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Data Analysi s – Major methods of data analysi s; Significance of the stati stical tools in
research; Measures of central tendency- Mean, Median, Mode; Di spersion; Skewnes
and Kurto sis; Quartile Deviation; Standard Deviation; Decision making with
hypothesis testing through parametric test- Z test, T test and F test and non
parametric test- Chi Square Test; Use of computer software for analysi s – SPS .

M anagement- Concept, Nature and Significance; M anageri al FunctionPlanning, Organi zing,

Controlling, Decision M aking; Evolution of
M anagement Thought – Taylor, Fayol, Elton M ayo, FC Bernard, Likert and
Webber; Resent Trend and Future Ch allenges of M anagement; M anagement By
Objective (MBO); Organi zing- Principal, Structure, Proces, Importance;
Motivation; Morale and Productivity; Leadership; Communication; The
concept and signific ance of Org ani zational behavior; Skill s and roles in an
organi z ation; Organi zational design; Organi z ational development.
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Busines policy as a field of study; Nature and scope of strategic
management; Strategic intent, Vision, Mi sion, Objectives and Policies; SWOT
analysi s; Tools and Techniques for strategic analysi s; Impact matrix; Industry
analysi s; Concept of value chain; Framework for analyzing competition;
Advantage of a firm; Role and scope of production management; F acility
location; Layout planning and analysi s; Production planning and
control; Production proces analysi s; Demand forec asting for operations;
Determinants of product mix; Production scheduling, Role and scope of
operation research; PERT/CPM; Total quality management; Ethic s and management
system; Ethical i sues and analysi s in management; V alue b ased organi zation; Social
responsibilities of busines; Corporate governance and ethics

1
 Module 2 evolution of management
1. International Academy of Management & Entrepreneurship MODULE 2
Evolution of management
2. MODULE 2 Evolution of management Thought. Contribution of F.W.Taylor,
Frank & Lillian Gilbreth, Henry Gantt, Henri Fayol, Elton Mayo, Mary Parker
Follet, Rensis Likert, Chestard Bernard, Douglous McGregor, Peter Drcker,
Mickel Porter and C.K. Prahalad.
3. Evolution Of Management Thought Classical Approaches Contemporary
Approaches 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Systematic management Administrative management Quantitative
management Systems theory Current and future revolutions Scientific
management Human relations Organizational behavior Bureaucracy
Contingency theory
4. Systematic Management • Key concepts • systematized manufacturing
operations • coordination of procedures and processes built into internal
operations • emphasis on economical operations, inventory management,
and cost control • Contributions • beginning of formal management in the
United States • promotion of efficient, uninterrupted production • Limitations
• ignored relationship between an organization and it environment • ignored
differences in managers’ and workers’ views
5. Scientific Management • Key concepts • used scientific methods to
determine the “one best way’ • emphasized study of tasks, selection and
training of workers, and cooperation between workers and management •
Contributions • improved factory productivity and efficiency • introduced
scientific analysis to the workplace • piecerate system equated worker
rewards and performance • Limitations • simplistic motivational assumptions
• workers viewed as parts of a machine • potential for exploitation of labor
6. Bureaucracy • Key Concepts • structured network of relationships among
specialized positions • rules and regulations standardize behavior • jobs
staffed by trained specialists who follow rules • Contributions • promotes
efficient performance of routine operations • eliminates subjective judgment
by employees and management • emphasizes position rather than the person
• Limitations • limited organizational flexibility and slowed decision making •
ignores the importance of people and interpersonal relationships • rules may
become ends in themselves
7. Administrative Management • Key concepts • Fayol’s five functions and 14
principles of management • executives formulate the organization’s purpose,
secure employees, and maintain communications • managers must respond
to changing developments • Contributions • viewed management as a
profession that can be trained and developed • emphasized the broad policy

2
aspects of top-level managers • offered universal managerial prescriptions •
Limitations • universal prescriptions need qualifications for contingencies
8. Human Relations • Key concepts • productivity and employee behavior are
influenced by the informal work group • should stress employee welfare,
motivation, and communication • social needs have precedence over
economic needs • Contributions • psychological and social processes
influence performance • Maslow’s hierarchy of need • Limitations • ignored
workers’ rational side and the formal organization’s contributions to
productivity • research overturned the simplistic belief that happy workers
are more productive
9. Quantitative Management • Key concepts • application of quantitative
analysis to management • Contributions • developed specific mathematical
methods of problem analysis • helped managers select the best alternative
among a set • Limitations • models neglect nonquantitative factors •
managers not trained in these techniques may not trust or understand the
techniques’ outcomes • not suited for nonroutine or unpredictable
management decisions
10. Organizational Behavior • Key concepts • promotes employee
effectiveness through understanding of individual, group, and organizational
processes • stresses relationships among employees/managers • assumes
employees want to work and can control themselves • Contributions •
increased participation, greater autonomy, individual challenge and initiative,
and enriched jobs may increase participation • recognized the importance of
developing human resources • Limitations • some approaches ignored
situational factors, such as the environment and technology
11. Systems Theory • Key concepts • organization is viewed as a managed
system • management must interact with the environment • organizational
goals must address effectiveness and efficiency • organizations contain a
series of subsystems • there are many avenues to the same outcome •
synergies enable the whole to be more than the sum of the parts •
Contributions • recognized the importance of the relationship between the
organization and the environment • Limitations • does not provide specific
guidance on the functions of managers
12. Contingency perspective • Key concepts • situational contingencies
influence the strategies, structures, and processes that result in high
performance • there is more than one way to reach a goal • managers may
adapt their organizations to the situation • Contributions • identified major
contingencies • argued against universal principles of management •
Limitations • not all important contingencies have been identified • theory
may not be applicable to all managerial issues
13. Contribution towards management • F.W.Taylor • Frank & Lillian Gilbreth •
Henry Gantt • Henri Fayol • Elton Mayo • Mary Parker Follet • Rensis Likert •
Chestard Bernard • Douglous McGregor • Peter Drcker • Mickel Porter • C.K.
Prahalad.
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14. Four Principles to increase efficiency: 1. Study the way the job is
performed nowF.W.Taylor & Workers should benefit from higher output.
Teach to all workers. 3. Select workers whose skills match the rules set in
Step 2. 4. Establish a fair level of performance and pay for higher
performance.  Try different methods to see which is best. 2. Codify the new
method into rules.  Gather detailed, time and motion information.
determine new ways to do it.
15. Frank & Gilbreths also studied fatigue problems, lighting, heating and
other worker issues. 3. Reorganize each action to be more efficient.  2. Find
better ways to perform it.  1. Break down each action into components. 
Time and motion studies:  Made many improvements to time and motion
studies.  Frank and Lillian Gilbreth refined Taylor’s methods. Lillian Gilbreth
16. Frank Gilbreth • Motion study • Time Study • One best way • Training of
personnel • Three position plan of promotion (each worker should be
considered to occupy three positions: a. the job he held before promotion to
his present position b. his present position and c. the next higher job • Part of
his work, then would be teaching the man below him and learning from the
man above him. In this way, he would qualify for promotion himself and help
to provide a successor to his current job.
17. Lillian Gilbreth • It should be noted that FBG was greatly assisted by
Lillian Gilbreth whom he married in 1904 • Both of them used motion picture
films to analyze and improve motion sequences • Both developed the process
of chart and the flow diagram to record process and flow patterns used in a
work situation • They emphasized written instructions to avoid confusion and
misunderstanding (the white list card system)
18. Fayol noted firms can have too much specialization leading to poor
quality and worker involvement. 2. Authority and Responsibility: Fayol
included both formal and informal authority resulting from special expertise.
3. Unity of Command: Employees should have only one boss. 4. Line of
Authority: a clear chain from top to bottom of the firm. 5. Centralization: the
degree to which authority rests at the very top. 6. Unity of Direction: One
plan of action to guide the organization. 7. Equity: Treat all employees fairly in
justice and respect. Henri Fayol, developed a set of 14 principles: 1. Division
of Labor: allows for job specialization. Fayol’s Principles
19. Fayol’s Principles 8. Order: Each employee is put where they have the
most value. 9. Initiative: Encourage innovation. 10. Discipline: obedient,
applied, respectful employees needed. 11. Remuneration of Personnel: The
payment system contributes to success. 12. Stability of Tenure: Long-term
employment is important. 13. General interest over individual interest: The
organization takes precedence over the individual. 14. Esprit de corps: Share
enthusiasm or devotion to the organization.
20. Henry Gantt • Task and Bonus Plan • Daily Balance Chart (Gantt Chart) •
Humanizing Science of Management • Important of Leadership • Training of
Workers • Social Responsibility of Business
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21. Elton Mayo • He has been called the founder of the “human relations
school.” • He became famous on account of the Hawthorne experiments •
These experiments had a significant impact on management thought, and
considerably influenced the “human relations movement.” • Experiments
conducted in the Hawthorne Plant of the Western Electric Company in
Chicago – from 1927 to 1932.
22. Hawthorne studies Three general phases • Test Room Studies : the object
being to assess the effect of single variables upon employee performance.
They were experimental in nature • Interviewing Studies: these were largely
concerned with improving employee attitudes and were psychological in
nature • Observations Studies: these were undertaken to understand and
describe the factors influencing the informal organization of work groups and
were sociological in nature
23. Mary Parker Follet – An influential leader in early managerial theory –
Held a horizontal view of power and authority in organizations • Suggested
workers help in analyzing their jobs for improvements—the worker knows the
best way to improve the job. • If workers have relevant knowledge of the task,
then they should control the task.
24. Chestard Bernard • While Fayol developed the principles of management,
Barnard proved that such principles could be applied in practice • He defined
organization as : “ a system of consciously coordinated activities or forces of
two or more persons.” • He believed people in organization contributed
services and not themselves • Barnard tried to analyze how organization
functions as a ‘living body.’
25. Douglas McGregor Douglas McGregor proposed the two different sets of
assumptions about workers. – Theory X assumes the average worker is lazy,
dislikes work and will do as little as possible. • Managers must closely
supervise and control through reward and punishment. – Theory Y assumes
workers are not lazy, want to do a good job and the job itself will determine if
the worker likes the work. • Managers should allow workers greater latitude,
and create an organization to stimulate the workers.
26. Douglas McGregor THEORY X THEORY Y Work is inherently distasteful to
most people Work is as natural as play, if the conditions are favorable Most
people are not ambitious, have little desire for responsibility, and prefer to be
directed Self-control is often indispensable in achieving organizational goals
Most people have little capacity for creativity in solving organizational
problems The capacity for creativity in solving organizational problems is
widely distributed in the population Motivation occurs only at the
psychological and safety levels Motivation occurs at the social, esteem, and
self-actualization levels, as well as physiological and security levels Most
people must be closely controlled and often coerced to achieve
organizational objectives People can be self-directed and creative at work if
properly motivated

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27. Peter Drucker • Drucker is repeatedly preaching a philosophy of
management, that of management by objectives and self-control • He
pleaded for creative management instead of bureaucratic management • He
said that managers should go beyond decentralization, and design principles
of taskforce team, simulated decentralization and the systems organizations
• Managers should learn to lead people rather than contain them • He said
that the Innovative org – the org that resists stagnation rather than change –
is a major challenge to management • More and more organizations which
are innovative and productive for society, economy and the individuals should
come up • His first line in “practice of management” – “The manager is the
dynamic, life-giving element in every business.”
28. Drucker’s 7 tasks to be performed by tomorrow’s manager • He must
manage by objectives • He must take more risks and for a longer period
ahead • He must be able to make strategic decision • He must be able to
build and integrated team • He must be able to communicate information fast
and clearly • He must be bale to see the business as a whole and to integrate
his function with it, and • He must be able to relate his product and industry
to the total environment

Concept,nature and significance of management

1. Concept, nature and significance of management1) Nature, concept and
significance of management 2) Functions and principles of management 3)
Development of management thought By- Shubham Kushwaha
2. MEANING AND DEFINITION OFMANAGEMENTManagement is the process
by which a co-operative groupdirects action towards a common goal. By
Joseph Messie To manage is to forecast and plan, to organize, to command,
to coordinate and to control. By Henri FayolManagement is the art of knowing
what you want men to do in the cheapest way. By F.W. TaylorFeatures (or
characteristics) of managementManagement is an activity concerned with
guidinghuman and physical resources such that organizational
3. goals can be achieved. Nature of management can behighlighted as -- 1)
Management is Goal-Oriented: The success of any management activity is
accessed by its achievement of the predetermined goals or objective.
Management is a purposeful activity. It is a tool which helps use of human &
physical resources to fulfill the pre-determined goals. For example, the goal
of an enterprise is maximum consumer satisfaction by producing quality
goods and at reasonable prices. This can be achieved by employing efficient
persons and making better use of scarce resources. 2) Management
integrates Human, Physical and Financial Resources: In an organization,
human beings work with non-human resources like machines. Materials,

