also be provided with a view to promoting security to the employee and his family members. stipulated certain requirements regarding working conditions with a view to provide safe working environment. provident fund. artificial humidification. political trends. skills. paid lunch periods. and abilities needed by an agency's workforce to achieve the requirements. The fringe benefits are categorized as follows: a)Payment for Time Not worked: Benefits under this category include: sick leave with pay. A complete needs assessment also considers the consequences for ignoring the gaps. shift premium. Safety and Health Employee’s safety and health should be taken care of in order to protect the employee against accidents. vacation pay. old age assistance. attendance bonus. 3. probation of employment of women and children near cotton openers. Lay-off compensation can normally be paid up to 45 days in a year. ventilation and temperature. easing of new machinery. life insurance.For Old Age and Retirement: Benefits under this category include: deferred income plans. An assessment of this type will determine what skills. educational facilities. drinking water. beauty parlor services. lifting machines. old age counseling . sick benefits. revolving machinery. canteen. latrine urinals. recreation. travel time etc. profit sharing. The assessment should address resources needed to fulfill organizational mission. employment of young persons on dangerous machines. ntroduction The purpose of a training needs assessment is to identify performance requirements and the knowledge. In India. Provisions relating to safety measures include fencing of machinery. Further a minimum and continuous wage or salary gives a sense of security to the life. There are three levels of a training needs assessment: • Organizational assessment evaluates the level of organizational performance. The non-seasonal industrial establishments employing 50 or more workers have to give one month’s notice or one month’s wages to all the workers who are retrenched after one year’s continuous service. medical care. A needs assessment is the process of identifying the "gap" between performance required and current performance. self-acting machines. gas etc. excessive weights. recreational programs. etc. lighting. protection of eyes. unemployment compensation. sick leave. precautions against dangerous fumes. pressure plant. paid rest and relief time. Precautions in case of fire. . power to require specifications of defective parts of test of stability. knowledge. bargaining time. explosive or inflammable dust. especially for Mission Critical Occupation's (MCO). traveling concession to retired employees. jobs to sons/daughters of the deceased employee and the like. The benefit of confirmation of the employee on the job creates a sense of job security.

. review job descriptions.g. It also examines new ways to do work that can eliminate the discrepancies or gaps. review strategic plans. and abilities required for affected occupational groups.• • Occupational assessment examines the skills. if anyone..The needs assessment is likely to be only as successful as the planning. Key steps include: o o o o o Identify key stakeholders Solicit support Describe desired outcomes that will contribute to mission objectives Clarify critical behaviors needed to achieve desired outcomes Define required drivers essential to sustain the critical behaviors 2. The Training Needs Assessment Process 1. build a "business case" Include organizational drivers needed to reinforce the critical behaviors that will affect problems/issues Describe how the critical behaviors will be monitored and assessed after implementation of the improvement plan The results of the needs assessment allows the training manager to set the training objectives by answering two very basic questions: what needs to be done.this part of the process will sell and help the decision makers and stakeholders understand the concept of the needs assessment. Plan . Occupational assessment identifies how and which occupational discrepancies or gaps exist. Some performance gaps can be reduced or eliminated through other management solutions. Individual assessment provides information on which employees need training and what kind. To go beyond learning and actually achieve critical behaviors the agency will also need to consider how required drivers will sustain desired outcomes. review performance appraisals) Analyze data Define performance problems/issues: occupational group/individuals Describe critical behaviors needed to affect problems/issues Determine and clarify why critical behaviors do not currently exist Research integrated performance solutions If training is the best solution. These interventions also are needed if training is to result in sustained new behaviors needed to achieve new performance levels. it is more likely that an accurate identification of whom. knowledge. Needs assessment based on the alignment of critical behaviors with a clear agency mission will account for critical occupational and performance requirements to help your agency: a) eliminate redundant training efforts. an occupation. Individual assessment analyzes how well an individual employee is doing a job and determines the individual's capacity to do new or different work. Determine Agency Benefits of Needs Assessment . and why is it not being done now? Then. and checking job fit. needs training and what training is needed. determine best training and development approach(es) Assess cost/benefit of training and development approach(es). Sometimes training is not the best solution. o o o o o o o o o o o o o o o o Set goals/objectives for the needs assessment Evaluate organizational (agency) readiness and identify key roles Evaluate prior/other needs assessments Prepare project plan Inventory the capacity of staff and technology to conduct a meaningful training skills assessment and analysis Clarify success measures and program milestones 3. conduct surveys. Conduct Needs Assessment Obtain needs assessment data (e. and c) assist managers in identifying performance requirements that can best be satisfied by training and other developmental strategies. b) substantially reduce the unnecessary expenditure of training dollars. for an individual. providing a supportive work environment. or an entire organization. such as communicating expectations. assess HR metrics. and it is virtually never the only solution. potentially introduced by the new direction of an agency.