6
financial assets, buildings etc. Management integrates human efforts to
those
4. resources. It brings harmony among the human, physical and financial
resources.3) Management is Continuous: Management is an ongoing process.
It involves continuous handling of problems and issues. It is concerned with
identifying the problem and taking appropriate steps to solve it. E.g. the
target of a company is maximum production. For achieving this target various
policies have to be framed but this is not the end. Marketing and Advertising
is also to be done. For this policies have to be again framed. Hence this is an
ongoing process.4) Management is all Pervasive: Management is required in
all types of organizations whether it is political, social, cultural or business
because it helps and directs various efforts towards a definite purpose. Thus
clubs, hospitals, political parties, colleges, hospitals, business firms all
require
5. management. When ever more than one person is engaged in working for a
common goal, management is necessary. Whether it is a small business firm
which may be engaged in trading or a large firm like Tata Iron & Steel,
management is required everywhere irrespective of size or type of activity. 5)
Management is a Group Activity: Management is very much less concerned
with individual’s efforts. It is more concerned with groups. It involves the use
of group effort to achieve predetermined goal of management of ABC & Co. is
good refers to a group of persons managing the enterprise.Objectives of
businessThe main objectives of management are:1) Getting Maximum
Results with MinimumEfforts - The main objective of management is to
secure
6. maximum outputs with minimum efforts & resources.Management is
basically concerned with thinking &utilizing human, material & financial
resources in sucha manner that would result in best combination.
Thiscombination results in reduction of various costs.2)Increasing the
Efficiency of factors of Production- Through proper utilization of various
factors ofproduction, their efficiency can be increased to a greatextent which
can be obtained by reducing spoilage,wastages and breakage of all kinds,
this in turn leads tosaving of time, effort and money which is essential forthe
growth & prosperity of the enterprise.3) Maximum Prosperity for Employer &
Employees- Management ensures smooth and coordinatedfunctioning of the
enterprise. This in turn helps inproviding maximum benefits to the employee
in theshape of good working condition, suitable wage system,
7. incentive plans on the one hand and higher profits to theemployer on the
other hand.4) Human betterment & Social Justice -Management serves as a
tool for the upliftment as wellas betterment of the society. Through
increasedproductivity & Management—a process - As a process,management
refers to a series of inter - related functions.It is the process by which
management creates, operatesand directs purposive organization through
systematic,coordinated and co-operated human efforts, according toGeorge
7
R. Terry, “Management is a distinct processconsisting of planning, organizing,
actuating andcontrolling, performed to determine and
accomplishemployment, management ensures betterstandards of living for
the society. It provides justicethrough its uniform policies.Management
concepts
8. It is a never ending process. It is concerned with constantly identifying the
problem and solving them by taking adequate steps. It is an on-going
process.Management undertakes the job of bringing together human
physical and financial resources so as to achieve organizational purpose.
Therefore, is an important function to bring harmony between various factors.
Since human factor is most important among the other factors, therefore
management is concerned with developing relationship among people. It is
the duty of management to make interaction between people - productive and
useful for obtaining organizational goals. stated objective by the use of
human beings and otherresources”. As a process, management consists of
threeaspects:
9. Practically all types of managerial activities arebased on one or the other
types of decisions. Therefore,managers are continuously involved in
decisions ofdifferent kinds since the decision made by one managerbecomes
the basis of action to be taken by otherIn the functioning of business
enterprise, themanager constantly has to receive and give informationorally
or in written. A communication link has to bemaintained with subordinates as
well as superiors foreffective functioning of an enterprise. Management—an
activity- Like variousother activities performed by human beings such
aswriting, playing, eating, cooking etc, management isalso an activity
because a manager is one whoaccomplishes the objectives by directing the
efforts ofothers. According to Koontz, “Management is what amanager does”.
Management as an activity includes - 
10. managers. (E.g. Sales Manager is deciding the media &Management—a
group- Management as agroup may be looked upon in 2 different ways: All
managers taken together. Only the top managementThe interpretation
depends upon the context in whichthese terms are used. Broadly speaking,
there are 3 typesof managers -Management involves achieving goals through
people.Therefore, managers have to interact with superiors aswell as the
sub-ordinates. They must maintain goodrelations with them. The inter-
personal activitiesinclude with the sub-ordinates and taking care of
theproblem. (E.g. Bonuses to be given to the sub-ordinates).content of
advertising).
11. Management—a discipline- Management as adiscipline refers to that
branch of knowledge which isconnected to study of principlesPolitical
Managers / Civil Servants: Those whomanage public sector
undertakings.Managers have become a part of elite group of society asthey
enjoy higher standard of living in the society.Professional Managers: Those
who have been appointedon account of their specialized knowledge and
8
degree.Patrimonial / Family Manager: Those who havebecome managers by
virtue of their being owners orrelatives of the owners of company. &
practices of basicadministration. It specifies certain code of conduct to
befollowed by the manager & also various methods formanaging resources
efficiently.
12. Management as a discipline specifies certain code ofconduct for
managers & indicates various methods ofmanaging an enterprise.
Management is a course ofstudy which is now formally being taught in
theinstitutes and universities after completing a prescribedcourse or by
obtaining degree or diploma in management,a person can get employment as
a manager.Any branch of knowledge that fulfils following tworequirements is
known as discipline: There must be scholars & thinkers who communicate
relevant knowledge through research and publications. The knowledge
should be formally imparted by education and training programmes.Since
management satisfies both these problems,therefore it qualifies to be a
discipline. Though it is
13. Management—a science- Science is asystematic body of knowledge
pertaining to a specificfield of study that contains general facts which
explainsa phenomenon. It establishes cause ancomparatively a new
discipline but it is growing at afaster pace.Universally acceptance principles
- Scientificprinciples represents basic truth about a particular fieldof enquiry.
These principles may be applied in allsituations, at all timed
effectrelationship between two or more variables andunderlines the
principles governing their relationship.These principles are developed
through scientific methodof observation and verification through
testing.Science is characterized by following main features: & at all places.
E.g. - law of
14. Experimentationgravitation which can be applied in all
countriesirrespective of the time.Management also contains some
fundamental principleswhich can be applied universally like the Principle
ofUnity of Command i.e. one man, one boss. This principleis applicable to all
type of organization - business or nonbusiness. & Observation -
Scientificprinciples are derived through scientific investigation &researching
i.e. they are based on logic. E.g. the principlethat earth goes round the sun
has been scientificallyproved.Management principles are also based on
scientificenquiry & observation and not only on the opinion ofHenry Fayol.
They have been developed throughexperiments & practical experiences of
large no. of
15. Causemanagers. E.g. it is observed that fair remuneration topersonal
helps in creating a satisfied work force. & Effect Relationship - Principles
ofscience lay down cause and effect relationship betweenvarious variables.
E.g. when metals are heated, they areexpanded. The cause is heating &
result is expansion.The same is true for management, therefore it
alsoestablishes cause and effect relationship. E.g. lack ofparity (balance)
9
between authority & responsibilitywill lead to ineffectiveness. If you know
the cause i.e.lack of balance, the effect can be ascertained easily i.e.in
effectiveness. Similarly if workers are given bonuses,fair wages they will
work hard but when not treated infair and just manner, reduces productivity
oforganization.
16. Test of Validity & Predictability - Validity ofscientific principles can be
tested at any time or anynumber of times i.e. they stand the test of time.
Eachtime these tests will give same result. Moreover futureevents can be
predicted with reasonable accuracy byusing scientific principles. E.g. H2 &
O2 will always giveH2O.Principles of management can also be tested for
validity.E.g. principle of unity of command can be tested bycomparing two
persons - one having single boss and onehaving 2 bosses. The performance
of 1st person will bebetter than 2nd.It cannot be denied that management
has a systematicbody of knowledge but it is not as exact as that of
otherphysical sciences like biology, physics, and chemistry etc.The main
reason for the inexactness of science ofmanagement is that it deals with
human beings and it
17. is very difficult to predict their behavior accurately.Since it is a social
process, therefore it falls in the area ofsocial sciences. It is a flexible
science & Management—an art- Art implies applicationof knowledgethat is
why itstheories and principles may produce different results atdifferent times
and therefore it is a behavior science.Ernest Dale has called it as a Soft
Science. & Practical Knowledge- Every art requirespractical knowledge
therefore learning of theory is notsufficient. It is very important to know
practicalapplication of theoretical principles. E.g. to become agood painter,
the person may not only be knowingdifferent color and brushes but different
designs,skill to trying about desired results. Anart may be defined as
personalized application of generaltheoretical principles for achieving best
possible results.Art has the following characters -
18. Creativity- Every artist has an element ofcreativity in line. That is why he
aims at producingPersonal Skill- Although theoretical base may besame for
every artist, but each one has his own style andapproach towards his job.
That is why the level of successand quality of performance differs from one
person toanother. E.g. there are several qualified painters butM.F. Hussain is
recognized for his style. Similarlymanagement as an art is also personalized.
Everymanager has his own way of managing things based onhis knowledge,
experience and personality, that is whysome managers are known as good
managers (likeAditya Birla, Rahul Bajaj) whereas others as bad.dimensions,
situations etc to use them appropriately. Amanager can never be successful
just by obtaining degreeor diploma in management; he must have also
knowhow to apply various principles in real situations byfunctioning in
capacity of manager.
19. something that has never existed before which requirescombination of
intelligence & Goal-Oriented- Every art is result oriented as itseeks to
10
achieve concrete rePerfection through practice- Practice makes aman
perfect. Every artist becomes more and moreproficient through constant
practice. Similarlymanagers learn through an art of trial and errorinitially but
application of management principles overthe years makes them perfect in
the job of managing.imagination.Management is also creative in nature like
any otherart. It combines human and non-human resources inuseful way so
as to achieve desired results. It tries toproduce sweet music by combining
chords in an efficientmanner.sults. In the same manner,management is also
directed towards accomplishment ofpre-determined goals. Managers use
various resources like
20. men, money, material, machinery & Management—a profession- Over a
large fewdecades, factors such as growing size of business unit,separation of
ownership from management, growingcompetition etc have led to an
increased demand forprofessionally qualified managers. The task of
managerhas been quite specialized. As a result of thesedevelopments the
management has reached a stagewhere everything is to be managed
professionally.A profession may be defined as an occupation thatrequires
specialized knowledge and intensive academicmethods to promotegrowth of
an organization.Thus, we can say that management is an art thereforeit
requires application of certain principles rather it isan art of highest order
because it deals with mouldingthe attitude and behavior of people at work
towardsdesired goals.
21. Formal EducationSpecialized Knowledge - A profession must havea
systematic body of knowledge that can be used fordevelopment of
professionals. Every professional mustmake deliberate efforts to acquire
expertise in theprinciples and techniques. Similarly a manager musthave
devotion and involvement to acquire expertise inthe science of
management.preparations to which entry is regulated by arepresentative
body. The essentials of a profession are: & Training - There are no.
ofinstitutes and universities to impart education &training for a profession.
No one can practice a professionwithout going through a prescribed course.
Manyinstitutes of management have been set up forimparting education and
training. For example, a CAcannot audit the A/C’s unless he has acquired a
degree ordiploma for the same but no minimum qualificationsand a course of
study has been prescribed for managers by
22. Code of Conduct- Members of a profession have toabide by a code of
conduct which contains certain rulesand regulations, norms of honesty,
integrity and specialethics. A code of conduct is enforced by a
representativeassociation to ensure self discipline among its members.Any
member violating the code of conduct can bepunished and his membership
can be withdrawn. TheAIMA has prescribed a code of conduct for managers
butSocial Obligations - Profession is a source oflivelihood but professionals
are primarily motivated bythe desire to serve the society. Their actions
areinfluenced by social norms and values. Similarly amanager is responsible
11
not only to its owners but also tothe society and therefore he is expected to
provide qualitygoods at reasonable prices to the society.law. For example,
MBA may be preferred but notnecessary.
23. Representative Association - For the regulationof profession, existance of
a representative body is a must.For example, an institute of Charted
Accountants ofIndia establishes and administers standards ofcompetence for
the auditors but the AIMA however doesnot have any statuary powers to
regulate the activitiesof managers.From above discussion, it is quite clear
thatmanagement fulfills several essentials of a profession,even then it is not
a fully fledged profession because: - It does not restrict the entry in
managerial jobs for account of one standard or other. No minimum
qualifications have been prescribed for managers.it has no right to take
legal action against anymanager who violates it.
24. No management association has the authority to grant a certificate of
practice to various managers. All managers are supposed to abide by the
code formulated by AIMA, Competent education and training facilities do not
exist. Managers are responsible to many groups such as shareholders,
employees and society. A regulatory code may curtail their freedom.
Managers are known by their performance and not mere degrees. The
ultimate goal of business is to maximize profit and not social welfare. That is
why Haymes has rightly remarked, “The slogan for management is becoming
- ’He who serves best, also profits most’.”Levels of managementThe term
“Levels of Management’ refers to a line ofdemarcation between various
managerial positions in
25. an organization. The number of levels in managementincreases when the
size of the business and work forceincreases and vice versa. The level of
managementdetermines a chain of command, the amount ofauthority & Low
level / Supervisory / Operative / First-linemanagersManagers at all these
levels perform different functions.The role of managers at all the three levels
is discussedbelow:Middle level / ExecutoryTop level / Administrative
levelstatus enjoyed by any managerial position.The levels of management
can be classified in three broadcategories: -
26. Top Level of ManagementIt consists of board of directors, chief executive
ormanaging director. The top management is the ultimatesource of authority
and it manages goals and policies foran enterprise. It devotes more time on
planning andcoordinating functions.The role of the top management can be
summarized asfollows -
27. Top management lays down the objectives and broad policies of the
enterprise. It issues necessary instructions for preparation of department
budgets, procedures, schedules etc. It prepares strategic plans & policies for
the enterprise. It appoints the executive for middle level i.e. departmental
managers. It controls & Middle Level of ManagementThe branch managers
and departmental managersconstitute middle level. They are responsible to
the topcoordinates the activities of all the departments. It is also
12
responsible for maintaining a contact with the outside world. It provides
guidance and direction. The top management is also responsible towards the
shareholders for the performance of the enterprise.
28. management for the functioning of their department.They devote more
time to organizational and directionalfunctions. In small organization, there is
only one layerof middle level of management but in big enterprises,there may
be senior and junior middle levelmanagement. Their role can be emphasized
as - They execute the plans of the organization in accordance with the
policies and directives of the top management. They make plans for the sub-
units of the organization. They participate in employment & training of lower
level management. They interpret and explain policies from top level
management to lower level. They are responsible for coordinating the
activities within the division or department. It also sends important reports
and other important data to top level management.
29. Lower Level of ManagementLower level is also known as supervisory /
operative levelof management. It consists of supervisors, foreman,section
officers, superintendent etc. According to R.C.Davis, “Supervisory
management refers to thoseexecutives whose work has to be largely with
personaloversight and direction of operative employees”. In otherwords, they
are concerned with direction and controllingfunction of management. Their
activities include - Assigning of jobs and tasks to various workers. They guide
and instruct workers for day to day activities. They are responsible for the
quality as well as quantity of production.They evaluate performance of junior
managers. They are also responsible for inspiring lower level managers
towards better performance.
30. They are also entrusted with the responsibility of maintaining good
relation in the organization. They communicate workers problems,
suggestions, and recommendatory appeals etc to the higher level and higher
level goals and objectives to the workers. They help to solve the grievances
of the workers. They supervise & guide the sub-ordinates. They are
responsible for providing training to the workers. They arrange necessary
materials, machines, tools etc for getting the things done. They prepare
periodical reports about the performance of the workers. They ensure
discipline in the enterprise. They motivate workers. They are the image
builders of the enterprise because they are in direct contact with the
workers.Importance of management
31. It helps in Achieving Group Goals - Itarranges the factors of production,
assembles andorganizes the resources, integrates the resources ineffective
manner to achieve goals. It directs groupefforts towards achievement of pre-
determined goals.By defining objective of organization clearly therewould be
no wastage of time, money and effort.Management converts disorganized
resources of men,machines, money etc. into useful enterprise.
Theseresources are coordinated, directed and controlled insuch a manner
that enterprise work towardsattainment of goals.Optimum Utilization of
13
Resources -Management utilizes all the physical & humanresources
productively. This leads to efficacy inmanagement. Management provides
maximumutilization of scarce resources by selecting its bestpossible
alternate use in industry from out ofvarious uses. It makes use of experts,
professional and
32. these services leads to use of their skills, knowledge,and proper
utilization and avoids wastage. Ifemployees and machines are producing its
maximumthere is no under employment of any resources.Reduces Costs - It
gets maximum results throughminimum input by proper planning and by
usingminimum input & getting maximum output.Management uses physical,
human and financialresources in such a manner which results in
bestcombination. This helps in cost reduction.Establishes Sound
Organization - Nooverlapping of efforts (smooth and coordinatedfunctions). To
establish sound organizationalstructure is one of the objective of
managementwhich is in tune with objective of organization andfor fulfillment
of this, it establishes effectiveauthority & responsibility relationship i.e. who
isaccountable to whom, who can give instructions towhom, who are
superiors & who are subordinates.
33. Management fills up various positions with rightpersons, having right
skills, training andqualification. All jobs should be cleared to
everyone.Establishes Equilibrium - It enables theorganization to survive in
changing environment.It keeps in touch with the changing environment.With
the change is external environment, theinitial co-ordination of organization
must bechanged. So it adapts organization to changingdemand of market /
changing needs of societies. It isresponsible for growth and survival of
organization.Essentials for Prosperity of Society -Efficient management leads
to better economicalproduction which helps in turn to increase thewelfare of
people. Good management makes adifficult task easier by avoiding wastage
of scarceresource. It improves standard of living. It increasesthe profit which
is beneficial to business and societywill get maximum output at minimum
cost by
34. creating employment opportunities which generate income in hands.
Organization comes with new products and researches beneficial for
society.Functions (scope) of managementManagement has been described as
a social processinvolving responsibility for economical and effectiveplanning
& regulation of operation of an enterprise inthe fulfillment of given purposes.
It is a dynamic processconsisting of various elements and activities.
Theseactivities are different from operative functions likemarketing, finance,
purchase etc. Rather theseactivities are common to each and every
mangerirrespective of his level or status.Different experts have classified
functions ofmanagement. According to George & Jerry, “There are
fourfundamental functions of management i.e. planning,
35. organizing, actuating and controlling”. According toHenry Fayol, “To
manage is to forecast and plan, toorganize, to command, & to control”.
14
Whereas LutherGullick has given a keyword ’POSDCORB’ where Pstands for
Planning, O for Organizing, S for Staffing, Dfor Directing, Co for Co-ordination,
R for reporting & B forBudgeting. But the most widely accepted are
functionsof management given by KOONTZ and O’DONNEL i.e.Planning,
Organizing, Staffing, Directing andControlling.For theoretical purposes, it may
be convenient toseparate the function of management but practicallythese
functions are overlapping in nature i.e. they arehighly inseparable. Each
function blends into the other& each affects the performance of others.
36. PlanningIt is the basic function of management. It deals withchalking out
a future course of action & deciding inadvance the most appropriate course
of actions forachievement of pre-determined goals. According toKOONTZ,
“Planning is deciding in advance - what to do,when to do & how to do. It
bridges the gap from where weare & where we want to be”. A plan is a future
course ofactions. It is an exercise in problem solving & decisionmaking.
Planning is determination of courses of actionto achieve desired goals. Thus,
planning is a systematic
37. thinking about ways & means for accomplishment ofpre-determined goals.
Planning is necessary to ensureproper utilization of human & OrganizingIt is
the process of bringing together physical, financialand human resources and
developing productiverelationship amongst them for achievement
oforganizational goals. According to Henry Fayol, “Toorganize a business is to
provide it with everythinguseful or its functioning i.e. raw material, tools,
capitaland personnel’s”. To organize a business involvesdeterminingnon-
human resources. Itis all pervasive, it is an intellectual activity and it
alsohelps in avoiding confusion, uncertainties, risks,wastages etc. &
providing human and non-humanresources to the organizational structure.
Organizing asa process involves:
38. StaffingIt is the function of manning the organization structureand
keeping it manned. Staffing has assumed greaterimportance in the recent
years due to advancement oftechnology, increase in size of business,
complexity ofhuman behavior etc. The main purpose o staffing is toput right
man on right job i.e. square pegs in square holesand round pegs in round
holes. According to KoontzIdentification of activities. Classification of
grouping of activities. Assignment of duties. Delegation of authority and
creation of responsibility. Coordinating authority and responsibility
relationships. &O’Donnell, “Managerial function of staffing involvesmanning
the organization structure through proper and
39. effective selection, appraisal & development of personnelto fill the roles
designed un the structure”. Staffinginvolves: Manpower Planning (estimating
man power in terms of searching, choose the person and giving the right
place). Recruitment, selection & placement. Training & development.
Remuneration. Performance appraisal. Promotions & DirectingIt is that part
of managerial function which actuatesthe organizational methods to work
efficiently forachievement of organizational purposes. It is consideredlife-
15
spark of the enterprise which sets it in motion theaction of people because
planning, organizing andtransfer.
40. staffing are the mere preparations for doing the work.Direction is that
inert-personnel aspect of managementwhich deals directly with influencing,
guiding,supervising, motivating sub-ordinate for theachievement of
organizational goals. Direction hasfollowing elements: Supervision Motivation
Leadership Communication Supervision- implies overseeing the work of
subordinates by their superiors. It is the act of watching & directing work &
workers.
41. ControllingIt implies measurement of accomplishment against
thestandards and correction of deviation if any to ensureMotivation- means
inspiring, stimulating or encouraging the sub-ordinates with zeal to work.
Positive, negative, monetary, non-monetary incentives may be used for this
purpose. Leadership- may be defined as a process by which manager guides
and influences the work of subordinates in desired direction.
Communications- is the process of passing information, experience, opinion
etc from one person to another. It is a bridge of understanding.
42. achievement of organizational goals. The purpose ofcontrolling is to
ensure that everything occurs inconformities with the standards. An efficient
system ofcontrol helps to predict deviations before they actuallyoccur.
According to Theo Haimann, “Controlling is theprocess of checking whether
or not proper progress is beingmade towards the objectives and goals and
acting ifnecessary, to correct any deviation”. According to Koontz& O’Donnell
“Controlling is the measurement & correctionof performance activities of
subordinates in order to makesure that the enterprise objectives and plans
desired toobtain them as being accomplished”. Thereforecontrolling has
following steps: Establishment of standard performance. Measurement of
actual performance. Comparison of actual performance with the standards
and finding out deviation if any.
43. Corrective action.Principles of management (managementthoughts)A
principle refers to a fundamental truth. It establishescause and effect
relationship between two or morevariables under given situation. They serve
as a guide tothought & Division of Laboractions. Therefore, management
principles arethe statements of fundamental truth based on logicwhich
provides guidelines for managerial decisionmaking and actions. These
principles are derived: - On the basis of observation and analysis i.e.
practical experience of managers. By conducting experimental
studies.Fayol’s principles of management
44. Henry Fayol has stressed on the specialization of jobs. He recommended
that work of all kinds must be divided & subdivided and allotted to various
persons according to their expertise in a particular area. Subdivision of work
makes it simpler and results in efficiency. It also helps the individual in
acquiring speed, accuracy in his performance. Specialization leads to
efficiency & Party of Authorityeconomy in spheres of business. &
16
Responsibility Authority & responsibility are co-existing. If authority is given
to a person, he should also be made responsible. In a same way, if anyone is
made responsible for any job, he should also have concerned authority.
45. Divides loyalty Weakens discipline It undermines authorityPrinciple of
One Boss A sub-ordinate should receive orders and be accountable to one
and only one boss at a time. In other words, a sub-ordinate should not receive
instructions from more than one person because -Authority refers to the
right of superiors to get exactness from their sub-ordinates whereas
responsibility means obligation for the performance of the job assigned.
There should be a balance between the two i.e. they must go hand in hand.
Authority without responsibility leads to irresponsible behavior whereas
responsibility without authority makes the person ineffective.
46. Overlapping of efforts Therefore, dual sub-ordination should be avoided
unless and until it is absolutely essential. Unity of command provides the
enterprise a disciplined, stable Duplication of work Escaping
responsibilities Delays and chaos Creates confusion & Unity of Direction
Fayol advocates one head one plan which means that there should be one
plan for a group of activities having similar objectives.orderly existence. It
creates harmonious relationship between superiors and sub-ordinates.
47. Related activities should be grouped together. There should be one plan of
action for them Equity Equity means combination of fairness, kindnessand
they should be under the charge of a particular manager. According to this
principle, efforts of all the members of the organization should be directed
towards common goal. Without unity of direction, unity of action cannot be
achieved. In fact, unity of command is not possible without unity of direction.
& justice. The employees should be treated with kindness & equity if
devotion is expected of them. It implies that managers should be fair and
impartial while dealing with the subordinates.
48. Order This principle is concerned with properThey should give similar
treatment to people of similar position. They should not discriminate with
respect to age, caste, sex, religion, relation etc. Equity is essential to create
and maintain cordial relations between the managers and sub-ordinate. But
equity does not mean total absence of harshness. Fayol was of opinion that,
“at times force and harshness might become necessary for the sake of
equity”. & systematic arrangement of things and people. Arrangement of
things is called material order and placement of people is called social order.
49. Discipline According to Fayol, “Discipline means sincerity, obedience,
respect of authorityMaterial order- There should be safe, appropriate and
specific place for every article and every place to be effectively used for
specific activity and commodity. Social order- Selection and appointment of
most suitable person on the suitable job. There should be a specific place for
everyone and everyone should have a specific place so that they can easily
be contacted whenever need arises. & observance of rules and regulations of
the enterprise”. This principle applies that subordinate should respect their
17
superiors and obey their order. It is an important requisite for smooth running
of the enterprise. Discipline is not only required on path of subordinates but
also on the part of management.
50. There are clear There are good superiors at all levels.Discipline can be
enforced if - & Initiative Workers should be encouraged to take initiative in
the work assigned to them. It means eagerness to initiate actions without
being asked to do so. Fayol advised that management should provide
opportunity to its employees to suggest ideas, experiences Sanctions
(punishments) are judiciously applied.fair agreements with workers.& new
method of work. It helps in developing an atmosphere of trust and
understanding. People then enjoy working in the organization because it adds
to their zeal and energy.
51. To suggest improvement in formulation & implementation of place. They
can be encouraged with the help of monetary & Fair Remuneration The
quantum and method of remuneration to be paid to the workers should be
fair, reasonable, satisfactorynon-monetary incentives. & rewarding of the
efforts. As far as possible it should accord satisfaction to both employer and
the employees. Wages should be determined on the basis of cost of living,
work assigned, financial position of the business, wage rate prevailing etc.
Logical & appropriate wage rates and methods of their payment reduce
tension & differences between workers & management creates harmonious
relationship and pleasing atmosphere of work.
52. Fayol also recommended provision of other benefits such as free
education, medical & Stability of Tenure Fayol emphasized that employees
should not be moved frequently from one job position to another i.e. the
period of service in a job should be fixed. Therefore employees should be
appointed after keeping in view principles of recruitmentresidential facilities
to workers. & selection but once they are appointed their services should be
served. According to Fayol. “Time is required for an employee to get used to a
new work & succeed to doing it well but if he is removed before that he will
not be able to render worthwhile services”. As a result, the time, effort and
money spent on training the worker will go waste.
53. Scalar Chain Fayol defines scalar chain as ’The chain of superiors ranging
from the ultimate authority to the lowest”. Every orders, instructions,
messages, requests, explanation etc. has to pass through Scalar chain. But,
for the sake of convenienceStability of job creates team spirit and a sense
of belongingness among workers which ultimately increase the quality as
well as quantity of work. & urgency, this path can be cut shirt and this short
cut is known as Gang Plank. A Gang Plank is a temporary arrangement
between two different points to facilitate quick & easy communication as
explained below:
54. In the figure given, if D has to communicate with G hewill first send the
communication upwards with thehelp of C, B to A and then downwards with
the help of Eand F to Sub-Ordination of Individual Interest toGeneral
18
InterestG which will take quite some time and by thattime, it may not be
worth therefore a gang plank hasbeen developed between the two. Gang
Plank clarifies that management principles are not rigid rather they are very
flexible. They can be moulded and modified as per the requirements of
situations.
55. Employees should be honestAn organization is much bigger than the
individual it constitutes therefore interest of the undertaking should prevail
in all circumstances. As far as possible, reconciliation should be achieved
between individual and group interests. But in case of conflict, individual
must sacrifice for bigger interests. In order to achieve this attitude, it is
essential that - & Propersincere. & Espirit De’ Corps (can be achieved
throughunity of command) Reconciliation of mutual differences and clashes
bymutual agreement. For example, for change of locationof plant, for change
of profit sharing ratio, etc.regular supervision of work.
56. It refers to team spirit i.e. harmony in the workgroups and mutual
understanding among themembers.Espirit De’ Corps inspires workers to work
harder.Fayol cautioned the managers against dividing theemployees into
competing groups because it mightdamage the moral of the workers and
interest of theundertaking in the long run.To inculcate Espirit De’ Corps
following steps shouldbe undertaken -There should be proper co-ordination of
work at alllevelsSubordinates should be encouraged to developinformal
relations among themselves.Efforts should be made to create enthusiasm
andkeenness among subordinates so that they can workto the maximum
ability.
57. Efficient employees should be rewarded and those who are not up to the
mark should be given a chance to improve their performance. Subordinates
should be made conscious of that whatever they are doing is of great
importance to the business & society. He also cautioned against the more
use of Britain communication to the subordinates i.e. face to face
communication should be developed. The managers should infuse team spirit
& belongingness. There should be no place for misunderstanding. People
then enjoy working in the organization & Centralizationoffer their best
towards the organization. & De-Centralization Centralization means
concentration of authority at the top level. In other words, centralization is a
situation in which top management retains most of the decision making
authority.
58. Decentralization means disposal of decision making authority to all the
levels of the organization. In other words, sharing authority downwards is
decentralization. According to Fayol, “Degree of centralization or
decentralization depends on no. of factors like size of business, experience of
superiors, dependability & ability of subordinates etc. Anything which
increases the role of subordinate is decentralization & anything which
decreases it is centralization. Fayol suggested that absolute centralization or
decentralization is not feasible. An organization should strike to achieve a lot
19
between the two.Scientific management by TaylorFredrick Winslow Taylor
(March 20, 1856 - March 21,1915) commonly known as ’Father of
ScientificManagement’ started his career as an operator and rose to
59. the position of chief engineer. He conducted variousexperiments during
this process which forms the basis ofscientific management. It implies
application ofscientific principles for studying & Principles of scientific
managementidentifyingmanagement problems.According to Taylor,
“Scientific Management is an artof knowing exactly what you want your men
to do andseeing that they do it in the best and cheapest way”. InTaylors view,
if a work is analyzed scientifically it willbe possible to find one best way to
do it.Hence scientific management is a thoughtful,organized, dual approach
towards the job ofmanagement against hit or miss or Rule of Thumb.
60. Scientific Selection, TrainingDevelopment of Science for each part
ofmen’s job (replacement of rule of thumb) This principle suggests that work
assigned to any employee should be observed, analyzed with respect to each
and every element and part and time involved in it. This means replacement
of odd rule of thumb by the use of method of enquiry, investigation, data
collection, analysis and framing of rules. Under scientific management,
decisions are made on the basis of facts and by the application of scientific
decisions. &Development of Workers There should be scientifically designed
procedure for the selection of workers.
61. Physical, mental & other requirement should be specified for each and
every job. Workers should be selected & trained to make them fit for the job.
The management has to provide opportunities for development of workers
having better capabilities. According to Taylor efforts should be made to
develop each employee to his greatest level and efficiency & Co-operation
between Managementprosperity. &workers or Harmony not discord Taylor
believed in co-operation and not individualism. It is only through co-operation
that the goals of the enterprise can be achieved efficiently. There should be
no conflict between managers & workers.
62. Taylor believed that interest of employer & Division of Responsibility This
principle determines the concrete nature of roles to be played by different
level of managersemployees should be fully harmonized so as to secure
mutually understanding relations between them. & Mental Revolution The
workers and managers should have a complete change of outlook towards
their mutual relation and work effort.workers. The management should
assume the responsibility of planning the work whereas workers should be
concerned with execution of task. Thus planning is to be separated from
execution.
63. Maximum Prosperity for EmployerIt requires that management should
create suitable working condition and solve all problems scientifically.
Similarly workers should attend their jobs with utmost attention, devotion
and carefulness. They should not waste the resources of enterprise.
Handsome remuneration should be provided to workers to boost up their
20
moral. It will create a sense of belongingness among worker. They will be
disciplined, loyal and sincere in fulfilling the task assigned to them. There
will be more production and economical growth at a faster rate. &Employees
The aim of scientific management is to see maximum prosperity for employer
and employees.
64. It is important only when there is opportunity for each worker to attain
his highest efficiency. Maximum output & optimum utilization of resources
will bring higher profits for the employer & better wages for the workers.
There should be maximum output in place of restricted output. Both
managers & workers should be paid handsomely.Bureaucratic theory of
management by MaxWeberBureaucratic Theory was developed by a
GermanSociologist and political economist Max Weber (1864-1920).
According to him, bureaucracy is the mostefficient form of organization. The
organization has awell-defined line of authority. It has clear rules
andregulations which are strictly followed.
65. Features of bureaucratic managementThe characteristics or features of
BureaucraticOrganization are as follows:- There is a high degree of Division
of Labour and Specialization. There is a well defined Hierarchy of Authority. It
follows the principle of Rationality, Objectively and Consistency. There are
Formal and Impersonal relations among the member of the organization.
Interpersonal relations are based on positions and not on personalities. There
are well defined Rules and Regulations. There rules cover all the duties and
rights of the employees. These rules must be strictly followed. There are well
defined Methods for all types of work. Selection and Promotion is based on
Technical qualifications.
66. Only Bureaucratic or legal power is givenimportance

Concept, nature & purpose of management

1. CONE P T ,NAT UREANDP URP OS EOFMA N A G E ME N
2. 1. INTRODUCTION TO MANAGEMENT2. DEFINITION3. MEANING OF
MANAGEMENT4. FUNCTIONS OF MANAGEMENT5. NATURE OF
MANAGEMENT6. PRINCIPLES OF MANANGEMENT
3. Essential to ensure coordination of individual efforts. One of the most
important human activity.
4. It is the art and science of organizing and directing human efforts applied
to control the Art of securing maximum results with the minimum efforts for
maximum prosperity and happiness for both employer and the employees and
provide best service to the public. Denotes the processes of conducting and
managing various business activities.
5. MeasuresDefinesPredictsProves &Utilizes knowledge
6. CommunicatesExpressesDescribesGuessesFeels &Practices
7. Development of a positiveattitudeKnowledgeIt requires skill
8. When the principles and practices of management are applied to the
pharmaceutical industry and drug store, it is It is the creation and
21
maintenance of an internal environment in an enterprise where individuals,
working in groups, can perform efficiently towards the attainment of group
goals.
9. It is a process of designing and maintaining an environment in which
individuals, workingtogether in groups, accomplish selected aims. in oThER
WoRds, “iT is ThE accomplishment of goals ThRoUgh oThERs”.
10. Interpreted as: 1. An activity 2. A process 3. A disciplineAs a verb:
means a process.As a collective noun: group of person  Means different in
different aspects: 
11. A manager performs the following activities: i. Interpersonal activities:
Interacts with his subordinates (motivates), his superiors and with people
outside the organization Getting things done through and with people
informally organized group.
12. Receives and gives information concerning the Regular communication
with people inside and outside the organization. ii. Decisional activities:
Initiating new projects, allocating resources and bargaining with outsiders.iii.
Informative activities:
13. Taking steps to achieve the objectives.• Consists of planning, organizing,
staffing, directing and controlling.Setting the objectives of the organization.
 Consists of:  Involves series of interrelated functions.
14. i. Social process: Interaction among people (relationship).ii. Integrated
process: Brings together human physical and financial resources.iii.
Continuous process: involves continuous identifying and solving problem.
15. Popularity being identified by the admissions into the institutes of
training and management. Knowledge being imparted to others. Principles
and practice of management being identified. Identified as an organized
body of knowledge which can be learnt through teaching and training.
16. Types of managers: i. Family managers: Have become managers by virtue
of their being the owner or relatives of the owner of the company. All the
managers are collectively known as management. Refers to the group of
persons occupying managerial positions.
17. ii. Professional managers: have become managers by appointment on
account of their degree or diploma in pharmacy.iii. Civil servants: manage
public sector undertakings.
18. Managerial functions include planning, organizing, staffing, leading & It
is concerned with Aim: to achieve the objective. Applies to managers at all
organization. Applies to any kind of organization.controlling.
19. “mAnAgEmEnT is ThE inTEgRATion of resources for exceeding the
company goal by employing 4 principles:a. Objectivesb. Effectivenessc.
Resourcesd. Integration and Coordination
20. Administration refers to executive level of management. On the other
hand, the Management refer to middle management level. „mAnAgEmEnT‟
REfERs To pRiVATE sector. Whereas administration REfERs To “pUbliC
sECToR”. “mAnAgEmEnT” shoUld noT bE ConfUsEd WiTh “AdminisTRATion”.
22
21. 1. PLANNING2. ORGANIZING3. STAFFING4. LEADING/DIRECTING5.
CONTROLLING6. COORDINATION
22. Also requires knowledge to create, develop Includes defining goals,
establishing strategy, and developing plans to coordinate activities. &
Types:a. Long run planninganalyze opportunities in present as well as in
future.
23. Where decisions are to be made. Who reports to whom, and How the
tasks are to be grouped, Who is to do them? What task has to be done?
Determining:
24. Includes:• Motivating employees• Directing others• Selecting the most
effective communication channel• Resolving conflicts
25. Also includes:a. Manpower requirementsb. Appraisal and selection of
candidates for position.c. Training Needs constant reconsideration similar to
planning. Involves developing of qualified people in the various jobs in the
organization. & development of both- candidates & incumbments on the job
in order to improve their capability &
26. Monitoring activities to ensure objectives are achieved as planned and
correcting any significant deviations.
27. Achievement of harmony ofindividual efforts towardsthe accomplishment
oforganizational goals.
28. NATURE OF MANAGEMENT
29. 1. Universality: Irrespective ofthe size nature & location of
theorganization2. Purposeful: Attainment oforganizational goals3. Social
process: Motivation4. Coordinating force: Orderlymanagement and
avoidingduplicating and overlapping.
30. The whole process is integrative and performed in a network fashion. 8.
Creative organ: Provides creative ideas, new imaginations and visions to
group efforts.Made up of individual ingredients5. Intangible: Unseen force
6. Continuous process: Cycle of management continues for achievement of
objectives. 7. Composite process:
31. Mutual coordination Includes the following: a. Achievement of group
goals:  Effective stimulus for every business. Required for successful
functioning of every organization. & Identification and defining
ofcooperation.
32. Effective management leads to reduce cost and increase It utilizes the
resources, more effectively to achieve best results.c. Reducing cost: 
Forecast of the need for machinery, material, money and manpower. b.
Optimum utilization of resources:
33. Helps design new products by adopting new techniques. Due to proper
supervision at all levels of the organization.f. Designing new products: 
Management helps to satisfy the economic and social needs of the
employees.e. Maintenance of discipline: d. Generation of employment:
34. Wealth increases, the income increases and so does the standard of
living of the Can help in development of new products, adopt new
23
technology, utilize the resources efficiently and earn wealth.  Plays an
important role in economic and social development of the country. e.
Development of the nation:
35. Henry Fayol (1841-1925), a French industrialist suggested the following 14
principles of management in order to make the job of managing more
effective:-
36. 1) Division of The right to issue commands, along with which must go the
balanced responsibility for its function. Specialization allows the individual
to build up experience, and to continuously improve his skills. Thereby he can
be more productive.2) Authority: Work:
37. Each worker should have only one boss with no other conflicting lines of
command. Employees must obey, but this is two-sided: employees will only
obey orders if management play their part by providing good leadership.4)
Unity of Command: 3) Discipline:
38. Unity of command does not exist without unity of direction but does not
This is essential to ensure unity and coordination in the enterprise.  People
engaged in the same kind of activities must have the same objectives in a
single plan. 5) Unity of Direction:
39. Payment is an important motivator although by analyzing a number of
possibilities. Management must see that the goals of the firms are always
paramount.7) Remuneration: 6) Subordination of individual interest (to the
general interest):
40. Scalar chain refers to the number of levels in the hierarchy from the
ultimate authority to the lowest level in A hierarchy necessary for unity of
direction. 8) Centralization (or Decentralization): This is a matter of degree
depending on the condition of the business and the quality of its personnel.9)
Scalar chain (Line of Authority):
41. Treating employees well is important to achieve equity. In running a
business a „CombinATion of kindlinEss And jUsTiCE‟ is nEEdEd.  The latter
is achieved through organization and selection.11)Equity:  The former
minimizes lost time and useless handling of materials.  Both material order
and social order are necessary. 10)Order:
42. Even though it may well involve a sacrifice of ‘personal vanity’ on the
part of many managers. Allowing all personnel to show their initiative in
some way is a source of strength for the organization.  An insecure tenure
and a high rate of employee turnover will affect the organization
adversely.13) Initiative:  Employees work better if job security and career
progress are assured to them. 12)Stability of Tenure of Personnel:
43. “REAl TAlEnT is nEEdEd To coordinate effort, encourage kEEnnEss, UsE
EACh pERson‟s abilities, and reward each onE‟s mERiT WiThoUT ARoUsing
possible jealousies and disturbing harmonious RElATions.” Management
must foster the morale of its employees. 14)Esprit de Corps:
44. F.W.Taylor (1856-1915), “father of scientific management” defined the
principles of scientific management.
24
45. “sCiEnTifiCmAnAgEmEnT” meansknowing exactly whatwe want men to do
andseeing that they do it inthe best and thecheapest way.
46. Decisions should be made on the basis of facts rather than Through
scientific management the best way of doing the work can be developed. 
Requires scientific study and analysis of each element of the job. 1.
Development of true science for each element of work:
47. Systematic training and development programmes should be designed to
improvePhysical, mental and other requirements should be specified for
each job.Workers should be selected and trained in accordance with the
requirements of the job, to be entrusted to them.
48. Management should decide the methods of work, workingClose
cooperation ensures the work is in accordance with the scientific principle.4.
Equal division of work and responsibility Interest of employer and
employees should be fully harmonized. 
49. More output, more profits and more salaries for the employees. Aim of
management should be to secure maximum prosperity for each employee
along with the employer. Management is responsible for the supervision of
the work whereas workers should be concerned with the execution of the
plan.5. Maximum prosperity for both employer and employees: 
50. It means a complete change in the outlook of both management and
workers w.r.t their mutual relations and in relation to their work.6. Mental
revolution:

Schools of Management Thought

1. Schools of Management Thought Management Theory & Practice Nimal C
Namboodiripad
2. Schools of Management Thought • Ancient Era • Pre-scientific
Management Era • Classical School – Scientific Management School(1) –
Classical Organisation Theory(2) • Transitional School • Human
Relations/Behavioural School(3) • Management Science/Quantitative
Management School(4)
3. Schools of Management Thought • Systems School • Contingency School •
Modern Era
4. Persons behind the schools • Ancient Era – Machiavelli – Chanakya – Sun
Tzu • Pre-Scientific Management – Robert Owen – Charles Babbage
5. Persons behind the schools • Scientific Management – Frederick W.Taylor –
Henry L Gantt – Frank B Gilbreth & Lillian M.Gilbreth
6. Persons behind the schools • Classical Organisation – Henri Fayol – Max
Weber • Transition School – Mary Parker Follett – Chester I Barnard
7. Persons behind the schools • Human Relations/Behavioural School – Elton
Mayo, Fritz J Roethlisberger, William J Dickson – Hawthorne Experiment –
Abraham Maslow, Douglas McGregor • Modern Era – Peter Drucker, Tom
Peters, Edwards Deming
25
8. Sun Tzu • Book on Art of War written 2000 years back • Some of his
dictums include – When enemy advance we retreat – When the enemy halts
we harass – When the enemy seeks to avoid battle we attack – When the
enemy retreats we pursue
9. Chanakya • Also called Kautilya, lived in Pataliputra in ancient India •
Famous book being Arthashastra also called ‘Chanakya Sutra’ • It is a
treatise on politics, economics and public affairs • Chandragupta Maurya,
founder of the Mauryan Empire was his disciple and used his theories
extensively.
10. Machiavelli • Principles in “Discourses” written in 1531 • The Florentine’s
principles includes – Organisation will do better if members have autonomy –
The organisation is lasting if many are in charge of it – A weak manager
cannot follow another and maintain authority – Even in change should include
some of the ancient customs
11. Robert Owen • ‘World’s’ first enlightened (and first personnel)
manager(1771-1858) • Post Industrial Revolution • Stopped employing children
below 10 • Reduced working hours from 14 to 10 • Built houses for workers
with proper sanitation • Nursery for children • Showed higher wages
increased profits through higher productivity • Unique incentive schemes •
Informal workers participation in management
12. Charles Babbage • Englishman who first came up with the idea of division
of labour(contemporary of Robert Owen) • Each factory operation should be
isolated and given to different people to increase productivity • Modern
assembly line is based on his ideas
13. Frederick W Taylor • Taylor(1856-1915) based his philosophy on 4
principles(Scientific Management, 1911) – Development of science of
management to get best method of work – Scientific selection of workers to
find the best fit – Scientific education and development of worker – Intimate,
friendly relations between management and labour
14. Frederick W Taylor • Using time study as his base he broke each job into
component parts and designed quickest and best methods of performance •
Pay more to more productive workers to motivate them- differential rate
system • People feared that the jobs would be exhausted • Managers
exploited workers
15. Henry Gantt • Worked(1861-1919) with Taylor, but later reconsidered his
system • Each person who finished his quota will get a bonus • So also the
supervisor under whom he is working • If all workers under a supervisor
attained quota he will get additional bonus
16. Henry Gantt • Each worker’s job was publicly graded black when achieved
standard, red when not • Originated a charting system for production
scheduling • Forms basis of CPM of DuPont and PERT of Navy
17. The Gilbreths • Frank B(1868-1924) and Lillian M(1878-1972) a husband-
wife team came up with fatigue and motion studies • Based on the study
way’s for promoting worker’s welfare was planned out • Increase morale
26
because of physical benefits as well as proof of management’s concern •
From Gilbreths come the term Therbligs(17 basic movements from lifting,
moving etc.)
18. Henri Fayol • First (French Executive, 1841-1925) to systematize
managerial behaviour • Aimed at top management than shop floor • Sound
management has certain patterns which can be analysed • Unlike Taylor who
was interested in the functions he was interested in total organisation •
Management could be taught they need not be born
19. Henri Fayol • He came up with 14 Principles of Management – Division of
labour – Authority – Discipline – Unity of Command – Unity of Direction –
Common good over individual interest
20. Henri Fayol – Remuneration – Centralisation – Heirarchy – Order – Equity –
Stability of staff – Initiative – Espirit de corps
21. Max Weber • He, a German(1864-1920) came up with the theory of
bureaucratic management • Ideal organisation is one in which activities and
objectives are rationally thought out and division of labour clearly spelt out •
Although it became a success through such organisations as Ford, now it has
been discredited
22. Mary Parker Follett • She(1868-1933) felt that no one could be a whole
person except as member of a group • She said that management is the art of
getting things done through people • She is considered the first democratic
and dynamic manager • She was interested in the welfare of the people but
was at the same tough in matters of attaining company objectives
23. Mary Parker Follett • Her holistic model of control also took into account
effects of politics, economy and biology – paving way for study of extenal
environment • While supporting Taylor on management and labour sharing
common purpose she also maintained that artificial differences between
management and labourers should be removed
24. Chester I Barnard • Bernard(1886-1961) who became president of New
Jersey Bell in 1927 said people come together in formal organisations to
achieve objectives they cannot accomplish working alone • Hence
organisation’s goals should be kept in balance with individual’s • For this the
employee’s zone of indifference has to be identified – what the employees
would do without questioning authority
25. Chester I Barnard • He talked of ethical commitment to society – instilling
moral values in employees • He also emphasised people working together in
groups – setting the tone for team thinking
26. Hawthorne Experiments • To help managers deal more effectively with
people – better human relations improves morale and productivity • Series of
studies conducted at Western Electric Company’s Hawthorne plant from
1924-33 near Chicago • Began as an attempt to investigate relation between
level of lighting in workplace and productivity
27. Hawthorne Experiments • Test groups lighting was changed that of
control group kept constant. • Surprisingly there were erratic increase of
27
productivity with changes in lighting • New set of experiments where a set of
people were placed in separate room and tested on several parameters. •
Wages increased, different rest periods given, workday and work week
shortened.
28. Hawthorne Experiments • Again got erratic results • In between Elton
Mayo(1880-1949) and his Harvard associates Fritz J Roethlisberger and
William J Dickson became involved • Consequent tests also proved
something – groups singled out for attention developed a sense of pride and
performed better • Sympathetic supervision helped in this cause • This is the
Hawthorne effect
29. Hawthorne Experiments • Control group performed better because of the
special attention of the researchers themselves • Informal workgroups have
a positive effect on productivity
30. Abraham Maslow • Called father of humanist psychology(1908- 1970) •
More sophisticated view of human beings and their drives • Scientific
investigation into the study of how people behaved in organisations •
Heirarchy of needs – physical, safety, love, esteem, self actualisation • When
one is achieved he goes into other
31. Abraham Maslow • His ideas on management included • Democracy at
work place • Synergy – originally developed by Ruth Benedict – both people
gain • Characteristics – Everyone to be trusted – Everyone wants to improve
his work – People aim at perfection
32. Abraham Maslow – Good attitude towards work – Love and respect for
boss – Looks for appreciation in public – Love their tools and materials • Need
heirarchy may change with country • Sweden quality of life is ranked most
important • Japan and Germany security ranked highest
33. Douglas McGregor • Two alternate assumptions about people and their
work(1906-1964) • Theory X states that managers believe that employees are
inherently lazy and must be constantly coaxed to do the job properly • Theory
Y managers on the other hand believe that people relish work and eagerly
approach their work
34. Herbert Simon(1916-)& James March • In 1950s they developed hundreds
of propositions for scientific investigation, about patterns of behaviour,
especially with regards to communication in organisations • Herbert Simon is
the first management thinker to win a Nobel Prize in 1978 • His book
administrative behaviour is a classic • He says it is not rational • Saw great
potential in the computer for decision making
35. Management Science Approach • It was found that management
problems can be solved by mathematical formulas • Management consists of
Planning, Implementation and Control. Especially useful in control function •
Operations Research started with the second world war in England • Later
Americans used it • Still later it was used in management
36. Management Science Approach • In this system for solving a problem
information is got from the different areas • Using this information a
28
mathematical model is formed • Robert McNamara who used this in Ford is
the pioneer. • He later became Secretary of Defense in US
37. Systems Approach • This takes a wholistic view of the organisation • Each
organisation consists of a number of sub systems which when working
together creates a synergy
38. Contingency Approach • This is also called situational approach • Any one
school doesn’t work in all situation • According to situation the management
technique has to change • The question to be answered is what will work
best in this situation here

Trends, Issues and Challenges in Management Education

R.Balaji
Associate Professor, Bharath School Of Business, Bharath University ,Chennai – 73, India
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Engineering and Technology
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Abstract
The business and management education could play a pivotal role in social uplift and triggering the
entrepreneurial spirit in a society. The business schools face several challenges in terms of imparting
quality education. External environmental forces and stakeholders continuously put pressure on the
business schools to adapt the changes happening in the business world. The rapid trend of globalization
and technological changes have made difficult for organizations to survive in the competitive world . As a
result the importance of management education has increased many folds. Business executives need to
update their skills du.e to sudden changes in the external environment. In order to meet the challenges
of the future, the reform of the higher education could be unavoidable. The Education Institutions need
to strive to achieve balance between the education cost and the quality . One of the major criticisms of
MBA schools is the gap between theory and practice.
INTRODUCTION
Management education is considered as elistist as it attracts young men and women who are usually motivated by the po
India higher education especially management education is witnessing a exponential growth in terms of number of institu
termed as business school. The management education plays an essential role in today’s dynamic business environment. T
made difficult for organizations to survive in the competitive world. As a result the importance of management education
update their skills due to sudden changes in the external environment. Due to the increasingly complex nature of organiza
impart relevant, current, and cutting edge knowledge to the students. This research also identifies some of the emerging a
significance of management education which is essential for today’s organizations, the business as well as engineering sch
with the emerging trends of management skills to face the challenges of dynamic business world. It studies the trends pre
implication of management education in india. Industry and individuals. Further it tries to study emerging issues of manag
direction and policy towards improvements of management education in India.
II.IMPORTANCE OF THE THEME
The business and management education could play a pivotal role in social uplift and triggering the entrepreneurial spirit i
terms of imparting quality education. External environmental forces and stakeholders continuously pit pressure on the bu
world. In order to meet the challenges of the future, the reform of the higher education could be unavoidable. The educati
education cost and the quality. The business schools also need to maintain their standard of excellence by paying attention
29
quality education, it is pertinent for business schools to remain in close contact with the industry. One of the major criticis
"The whole purpose of education is to turn mirrors into windows."-Sydney Harris
History
Trained Managers are playing a vital role in the current economy; their Multi dimension skills are helpful to develop the or
while 21st Century is set to belong to Asia. India is the main player. Education is the crucial investment in development of
quality of human resources. Management education can play a statutory role in the efficient functioning of the markets. T
dependence has brought both challenges and opportunities before the Indian Economy. The biggest challenge before us is
of families, depend directly and indirectly. It is a pleasant experience that India is able to achieve self-sufficiency in food pr
sector still continue to be very low
Commerce Education
At present most of the major industries of the world are controlled and owned by the developed western countries. To ov
promote Advanced Commercial Education in our country. Modern Business and Commerce Education cover diversified fie
Marketing, Accounting and Commercial & Business Law. In industrialized countries, Commercial Education is organized on
and design finances, establish and operate big factories in months while it takes y ears to do so. Unfortunately in our coun
profession. In past, we treated it inferior to Medicine and Engineering in every respect.
Importance of Management Education:
Management education adds value to the existing qualifications. It helps students irrespective of their domains in graduati
think differently. Management education enhances managerial and leadership skills by sharing of ideas, insights through h
with cross cultural backgrounds adds value to management education as there is probability of generating multiples ideas
smoothly at the corporate world, it provides an opportunity to network with others and promotes cross-cultural diversitie
capabilities to take on the corporate challenges with confidence. Now a days, we find there is growing demand for the pro
in MBA education.
III.THE NEW DIMENSION FOR MANAGEMENT EDUCATION
The emergence of such a new dimension has already begun. Companies are feeling the need for global standards to bench
use of merit-based candidate selection systems. India's position as a lead contributor to the global IT human resources po
standards for talent selection. At the time of independence, Indian economy was developing and hence we required burea
independence, the Indian economy has become more mature and hence we require entrepreneurial management skills. O
Therefore there is a need to revamp our management education. Keeping in view the above facts and demand of the time
very bright. To avail the advantage of this requirement, a lot of people have opened educational institutions to educate stu
Growth of management education .
In 1950, the Department of Commerce of the Andhra University Started the first M.B.A. programme in India. In 1963, India
collaboration with the Harvard Business School. The 1950s and 1960s witnessed the growth of commerce education and 1
Education in India. There has been a tremendous growth of management institutes in our society. Every year about 14,000
the demand, the supply is very meager. Management courses have become 'Academic Courses' rather than 'Professional o
reduced to commerce colleges. There is an urgent need to restructure management education to meet new challenges of
institutions that have enabled people to take advantage of global markets and have thus sharply increased the share of tra
– our annual growth rates increased from 1 percent in the 1960s to 5 percent in the 1990s. Now it is above 8%. Indians saw
declined
New trends & issues in business and management education
Role of B-schools

30
The business schools should focus on nitty-gritty of general management and also about a functional specialization so that
management. The Indian Business schools should reinvent themselves with changing times and redesign their academic c
environment. The course curriculum should be designed to suit new perspectives for building managerial and leadership s
needful in this regard.
Role of Faculties: The faculties should be from excellent academic background with an industry exposure. They should be
need to inspire and motivate the students through right communication skills. They should preferably have industry exper
experience in management along with consultancy and teaching experience. The present economic meltdown has thrown
the world. Everyone started blaming business schools for the present mess. Is it justified to blame them? If not, then who
schools or faculties or students or parents or all to be blamed?
Reforms and the Corporate Sector
The corporate sector constitutes a dominant part of industry. Financial sector reforms along with the development of the
financing. This has led to a separation of ownership and the management and has given rise to the issue of corporate gove
with the ways of governing the corporations so as to improve their financial performance.
Management Education at Cross Roads
Management education is becoming increasingly important and the most sought after post–graduate degree among gradu
development requires well qualified managers and administrators. Also, Industry requires competent managers all the tim
times of growth, to frog-leap the competition. Management education, therefore, is ever-green with job opportunities. Ho
the right type of management education? Indian Industry Survey reports that only 15% of management graduates are em
management programs offered by many colleges and universities suffer from serious drawbacks and criticism.
In Business Process Management changes are needed and will be initiated concurrently
Impact of Globalization on Business and Management Education
The business sector in India is highly promising in the present scenario. Newer challenges, newer opportunities are day-by
prospective. The fundamental scope of doing business in India is lying with its people. The huge population of India has cr
the reasons why global companies are very much interested in doing business in India.
Let us glance through a few situations that has arisen in India post liberalization
Shifting of Agriculture workers to industry sector
Urbanization –People are shifting from rural to urban areas.
Opening up of trade market –export import boom.
Big open saturated market for products
A growing market for high quality and low price product
Gradual increase of organized retail chain.
Growing number of Merger and Acquisitions.
Lucid license policies for overseas Multinational Corporation.
Indian Market leaders going global. High growth rate is showing economic prosperity in India. 
III. STRATEGIES TO INCORPORATE COMPETITIVENESS IN INDIAN BUSINESS

31
Infrastructure improvement up to global standard
Development of transportation facilities so that least time is required to move from one place to another; it also reduces
Government initiatives to advertise opportunities in different field to attract both Foreign Direct Investment (FDI) and For
Linkage effect-adaptation of backward integration for saving cost and time with a look to improve supply chain
Unbalanced growth strategy to facilitate growth
Making direct link among educational institutes and business firms to provide direct industry interference in large scale w
Guild formation by the firms of specific industries to discuss, analyze about advantages, disadvantages, opportunities etc.
common platform
Co operation among domestic and foreign companies to explore new opportunities in several fields of operations
Technological up gradation in industries
Application of Just In Time(JIT) technique in business
Government initiatives to support competitiveness
1. Renew and modification of ex-im policy
2. A more comprehensive competitive policy
3. Removal of red-tape barriers
4. Increasing facilities in Special Economic Zones (SEZ) and also increasing numbers of SEZ giving ultimate priority
5. Inauguration of free information bureau to provide important up to date information regarding different fields of operati
6. Advertising opportunities (e.g.- tourism) in different sectors
7. Free riders prohibition
8. Facilitating mergers and acquisitions
9. Subsidizing areas of scarcity and finding alternative strategies for further development
IV.RESEARCH ISSUE
1. To find the present situation of management education in India after financial turbulence of USA and the case like Satya
2. To study the trends prevailing in management education in India.
3. To find out implication of management Education of India on Industry and individuals .
4. To study emerging issues of management education and its approach towards the development of curriculum needs of
5. To find implementation of possible direction and policy towards improvement of management education in India.
VI.CHALLENGES AND DRAWBACKS IN MANAGEMENT EDUCATION
1.Challenges
1. The current curriculum in management education does not teach students in facing the challenges in business environm

32
2. How to manage uncertainty and complexity are not taught in business schools.
3. It merely teaches the concepts with case studies.
4. It does not focus on the challenges arising out of rapid growing technology and the challenges involved in running an en
5. Unfortunately, the best talent is going to industry where salaries are lucrative.
6. Those who come to academic area are the ones who could not be absorbed in the industry or those who come to this p
passion.
2.Drawbacks
1. Insufficient availability of specialized experts and qualified faculty.
2. Lack of Industry based specializations.
3. Lower infrastructure.
4. Burden with heavy subjects.
5. Lack of necessary guidance to the students.
6. Lack of updated and industry based syllabus.
7. Lack of admissions in Management Research.
8. Lack of Inter-disciplinary approach.
9. Lack of specified authorities for quality research in management studies.
10. Insufficient Grants for research.
11. The courses remain too theoretical and do not equip students with the right Attitudes, Skills and Knowledge (ASK) requ
12. Students are not properly educated either to fit the industry requirements or to be entrepreneurial to start and grow u
but not the industry-required qualifications.
13. Neither the institutions nor the students are clear as to what kind of “product specification” is achieved at the end of t
their ASK levels.
14. More than 85% of the students who complete their MBA/PGDM are not industry ready.
15. Just as customers would like to know about the specifications and quality before buying any “product”, industry would
(Quality) of the Graduates it wants to hire
Overcoming Challenges:
Re-engineering of management education must be done.
Provide decent salaries and professional ambience to faculties.
Send the faculties regularly for training programs to update their skills and abilities.
Develop right mindset and attitude. Focus on quality of education not quantity.
There has to be interactive sessions for the students rather than mere preaching what is mentioned in the books