Personnel and human relations programmes can make a contribution toward morale. temperament or motivation or the inability of a person to adapt to technological changes. the below points will explain the necessity of training as follows: i. BENEFITS OF TRAINING: There are various benefits from training they are as follows: a) Increased productivity: An increase in skill usually results in an increment in both quality and quantity of output.MEANING OF TRAINING: Training is a short-term process utilizing a systematic and organized procedure by which non-managerial personnel learn technical knowledge and skills for a definite purpose. iii. financial incentives may then be increased. but they are hollow shells if there . v. To improve health and safety: proper training can help prevent industrial accidents. Production and product quality may improve.P. TRAINING POLICY: Every organization has policies and procedures to follow. However.It is an effort to fit the individual into the immediate position. or in reference to the intangible organizational employment atmospheres. To increase productivity: Instructions can help employees increase their level performance on their present assignment. Quality increases may be in relationships to a company service. the increasingly technical nature of modern jobs demands systematic training to make possible even minimum levels of accomplishment. According to Dale . Increased human performance often directly leads to increased operational productivity and increased company profit. in the same way organizations must have training policies.Training is defined as the organized procedure by which people learn knowledge and / or skill for a definite purpose.S. Training policy represents the top managements commitment to the training of its employees. A safer work environment leads to more stable mental attitude on the part of employees.. . vii. Obsolescence prevention: training and development programs foster the initiative and creativity of employees and help to prevent manpower obsolescence which may be due to age. Again management development programmes seem to give wide awareness and enlarged skill and make enhanced personal growth possible. NEEDS OF TRAINING: Every organization needs training. BIRLA INSTITUTE OF MANAGEMENT 57 iv. In shore training also means. To help company to fulfill its future personnel needs: organizations that have good internal educational programmes will have to make les drastic manpower changes adjustments in the event of sudden personnel alterations. and comprises rules and procedures governing the standard of scope of training..Beah . vi. To improve quality: Better-informed employees are less likely to make operational mistakes. To improve organizational climates: an endless chain of positive reactions result from a well-planned training Programme. may result. M. Personal growth: Employees on a personal basis gain individual from their exposure to educational experiences. ii. internal promotions become stressed and less supervisory pressures etc. b) Heightened moral: Possession of needed skills helps to meet such as security and ego satisfaction.

In role-playing. admininistrative staff college of India.s power of observation and also his analytical ability. For example the conference may discuss specific problems such as planning. skill and pride. USA. OFF THE JOB TRAINING METHODS: These methods require the trainees to leave their work place and devote their time for undergoing training.s and Hindustan Lever. In this method. instead of taking participants into the field is simulated in the training session itself. instructor describes the actual situation or problems of a specific concern and the participants are encouraged to take part in the objective discussion of the problem. In sensitivity training. no solid core of meaningful work laid down with knowledge. the trainees freely express their ideas. 2) Conferences: in this method. BIRLA INSTITUTE OF MANAGEMENT 58 in both the job skills and safety attitudes should contribute towards a reduction in the accident rate. The various off the job training methods are: 1) Special courses and lectures: Some organizations like TATA. the trainees are enabled to see themselves as other and develop an understanding of others views and behavior.P. the ability to adjust to short run variations in the volume of work requires personnel with multiple skills to permit their transfer to jobs where the demand is highest.s behavior through group discussion. Both employee and supervisor want less supervision but greater independence. d) Reduced Accidents: More accidents are caused by deficiencies in people than by deficiencies in equipment and working conditions. 4) Simulation: In simulation. State bank of India. In other words. c) Reduced supervision: the trained employee is one who can perform with limited supervision. This method increases the trainee. Flexibility. managers and potential managers attend the conference programmes in which they pool their ideas and M.P. Proper training M. is one of the common forms of training to the employees. 3) Case studies: The case study method. beliefs and attitudes. Sensitivity training: This method aims to influence an individual. BIRLA INSTITUTE OF MANAGEMENT 63 experience with certain problems. 5) Role-playing: is one of the common simulation methods of training. the participants play different roles for different situation and by this. LIC. the participants . e) Increased organizational stability: The ability of an organization to sustain its effectiveness despite the loss of key personnel can by develop only through creation of a reservoir of employees. In role-playing the participants play his role or those of others under specific conditions of simulation. the real situation of work environment in an organization is presented in the training session. which is not possible unless the employee is adequately trained. which are a common subject of discussion. delegation etc. in simulation. which is popularized by the Harvard Business School. In-group discussion. have their employees to attend course of 1 or 2 week duration conducted by the institutes of management. they are enabled to deal with several problems from various angles. Role-playing enables the participants to increase his skill in dealing with other people.