33
You cannot become a crack shot unless you lose some ammunition.
The students have to be exposed to the industry through interface so that they understand the practical problems in corp
students.
The project work should be contextual, relevant and should focus on the current scenarios.
MBA is a professional degree and it should train and groom the students to be true professionals to take on the challenge
Make accreditation mandatory to ensure quality of education.
Take stringent action against the illegal and unauthorized MBA colleges.
Use online courses and other e-learning methods to increase training opportunities for field and local staff
Provide training in languages besides English
Ensure that training is provided even in emergency situations.
Suggestions for Universities:
1.Restructuring the syllabi at UG and PG levels. Apart from the subject knowledge, soft skills like good writing skills, listeni
crisis management skills, problem solving skills etc,. Must be made compulsory in view of its importance in the contempor
2.Provide facilities for industrial visits. Arrange Guest lectures from expert academicians and industry experienced people.
3.A detailed industry visit report based on the field visits should be made an integral part of the course.
4.Redesigning the teaching methods, as a deviation from traditional teaching methods.
5.The management colleges / schools are able to use innovative and practical teaching methods like management games,
presentations, individual assignments, field surveys and case studies etc,.
6.Control the study centers, UGC will take care of these centers, in some areas these centers are follow malpractices in exa
7..Work with agencies to design educational and training programs that meet the needs of the agencies
Develop multi-disciplinary curricula to prepare students for careers in humanitarian work
Encourage faculty and student exchanges
Consider establishing an academic association of humanitarian studies and/or a dedicated journal
3.Our future global manger would require the following new skills.
* Information Management Skill
* Information Technology Management Skill
* Decision- making in very dynamic environment
* H.R.D Skill
* Innovation/ Credibility
* Service Sector Management Skills
* Time Management Skills

34
* Stress Management Skills
* Environment Management Skills
* Entrepreneurship
* Customers Services Management Skills
* Entrepreneurship
VII.CONCLUSION
"There is no need to reach high for the stars. They are already within you - just reach deep into yourself!"—Anonymous. T
the current economic downturn. The educational system failed to forecast the recession and failed to check the overheate
education are industry experience, consultancy experience, research experience and teaching experience. When faculties
ensures qualitative management education.
The present business education is broken and need to be reinvented with changing times. It is unfortunate that India with
Jack Welch, Peter F Drucker, Bill Gates, Michel Dell; It is time India took a relook at the methodology of management educ
situation and set their houses in order. The silver lining in the dark cloud of management education in India is the Indian S
Business School in the world surpassing other premier management institutions like IIMs. There is a strong need to focus m
locally). When the course content is customized based on the market needs then students will not face unemployability pr
We need to get out of the mindset of being copycats. We need to reinvent ourselves as leaders from being followers. To su
with us is to imitate the western management education blindly. By the time we take best out of them, the content and cu
be creative and innovative in preparation of curriculum and methodology of teaching. Management colleges may improve
References
1. http:/www.blogspot.in/…/how-to-improve-management…2/11/2012
2. http:/www.sooperarticles.com/…/business-process-… 2/11/2012
3. http:/www.oppapers.com/essays/…/205245
4. http://en.wikipedia.org/wiki/Management
5. http:/iamee.edu.in/…/management-education…
6. http:/oppapers.com/essays/…/904061
7. http:/oppapers.com/essays/…/394570
8. http:/sooperarticles.com/…/management-edu…
9. research journals of international studies-issue 18(January, 2012)
10. http:/indianmba.com/…/fc652.html
11. http:/dreducation.com/…/2010-trends-indian-…2/11/2012
12. http:/www.academicjournals.org/ERR

RECENT Trends and cahlleneges.

I. INTRODUCTION The organization has to recognize the important role of management sector in order to
successfully steer organizations towards profitability. It is necessary for the management to invest
considerable time and amount, to learn the changing scenario of the 21st century. In order to survive the
competition and be in the race, management sector should consciously update itself with the
transformation in HR, marketing, operational, etc, and be aware of the management issues cropping up.
Managers have to manage all the challenges that they would face from present problems and then
developing strategies for retaining them and building up an effective career management system for
them. Human Resource Management and marketing management has evolved considerably over the
past century, and experienced a major transformation in form and function primarily within the past two
35
decades. MANAGEMENT “Management is the process of designing and maintaining an environment in
which individuals, working together in groups, efficiently accomplish selected aims.” Management is that
field of human behavior in which managers plan, organize, staff, direct, and control human, financial
resources in an organized group effort in order to achieve desired individual and group objectives with
optimum efficiency and effectiveness. In the past, management was not considered as an important part
of development. With industrial revolution during 17th and 18th century, several economists expressed
their „concepts and function of management‟. Only in 19th century, management became the separate
field of study because business organization faced various problems regarding labour efficiency and
wage payment system. In search of solution of these problems, people began to recognize management
as a separate field of study. IMPORTANCE OF MANAGEMENT Acquisition and utilization of resources
Management performs efficient acquisition effective development and utilization and proper
coordination of resources. Environmental adaptation, Management adopts organization to changing
environmental forces. Goal achievement Management achieves goals by balancing the requirement of
jobs and people. Problem solving, Management solves organizational problems. It identifies and
evaluates various alternatives and choose appropriate course of action. Performance control,
Management measures and evaluates the actual performance. Social responsibility Management
anticipates and acts before hand to social expectations. Bhaktavatchalam et al., International Journal of
Advanced Research in Computer Science and Software Engg. 8(4) ISSN(E): 2277-128X, ISBN: 978-93-
87396-07-4, pp. 310-314 © www.ijarcsse.com, All Rights Reserved Page | 311 II. LATEST TRENDS IN
MANAGEMENT SECTOR In this scenario organizations are facing lot of competition. For sustaining in this
competition organizations are following different trends. This trend plays a vital role in organizational
growth and these acts as a competitive advantage to organizations. Latest tends in management sector
are Online reputation management (A new trend in E- marketing) Marketing for cause Modern
marketing approaches to influence behavior Internal marketing (An emerging strategic option for
customer relationship management) HR trends are temporary staffing (The fastest growing HR
trend) 2.1 Online reputation management (A new trend in E- marketing) Over the few past years, E-
marketing has evolved as one of the most efficient tools for branding & building promotions. Looking at
the growth of internal technology many companies have taken the route of e-marketing for creating
about their brands amongst online customers. Online reputation management assists a company in
pushing the negative publicity down the search engines and influencing potential customers through
positive promotional efforts. In today‟s scenario, though customers purchase products offline, in many
instances, information about the product is sought online. Because of this many, organizations are
promoting themselves through online Medias ORM primarily involves tracking what is written about a
client on the web, then utilizing sophisticated online and offline techniques and promoting positive and
neutral content, while at the same time pushing down those links the sponsor may not want to show
when their name is searched. Key objectives of ORM (Online Reputation Management) are: Key track of
competitors and dissatisfied customers and know what beings said about you online Assist in reacting
quickly to negative word of mouth and rumors Make positive news about your brand through
optimizes online media. Gain high ranking in the search engines by associating positivity with the
entire corporate communications and push the negative publicity down. Help the company to gain up
top slots in the search engines, which in turn assists maintain and enhancing brand image. Online
reputation management process: For an efficient and fruitful ORM, three steps should be undertaken: 1.
Monitoring; as discussed earlier, it is very easy for anybody to give their personal options about a brand
or a product through blogs or social networking sites. A company should try to monitor everything that is
being said about it. However, the internet itself, is a big world and it might become difficult for a
company to keep track of all that is happenings, without that the help of requisite technology. 2.
Analyzing: The Company also needs to analyze the quality of information that is available on the search
36
engines. It as to identify the website generally provide positive information, and those the present
negative view about the company. One as to also identify the nature of these websites whether they are
blogs, social networking sites, consumer forums, etc… 3. Influencing: After analyzing the information
available on the web, the last steps is influencing. Although it is not possible to remove or delete the
negative comment from the web, an active participation by the company online can help in creating an
overall positive perception about the brand. By becoming a regular contribution to several blogs, forums,
etc, the company can enhance awareness about its brand, products service and can influence the
opinions by overpowering the negative word of mouth. 2.2 Marketing for cause: Marketing as a
discipline has evolved in response to various forces in the socioeconomic, cultural and ecological
environment, as also changes in business practices. All these are shaping and adding new dimensions to
marketing, to the advantage of the society and consumers at large. In today‟s scenario corporate with
socially responsible business models are the ones which are more likely succeed, conquer the
competition and create a place for them in society. Marketing for cause or cause related marketing is a
step in this direction. This not only helps the marketers to enhance their social esteem by supporting a
good cause, but also facilitates in improving the business. The concept Cause marketing links a
company‟s business to the furthering of a social cause, such as advocating the use of mobile phones for
sending messages, in order to save paper that would otherwise be used in written communications.
Cause marketing can be direct or indirect. A company‟s business can be direct or indirect. A company‟s
business can be directly linked with a social cause or alternatively, a company can commit itself to a
social cause out of the sales proceeds of a particular product. There are two aspects to a cause
marketing program Relating the company‟s business with a social cause, and Inducing prospective
customers to contribute to that cause through their purchase decisions. Bhaktavatchalam et al.,
International Journal of Advanced Research in Computer Science and Software Engg. 8(4) ISSN(E): 2277-
128X, ISBN: 978-93-87396-07-4, pp. 310-314 © www.ijarcsse.com, All Rights Reserved Page | 312
Developing a cause marketing initiative: Cause marketing involves creating a public face for a company
that integrates philanthropy. Community relations, marketing, branding, positioning and revenue
generation. Accordingly, a well calibrated strategy should be adopted for developing a cause marketing
initiative. Selecting cause: Involvement of a company with too many causes might have a negative
impact. As such, selecting the most suitable and compatible cause or causes is very important, branding
the cause marketing program, self branded or creating one‟s own because program, supporting an
existing cause wit exclusive branding, jointly branded. 2.3 Modern marketing approaches to influence
behavior: The behavior of customers towards purchasing is changing and so also their expectance levels.
In order to survive and perform better, marketers are coming up with various marketing strategies like
eco marketing, social marketing permission marketing, viral marketing, ambush marketing, Bluetooth
marketing to attract and retain customers. The process of influencing the consumer behavior begins with
the collection of information about the customers affect; cognition and behavior about the consumer
affect cogitation and behavior related to product or service, through consumer research. Modern
marketing approaches: The modern marketing approaches which would influence the buying behaviors
of customers can be broadly classified to two categories. I) Concept based and ii) Technology based
approaches. Concept based approaches like experiential marketing, Emotional marketing, Relationship
marketing, internet marketing, Bluetooth marketing, Neuro marketing, Database marketing 2.4 Internal
marketing (An emerging strategic option for customer relationship management): Customer relationship
management is a process of satisfying, attracting, retaining customers. Internal marketing and CRM are
interrelated and interdependent. In fact, internal marketing address the fifth „p‟ of the marketing mix.
i.e., the people. Without active and enthusiastic cooperation and coordination between of the people
working within the enterprise, the objectives of CRM cannot be reached. The most important elements
of internal marketing are training and development, motivation and establishment of communication

37
network. Internal marketing and customer relationship management are interrelated and
interdependent. Internal marketing builds the base for CRM. Marketing is fundamental considered a tool
to attract and satisfy the needs and wants of customers. The concept of internal marketing: The concept
of internal marketing has evolved primarily within the context of service marketing. As service as
intangible, inseparable, variable and perishable, the role of employees quite important here. However,
internal marketing has become relevant important even in the marketing of physical goods. Keeping in
view the importance of employees in successful marketing, the fifth „P‟ i.e. people has been added to
the marketing mix. Internal marketing refers to the task of hiring, training, motivating, employees to
serve the customer better internal marketing address the organizations employees, who are referred to
as the internal market. Rationale for internal marketing: As human beings, customers have their specific
likes preferences deists, expectations, attitudes, hopes living styles, personalities, etc…. in order to derive
maximum value, they are in search of not only functional benefits by reducing their monetary cost, time
cost, energy cost. Here internal marketing plays a significant role to play. That is the employees can help
the customers to maximize their benefits and minimize their costs. Internal marketing aims at: Providing
better service to the customers, Generating more ideas for products and services, Building corporate
image, Helping in managing change, Reducing interdependent and functional conflicts and, Exploring
new and more business opportunities for the enterprise. 2.4 Human Resource Management Latest
Trends Human resource management is a process of bringing people and organizations together so that
the goals of each other are met. The role of HR manager is shifting from that of a protector and screener
to the role of a planner and change agent. Personnel directors are the new corporate heroes. The name
of the game today in business is personnel. Nowadays it is not possible to show a good financial or
operating report unless your personnel relations are in order. Over the years, highly skilled and
knowledge based jobs are increasing while low skilled jobs are decreasing. This calls for future skill
mapping through proper HRM initiatives. In organizations, it is important to determine both current and
future organizational requirements for both core employees and the contingent workforce in terms of
their skills/technical abilities, competencies, flexibility etc. Human resource is a relatively modern
management term having been coined in the 1960s. The origins of the function arose in those
organizations which introduced 'welfare management' practices and also in those that adopted the
principles of 'scientific management. Since 1990 due to liberalized government policies,
Bhaktavatchalam et al., International Journal of Advanced Research in Computer Science and Software
Engg. 8(4) ISSN(E): 2277-128X, ISBN: 978-93-87396-07-4, pp. 310-314 © www.ijarcsse.com, All Rights
Reserved Page | 313 Indian scenario began to change. Human resource became one of crucial driver for
development and change. As the viewpoint of management towards its employees began to change, role
and contribution of human resource as a talent pool also become so vital that most of the organizations
started to focus their vision and mission statements on the people who work for them. The analysis
requires consideration of the internal and external factors that can have an effect on the resourcing,
development, motivation and retention of employees and other workers. The external factors are those
largely out-with the control of the organization and include issues such as the economic climate, current
and future trends of the labor market e.g. skills, education level, government investment into industries
etc. On the other hand internal influences are broadly within the control of the organization to predict,
determine and monitor, for example the organizational culture underpinned by management behaviors
(or style), environmental climate and the approach to ethical and corporate social responsibilities. In
order to know the business environment in which any organization operates, three major trends should
be considered: Demographics – It is the characteristics of a population/workforce, for example, age,
gender or social class. This type of trend may have an effect in relation to pension offerings, insurance
packages etc. Diversity – It refers to the variation within the population/workplace. Changes in society
now mean that a larger proportion of organizations are made up of "baby boomers" or older employees

38
in comparison to thirty years ago. Advocates of "workplace diversity" simply advocate an employee base
that is a mirror reflection of the make-up of society insofar as race, gender, sexual orientation, etc. Skills
and qualifications - As industries move from manual to more managerial professions, so does the need
for more highly skilled graduates. If the market is "tight" (i.e. not enough staff for the jobs), employers
will have to compete for employees by offering financial rewards, community investment, etc.
EMERGING CHALLENGES FOR MANAGEMENT Technology: The new economy will base on digital
revolution. The development in information technology will provide greater access to management.
Management will need to manage changing technology effectively. Quality: Quality assurance is getting
important. Social responsibility: Management will pursue long term goals that are good for society.
Human resource management: Management needs to deal with diversified work force, requires
visionary leadership on the part of management. Cultural sensitivity: Cultural value will change cross
cultural influences. Organizations are emerging as cultural systems. Change management: Manager
will face the challenge of managing change. They will need to aware specific changes and their likely
impact on the practice of management. Learning organization: Management needs to create learning
environment. Organization of future will be predominantly knowledge based. III. CONCLUSION In
today‟s highly competitive environment, trends are extremely important to build and maintain good
brand image for the organizations. The organization has to recognize the important role of management
sector in order to successfully steer organizations towards profitability. It is necessary for the
management to invest considerable time and amount, to learn the changing scenario of the 21st
century. Managers have to manage all the challenges that they would face from present problems and
then developing strategies for retaining them and building up an effective career management system
for them. Suitable management issues and policies that would lead to the achievement of the
Organization as well as the individual‟s goals should be formulated. For sustaining in this competition
organizations are following different trends. This trend plays a vital role in organizational growth and
these acts as a competitive advantage to organizations. Human resource Management will be the key
area of focus in 21st century as in companies and government organization put in place strategies to
cope up with the economical crisis and recovery.
Management By Objectives (MBO)

39
This article explains the theory of Management By Objectives (MBO), developed
by Peter Drucker in a practical way. After reading you will understand the basics of
this powerful strategic management tool.
What is Management By Objectives?
Management By Objectives (MBO) is an performance management approach in
which a balance is sought between the objectives of employees and the objectives
of an organization. The essence of Peter Drucker ’s basic principle: Management By
Objectives is to determine joint objectives and to provide feedback on the results.
Setting challenging but attainable objectives promotes motivation
and empowermentof employees. By increasing commitment, managers are given
the opportunity to focus on new ideas and innovation that contribute to the
development and objectives of organizations.
However, Peter Drucker sets a number of conditions that must be met:
- Advertisement -
Objectives are determined with the employees;
Objectives are formulated at both quantitative and qualitative levels;
Objectives must be challenging and motivating;
Daily feedback on the state of affairs at the level of coaching and development
instead of static management reports;
Rewards (recognition, appreciation and/or performance-related pay) for achieving
the intended objectives is a requirement;
The basic principle is growth and development not punishments.
Management By Objectives (MBO) is also known as Management By
Results(MBR).

40
Management By Objectives steps
Peter Drucker has developed five steps to put Management By Objectives into
practice:
1. Determine or revise the organizational objectives
Strategic organizational objectives are the starting points of management by
objectives. These objectives stem from the mission and vision of an organization. If

41
an organization has not formulated these yet, it does not make sense to carry out
the next steps.
2. Translating the organizational objectives to employees
In order to make organizational objectives organization-wide, it is important that
these are translated to employee level. For efficiency reasons, Peter Drucker used
the SMART Goals acronym SMART (Specific, Measurable, Acceptable, Realistic and
Time-bound). The element Acceptable is crucial in management by objectives as
this is about agreement on the objectives between the employees and the
organization. The management by objectives principle does not allow management
to determine the objectives by themselves. According to management by
objectives, objectives should be clearly recognizable at all levels and everyone
should know what their responsibilities are in this. Communication is also an
important item for consideration when it comes to expectations, feedback and to
giving rewards for objectives that have been achieved.
3. Stimulate the participation of employees in the determining of the objectives
The starting point is to have each employee participate in the determining of
personal objectives that are in line with the objectives of the organization. This
works best when the objectives of the organization are discussed and shared
throughout all levels of the organization so that everyone will understand why
certain things are expected of them. In this way, everyone can make their own
translation of what their contribution can be to the objectives. This approach
increases the involvement and commitment of the objectives. Instead of simply
following expectations of managers and executives, everyone in an management by
objectives approach will know what is expected of them. By broadening the decision
making process and responsibility throughout the organization, people are
motivated to solve the problems they are faced with in an intelligent manner and
they are given the information they need so that they can be flexible in the
changing circumstances. This participatory process ensures that personal objectives
with respect to general team objectives, department objectives, business unit
objectives and ultimately organizational objectives are made clear.
4. Monitoring of progress
Because the goals and objectives are SMART, they are measurable. If they cannot
be measured, a system will have to be set up in which a monitoring function is
activated when the objectives are deviated from. Detection must be timely so that
large problems can be prevented. On the other hand, it is important that the agreed
objectives do not cause abnormal behaviour of employees for example. For
instance, when a service call must be handled within seven minutes and as a result
employees finish these calls after 6 minutes and 59 seconds to meet this
requirement. There are always exceptions to a rule and these situations should
always be supervised.
In Management By Objectives, employees are not supported by their management
through annual performance reviews. Management By Objectives is about growth
and development. Each objective comprises mini objectives and it is about
supporting these in small steps in the form of coaching by managers or executives.
Create a clear path with sufficient evaluation moments so that growth and
development can be monitored accurately.
5. Evaluate and reward achievements

42
Management By Objectives has been designed to improve performance at all levels
within an organization. A comprehensive evaluation system is therefore essential.
As goals and objectives have been SMART formulated, they make the evaluation of
processes very easy. Employees are evaluated and rewarded for their achievements
in relation to the set goals and objectives. This also includes accurate
feedback. Management By Objectives is about about why, when and how objectives
can be achieved.
It is not a one-off exercise
Peter Drucker’s five steps are not a one-off exercise. It is a development cycle that
takes the organizational objectives as the starting point and these need to be
translated to an individual level. The message behind Management By Objectives is
the jointly determining and achieving of objectives and being rewarded for these
achievements. It is important to make fair and correct assessments of the
achievements against the setting of measurable goals. Clear performance indicators
are essential for a good management by objectives approach.
It’s Your Turn
What do you think? Do you recognize the practical explanation about
Management By Objectives or do you have more suggestions? What are your
success factors for the organizational goal setting and achieving business success?
Share your experience and knowledge in the comments box below.
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Organising: Meaning, Process, Principle and Importance | Management Function
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Meaning and Process of Organizing:
Organising might be defined as follows:
Organising is that managerial process which seeks to define the role of each individual (manager
and operator) towards the attainment of enterprise objectives; with due regard to establishing
authority-responsibility relationships among all; and providing for co-ordination in the
enterprise-as an in-built device for obtaining harmonious groups action.
As a function of management, organizing is a process; broadly consisting of the
following steps:
(i) Determination of the Total Work-Load:
The very first step in the process of organizing is to make a determination of all the activities
which are necessary to be undertaken for the attainment of the enterprise objectives. This step
of organizing is, in fact, nothing but an estimation of the total work-load that must be done for
realizing objectives.
(ii) Grouping and Sub-Grouping of Activities i.e. Creation of Departmentation:
Total activities determined for achieving enterprises objectives must be classified i.e. putting
similar or related activities at one place in the form of a group or sub-group. This step of
organizing directly leads to the process of creating departments. If an enterprise is compared to
a building; the creation of departments within it would amount to construction of rooms within
the building each room meant for a specified special purpose.
(iii) Creation of Manager-Ship through Delegation of Authority:
After the scheme of departmentation is finalized; the next step in the process of organizing
would be to entrust the responsibility for the functioning of each department to a distinct
43
manager. Creation of manager-ship, in this manner, requires a requisite delegation of authority
to each manager to enable the manager to take care of the job assigned to him.
(iv) Division of Work within the Departmental Set-Up-Human Organization:
ADVERTISEMENTS:
Since no single individual can undertake the performance of the whole of the work assigned to
one department; it becomes necessary to resort to division of work-assigning to each person
only one part of the total job. As a result to undertaking division of work for all departments;
there emerges a human organization within the enterprise.
(v) Arrangement of Physical Facilities to Personnel within the Departmental Set-Up-Material
Organisation:
Each individual of the enterprise, working in whatever capacity, in any department, must need
the basic physical facilities-raw materials, machines and tools, technology and other inputs-for
the proper execution of the assigned task. When physical facilities are made available to all
personnel in all departments; there emerges a material organization (or a physical-technical
organization) within the enterprise.
(vi) Definition and Establishment of Authority-Responsibility Relationships;
Having created manager-ship and a human organization within the enterprise; it becomes
necessary to devise a system which provides for defining and establishing authority-
responsibility relationships among all personnel-managers and operators. As a matter of fact,
such relationships must be defined and established throughout the enterprise both-horizontally
and vertically.

Points of comment:
Some of the note-worthy comments on the above description of the managerial
function of organizing are as follows:
(a) As a result of undertaking the process of organizing, there emerges a structure, called the
organisational structure (or simply the organisation). In fact, organizing is a managerial process;
an organization is the outcome of it.
(b) While designing the organizational structure, the management must plan and provide for co-
ordination throughout the organization both, horizontally and vertically. In fact, co-ordination
is an in-built device for ensuring harmonious, effective and economical organizational
functioning.
(c) The question of a rightful compromise between centralization and decentralization of
authority must also be settled, at least initially, at the organization-processing stage. In fact,

44
while delegating authority to departmental heads and subordinate managers at middle and
lower levels of the organization, the top management should decide about the issue, as to
whether to equip small managers with more of decision making powers or less of it.
Following are some popular definitions of organizing:
1. “Organising is the establishment of authority relationships with provisions for co-ordination
between them, both vertically and horizontally in the enterprise structure”.
-Koontz and O ‘Donnell
2. “Organising is the process of identifying and grouping the work to be performed, defining and
delegating the responsibility and authority and establishing a pattern of relationship for the
purpose of enabling people work most effectively to accomplish the objective”.
– Louis A. Allen.
Principles of Organisation:
Principles of organization, for sake of clarity of discussion and a better
comprehension of these, have been classified in the following manner:
(I) Overall Principles:
(i) Principle of unity of objective
(ii)Principle of simplicity
(iii)Principle of flexibility
(II) Structural Principles:
(iv)Principle of division of work
(v)Principle of functional definition
(vi)Principle of optimum departmentation
(vii) Principle of unity of direction
(viii) Span of management principle
(III) Operational Principles:
A
(ix) Principle of adequate delegation
(x) Scalar chain principle
(xi) Principle of unity of comment
(xii) Authority-level principle
Following is a brief comment on each of the above-stated principles of
organisation under appropriate categories:
(I) Overall Principles:
Under this classification, some of the very fundamental principles of organization are included
i.e. principles which are absolutely essential for an effective and logical functioning of the
organization.
A brief explanation of the principles under this category is as follows:
(i) Principle of unity of objective:
Very simply stated, this principle requires that individual and departmental objectives
throughout the enterprise must be perfectly harmonized; and that all objectives must be
mutually supportive and collectively contributing to overall common objectives.
(ii) Principle of simplicity:
The observance of this principle requires that the management must, as far as possible, design a
simple organizational structure. A simple structure facilitates a better understanding of
superior- subordinate relationships; and provides background for better co-operation among
people.
(iii) Principle of flexibility:
While designing the organizational structure, the management must provide for in-built devices
within the structure itself; which would facilitate changes in the organizational structure to be
effected as and when environmental factors-internal and/or external- so demand.
(II) Structural Principles:
45
Structural principles of organization relate to those aspects of the organization, which have a
bearing on the structuring (or the development) of the organization; its fundamental design and
shape.
Some of the important principles, in this context, might be the following ones:
(iv) Principle of division of work:
Since the total work of the enterprise cannot be performed by only one person; it is imperative
that such work must be suitably divided among a number of persons. In fact, the total
managerial work ought to be divided among a number of managers; and the total operational
work being divided among a number of operating personnel.
(v) Principles of functional definition:
The above stated principle implies that the role (or job) of each individual and of each
department of the enterprise must be suitably defined, in terms of the-work content, the
authority and facilities required for job performance and the relationship of the job with those of
others, in the enterprise.
(vi) Principle of optimum departmentation:
There are many ways and bases for creating departments within an organization. According to
the principle of optimum departmentation, departments in an organization must be so created
and maintained-as to facilitate the best attainment of the common objectives of the enterprise.
(vii) Principle of unity of direction:
The principle implies that each group of activities having the same objective must have only one
overall head and only one overall or master plan. As a principle of organization, this concept of
unity of direction must be so embedded in designing the organizational structure that for each
group of similar activities, there is a provision for only one overall head-having authority over all
personnel performing the same function, anywhere, in the organization.
(viii) Span of management principle:
The span of management principle is variously called as- the span of control or the span of
supervision. However, the phrase ‘span of management’ is the widest; including also the notions
of span of control and span of supervision. The span of management principle implies that there
is a limit to the number of subordinates; whose work could be effectively managed (controlled or
supervised) by a superior.
Points of comment:
Certain useful observations in the context of span of management principle could
be made as under:
(a) There is a limit only to effective management; for ineffective or inefficient management, well,
there is no limit. Hence, span of management principle is valid, only in the context of effective
management. An example would illustrate the significance of this idea.
For example, in school or college class-room, the number of students must be limited; as no
teacher, howsoever competent, could effectively impart learning to an indefinite number of
pupils.
As against this situation, take the case of a public speaker who could well address a giant
gathering of audience; for therein, it does not matter whether and how far the audience is
receptive to the speech of the speaker or how effective is the process of communication between
the speaker and the audience. In this latter case, span of management principle is neither valid
nor applicable.
(b) What exactly is or must be the number of subordinate’s less than one superior cannot be
asserted with precision or certainty; as the span of management principle is situational. There is
no hard and fast number of subordinates which would determine an optimum span of
management under all managerial situations.
Among other factors, the competence of the superior and the abilities, skills and requirements of
subordinate, are the most dominating factors- likely to determine span of management, in a
particular managerial situation.
46
(c) Span of management principle explains the raison d’eter for the structure of the
organization; in case otherwise, a single manager might be in a position to handle and manage
the work of all the subordinates; and there would not be any need for a structured
organizational structure.
(d) Span of management principle has must to do with the shape of the organizational structure;
i.e. whether it would be a tall or a flat-organisational structure. This is the notion implied behind
the concepts of narrow vs. wide spans of management.
A narrow span of management is one where a superior can handle rather a smaller number of
subordinates; while in a wide span of management, the number of subordinates is ‘larger’ than
manageable under a narrow span of management.
Accordingly, a narrow span of management would result in a somewhat taller shape of the
organization; and a wide span of management would lead to a comparatively ‘flat’ organization
structure. Let us take a hypothetical example to illustrate how a ‘tall’ or a ‘flat’ organization
structure would shape out-depending on whether it is a narrow or a wide span of management.
Suppose in an enterprise there are 10 subordinates to managed by the management. Further
suppose the span of management is also 10. In this situation, only manager would be required to
handle and manage the work of all the ten subordinates.
The organizational structure would appear as follows:

Now, suppose the span of management is only 5. In this case, the manager would be aided by
two assistant managers; and controlling 10 subordinates via two assistants-each assistant
manager managing the work of 5 subordinates.
The organizational structure in this case would look like somewhat taller than its counterpart
under wide span; and will have more layers of the organization. The following chart illustrates
this concept.

Without going into the details of the discussion, it would suffice to say that the shape of the
organizational structure- tall or flat-has implications for organizational efficiency on grounds of
costs of administration, effectiveness of communication and facilities in co-ordination.
(III) Operational Principles:
Operational principles of organization could be suggested to be those which have a bearing on
the running or functioning of the organization.
Some important principles, under this category, are as follows:
(ix) Principle of adequate delegation:

47
By the principle of adequate delegation, we mean that each managerial position be provided
with adequate (or necessary or requisite) authority-to enable the holder of the position i.e. the
manager to cope successfully with the requirements of his job.
(x) Scalar chain principle:
Scalar chain implies a chain of superiors-ranging from the highest rank to the lowest rank-in an
organization. The scalar chain forms the base of authority-responsibility relationships among
managers and subordinates, in the organisation; thus promoting mutual understanding among
superiors and subordinates at different levels of the organization.
As a principle of organization, scalar chain principle requires its incorporation into the design of
the organisation, for ensuring smooth running of the enterprise life.
(xi) Principle of unity of command:
The above-sated principle implies that an employee must receive orders and instructions, only
from one superior, at a time. The observance of this principle is desirable for reasons of
removing doubts and confusions from the mind of the employees; and for facilitating exact
fixation of responsibility on individuals for the results expected of them.
(xii) Authority-level principle:
The authority-level principle implies that managers at particular levels in the management
hierarchy must decide only those matters which fall within the purview of the authority vested in
their managerial positions.
A natural extension of this principle is that if a manager at any level of the management
hierarchy comes across a matter not covered by his authority; the matter must either be referred
upwards in the hierarchy or pushed down the hierarchy at the appropriate level for decision.
Importance (or Advantages) of Organisation:
The importance of organization could be highlighted by reference to the role it
plays in the enterprise life, considered in the following analytical manner:
(i) Basic role of the organization
(ii) Other aspects of role
Let us consider the roles of the organization as planned above:
(i) Basic Role of the Organization:
The basic role of the organisation could be expressed by comparing it to a vehicle; which is
devised and designed for the attainment of the enterprise objectives.
Just as with the help of a vehicle a person is enabled to reach up to his/her destination; in a
similar manner, a group of persons (comprised in the enterprise) is made in a position to reach
their destination i.e. the attainment of common objectives via the vehicle of the organisation.
In fact, for the attainment of enterprise objectives, action on the part of individuals, comprised
in a group activity, is necessary; and undertaking such action is facilitated in a planned and
systematic manager by the organizational structure, i.e. the organisation.

(II) Other Aspects of the Role:

Some important aspects of the role of the organisation could be stated as follows:
(i) Facilitates specialization:
An organisation exists basically to take care of and implement the division of work of various
types-among managers, subordinates and operators. Such division of work, leading to
specialization in various spheres, is instrumental in bringing about increased human efficiency
in the organization functioning.
Point of comment:

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Division of work, not only enables an enterprise to take advantages of specialization, in
managerial and operational work; it also makes for order and system, in the functioning of the
organisation.
(ii) Avoids omissions, overlapping and duplication of efforts:
While dividing work among departments and individuals, during the process of
organizing, care is exercised by management to see that:
(a) No part of work, necessary for attainment of objectives, is lost sight of
(b) There is no overlapping or duplication of activities and efforts, while assigning work to
individuals and departments.
That way, the organisation leads to an economical, effective and efficient functioning of the
enterprise.
(iii) Defines (or clarifies) authority responsibility relationships:
An organizational structure defines and clarifies, authority responsibility relationships among
managers and subordinates in the enterprise all through horizontally and vertically. Such
clarification of authority responsibility relationships not only means a smooth functioning of the
organizational life; but also promotes good human relations, in the organisation through
facilitating mutual understanding of one another.
(iv) Facilitates staffing:
The organizational structure is a great aid to efficient staffing. It, by clearly defining various
organizational positions-managerial and operational, not only points out to the need for
appropriate personnel who must man these positions; but also specifies the requirements to be
sought after in various personnel in terms of the abilities and skills needed to perform those
jobs.
Point of comment:
A well-defined organizational structure facilitates personnel development, specially of
managers, by allowing job-rotation system. Top management can resort to job-rotational
technique, as the requirements of jobs defined in the structure indicate the possibility or
otherwise for taking an appropriate decision on matters of shifting among different positions.
(v) Provides for co-ordination:
An organisation facilitates co-ordination; as the latter is provided for in the structure of
organisation as an in-built device. Needless to say, that a well-designed and defined
organizational structure provides for thorough co-ordination-horizontally and vertically; and
enables management to relish the essence of manager-ship and take the enterprise to the
heights of success.
(vi) Establishes channels of communication:
Communication among the personnel in the enterprise is not only the basis of the operational
life of the organisation; but also is instrumental in fostering good human relations-through
creating a base for mutual understanding. An organizational structure helps to establish various
channels of communication; relating people to one another through the scalar chain and other
organizational links.
But for the organisation, communication could only be casual, erratic and least authentic or
there could be a situation of an absolute communication gap.
(vii) Facilitates ‘Management by Exception’:
Management by exception is a philosophy in which the top management would concentrate only
on exceptional or critical matters (like strategy formulation, policy-making, controlling
significant deviations in performance by personnel etc.); leaving the rest of routine and
operational matters to subordinates throughout the enterprise.
Such a system of management i.e. management by exception could not be initiated and installed
in the enterprise, just casually or all of a sudden; rather a sound organizational structure paves
the Way and creates an environment for the introduction of this philosophy in a gradual and
systematic manner.
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As a matter of fact, management by exception is noting, but the highest state of decentralization
of authority; and the latter could be provided for while designing and structuring the
organisation.
(viii) Copes with environmental changes:
Environmental changes being reflected in conditions like-super fast changing technology,
accentuating competition, emerging latest social and cultural values, extending State regulation
of trade and industry etc. are well taken care of by a sound organisation.
The organisation could, of course, face such challenges by resorting to changes in the systems of
management styles, reorganization of departments, providing facilities for research and
development and effecting improvements in the operational life and undertaking other like
measures.
(ix) Leads to growth and expansion:
A sound organisation leads an enterprise along growth lines. Growth and expansion of the
enterprise, which is imperative even for survival in a highly dynamic economy is much
facilitated by the organisation through- creating more departments, enlarging existing
departments, widening span of management, providing for better and more effective co-
ordination and communication devices and all this taking place within the existing system,
structure and functioning of the enterprise.
(x) Produces synergism:
A sound organisation through ensuring effective integration of departmental functioning helps
the enterprise to take advantage of the synergy feature of the business system. The more
compact and responsible is the organizational structure; the more would be the advantages of

the synergy effect.

Motivation: Meaning, Definition, Nature and Types

Motivation: Meaning, Definition, Nature and Types!
Meaning:
Motivation is an important factor which encourages persons to give their best performance and
help in reaching enterprise goals. A strong positive motivation will enable the increased output
of employees but a negative motivation will reduce their performance. A key element in
personnel management is motivation.
According to Likert, “It is the core of management which shows that every human being gives
him a sense of worth in face-to face groups which are most important to him….A supervisor
should strive to treat individuals with dignity and a recognition of their personal worth.”
Definitions:
Motivation has been variously defined by scholars.
Some definitions are discussed as follows:

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Berelson and Steiner:
“A motive is an inner state that energizes, activates, or moves and directs or channels behaviour
goals.”
Lillis:
“It is the stimulation of any emotion or desire operating upon one’s will and promoting or
driving it to action.”
The Encyclopedia of Management:
“Motivation refers to degree of readiness of an organism to pursue some designated goal and
implies the determination of the nature and locus of the forces, including the degree of
readiness.”
Dubin:
“Motivation is the complex of forces starting and keeping a person at work in an organization.”
Vance:
“Motivation implies any emotion or desire which so conditions one’s will that the individual is
properly led into action.”
Vitiles:
“Motivation represents an unsatisfied need which creates a state of tension or disequilibrium,
causing the individual to make in a goal-directed pattern towards restoring a state of
equilibrium by satisfying the need.”
Memoria:
“A willingness to expend energy to achieve a goal or reward. It is a force that activates dormant
energies and sets in motion the action of the people. It is the function that kindles a burning
passion for action among the human beings of an organisation.”
Nature of Motivation:
Motivation is a psychological phenomena which generates within an individual. A person feels
the lack of certain needs, to satisfy which he feels working more. The need satisfying ego
motivates a person to do better than he normally does.
From definitions given earlier the following inferences can be derived:
1. Motivation is an inner feeling which energizes a person to work more.
2. The emotions or desires of a person prompt him for doing a particular work.
3. There are unsatisfied needs of a person which disturb his equilibrium.
4. A person moves to fulfill his unsatisfied needs by conditioning his energies.
5. There are dormant energies in a person which are activated by channelizing them into actions.
Types of Motivation:
When a manager wants to get more work from his subordinates then he will have to motivate
them for improving their performance. They will either be offered incentive for more work, or
may be in the space of rewards, better reports, recognition etc., or he may instill fear in them or
use force for getting desired work.
The following are the types of motivation:
1. Positive Motivation:
Positive motivation or incentive motivation is based on reward. The workers are offered
incentives for achieving the desired goals. The incentives may be in the shape of more pay,
promotion, recognition of work, etc. The employees are offered the incentives and try to improve
their performance willingly.
According to Peter Drucker, the real and positive motivators are responsible for placement, high
standard of performance, information adequate for self- control and the participation of the
worker as a responsible citizen in the plant community. Positive motivation is achieved by the
co-operation of employees and they have a feeling of happiness.
2. Negative Motivation:
Negative or fear motivation is based on force or fear. Fear causes employees to act in a certain
way. In case, they do not act accordingly then they may be punished with demotions or lay-offs.
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The fear acts as a push mechanism. The employees do not willingly co-operate, rather they want
to avoid the punishment.
Though employees work up-to a level where punishment is avoided but this type of motivation
causes anger and frustration. This type of motivation generally becomes a cause of industrial
unrest. In spite of the drawbacks of negative motivation, this method is commonly used to
achieve desired results. There may be hardly any management which has not used negative
motivation at one or the other time.
----------------------
Morale: Meaning, Nature and Significance of Morale
Morale: Meaning, Nature and Significance of Morale!
Meaning:
“Morale” a French word means “condition with respect to discipline and confidence pride, fixing
of purpose, faith in the course fought for”.
It has been defined in many ways but all definitions revolve around the attitude towards work
for the accomplishment of organizational goals. Thus morale is intimately connected with
organization. If the morale of employees/ workers is high, not only the production/ output is
increased and maintained but the workers feel satisfied and contented.
In this way the management shall find it easy to motivate the workers and make them feel as
part and parcel of the organization. Morale also generates confidence in workers and keep their
spirit very high and competitive.
William Spriegal has defined morale as the co-operative attitude or mental health of a number
of people who are related to each other on some basis. According to Alexandar H. Leighton
morale is the capacity of a group of people to pull together persistently in pursuit of a common
purpose.
In nut shell morale is the degree of enthusiasm and willingness with which the members of a
group work to perform their assignments. Thus morale is an indicator of attitudes of workers
towards their jobs, superiors and environment.
It is the sum total of employees attitudes, feelings and sentiments towards these variables.
Morale is a bye-product of motivation and group relationships in the organization. It is a mental
process which once started permeates in the entire group creating a mood which results in the
formation of common attitude.
Nature of Morale:
Generally, the term ‘morale’ is used to explain an overall ‘climate’ prevailing among the
members of a group. It is not an absolute concept which can convey a specific meaning, the work
‘morale’ by itself does not convey favorable or unfavorable meaning. It has to be qualified with
the degree, as high morale or low morale in this way it is relative concept and we can refer to the
levels of morale.
Thus morale is the level of enthusiasm and willingness with which the members contribute their
efforts towards the organization objectives. If the enthusiasm and willingness to work of a group
is high, we will say morale is high and vice versa.
We cannot say that there is morale or no morale among the members of a organization.
Therefore, morale has to be qualified like the word health. Just as good health is essential for an
individual, high morale is essential for an organization. Morale is dynamic in nature. Managers
cannot establish high morale once and then forget about it for several years. High morale is to be
created and maintained by continuous efforts.
Morale shows the attitudes of the workers. High morale represents an attitude of satisfaction
with desire to continue in and willingness to strive for the objectives of the group. It is
manifestation of direct and indirect satisfaction, sense of contentment and need fulfillment
through work. Morale is an individual and group phenomenon. In the later case, high morale is
reflected in good group work and team spirit. Under conditions of high morale workers have few

52
grievances, frustrations and complaints as they are clear about the objectives- individual and
organizational, and their relationship with others in the organization.
Significance of Morale:
High morale exists when employee attitudes are favaourable towards their work, their company
and their fellow workers- favourable to the total situation of the group and to the attainment of
its goals. Low morale exists when attitudes inhibit the willingness and ability of organization to
attain company objectives. Thus morale .of employees should be high to achieve the
organizational goals efficiently and effectively. A high morale curtails labour turnover, wastes
and disharmony.
Employees with high morale like their jobs and co-operate fully with the management towards
the achievement of objectives of the organization. It results from job satisfaction and creates job
enthusiasm. High morale is indeed a manifestation of the employee’s strength, dependability,
pride confidence and devotion. All these qualities of mind and character taken together build
high morale among the employees.
Morale of employees must be kept high to attain the following effects:
(i) Willing cooperation towards goals of the organization.
(ii) Loyalty to the organization and its leadership.
(iii) Good discipline or voluntary conformance to rules and regulations.
(iv) High degree of employee’s interest in his work and organization.
(v) Pride in the organization.
(vi) Reduction of rates of absenteeism and labour turnover.
Low morale represents the presence of mental unrest. The mental unrest not only restricts
production but also leads to ill health of the employees. Low morale exists when doubt and
suspicion are common and when employees are depressed and discouraged i.e. there is a lot of
mental tension.
Such a situation will have the following results:
(i) High rates of absenteeism and labour turnover.
(ii) Much complaints and grievances.
(iii) Frustration among the employees.
(iv) Friction among the employees.
(v) Feeling of opposition towards leadership to the organization.
(vi) Lack of discipline.
The effects of low morale may be very fatal to the organization as industrial relations will tend to
deteriorate. Whatever may be the reason of low morale, organization suffers ultimately because
quantity and quality of production both suffer. Thus, in order to avoid these evil consequences,
every manager should work to create and maintain the high morale of the people working under
him.
For this, he should have constant knowledge of the thinking and attitudes of the employees
towards their work and the organization and should carefully note the changes in their
behaviour and judge the factors responsible for change in the attitude of employees. It should be
noted that high morale cannot be purchased, it has to be built.
“It can be created only by introducing into the work situation certain conditions which are
favourable to its development. High morale is not the cause of good human relations. High
morale is the result of good human relations; it is the result of good motivation, respect and
dignity of the individual, relation of the individual difference, good leadership, effective
communication, participation, counseling and many other human relation practices”.