Check list method 2. 360* Appraisal Traditional method Traditional method of performance appraisal has been used by companies for very long time. Narrated essay 7. Method of performance appraisal Performance appraisal is defined by Wayne Cascio as “the systematic description of employee’s job relevant. Check list method :In this method the senior. The basic idea of the appraisal is to evaluate the performance of the employee. weakness. Methods of performance appraisal Traditional method Modern method 1. A common feature of these methods is they are all relatively simple and involve appraisal by one senior. BIRLA INSTITUTE OF MANAGEMENT 64 6) Incident method: In the usual case method. 1. weakness. whereas in the incident method. This method draws the participants into discussion with greater emotional involvement. The superior has to put a tick mark in any one of the boxes 2. Companies use different methods of appraisal for identifying and appraising the skills and qualities of their employees. These questions are followed by check boxes. strength. The group then puts questions to the instructor to draw solution of the case. Confidential report 3. if any.s feelings and also develop increased tolerance for individual differences. The +ve and – ve traits. giving him a feed back. Ranking method 5. The group then puts questions to the instructor to draw solution of the case. the trainees by interaction in a group become sensitive to one another. only a brief incident is presented to provoke discussion in the class. the boss is given a list of questions about the junior. The report is kept highly confidential and access to the report is limited. responsibilities handled on the job and recommendations for future incentives or promotions. Give incentives and bonus to encourage employees etc. Identify areas where improvement is required so that training can be provided.Performance appraisal may be conducted once in every 6 months or once in a year. Performance appraisal is defined by Wayne Cascio as “the systematic description of employee’s job relevant. Confidential report :This method is very popular in government departments to appraise IAS officers and other high level officials. The different methods used can be explained with the help of following diagram. the entire problem is presented to the students.P. In addition. Graphic rating scale 6. . M. Critical incident method 4.are trained to become patient listeners and resolve conflicts. In this method the senior or the boss writes a report about the junior giving him details about the performance about the employee. strength.

the opinion of many people about the employee and in some cases psychological test are used to analyze the ability of employee. Simple ranking method :Simple ranking method refers to ranks in serial order from the best employee eg. recommendations for the future incentives and promotions. Now days one of the striving feature that appraisal involves is. the narrative essay ends with a recommendation for future promotion or for future incentives. department or team is compared with every other person in the team/group/department. This method is superior because it compares each and every person on certain qualities and provides a ranking on that basis. Both +ve and –ve incidents are mentioned. If we have to rank 10 best employees we start with the first best employee and give him the first rank this is followed by the 2nd best and so on until all 10 have been given ranks. Role analysis :In this method of appraisal the person who is being apprised is called the focal point and the members of his group who are appraising him are called role set members. his abilities and talent.The senior has to put a tick mark for a particular quality along with the ranking. The chart contains certain columns which indicate qualities which are being appraised and other columns which specify the rank to be given. These methods are as follows 1.3. Ranking method :In this method ranks are given to employees based on their performance. Modern methods Modern methods of appraisal are being increasingly used by companies. Narrated essay :In this method the senior or the boss is supposed to write a narrative essay describing the qualities of his junior. Critical incident method :In this method critical or important incidents which have taken place on this job are noted down along with employee’s behavior and reaction in all these situations. According to the department in which they work. 6. Paired comparison :In this method each and every person is the group. There are different methods of ranking employees. 4. The entire appraisal is presented in the form of a chart. Graphic rating scale :Graphic rating scale refers to using specific factors to appraise people. The comparison is made on certain criteria and finally ranks are given. analytical abilities etc. Sometimes the qualities which are judged may change depending upon the department. Such charts are prepared for every employee. The best employee is given rank 1 and then we move to the worst employee and give him rank 10 again to 2nd best employee and give him rank 2 and so on. 5. These role set members identify key result areas (KRA 2 marks) (areas where you want improvement are called KRA) which have to be achieved by the employee. ii. The KRA and their improvement will determine the amount of incentives and benefits which the . iii. Simple ranking method Alternate ranking method Paired comparison method i. This is followed by an analysis of the person. Alternate ranking :In this method the serial alternates between the best and the worst employee. He may describe the employees strength and weakness.

The appraisal informs the employee about his contribution to the company and what is expected in future. 7. . Management by objective :This method was given by Petter Druckard in 1974. customers he deals with. financial institutions and other people he deals with etc. 3. This method is used for selection as well as for appraisal. Assessment centers :Assessment centers (AC) are places where the employee’s are assessed on certain qualities talents and skills which they possess. based on this appraisal is done. It can be use for performance appraisal also. Behavioral anchored rating scale :In this method the appraisal is done to test the attitude of the employee towards his job. knowledge levels. communication skills. Human resource audit/accounting :In this method the expenditure on the employee is compared with the income received due to the efforts of the efforts.employee will receive in future. 6. questioners about different management related situations etc. his juniors. In this method all members of the of the department starting from the lowest level employee to the highest level employee together discus. 4. 5. A feedback is given to the employee and areas of improvement are identified. Feedback about the employee is taken from the employee himself. his colleagues. Based on all these observations an appraisal is made and feedback is given. interest levels etc. based on their performance in these test an games appraisal is done. 3600 appraisal :In this method of appraisal and all round approach is adopted. The people who attend assessment centers are given management games. fix target goals to be achieved. puzzles. psychological test. A comparison is made to find out the utility of the employee to the organization. Psychological testing :In this method clinically approved psychological test are conducted to identify and appraise the employee. The seniors in the department get an opportunity to observe their junior. The appraisal depends upon what role set members have to say about the employee. plan for achieving these goals and work together to achieve them. This is one of the most popular methods. It was intended to be a method of group decision making. his superiors. 2. Normally people with +ve approach or attitude view and perform their job differently as compared to people with a –ve approach.