Leadership: Meaning, Characteristics and Functions

Meaning:
Leadership is an important element of the directing function of management. Wherever, there is
an organized group of people working towards a common goal, some type of leadership becomes
53
essential. “The power of leadership is the power of integrating. The leader stimulates what is
best in us he unites and concentrates what we feel only gropingly and shatteringly. He is a
person who gives form to the uncoarctate energy in every man. The person who influences me
most is not he who does great Deeds, but he who makes me feel that I can do great deeds.”
Marry Parker Follet.
Leadership is the ability to build up confidence and zeal among people and to create an urge in
them to be led. To be a successful leader, a manager must possess the qualities of foresight,
drive, initiative, self-confidence and personal integrity. Different situations may demand
different types of leadership.
Definitions:
Leadership has been defined in various ways. Stogdill has rightly remarked that there are almost
as many definitions of leadership as there are people who have tried to define it.
The definitions given by some famous authors and management experts are given
below:
1. Koontz and O’Donnell, Leadership is the ability of a manager to induce subordinates to work
with confidence and zeal.
2. Dubin, R.Leadership is the exercise of authority and making of decisions.
3. Allford and Beaty, Leadership is the ability to secure desirable actions from a group of
followers voluntarily, without the use of coercion.
4. George R. Terry, Leadership is the activity of influencing people to strive willingly for group
objectives.
5. Hemphill, J.K., Leadership is the initiation of acts which result in a consistent pattern of
group interaction directed towards the solution of a mutual problem.
6. Jame J.Cribbin, Leadership is a process of influence on a group in a particular situation at a
given point of time, and in a specific set of circumstances that stimulates people to strive
willingly to attain organisational objectives and satisfaction with the type of leadership provided.
7. Peter Drucker, Leadership is not making friends and influencing people, i.e., salesmanship it
is the lifting of man’s visions to higher sights, the raising of man’s personality beyond its normal
limitations.
In the various definitions of leadership the emphasis is on the capacity of an individual to
influence and direct group effort towards the achievement of organizational goals. Thus, ‘ we can
say that leadership is the practice of influence that stimulates subordinates or followers to do
their best towards the achievement of desired goals.
Nature and Characteristics of Leadership:
An analysis of the definitions cited above reveals the following important
characteristics of leadership:
1. Leadership is a personal quality.
2. It exists only with followers. If there are no followers, there is no leadership?
3. It is the willingness of people to follow that makes person a leader.
4. Leadership is a process of influence. A leader must be able to influence the behaviour, attitude
and beliefs of his subordinates.
5. It exists only for the realization of common goals.
6. It involves readiness to accept complete responsibility in all situations.
7. Leadership is the function of stimulating the followers to strive willingly to attain
organizational objectives.
8. Leadership styles do change under different circumstances.
9. Leadership is neither bossism nor synonymous with; management.
Formal and informal Leaders:
From the view point of official recognition from top management, leaders may be classified as
formal and informal leaders. A formal leader is one who is formally appointed or elected to
direct and control the activities of the subordinates. He is a person created by the formal
54
structure, enjoys organizational authority and is accountable to those who have elected him in a
formal way. The formal leader has a two-fold responsibility. On the one hand, he has to fulfill
the demands of the organization, while on the other he is also supposed to help, guide and direct
his subordinates in satisfying their needs and aspirations.
Informal leaders are not formally recognized. They derive authority from the people who are
under their influence. In any organization we can always find some persons who command
respect and who are approached to help, guide and protect the informal leaders have only one
task to perform, i.e., to help their followers in achieving their individual and group goals.
Informal leaders are created to satisfy those needs which are not satisfied by the formal leaders.
An organization can make effective use of informal leaders to strengthen the formal leadership.
Leadership Functions:
Following are the important functions of a leader:
1. Setting Goals:
A leader is expected to perform creative function of laying out goals and policies to persuade the
subordinates to work with zeal and confidence.
2. Organizing:
The second function of a leader is to create and shape the organization on scientific lines by
assigning roles appropriate to individual abilities with the view to make its various components
to operate sensitively towards the achievement of enterprise goals.
3. Initiating Action:
The next function of a leader is to take the initiative in all matters of interest to the group. He
should not depend upon others for decision and judgment. He should float new ideas and his
decisions should reflect original thinking.
4. Co-Ordination:
A leader has to reconcile the interests of the individual members of the group with that of the
organization. He has to ensure voluntary co-operation from the group in realizing the common
objectives.
5. Direction and Motivation:
It is the primary function of a leader to guide and direct his group and motivate people to do
their best in the achievement of desired goals, he should build up confidence and zeal in the
work group.
6. Link between Management and Workers:
A leader works as a necessary link between the management and the workers. He interprets the
policies and programmes of the management to his subordinates and represents the
subordinates’ interests before the management. He can prove effective only when he can act as
the true guardian of the interests of his subordinates.
Qualities of a Good Leader:
A successful leader secures desired behaviour from his followers. It depends upon the quality of
leadership he is able to provide. A leader to be effective must possess certain basic qualities. A
number of authors have mentioned different qualities which a person should possess to be a
good leader.
Some of the qualities of a good leader are as follows:
1. Good personality.
2. Emotional stability.
3. Sound education and professional competence.
4. Initiatives and creative thinking.
5. Sense of purpose and responsibility.
6. Ability to guide and teach.
7. Good understanding and sound judgment.
8. Communicating skill.
9. Sociable.
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10. Objective and flexible approach.
11. Honesty and integrity of character.
12. Self confidence, diligence and industry.
13. Courage to accept responsibility
Importance of Leadership in Management:
The importance of leadership in any group activity is too obvious to be over-emphasized.
Wherever, there is an organized group of people working towards a common goal, some type
leadership becomes essential. Lawrence A. Appley remarked that the time had come to
substitute the word leadership for management.
Although the concern for leadership is as old as recorded history, it has become more acute
during the last few decades due to the complexities of production methods, high degree of
specialization and social changes in the modern organizations. A good dynamic leader is
compared to a ‘dynamo generating energy’ that charges and activates the entire group in such a
way that near miracles may be achieved. The success of an enterprise depends to a great extent,
upon effective leadership.’
The importance of leadership can be highlighted from the following:
1. It Improves Motivation and Morale:
Through dynamic leadership managers can improve motivation and morale of their
subordinates. A good leader influences the behaviour of an individual in such a manner that he
voluntarily works towards the achievement of enterprise goals.
2. It Acts as a Motive Power to Group Efforts:
Leadership serves as a motive power to group efforts. It leads the group to a higher level of
performance through its persistent efforts and impact on human relations.
3. It Acts as an Aid to Authority:
The use of authority alone cannot always bring the desired results. Leadership acts as an aid to
authority by influencing, inspiring and initiating action.
4. It is Needed at All Levels of Management:
Leadership plays a pivotal role at all levels of management because in the absence of effective
leadership no management can achieve the desired results.
5. It Rectifies the Imperfectness of the Formal Organisational Relationships:
No organizational structure can provide all types of relationships and people with common
interest may work beyond the confines of formal relationships. Such informal relationships are
more effective in controlling and regulating the behaviour of the subordinates. Effective
leadership uses there informal relationships to accomplish the enterprise goals.
6. It Provides the Basis for Co-operation:
Effective leadership increases the understanding between the subordinates and the management
and promotes co-operation among them.
Process or Techniques of Effective Leadership:
The following are the techniques of effective leadership:
1. The leader should consult the group in framing the policies and lines of action and in
initiating any radical change therein.
2. He should attempt to develop voluntary co-operation from his subordinates in realizing
common objectives.
3. He should exercise authority whenever necessary to implement the policies. He should give
clear, complete and intelligible instructions to his subordinates.
4. He should build-up confidence and zeal in his followers.
5. He should listen to his subordinates properly and appreciate their feelings.
6. He should communicate effectively.
7. He should follow the principle of motivation.
Leadership: Types, Importance and Theories (With Diagram)
Meaning:
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Leadership is a commonly used word. It is common because every society, organisation,
institution, country and the world require leaders to lead the people towards achievement of
their common goals. Leadership provides direction, guidance, restores confidence and makes
the way easy for achieving the objectives. In business and industrial organisation managers play
the role of leader and acquire leadership of subordinates, employees and workers working under
them and are instrumental in guiding their efforts towards the achievement of organisational
goals.
Managers work under the framework of rules and regulations and employees can be controlled
automatically. They also work, still they need a leader who inspires them, guides them, and
directs them in their work. This is not done by rules and regulations. They are passive guides.
Leader activates the people. He makes them work. Leadership influences behaviour of the
people. Leadership has the ability to attract others and cause them to follow. It is a role
individual plays in a group at a given time.
Leadership acquires dominance and the followers accept his directives and control. Leadership
provides direction and vision for future. Wendell French has defined leadership as, “the process
of influencing the behaviour of others in the direction of a goal or set of goals or, more broadly,
toward a vision of the future.” It is a process of influencing behaviour of individual or group to
accomplish organizational goals. It is a group effort, cooperation of all individuals sought by
leader for attaining a productive purpose.
According to Keith Davis, “Leadership is the process of encouraging and helping others to work
enthusiastically towards objectives.” Leadership must extract cooperation and willingness of the
individuals and groups to attain the organisational objectives.
Koontz and O’Donnell defined leadership as, “influence, the art or process of influencing people
so that they will strive willingly towards the achievement of group goals.”
Peter Drucker defends it as, “the lifting of man’s visions to higher sights, the raising of man’s
performance to higher standard, the building of man’s personality beyond its normal
limitations.”
A. Gouldner defined leadership as, “a role which an individual occupies at a given time in a given
group.”
According to Chester I. Barnard, “It refers to the quality of the behaviour of the individual
whereby they guide people on their activities in organized efforts,”
According to Grey and Starke, “Leadership is both a process and property. The process of
leadership is the use of non-coercive influence to direct and coordinate the activities of the
members of an organized group towards the accomplishments of group objectives. As a
property, leadership is the set of qualities or characteristics attributed to those who are
perceived to successfully employ such influence.”
Essences of Leadership:
The essences of leadership which the above definitions reveal are:
1. Leadership is the process of influencing behaviour of others.
2. Leadership uses non-coercive method to direct and coordinate the activities of the members.
3. Leadership directs the people to attain some goal.
4. Leadership occupies a role for a given time and for a group.
5. A leader possesses qualities to influence others.
6. Leadership gives people a vision for future.
7. It is a group activity. Leader influences his followers and followers also exercise influence over
his leader. Leadership interacts.
8. Leadership is meant for a given situation.
9. Leadership is continuous process of influencing behaviour. It instills dynamism in the group.
10. It is a psychological process and multi-dimensional in character.
Types of Leadership:

57
The Personnel Research Board of the Ohio University has classified leadership into five types as
Bureaucrat, Autocrat, Diplomat, Expert, and Quarterback.
1. Bureaucrat:
He is the leader who follows rules and regulations and engages himself in pleasing his superiors
and deliberately avoids his subordinates.
2. Autocrat:
He issues directives and wants obedience. Subordinates oppose his attitudes.
3. Diplomat:
A most opportunistic type of leadership. He exploits people. People do not trust him.
4. Expert:
He is more concerned about his area of specialization. He is fair to his subordinates and treats
them on par.
5. Quarter-back:
He does not make any difference between him and subordinates. This attitude brings him more
enemies from superior ranks.
In addition to the above types, leadership may be classified into the following
types:
Functional:
As the name suggests the leadership is according to functions e.g. a leader is an expert in some
area then his advice is accepted by all.
Personal:
Some leaders possess attractive personality and have personal contacts with people. The
supervisor directs and motivates people through their personal contacts.
ADVERTISEMENTS:
Impersonal:
Leaders have no personal contacts. This type of leadership is similar to bureaucrat type who
leads people through instructions given to his subordinates.
Formal and Informal:
When formal authority vested in the executive is exercised to influence behaviour of people, the
leadership is said to be formal. Official position of the authority plays a vital role in this type.
Some executives establish better relationship with their subordinates to extract most benefits.
As against formal, informal leadership has no formal authority, yet it is very effective in
exercising its influence to direct the behaviour of people. The personality traits of a leader play a
vital role in this type of leadership.
A
Positive and Negative Leadership:
Positive leadership adopts positive attitudes towards subordinates. It takes them into
confidence, issues orders and interprets them, recognizes the talents among subordinates and
delegates authority for proper implementation of his orders. It extracts optimum from his
subordinates. As against this negative leadership uses coercive methods to motivate
subordinates. His subordinates remain under threat and fear. The negative leaders dominate
subordinates through false exhibition of superiority.
Importance of Leadership:
Importance of leadership does not need any over emphasis. Success of any organisation is
because of its leadership. Even national independence, growth, prosperity and power are
because of its leadership. Prosperity and growth of industrial or business organisation is also
because of effective leadership.
Eye-catching performances are achieved by many organisations through able executive
leadership.
An effective and important leadership must perform the following functions:

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1. A leader should act as a friend, philosopher and guide to the people whom he is leading. He
must have the capacity to recognize their potentialities and transform them into realities.
2. A leader should win the confidence of his people and seek their cooperation and convince
them of policies, procedures and the goals to be achieved. He should be able to wipe out the
differences among his people and unite them as a team and build up team spirit.
3. He maintains discipline among his group and develops a sense of responsibility. He should be
impartial in treating people under him and build up a high morale.
He should as far as possible not use coercive methods. He should represent his people in and
outside the organization. According to R. Likert, “leaders act as linking pins between the work
groups and the forces outside it.”
4. He should motivate his subordinates to achieve goals. He seeks their commitments to attain
the objectives of the organisation.
5. He should try to raise high moral and ethical standards among his people.
Theories of Leadership:
Theories on leadership exhibit the evolution of thoughts and development in thinking process
from one dimension of leadership to the other. Each theory of leadership highlights some
aspects of it ignoring the other. These are the characteristics of theories. The important aspects
of theories are the development of thoughts. In the various theories different aspects of
leadership are explained by the experts.
The important theories of leadership are discussed below:
Trait Theory of Leadership:
Trait theory of leadership highlights the personality traits of a successful leader. It is the oldest
theory of leadership. According to theory the personal traits or characteristics of a leader makes
him different from the followers. The researchers have taken great pains to find out various
traits of leadership.
The following are the traits identified by them:
1. Good Physiques:
Good health, vitality, energetic, enthusiast, endurance, forcefulness, masculinity.
2. Creativity and Intelligence:
Problem solving talents, sound judgment, teaching ability, rational attitude, scientific outlook,
self understanding, decision making prowess, better education, risk taking, hard work.
3. Social Traits:
Fearless, ability to inspire, knowledge of human psychology, ability to influence people, social
interaction, self confidence, ability to pursue, initiative, tactfulness.
4. Moral Traits:
Moral power, will power, sense of integrity, fairness, tolerance. All above qualities can be
developed in a leader. These are not the inborn qualities hence leaders can be made through
training, development and education. They are not born as leaders. Successful leaders must be
able to motivate, work hard and should be capable of taking risk. The theory explains the notion
that what should the leader be like. Theory also tries to distinguish between the leader and the
follower. It is a very simple theory of leadership.
It suffers from the following weaknesses:
1. Personality traits of successful leaders are too many. There is no final list of those traits. Every
researcher has added new traits to the long list. Some of the traits are also possessed by those
who are not leaders.
2. There is no solid method to measure these traits. Psychological traits are still more difficult to
measure.
3. Leaders cannot be distinctly different from the followers. Leader cannot necessarily be more
intelligent than the followers. In certain cases followers are more intelligent than their leaders.
4. Effectiveness of leadership cannot be solely determined by traits alone. Situation is also
responsible for it.
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5. Leadership is a changing process. It changes from situation to situation.
6. Many traits can be acquired through learning, training and education. Traits are not in born.
7. The theory does not make distinction between the traits of leadership and those for sustaining
it.
In spite of these limitations the theory is still relevant and we cannot ignore it completely.
Situational Theory of Leadership:
Leadership is relative to particular situation. According to the exponents of this theory the
leadership changes from group to group and from situation to situation. Leadership assumes
different dimensions in different situations. The leadership is exercised in a specific situation,
consisting of people and a given environment. The leadership depends upon the executive’s
ability to lead. The leadership is also relative to group, task, goal, organisational structures, and
population characteristics of group.
When groups are facing crisis. According to this theory the focus is not on the personality of
leader but on the personality of the organisation as a whole because change in situation can pose
problems to leader for performing his job of leadership. Such situations may give rise to new
leader if he is able to cope up with the situation at that moment.
The theory suffers from certain limitations:
1. The theory overemphasizes the situational aspects and personality traits and other aspects are
completely ignored which are also the essential ingredients of leadership.
2. The leadership process is not made clear by the theory. It has completely ignored the process
aspects of leadership.
Behavioural Theories:
Limitations of trait theory diverted the focus of attention of researchers to the behavioural
aspect of the leadership. The emphasis was given on the behaviour of leaders than their
personality traits. According to behavioural approach the actions of the leader in attaining goals
are important. It studies the kind and types of behaviour that affect the job performance of the
subordinates and their job satisfaction.
Trait theories lay emphasis on study of personal features and separated leaders from non
leaders or followers while behavioural theories lay emphasis on studying behaviour of leaders
and their effects on followers’ performance and their satisfaction. This is the striking difference
between the two sets of theories. The following are the behavioural models of leadership.
Ohio State University Studies:
The studies were conducted to know the effects of behaviour of leader on the performance and
satisfaction of subordinates. Analyses of actual leadership behaviour in wide variety of situations
were made and researchers at Ohio State University have identified two leadership dimensions.
1. Initiating Structure:
Implies the leader’s behaviour in distribution of work among subordinates in a well defined
manner and supervision of their activities.
2. Consideration:
Implies the leaders behaviour towards his subordinates as to how he is concerned about them,
his trust, friendship, respect, support, openness, warmth etc. with them. As shown in the
diagram below both the dimensions of behaviour initiating structure and consideration are not
placed on continuum.

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The researchers found that consideration and initiating structure were not mutually distinct
dimensions as is visible from the diagram. Point A represents low consideration and low
initiating structure. B represents high consideration and low initiating structure, C represents
high consideration and high initiating structure and D represents low consideration and high
initiating structure.
The Michigan Studies:
The researchers of Michigan University have conducted studies at several factories.
They have studied the behaviour of several supervisors of these factories and
identified two distinct dimensions of leaderships:
(i) Production centred, and
(ii) Employee centred
(i) Production centred leadership is one who sets rigid targets and work standard, treats
employees as machines and exercises close supervision.
(ii) Employee centred leadership is one who gives human treatment to employees, encourage
their participation in decision making, inspires them for high performance through positive
motivation and looks after their welfare.
Employees are given due importance under employee centred leadership and production its
quality and quantity is given more importance by production centred leadership. McGregors
Theory X principles are applied by production centred executive and principles of Theory Y are
applied by employee centred executive. The behavioural theories have mainly contributed on
behavioural pattern of leadership. The behavioural aspects include communication, delegation
of authority, motivation, supervision etc.
All these qualities in a leader can be developed through proper training and development
methods. Trained managers in leadership behaviour can lead their subordinates effectively
towards the accomplishment of organisational goals. This is the most significant contribution of
leadership behaviour theories.
The Managerial Grid:
Blake and Mouton have developed a grid combining task oriented and relations oriented
behaviours of leadership’s styles. It is represented in a square diagram given below wherein x
axis represents concern for production and y axis represents concern for people. This diagram
shows managerial grid.

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Managerial grid recognized five different leadership styles. The point A i.e. (1, 1) represents
impoverishment in managing i.e. quite poor management having low concern for people and
low concern for production. The leadership cares for minimum here. It does not exert to get
increased production neither it cares for employees. This cannot be sustained for long. The point
B i.e. (1, 9) represents high concern for people and low concern for production.
The leadership pays more attention to the needs of the people and developed friendly
relationships with them but not paid much attention to increase production. The point C i.e. (9,
9) represents high concern for people end high concern for production.
This exhibits the superior style of management, an ideal one. It takes employees into full
confidence by showing high concern for them at the same time motivating them to get increased
level of production to its highest capacity.
The point D i.e. (9, 1) represents low concern for people and high concern for production. It
exhibits strict attitude and very close supervision towards employees to get high level of
production. The point £ i.e. (5, 5) represents moderate levels of concern for people and concern
for production. It is middle path adopted by the leadership.
These are the five different styles of leaderships put forward by managerial grid by Blake and
Mouton. The bases of the grid correspond to the Michigan studies i.e. employee centred and
production centred and Ohio studies i.e. consideration and initiating structures.
Fiedler’s Contingency Model:
Fred Fiedler and his associates have given contingency theory of leadership. According to the
theory the effectiveness of leadership depends upon three variables, leader’s position power,
leader-member relations and task structure.
Leader’s Position Power:
The leader’s position powers refers to the degree of authority the leader holds in an organisation
to command the required resources at his disposal for work accomplishment. His position
power also depends upon as to degree of reward power he possesses to award a reward to the
subordinate perfuming well and punish those lazy subordinates.
Leader Member Relations:
It refers to the respect a leader commands and trust and confidence he enjoyed from his
subordinates. A leader is more powerful if his subordinates are loyal to him. The poor leadership
exhibits low level relations between employees and leader.
Task Structure:
Task structure refers to the extent to which the task is well defined, clear and routine. The
method of operation and procedures of task accomplishment must be well defined and
standards should be set to determine the high or low performance on the part of the subordinate
so that they can be held responsible for non performance or low performance. This increases the

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controlling power of the leader and he becomes very effective. The reverse makes him poor and
ineffective leader.
The effective leader is one who develops good relations with his members, having high task
structure and strong or stronger position power. All other combinations have moderate or poor
leadership.
The theory is criticized by saying that it is uni-dimensional as it suggest relation oriented or task
oriented dimension of leadership. Critics say that leadership is multidimensional. He should
have combination of both qualities.
Path-Goal Model:
Path goal theory of leadership is developed by Robert House. It is highly respected model for
studying leadership. The theory tries to predict effectiveness of leadership in various situations.
According to the theory the leader has to specify goals for the employees and clear the paths
leading to the accomplishment of goals by providing essential support and guidance and
rewards.
A leader has to influence subordinates, perceptions of outcome and performance. The theory is
designed on the basis of Vroom’s expectancy theory of motivation. A leader has to motivate the
subordinates by clarifying goals and paths to achieve them.
According to Keith Davis and Newstrom, “the essence of the theory is that the leader’s job is to
use structure, support and rewards to create a work environment that helps employees reach the
organizations goals.”
This theory is an improvement over Fiedler’s model as it takes into account the features of
subordinates and situation as well.
Composite Leadership:
After looking at so many different leadership styles and theories one has to think whether a
theory alone is perfect and a particular theory can be adopted for leading human resources at
work. The answer is probably No. None of the theories explained above are perfect.
They have put for one or two aspects of leadership behaviour out of many that are required. A
composite model was proposed by George Terry. Leader’s confidence, support, knowledge,
experience of followers organisation and its structure and environmental forces such as social,
cultural, economic, political, technological factors, influence of community etc. are responsible
for leadership. For an effective leadership all the qualities explained by various theories are
required in a leader.
Communication: Meaning, Characteristics, and Other Details (With Diagram)
Meaning of Communication:
The word communication has been derived from the Latin word ‘communis’ which means
‘common’. Thus, communication means sharing of ideas in common. “When we communicate,”
says Wibur Schramn, “we are trying to establish a ‘commonness’ with someone. That is we are
trying to share information, an idea or an attitude. The essence of communication is getting the
receiver and the sender ‘turned’ together for a particular message.”
According to the shorter Oxford English Dictionary, communication means “the imparting,
conveying or exchange of ideas, knowledge, etc., whether by speech, writing or signs.”
Communication takes place when one person transfers information and understanding to
another person. It refers to the exchange of ideas, feelings, emotions, knowledge and
information between two or more persons.
There is a communication when you talk or listen to someone. For instance, a teacher while
delivering his lecture communicates to his students. But if he speaks or writes in a language
which is not understandable to his students, there is no communication. When you read a book,
its author communicates to you. But communication does not mean merely written or oral
messages.
It includes everything that may be used to convey meanings from one person to another, e.g.,
movement of lips or the wink of an eye or the wave of hands may convey more meaning than
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even written or spoken words. In fact, communication is the process of conveying message from
one person to another so that they are understood.
In business management, ideas, objectives, orders appeals, observations, instructions,
suggestions etc. have to be exchanged among the managerial personnel and their subordinates
operating at different levels of the organisation for the purpose of planning and executing the
business policies. The following standard definitions will further help to understand the
meaning and concept of communication in management.
“Communication is the sum of all the things one person does when he wants to create
understanding in the mind of another. It is a bridge of meaning. It involves a systematic and
continuous process of telling, listening arid understanding.”—Louis A. Allen.
“Communication is the intercourse by word, letters or messages, intercourse of thoughts or
opinions. It is the act of making one’s idea as and opinions known to others.”—Fred G. Meyer.
“Communication is the process of passing information and understanding from one person to
another.”—Keith Davis.
“Communication as any behaviour that results in an exchange of meaning.”—The American
Management Association.
“Communication may be broadly defined as the process of meaningful interaction among
human beings. More specially, it is the process by which meanings are perceived and
understandings are reached among human beings.”— D.E. McFarland.
“Communication is a way that one organisation member shares meaning and understanding
with another.”—Koontz and O’Donnell.
“Simply stated, communication means the process of passing information and understanding
from one person to another. Communication, fundamental and vital to all managerial functions,
is the process of imparting ideas and making oneself understood by others.”—Theo Haimann.
“Communication is the broad field of human interchange of facts and opinions and not the
technologies of telephone, telegraph, radio and the like.”— Charles F. Refield.
“The transfer of information from one person to another whether or not it elicits confidence. But
the information transferred must be understandable to the receiver.”—C.G. Brown.
“In its everyday meaning, communication refers to the transmitting of information in the form
of words, or signals or signs from a source to a receiver.”—Keith and Gubellini.
“The word communication describes the process of conveying message (fact, ideas, attitudes and
opinions) from one person to another so that they are understood.”—M.W. Cummin.
In administrative context, the term communication has been defined as, “a process which
involves the transmission and accurate replication of ideas ensured by feedback for the purpose
of eliciting actions which will accomplish organisational goals.”—William Scott.
(A special committee on communication in business and industry) defined communication as “a
mutual exchange of facts, thoughts, opinions or emotions. This requires presentation and
reception, resulting in common understanding among all parts. This does not imply
agreement.”—National Society for Study of Communication.
We can conclude from the above definitions that in business communication does not merely
sending or receiving message. It is much more than that. It includes proper understanding of the
message, its acceptance and action on it. In the broadest sense, communication refers to the
whole process of man’s life in relation to the group and includes exchange of information, a
system of communicating, and a process by which meanings are exchanged among human
beings.
Characteristics Nature of Communication:
From the analysis of above-mentioned definitions we get the following essential
features of communication:
1. It Involves at Least Two Persons:
Communication involves at least two persons, a sender and a receiver. The sender is called
communicator and the receiver of the message is known as communicate. A person who speaks,
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writes or issues some instructions is the sender and the person for whom the communication is
meant or who receives the message is the receiver or communicates.
2. Message is a Must:
A message is the subject matter of communication. e.g., the contents of the letter or speech,
order, instructions or the suggestions. A communication must convey some message. If there is
no message there is no communication.
3. Communication May be Written, Oral or Gestural:
Communication is generally understood as spoken or written words. But in reality, it is more
than that. It includes everything that may be used to convey meanings from one person to
another, e.g., movement of lips, or the wink of an eye or the wave of hands may convey more
meaning than even written or spoken words.
4. Communication is a Two Way Process:
It involves both information and understanding. Communication is not complete unless the
receiver has understood the message properly and his reaction or response is known to the
sender. Understanding is the end result of communication but it does not imply agreement.
5. Its Primary Purpose is to Motivate a Response:
The primary purpose of communication is to motivate response or influence human behaviour.
There is no doubt that motivation comes from within but communicator can also motivate
people by good drafting of message, proper timing of communication, etc. To create
understanding, communication should be relevant to the situation. It must always be
remembered that communication is a means of motivating and not an end itself.
6. Communication may be Formal or Informal:
Formal communication follows the formal channels provided in the organisation structure. For
example, the Managing Director communicates with the departmental heads, say Finance
Manager, finance manager communicates to deputy finance manager, the deputy finance
manager with accounts officer and so on.
In simple words, in informal communication, there is no direct communication between the
Managing Director and the accounts clerks. Informal communication flows from informal
channels of communication which are not provided in the organisation structure. These
channels develop among members because of personal contacts through working with each
other.
7. It Flows Up and Down and also from Side to Side:
Communication flows downward from a superior to subordinate and upward from subordinate
to a superior. It also flows between two or more persons operating at the same level of authority.
8. It is an Integral Part of the Process of Exchange:
It refers to the exchange of ideas, feelings, emotions and knowledge and information’s between
two or more persons.
Elements of Communication:
The basic elements of communication are:
1. Communicator:
The sender, speaker, issuer or writer-who intends to convey or transmit a message.
2. Communicate:
The receiver for whom the communication is meant. He receives the information, order or
message.
3. Message:
The subject matter of communication i.e., the content of the letter, speech, order, information,
idea or suggestion.
4. Communication Channel:
The media by which the information and understanding are passed from the sender to the
receiver. It serves as link between the communicator and the communicate i.e., the levels of

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organisation or relationships that exist between different individuals or departments of an
organisation.
5. Response or Feedback:
The effect, reply or reaction, of the information transmitted, on the communicate i.e., successful,
no communication or miscommunication.

The Process of Communication:

1. The communicator first of all, formulates a clear idea about facts, opinions or information he
wants to convey.
2. The idea is then translated by him into words (spoken or written), symbols or some other
form of message which he expects the receiver to understand. This process is known as encoding
of the message.
3. The communicator selects a suitable media for the transmission of the message, e.g.,
telephone, telegraph or television. The message is conveyed with the help of the media selected.

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4. The message is then received by the communicate. He tries to understand it by decoding the
message.
5. The communicate acts upon the message as he has understood it.
6. Finally, the effectiveness of communication is measured through feedback. If the
communication brings in the desired changes in the actions or behaviour of the receiver, it is
said to be successful communication. In case, there is no change in the actions or behaviour,
there is no communication, and if it leads to undesirable changes it is a case of
miscommunication.
The process of communication is illustrated in the figures.
Models of Communication Process:
Three models have been given by different authors to explain the process of communication.
These models are explained as follows:
(i) Shannon-Weaver Model
(ii) Berlo Model
(iii) Transactional Process Model.
(i) Shannon-Weaver Model:
Cloude E. Shannon and Wanen Weaver have based their model of communication process on
the information theory. They have given a mechanical approach to the theory of communication.
This model basically aims at ensuring that the information which is communicated is both
accurate and correct.
The information theory involves the following steps:

This model does not include any feedback, since the same process will follow for feedback also
where the receiver will become the sender.
According to this model the communication problems can arise at any of the
following three levels:
(i) Technical level:
How effectively the communication can be transmitted?
(ii) Semantic level:
How precisely do the transmitted communications convey the desired message?
(iii) Effectiveness level:

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How effectively does the received meaning affect the conduction in the desired way.
(ii) Berlo Model:
Dank K. Berlo has given the first widely accepted model of communication process which
presents communication as a dynamic interactive process. His model is popularly known as the
Dynamic Process Model.
This steps and parties involved in this model are:

Berlo Model of Communication Process:

According to Berlo, thus, communication is an ongoing and continuous process whereby
feedback is also an important part.
(iii) Transactional Process Model:
Communication theorists view communication as a transaction process. Theorists like Wenburg
and Wilmont state that “all persons are engaged in sending (encoding) and receiving (decoding)
messages simultaneously. Each person is constantly sharing the encoding and decoding process
and each person is affecting the other”.
This model believes that there is a continuous process of feedback in the
communication process as shown in the following figure:

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From organisational point of view transactional approach is much more accurate and useful way
of viewing communication than the other methods.
Need or Purpose of Communication:
The main purpose of communication is to effect change in someone i.e., to influence action or to
secure inaction in the overall interest of an enterprise. It enables us to understand others and to
make ourselves understood. Without communication we cannot live or work together in an
organised way. It is a flux that binds people together in an organisation. The basic purpose of
communication is to facilitate and lubricate the organisation. It helps management of planning
effectively and controlling efficiently.
John G. Clover has outlined the following important purposes of communication:
1. To keep employees informed.
2. To provide employees with orders and instructions in connection with their duties.
3. To solicit information from employees which may aid management.
4. To make each employee interested in his respective job and in the work of the company as a
whole.
5. To express management’s interest in its personnel.
6. To reduce or prevent labour turnover.
7. To instill each employee with, personal pride in being a member of the company.
Communication Roles:
Every individual working in an organisation takes part in the communication process in one way
or the other. His communication role indicates the specific role he serves in an organization’s
network.
Robert P. Vecchio has specified four such communication roles:
1. Gatekeeper:
A gatekeeper is a person in the communication process who passes information to others or
controls messages. Common examples of gatekeepers are personal assistants and secretaries to
executives. Gatekeepers should have the ability to control the information or time its release so
as to influence the final decision.
2. Liaisons:
Liaisons role is performed by a person who serves as a communication link between groups, but
is not a part of either group. This person serves as a bridge between groups that need to
exchange messages. Liaisons can play a very effective role in organisations in linking the various
departments.
3. Isolates:

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An isolate is a person who has very little or no conflict with other members of the organisation.
Certain jobs like night guards, chowkidars are characterised by the absence of socialization with
other members of the organisation. However, there are people who remain isolates by choice.
They may consciously choose not to socialise with coworkers or participate in grapevines.
4. Cosmopolites:
A cosmopolite is a person whose communication network extends far beyond the boundaries of
the organisation. They have links in the external environment of the organisation. These people
can serve a gate keeping role in that the organisations contact with and information from the
outside world needs to be passed through them.
Essential Characteristic or Principles of an Effective Communication System:
From the above discussed steps for making effective communication, we can derive the essential
characteristics of an effective communication system.
To sum up, the following principles or characteristics must be provided in an
effective communication system:
1. Clarity and completeness of message.
2. Adequate briefing of the recipient.
3. Correct idea of objectives.
4. Integrity and consistency.
5. Motivation.
6. Proper feedback.
7. Proper timing.
8. Use of appropriate media.
9. Use of informal communication.
10. Principle of flexibility.
The American Management Association has given following commandments of
good communication:
1. Seek to clarify your ideas before communicating.
2. Examine the purpose of each communication.
3. Consider the total physical setting whenever you communicate.
4. Consult with others, where appropriate, in planning communication.
5. Be mindful, while you communicate, of the overtones as well as basic content of your
message.
6. Take the opportunity, when it arises, to convey something of help or value of the receiver.
7. Follow-up your communication.
8. Communication for tomorrow as well as today.
9. Be sure your actions support your communications.
10. Seek not only to be understood but understand.
Organizational Behaviour: Definition, Characteristics and Nature
Definitions:
“Organisational behaviour is a subset of management activities concerned with understanding,
predicting and influencing individual behaviour in organisational setting.”—Callahan, Fleenor
and Kudson.
“Organisational behaviour is a branch of the Social Sciences that seeks to build theories that can
be applied” to predicting, understanding and controlling behaviour in work organisations.”—
Raman J. Aldag.
“Organisational behaviour is the study and application of knowledge about how people act
within an organisation. It is a human tool for human benefit. It applies broadly to the behaviour
of people in all types of organisation.”— Newstrom and Davis.
“Organisational behaviour is directly concerned with the understanding, production and control
of human behaviour in organisations.”—Fred Luthans.

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“Organisational behaviour is a field of study that investigates the impact that individuals, groups
and structure have on behaviour within the organisations for the purpose of applying such
knowledge toward improving an organization’s effectiveness.”—Stephens P. Robbins.
In short, organisational behaviour revolves around two fundamental components:
1. The nature of the man.
2. The nature of the organisation.
In other words, organisational behaviour may be organisation of individual’s behaviour in
relation to physical means and resources so as to achieve the desired objective of the
organisation.
Organisational Behaviour, Organisational Theory, Organisational Psychology and
Human Resource Management:
Organisational behaviour is generally confused with organisational theory, organisational
psychology, and human resource management. Organisational psychology restricts itself to
psychological factors only whereas organisational behaviour considers and combines all the
branches of study e.g. Science, technology, economics, anthropology, psychology and so on and
so forth.
Organisational behaviour is the basis of human resource management and development. The
former is concept oriented whereas the latter is concerned with the technology of human
development. The variables influencing human development are scientifically studied under
organisational behaviour.
Human resource management, is activated, directed and channelized by the application of the
knowledge of organisational behaviour which has become a field of study, research and
application for the development of human resources and the organisation as a whole. Thus, we
can say that all these terms are interrelated but not synonymous with each other.
Characteristics of Organisational Behavior:
From The Above Definitions, The Following Features of Organisational Behaviour
Emerge:
1. Behavioural Approach to Management:
Organisational behaviour is that part of whole management which represents the behavioural
approach to management. Organisational behaviour has emerged as a distinct field of study
because of the importance of human behaviour in organisations.
2. Cause and Effect Relationship:
Human behaviour is generally taken in terms of cause and effect relationship and not in
philosophical terms. It helps in predicting the behaviour of individuals. It provides
generalizations that managers can use to anticipate the effect of certain activities on human
behaviour.
3. Organisational Behaviour is a Branch of Social Sciences:
Organisational behaviour is heavily influenced by several other social sciences viz. psychology,
sociology and anthropology. It draws a rich array of research from these disciplines.
4. Three Levels of Analysis:
Organisational behaviour encompasses the study of three levels of analysis namely individual
behaviour, inter-individual behaviour and the behaviour of organisations themselves. The field
of organisational behaviour embraces all these levels as being complementary to each other.
5. A Science as well as an Art:
Organisational behaviour is a science as well as an art. The systematic knowledge about human
behaviour is a science and the application of behavioural knowledge and skills is an art.
Organisational behaviour is not an exact science because it cannot exactly predict the behaviour
of people in organisations. At best a manager can generalize to a limited extent and in many
cases, he has to act on the basis of partial information.
6. A Body of Theory, Research and Application:

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Organisational behaviour consists of a body of theory, research and application which helps in
understanding the human behaviour in organisation. All these techniques help the managers to
solve human problems in organisations.
7. Beneficial to both Organisation and Individuals:
Organisational behaviour creates an atmosphere whereby both organisation and individuals are
benefitted by each other. A reasonable climate is created so that employees may get much
needed satisfaction and the organisation may attain its objectives.
8. Rational Thinking:
Organisational behaviour provides a rational thinking about people and their behaviour. The
major objective of organisational behaviour is to explain and predict human behaviour in
organisations, so that result yielding situations can be created.
Nature of Organisational Behavior:
Organisational behaviour in the study of human behaviour in the organisations. Whenever an
individual joins an organisation he brings with him unique set of personal characteristics,
experiences from other organisations and a personal background. At the first stage
organisational behaviour must look at the unique perspective that each individual brings to the
work setting.
The second stage of organisational behaviour is to study the dynamics of how the incoming
individuals interact with the broader organisation. No individual can work in isolation. He
comes into contact with other individuals and the organisation in a variety of ways. The
individual who joins a new organisation has to come into contact with the co-workers,
managers, formal policies and procedures of the organisation etc.
Over the time, he is affected by his work experience and the organisation as well as his personal
experiences and maturity. On the other hand, the organisation is also affected by the presence or
absence of the individual. Thus, it is essential that OB must study the ways in which the
individuals and organisation interact with each other.
The organisational behaviour must be studied from the perspective of the organisation itself
because an organisation exists before a particular individual joins in and continues to exist after
he or she has left the organisation. Thus, OB is the study of human behaviour in the
organisation, the individual-organisation interaction and the organisation itself. And these
factors are influenced by the external environment in which the individuals and the organisation
exist.
Thus, we can say that we cannot study individual behaviour completely without learning
something about the organisation. On the other hand, we cannot study the organisations
without studying the behaviour of the individuals working in it. This is because the organisation
influences and is influenced by the people working in it. Moreover, both the individuals and the
organisation are influenced by the external environment. Thus, the field of organisational
behaviour is a complex field. It seeks to throw light on the entire canvas of human factor in the
organisations which will include the causes and effects of such behaviour.
Manager: Functions, Skills and Role
Functions of Managers at Different Levels:
There is no basic distinction between managers, executives, administrators, and supervisors. To
be sure, a given situation may differ considerably among various levels in an organization or
various types of enterprises. Similarly, the scope of authority held may vary and the types of
problems dealt with may be considerable different.
Furthermore, the person in a managerial role may be directing people in the sales, engineering,
or finance department. But the fact remains that, as managers, all obtain results by the
establishing environment for effective group endeavour.
All manager carry out managerial functions. However, the time spent for each function may
differ. Fig. 27.2 shows an approximation of the relative time spent for each function.

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Thus, top-level managers spend more time on planning and organizing than do lower-level
managers. Leading, on the other hand, takes a great deal of time for first-line supervisors. The
difference in the amount of time spent on controlling various functions only slightly for
managers at various levels.
Skills of Managers in the Organizational Hierarchy:
Following are the managerial skills:
(i) Technical Skill:
It is knowledge of and proficiency in activities involving methods, processes, and procedures.
Thus, it involves working with tools and specific techniques. For examples, mechanics work with
tools, and their supervisor should have the ability to teach them how to use these tools.
Similarly, accountants apply specific techniques in doing their job.
(ii) Human Skill:
It is the ability to work with people; it is cooperative efforts; it is teamwork; it is the creation of
an environment in which people feel secure and free express their opinions.
(iii) Conceptual Skill:
It is the ability to see the ‘big picture’ to recognize significant elements in a situation, and to
understand the relationships among the elements.
(iv) Design Skill:
It is the ability to solve problems in ways that will benefit the enterprise. To be effective,
particularly at upper organizational levels, managers must be able to do more than see a
problem. They must have, in addition, the skill of a good design engineer in working out a
practical solution to a problem.
If managers merely see the problem and become ‘problem watchers,’ They will fail. Managers
must also have that valuable skill of being able to design a workable solution to the problem in
the light of the realities they face.
The relative importance of these skills may differ at various levels in the organization hierarchy.
As shown in Fig. 27.3 technical skills are of greatest importance at the supervisory level. Human
skills are also helpful in the frequent interactions with subordinates. Conceptual skills, on the
other hand, are usually not critical for lower-level supervisors.
At the middle management level, the need for technical skills decreases human skill is still
essential; the conceptual skills gain in importance.
At the top management level, conceptual and design abilities and human skills are especially
valuable, but there is relatively little need for technical abilities. It is assumed, especially in large
companies, that chief executives can utilize the technical abilities of their subordinates. In
smaller firms, however, technical experience may still be quite important.
Role of a Manager:
Non-business executive sometimes say that the aim of business managers is simple-to make a
profit. But profit is really only a measure of a surplus of sales rupees over expense rupees. In a
very real sense, in all kinds of organizations, whether business or non-business, the logical and
publicly desirable aim of all managers should be a surplus.
Thus, managers must establish an environment in which people can accomplish group goals
with the least amount of time, money, materials, and personal dissatisfaction or in which they
can achieve as much as possible of a desired goal with available resources.
In a non-business enterprise such as a police department, as well as in units of a business (such
as an accounting department) that are not responsible for total business profits, managers still
have goals and should strive to accomplish them with the minimum of resource or to accomplish
as much as possible with available resources.

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Interpersonal Roles:
(1) The figure head role (performing ceremonial and social duties as the organisation’s
representative
(2) The leader role and
(3) The liaison role (communicating particularly with outsiders).

Informational Roles:
(1) The recipient role (receiving information about the operation of an enterprise)
(2) The disseminator role (passing information to subordinates) and
(3) The spokesperson role (transmitting information to those outside the organisation).

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Decision Roles:
(1) The entrepreneurial role.
(2) The disturbance handler role.
(3) The resource allocator role.
(4) The negotiator role.
The Functions and Authorities of Managers:
The functions of managers provide a useful framework for organizing management knowledge.
There have been no new ideas, research findings, or techniques that cannot readily be placed in
the classifications of planning, organizing, staffing, leading, and controlling.
Planning:
Planning involves selecting missions and objectives and the actions to achieve them; it requires
decision making that is, choosing future courses of action from among alternatives. There are
various types of plans, ranging from overall purpose and objectives to the most detailed actions
to be taken, such as ordering a special stainless steel bolt for an instrument of hiring and
training workers for an assembly line.
No real plan exists plan exists until a decision-a commitment of human or material resources or
reputation has been made. Before a decision is made, all that exists is a planning study, an
analysis, or a proposal; there is no real plan.
Organizing:
People working together in groups to achieve some goal must have roles to play, much like the
parts actors fill in a drama, whether these roles are ones they develop themselves, are accidental
or haphazard, or are defined and structured by someone who wants to make sure that people
contribute in a specific way to group effort.
The concept of a ‘role’ implies that what people do has a definite purpose or objective; they know
how their job objective fits into group effort, and they have the necessary authority, tools and
information to accomplish the task. This can be seen in as simple a group effort as setting up
camp on a fishing expedition.

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Everyone could do anything he or she wanted to do, but activity would almost certainly be more
effective and certain tasks would be less likely to be left undone if one or two persons were given
the job of gathering firewood, to others the assignment of getting water; other the task of
starting a fire, other the job of cooking, and so on.
Organization Structure:
Then, is that part of managing that involves establishing an international structure of roles for
people to fill in an organization. It is intentional in the sense of making sure that all the tasks
necessary to accomplish goals are assigned and. it is hoped, assigned to people who can do them
best.
Imagine what would have happened if such assignments had not been made in the program of
flying the special air craft Voyager around the globe without stopping or refuelling.
The purpose of an organization structure is to help in creating an environment for human
performances. It is, then, a management tool and not an end in hand of itself. Although the
structure must define the tasks to be done, the roles so established must also be designed in the
light of the abilities and motivations of the people available.
Designing an effective organization structure is not an easy managerial tasks. Many problems
are encountered in making structures fit situations, including both defining the kind of jobs they
must be done and finding the people to do them.
Staffing:
Staffing involves filling, and keeping the positions in the organization structure. This is done by
identifying work force requirements; inventorying the people available, and recruiting, selecting,
placing, promoting, appraising planning the careers of, compensating, and training or otherwise
developing both candidates and current jobholders to accomplish their tasks effectively and
efficiently.
Leading:
Leading is the influencing of people so that they will contribute to organization and group goals;
it has to do predominantly with the interpersonal aspect of managing. All managers would agree
that their most important problems arise from people-their desires and attitudes. Their
behaviour as individuals and in groups-and that effective manager also need to be effective
leaders.
Since leadership implies followership and people tend to follow those who offer a means of
satisfying their own needs, wishes and desires, it is understandable that leading involves
motivation, leadership styles and approaches, and communications.
Controlling:
Controlling is the measuring; the correcting of activities of subordinates to ensure that event
conforms to plans. It measures performance against goods and plans shows where negative
deviations exists, and by putting in motion action to collect deviations, helps ensure
accomplishment of plans.
Although planning must precede controlling, plans are not self-achieving. Plans guide managers
in the use of resources to accomplish specific goals; then activities are checked to determine
whether they conform to the plans.
Control, activities generally relate to the measurement of achievement. Some means of
controlling, like the budget for expense, inspection records, and the record of labour hours lost,
are generally familiar. Each measures and each shows whether plans are working out. If
deviations persist, correction in is indicated. But what is corrected? Activities, through persons.
Nothing can be done about reducing scrap, for example, or buying according to specifications, or
handling sales returns unless one knows who is responsible for these functions.
Compelling events to conform to plans means locating the persons who are responsible for
results that differ from planned action and then taking the necessary steps to improve
performance. Thus, outcomes are controlled by controlling what people do.
Organization Structure: Nature, Advantages and Demerits
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Meaning of Organisation Structure:
Organisation structure is the pattern of organisational hierarchy based on authority
responsibility relationship.
According to Lounsbury Fish, “Organisation Structure is more than a chart. It is mechanism
through which management directs co-ordinates and controls the business. It is the foundation
of management.”
“An organisation is a group of individuals coordinated into different levels of authority and
segments of specialization for the purpose of achieving the goals and objectives of the
organisation.” —Kossen
“Organisation is the process of identifying and grouping the work to be performed, defining and
delegating responsibility and authority and establishing relationships for the purpose of
enabling people to work most effectively together in establishing of objectives ” —Allen
Organisation structure is one of the forces that affect the goal of the organisation. It is designed
in such a manner as to serve as an instrument to accomplish the social goal. The extent to which
an organisation is able to achieve its goal is, to a great extent, determined by its structure.
So, a structure is developed to give the shape to a tentative idea at the initial stage. In the
beginning, the structure is very simple because the size of organisation is small. As the
organisation expands, it becomes complex and needs planning and a systematic approach.
Nature and Characteristics of Organisation Structure:
Features and characteristics of organisation structure are:
1. It facilitates co-ordination of organisational activities and tasks.
2. It states the pattern of formal relationships and duties among people at different positions in
the organisation.
3. In elaborates the hierarchical relationship among different levels of management within the
organisation.
4. It facilitates the implementation of policies, practices, procedures, standards evaluation
systems etc. that guide the activities and relationship among people in the organisation.
5. It sates the activities and tasks assigned to different departments and people in the
organisation.

Advantages of Organisation Structure:

Merits of having a well-designed organisation structure are as follows:
1. The activities of the individuals and the groups will become more rational, stable and
predictable.
2. An orderly hierarchy in which people are related in a meaningful sequence will result.
Individual responsibility will be known clearly and the authority to act would be defined.
3. Individuals will be selected on the basis of ability to perform expected tasks. Simplification
and specialisation of job assignment is possible in more effective way.
4. Directional and operational goals and procedures will be determined clearly and energies
devoted to their achievement.
5. Available resources will be utilised in the most effective way.
6. Such an organisation may make the treatment of the individual workers more democratic
because patronage and favouritism are reduced.
7. Workers will benefit from planned superior subordinate- relationships in which each work
receives essential support and direction.
Demerits of Organisation Structure:
Disadvantages of having an organisation structure are as follows:
1. Individual creativity and originality may be stifled by the rather rigid determination of duties
and responsibilities.
2. Workers may become:

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1. Individual creativity and originality may be stifled by the rather rigid determination of duties
and responsibilities.
2. Workers may become less willing to assume duties that are not formally a part of their
original assignment.
3. Very often the fixed relationships and lines of authority seem inflexible and difficult to adjust
to meet changing needs.
4. They produce anxiety in individual workers by pressing too heavily for routine and
conformity.
5. They become too costly in terms of time and human dignity in order to implement
organisational rules and regulations.
6. Inter-personal communication may be slowed or stopped as a result of strict adherence to
formal lines of communication.
7 Organisations tend to fail to account for important differences in workers as human beings.
These drawbacks can be reduced through careful planning and efforts by supervisors to be
responsive to human problems created by formal organisational structures.
Organisation Development: Concept, Characteristics and Values
Concept:
Development is a continuous process and it accommodates in itself many changes that occur in
science and technology, economic, market, political environment, education, knowledge, values,
attitude and behaviour of people, culture etc. Organisation development is a part of overall
development in general. It cannot remain unaffected by the developmental process. The
organisation has to change the beliefs, values and its structure to accommodate the new ideas,
beliefs and new technologies for progress.
This is very essential. The organisation must respond to changes. So that it can face the
challenges ahead. The management of human resources depends upon organisational
effectiveness. Human resources form the main plank of any organisation. Humans are affected
by change. Organisation development accommodates and incorporates variety of planned
changes based on humanistic democratic values, technology that are sought to improve the
effectiveness of organisation and well being of its employees.
According to Dale S. Beach, organisation development (OD) is, “a complex educational strategy
designed to increase organisational effectiveness and wealth through planned intervention by a
consultant using theory and techniques of applied behavioural service.”
According to J I Porras and P J Robertson, Organisational Development, “is a term used to
encompass a collection of planned change interventions, built on humanistic democratic values,
that seek to improve organisational effectiveness and employee well being.”
According to George R. Terry, “Organisational development includes efforts to improve results
by getting the best from employees, individually and as members of working groups.”
As per Werren G. Bennis, Organisation Development is, “a complex educational strategy
intended to change the beliefs, attitudes, values and structure of organisations so that they can
better adapt to new technologies, markets and challenges and the dizzying rate of change itself.”
Organisation is an open system and therefore must develop itself by adopting various changes to
meet the challenges thrown out by the constantly changing environment.
OD incorporates various changes and accordingly takes up management development and
training programmes to cope up with the situation.
Organisation development takes the help of social sciences such as psychology and sociology
and anthropology. A continuous research and theory building is the crux for OD because it
concerns with people.
It helps increasing organisational effectiveness. OD involves the changes over a long period of
time in systematic and planned manner in work culture, organisation structure, its people,
process, strategy, objectives etc. The help from various other social sciences is sought to develop
and maintaining organisational health and soothing climate.
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Characteristics of Organisation Development:
Organisation development has the following characteristics:
1. Programme is planned involving all the departments and subsystems seeking their
coordination.
2. The top management is committed to the programmes for organisation development.
3. It is related to organisational objectives.
4. OD is based on research. Continuous research goes on because interventions are based on
findings.
5. It utilises change agents to motivate the group of people to accept the changes within the
organisation as a part of OD.
6. OD lays stress on changing the behaviour of people.
7. It seeks interaction between various groups to cope up with the changes that OD will
incorporate.
8. Propagation is made so that people should know about the developments. Feedback is taken.
9. OD through discussions solutions to the problems is sought. All problem solving research
constitute action research.
10. OD takes pretty long time to implement.
Organisation Development Values:
Organisation development constitutes various people, professionals, technocrats, researchers,
managers and a host of other employees working in the organisation contributing to the
accomplishment of organisational objectives. They behave differently. Authority and power,
conflicts, control takes backseat during OD process.
The following are the values in OD efforts:
1. Respect People:
People are the raison d’etre of organisation and they are responsible for creating opportunities
for growth. They must, therefore, be treated with respect and dignified manners.
2. Confidence and Support:
Organisations are made up of people and they are to be believed and supported in order to have
effective organisation. The healthy environment prevails when people are trusted and taken into
confidence and a necessary support is extended to them as and when needed.
3. Confrontation:
Any conflict on any issue should not be suppressed. It should be dealt with openness.
Suppression leads to dampening of morale. Identifying the problem and its causes, discussing it
openly and finding out feasible solution leads to boosting up morale of the employees and
creating good environment.
4. Employee Participation:
The participation of employees who will be affected by the OD should be sought in decision-
making.
5. Expression:
Human beings differ in experience, maturity, ideas, opinions, and outlook. The organisation is
at the receiving end. It gains from the differences in quality, ideas, opinions and experiences of
its people. Human beings are social animals; they have feelings, emotions, anger and sentiments
etc. They should be allowed to express their feelings and sentiments. This will result in building
up high morale and the people will be motivated towards hard work ultimately resulting in
increased efficiency.
6. Seeking Cooperation:
Managers should learn to seek cooperation from each of the employees working under him in
his department. This will develop in creating the atmosphere of cooperation leading to
organisational effectiveness and willingness to accept change in the event of organisation
development process.

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UNIT-6
Busines policy as a field of study; Nature and scope of strategic
management; Strategic intent, Vision, Mi sion, Objectives and Policies; SWOT
analysi s; Tools and Techniques for strategic analysi s; Impact matrix; Industry
analysi s; Concept of value chain; Framework for analyzing competition;
Advantage of a firm; Role and scope of production management; F acility
location; Layout planning and analysi s; Production planning and
control; Production proces analysi s; Demand forec asting for operations;
Determinants of product mix; Production scheduling, Role and scope of
operation research; PERT/CPM; Total quality management; Ethic s and management
system; Ethical i sues and analysi s in management; V alue b ased organi zation; Social
responsibilities of busines; Corporate governance and ethics
-------------------------------
Business Policy: Nature, Scope and Parameters of Business Policy!
As already observed, policies are basically formulated by the two management or the general
management for guiding, directing and facilitating the thinking and acting process of the various
functional executives, to ensure the best contribution towards the corporate objectives and
goals. Policy can either is formal or informal, which can be applied, implied or imposed.
It originates from the top management for the express purpose of guiding themselves and their
subordinates to make use of their operational tools as effectively as possible. It also enables to
set objectives for the whole organization in general and for the various functional areas in
particular.
It is the corporate policy that creates a sense of mission and purpose in the executive value
judgment, and in their managerial operations, because a direct and purposeful preparation to
face the challenges, opportunities and threats of the day-to-day business activities, is provided
by the business policy from time to time.
According to Edmund, the associates’ business policy is concerned with the top
management function of:
1. Shaping high-level, long-range corporate objectives and strategic that will be matched, to both
company capacities and to external realities in a world marked by rapid technological,
economical, social and political change.
2. Casting up an effective well-matched set of general policies for the pursuit of that strategy.
3. Guiding the organization in accordance with that strategy.
The mission of the top management is influenced by the policy at various levels
and phases. They are:
1. Perception of industry and economic trends that affect the prospects of the economy.
2. Clearly understanding the needs, opportunities, threats, strengths, weakness and problems.
3. Selecting the best opportunity or opportunities from an array of them, this can cope with the
capacity of the company.
4. Formulating of a strategy taking into account the opportunity and availability of resources.
5. Development of operating plans for the pursuit of the chosen strategy and policies.
6. Creation of organizational relationships, organizational climate, and an atmosphere for the
proper implementation of policy.
7. Evaluating the performance and the progress, and
8. Periodic re-evaluation of positions in the light of developments within the organization and
its environment.

To sum up it can observe that the overall performance of the company depends on the pragmatic
policies, and the top management is mainly responsible for the policy formulation.

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Business policies cover such a wide variety of subjects and are so broad-based that every
possible matter that affects the interests of any one in the organization, the community and the
government are included in them.
In fact, business policies cover all the functional areas of business- production, marketing,
personnel and finance. These functional areas are generally covered by the term as “major
policies” and “minor policies”.
Parameters of Policy:
There are certain parameters for business policy, they are:
1. Policy should be identifiable and clear, either in words or in practice.
2. Objectives of the policy should be fully identified and well defined.
3. Policy should not be conflicting with other functional and divisional policies of the company.
4. The policy should be capable enough to fully exploit the opportunities.
5. Policy should be characterized by fairness and honesty with organizational philosophy,
objectives, goals and strategy.
6. Policy should be appropriate to the desired level of contribution to society.
7. Policy should be acceptable to all concerned; i.e., it should be appropriate to the personal
values and aspirations of the key managers.
8. Policy should constitute a clear stimulus to organizational effort and commitment.
9. Policy should always be realistic.
Nature and scope of strategic management your article library
Strategic Management: 4 Steps of Strategic Management Process – Explained
The strategic management process covers the following four steps, which are: 1. Identification of
business objectives and purposes 2. Formulation of strategies 3. Implementation of strategies
and 4. Evaluation of strategies!
1. Identification of Business Objectives and Purpose:
The corporate objectives signify the final end results which are to be attained over a period of
time. A strategy is a means to achieve the objectives. Generally, the words purpose and mission
are used interchangeably. However these terms have different meanings in management.
Corporate purpose gives a clear picture of what the company is about and what is wants to
achieve in future. It is a statement of the principal line of business which it wants to pursue.
Corporate mission explains the scope of business in terms of products and markets. Objectives
on the other hand define the direction to achieve the mission.
For example, the mission of Fertilizer Company may be mentioned as to fight world hunger and
the objectives may be mentioned as to increase the agricultural productivity through
development, efficient production of improved fertilizers, generate profits to finance Research
and development (R & D) and to ensure satisfactory returns on investment.
2. Formulation of Strategies:
In strategy formulation, a firm must be aware of its strength, weaknesses, opportunities and
threats. SWOT analysis focus attention on these four variables viz, strengths, weaknesses,
opportunities and threats. The first two are internal whereas the last two are external to an
organisation.
(a) Strength:
The strong points of an organisation are referred to as its strengths. Trained and efficient
personnel, quality products, reasonable price, strong financial position, efficient marketing
networks, well organised R&D Department etc., are its strengths. An organisation should try to
mass up its strengths.
(b) Weaknesses:
Every organisation suffers from certain points such as obsolete or old machinery, inefficient
management, week financial position, large span of control, poor quality of products etc. An
effort must be made quickly by the management to overcome or minimise the weaknesses.
(c) Opportunities:
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Opportunities are entirely external in the business environment. Opportunities do not come
every time and the management must exploit them to make profit without delay. Opportunities
arise from Government policies relating to tax, exports, duty drawbacks, import substitutions
etc.
An organisation should immediately try to take advantage of such opportunities by diversifying
its activities. It is the alertness of the top management to judge the available opportunities and
take advantage of them without delay. Economic liberalisation in India has opened up many
new opportunities in many areas of business operations.
(d) Threats:
These are also external to an organisation like opportunities. It is right to say that liberalisation
in India has opened up many new areas but it has also brought with it many threats to existing
business units. A number of companies have made an exit from the business world in India.
An efficient top management can foresee such threats well in advance and devise strategies and
tactics to meet them. The various threats to an existing business include competition from other
companies, changes in demand, changes in government policies, strikes etc.
If the product of a company has become obsolete on account of arrival of new products, it must
come out with an alternative product otherwise its survival in the business will be difficult.
3. Implementation:
This involves a number of administrative and operational decisions.
The following are the three important components of strategy:
(a) Resource implementation
(b) Organisational implementation
(c) Functional policy implementation
(a) Resource Implementation:
In order to effectively implement a strategy, all available resources viz., human, financial,
material, technological etc., must be made available. There must be right men at the top and
responsible positions. Such human resources must possess required qualities, skills, talents and
skills.
The top management must act objectively i.e., without bias or prejudices, in making the
resources available at the right time. The job of strategic management is mainly confined to
three operational areas viz., physical, financial and human resources. Unless the resources
required are made available, no business strategic plans can be put into action.
Difficulties in Resource Allocation:
The following problems are generally faced by the top management:
(i) Scarcity of Resources:
All resources may not be always available. Even if available, the resources may be very costly
(such as men, money and material)
(ii) Important Restriction:
In order to procure machinery and plant from foreign country, there may be restrictions relating
to either foreign exchange or any other reasons best known to the government.
(iii) Human Resources:
The working of an organisation depends not merely on the quantity of human resources but
their quality. If human resources have professional skill and experience, they can give much
more return than the cost incurred in procuring such resources.
(b) Organisational Implementation:
A suitable organisation is necessary for effective implementation of a strategy. According to
McKinsey “neither strategy nor structure can be determined independently of the other …..
Strategy can rarely succeed without an appropriate structure. In almost every kind of large scale
enterprise, examples can be found where well conceived strategic plans were thwarted by an
organisation structure that delayed the execution of the plans or gave priority to the wrong set of
considerations. Good structure is inseparably linked to strategy.”
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In order to implement a strategy, the organisation structure may have to be changed. In India, a
number of companies have changed their organisational structure.
(c) Functional Policy Implementation:
Formulation of policies is essential for effective implementation of a strategy. A policy is
considered to be a guideline for action. It channelises organisational efforts in a pre-determined
direction and leads to the achievement of goals.
According to Glueck “The critical element, the major analytical exercise involved in policy
making, is the ability to factor the grand strategy into policies that are compatible, workable. It
is not enough for managers to decide to change the strategy. What comes next is at least as
important. How do we get there, whom and how efficiently? This is a manager does by preparing
policies to implement the grand strategy.”
The various policies in a business can be classified as follows:
1. Corporate Policies
2. Divisional Policies
3. Departmental Policies
The business policy affects the success of a business to a great extent. The senior managers who
are primarily concerned with long term decisions usually carry the designations such as Chief
Executive, President, General Manager or Executive Director. Policies make clear what and how
everybody is expected to do his work and promote delegation of decision-making to the
managerial level.
4. Evaluation of Strategies:
The last phase of strategic management is evaluation and control. In business, conditions often
change resulting in the need of evaluation of existing strategies and planning the new ones to
take advantage of changing conditions.
According to Arthur Sharplin “The purpose of strategic evaluation is to monitor and evaluate
progress towards organisation’s objectives and to guide or correct the process or change the
strategic plan to better accord with current conditions and purposes.”
Thus the evaluation of strategies is undertaken to measure the success of strategies employed to
realise the main objectives of an enterprise.
The need for evaluation of strategies arises on account of following reasons:
(a) It is necessary to keep proper control on performance.
(b) It provides a feedback of strategic policies followed earlier
(c) Such an evaluation is necessary for motivation of employees. The promotion or demotion or
rewards are based on the evaluation of policies.
(d) Whether the decisions take by the managers at various levels are in tune with the strategic
management can only be known by strategic evaluation.
(e) Management gets valuable information as a result of such evaluation.
The evaluation process consists of the following:
(i) Fixing standards.
(ii) Measuring Performance
(iii) Analysing variations.
(iv) Taking corrective action.
(i) Fixing standards:
Any basis used for comparisons in evaluation is known as standard. According to Arthur
Sharplin “In essence, the strategy evaluation process is simply a matter of comparing the
existing strategy with the best alternative and deciding whether and to what degree the strategy
should be changed.”
Standards may be fixed on the basis of:
(a) Quantitative criteria i.e., the performance of the business enterprise may be compared with
its past performance or with the industry or competitors etc. and standards fixed accordingly.

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(b) Qualitative criteria i.e., the subjective evaluation in the different areas such as ability of
managers, risk taking capacity or clarity of strategies etc. may be taken as a standard.
(ii) Measuring Performance:
The measurement of performance evaluation becomes very easy when standards are fixed in
advance and adequate techniques of measurement are evolved. Timing and period of evaluation
is very important for measuring performance. In case the evaluation is delayed, the purpose of
evaluation is forfeited.
(iii) Analysing variance:
Variance refers to the difference between the actual performance and the planned performance
of that unit. If the performance is better as compared to the planned one, the variance is positive
and every management will welcome it.
However if the actual performance is below the expected performance, the management should
find out the reasons and analyse them for negative variance.
(iv) Taking Corrective Action:
This is the last step in evaluation. The standards already set may be checked and required by
management. Certain corrective steps may be taken to reformulate strategic plans and
objectives.
Strategic Intent
Definition: Strategic Intent can be understood as the philosophical base of strategic
management process. It implies the purpose, which an organization endeavor of achieving. It is
a statement, that provides a perspective of the means, which will lead the organization, reach
the vision in the long run.
Strategic intent gives an idea of what the organization desires to attain in future. It answers the
question what the organization strives or stands for? It indicates the long-term market position,
which the organization desires to create or occupy and the opportunity for exploring new
possibilities.
Strategic Intent Hierarchy

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Vision: Vision implies the blueprint of the company’s future position. It describes where the
organization wants to land. It is the dream of the business and an inspiration, base for the
planning process. It depicts the company’s aspirations for the business and provides a peep of
what the organization would like to become in future. Every single component of the
organization is required to follow its vision.
Mission: Mission delineates the firm’s business, its goals and ways to reach the goals. It
explains the reason for the existence of business. It is designed to help potential shareholders
and investors understand the purpose of the company. A mission statement helps to identify,
‘what business the company undertakes.’ It defines the present capabilities, activities, customer
focus and business makeup.
Business Definition: It seeks to explain the business undertaken by the firm, with respect to
the customer needs, target audience, and alternative technologies. With the help of business
definition, one can ascertain the strategic business choices. The corporate restructuring also
depends upon the business definition.
Business Model: Business model, as the name implies is a strategy for the effective operation
of the business, ascertaining sources of income, desired customer base, and financing details.
Rival firms, operating in the same industry relies on the different business model due to their
strategic choice.
Goals and Objectives: These are the base of measurement. Goals are the end results, that the
organization attempts to achieve. On the other hand, objectives are time-based measurable
actions, which help in the accomplishment of goals. These are the end results which are to be
attained with the help of an overall plan, over the particular period.
The vision, mission, business definition, and business model explains the philosophy of
business but the goals and objectives are established with the purpose of achieving them.
Strategic Intent is extremely important for the future growth and success of the enterprise,
irrespective of its size and nature.
SWOT Analysis: Meaning and Importance of SWOT Analysis | Management
Meaning:
One of most widely used strategic planning tools is a SWOT (Strengths, Weaknesses,
Opportunities, and Threats) analysis. Most companies use it in one form or another. SWOT
analysis is often used as basic guide for strategic planning.
The worth of SWOT analysis is often dependent on the objective insight of those management
individuals who conduct the SWOT analysis. If management (or consultant management) is able
to provide objective, relevant information for the analysis, the results are extremely useful for
the company.
The term SWOT is the acronym made up of four words viz., Strengths, Weaknesses,
Opportunities and Threats. The first two variables are internal to an organisation whereas the
last two are external. SWOT stands for strengths, weaknesses, opportunities and threats. The
first two are internal to an organisation whereas the last two are external.
The value of SWOT analysis cannot be overemphasised. It is rightly said “winners recognise
their limitations but focus on their strengths; losers recognise their strength but focus on their
limitations.” Positive thinking is strength whereas negative thinking is a weakness.
Every individual can make a list of his positive points (strength) and negative points (weakness).
A weakness can be converted into strength by recognising it and by making an effort in that
direction. Similarly, it is very important to be aware of the opportunities that come to us at
various points of time and possible threats that also come from the other persons.
Importance:
SWOT analysis is not only concerned with making only four lists but it is much more than that.
The following points highlight its importance:
1. SWOT Analysis brings to light whether the business is healthy or sick.
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2. An undertaking comes to know of both internal as well as external factors affecting its success
or failure.
3. It helps in the formation of a strategy so as to make preparations for the possible threats from
the competitors.
4. SWOT analysis evaluates the business environment in a detailed manner so as to take
strategic decisions for the future course of action.
In India, the importance of SWOT analysis has further increased since 1991 i.e., after the
adoption of the policy of LPQ (Liberalisation, Privatisation and Globalisation). There is now a
two-fold competition to our own business concerns.
Internally, competition has increased on account of liberalisation and privatisation.
Telecommunication, Insurance, Banks and many other sectors have now been opened to the
private sector. On account of globalisation, many multinational companies have come to India
and are giving stiff competition to Indian business concerns.
Only a concern which makes its SWOT analysis can survive. Globalisation is an opportunity
because our entrepreneurs can now go to the foreign countries and sell their products. It is a
threat because our home market may be captured by multinationals if we do not produce quality
products.
Strategy Spotlight: 8 Tools & Techniques To Apply To Strategic Analysis &
Planning
There are many definitions, tools, and techniques that can be applied to strategy analysis. If you do
an internet search you will find all sorts of options available. The challenge is selecting the best
approach, tools, and techniques to use given the business problem or opportunity.
Another part of the challenge is understanding what strategy analysis means
since there can be many definitions. This can make it confusing. It is best to
simply say that strategy analysis is an approach to facilitating, researching,
analyzing, and mapping an organization’s abilities to achieve a future
envisioned state based on present reality and often with consideration of the
organization's processes, technologies, business development and people
capabilities. Part of that whole process is the ability to bridge gaps that exist
between the strategic, tactical, and operational aspects of the organization.
This requires a look at the present state, the future state, risk and financials
and the creation of change requirements to achieve the desired outcomes.
Related Article: Strategy Spotlight: 8 Common Strategic Planning Mistakes
You're Making
Even though the definition of strategy analysis varies, there is common
thinking on the key planning requirements.
Preparation for planning through the identification and review of information
relevant for strategy analysis
Performing high-level environmental scan looking at the internal and external
business environment with consideration for mission, vision, stakeholders,
structure, existing plans, people profiles, and question responses.
Applying a choice of different tools and techniques to analyze the present
state of a business environment and mapping out its future.
Some of the more common analysis tools and techniques include:
VMOST: This stands for Vision, Mission, Objectives, Strategy, and Tactical.
Success in an organization happens with top-down or bottom-up alignment. I
was recently reminded of is when working with a client who stated that their
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tactical is not connected to the strategy. VMOST analysis is meant to help
make that connection.
SWOT: The standard analysis tool, defined as Strengths, Weaknesses,
Opportunities, and Threats.
Strengths and weaknesses are internal to the organization, opportunities and
threats are external. SWOT requires you to be candid and provide an honest
assessment of the state of things. It forces you to create a dialogue with
stakeholders to get different viewpoints. Eventually, you focus in on the key
issues.
PEST: This is a great tool to use in tandem with SWOT. The acronym stands
for Political, Economic, Social and Technology.
PEST reveals opportunities and threats better than SWOT, the direction of
business change, projects that will fail beyond your control, and country,
region and market issues through helping you create an objective view.
SOAR: This stands for Strengths, Opportunities, Aspirations, and Results. This
is a great tool if you have a strategic plan completed, and you need to focus
on a specific impact zone.
I used SOAR to help a business that needed to focus on their business
development requirements due to an external market change. The
organization needed to discuss how they would recapture lost sales by $1
million per month to ensure they maintained their profitably. Given that they
had already done everything they could to cut costs and operate a lean
business, the SOAR was critical in helping define the focus for the next 12 to
24 months.
Boston Matrix (product and service portfolio): This tool requires you to
analyze your business product or service and determine if it is a cash cow,
sick dog, questionable, or a flying star.
I have applied this tool to product and service reviews with to help make
product decisions with consideration for market share and market growth.
But it has no predictive value, does not consider the environment, and you
need to be careful with your assumptions. It does force discussions on your
present offering and whether it makes sense to maintain or enhance those
offerings. For example, maybe you are holding onto a business product that
you love but is really a sick dog and maybe there is a cash cow in your
business that you are not optimizing. A decision has to be made.
Porter’s Five Forces: This tool helps you understand where your business
power lies in terms of present competitiveness and future positioning
strength. It forces you to analyze the bargaining power of suppliers and
customers, the threats to new entrants and substitutes, and competitive
rivalry in your marketplace. Using this tool helps you understand the balance
of power and to identify areas of potential profitability. According to Porter,
this model should be used at the line of business level.
Maturity Models: There are many maturity models that can be applied to a
business. From the evolution model, the technology model, to the team
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model. The idea is that every business or department goes through a
maturity cycle. The standard cycle is chaotic, reactive, proactive, service,
and value. If you were looking at processes in a department, you would look
to see where that process is on the continuum. Then you would determine
where you need to be and what it would take to get to that point of maturity.
This is a simple explanation. When using a maturity model, it is important
that you have a clear problem definition and solution context.
Root Cause Analysis: This is important, as there are times in the strategy
analysis process you need to dig deeper into a problem. This is where RCA is
used. The key is that you need to identify and specify the problem correctly,
analyze the root cause using a systematic approach, verify the causes, and
determine the corrective actions. Implementation of the corrective action is
extremely important.
There are many definitions, tools, and techniques that could be addressed.
The ones mentioned here are only the tip of the iceberg for strategy analysis
and become a foundational part of the strategy analysis toolkit. In a short
blog, there is no way to mention them all. But you could create a tool
checklist that you could use in your next planning and analysis engagement
to help you and your team define the present, future, risk and change state
that you need to succeed.
Tools and techniques for strategic analysis: Impact Matrix
Impact matrix is an effective tool which can help organisations to convert strategy into action. The
Impact / Performance Matrix provides the relative positioning for impact on the vertical axis, and the
relative positioning for performance on the horizontal axis. The higher its placement on the vertical axis,
the greater the impact the process has on the perception of value. To determine the order of impact
from strongest to weakest, one would read the matrix from top to bottom.
The Impact / Performance Matrix is an advantageous device for incorporating various factors into the
strategic planning process. It identifies those aspects of the association that have the greatest influence
on the value of an association and provides a measure of its current performance. It helps managers to
understand which stakeholders have the most influence and the impact they can make on project
success. This device is very similar to the Power/Interest or Power/Influence grids. By focusing on the key
set of project stakeholders, managers can prioritize stakeholder’s requests, spend time as per influence
and impact stakeholders have, and lead their project to accomplishment without stakeholder conflict.
Impact grid ( Source: Scholtes, 2003)

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Industry Analysis: Dimensions of an Industry Analysis
Industry analysis builds upon the customer and competitor analyses to make some strategic
judgements about the scope, nature and sustainability of industry and its dynamics. One of its
primary objectives is to determine the attractiveness of an industry to current and potential
participants. Industry attractiveness, the industry profit potential, as measured by the long-term
return on investment achieved by its participants, will provide an important input into the
product-market investment decision.
Whether an industry is appropriate for a particular firm will depend not only on the industry
attractiveness but also on how the firm’s strengths and weaknesses match up against
competitors. A second objective of the industry analysis is to understand both the structure and
the dynamics of the industry. Look at Kingfisher Airlines and its chairman who is redefining
luxury in air with his five-star deluxe flights (Figure 6.1).

The need here is to identify key success factors, trends, threats, and opportunities and to
develop strategic questions that can guide information gathering and analysis. A key success
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factor is an asset or skill that is needed to ‘play the game’. If a firm has a strategic weakness in a
key success factor that isn’t neutralized by a well-conceived strategy, its ability to compete will
be limited.
This is what happened with Premier Automobile Limited (PAL). The company virtually ruled
Indian market for nearly 45 years and was the most preferred choice among women and
executives. However, Maruti 800 started eating into its market share and now FIAT cars exist
only in history books! The importance of such analysis is manifold and of great significance in
any sector, whether it is technology, FMCG, banking and insurance, automobile,
pharmaceuticals or manufacturing.
Dimensions of an Industry Analysis:
The nature and content of an analysis of an industry and its relevant product markets will
depend on the business environment (PEST framework of political, economic, social and
technological context).
However, it often includes the following dimensions:
I. Actual and potential industry size, industry growth, industry structure
II. Cost structure, distribution systems, industry trends and developments
III. Industry key success factors
Each of these dimensions will be addressed in turn, starting with an assessment of the industry
size.
Actual and potential industry size:
Knowledge of industry size not only can help evaluate investment decisions, but also serves to
define market share of the various competitors. In considering industry size it is important to
distinguish that portion of the market represented by captive buyers.
For example, a substantial share of the electronics components industry consists of firms that
are vertically integrated and essentially supply themselves. Estimates of industry size can be
based upon government sources or trade associations. Such sources provide a breakdown of
consumer durables sales over time, by type of appliances/equipment, imported versus domestic,
geographic markets, and even by competitor.
Another approach is to obtain competitor sales from published financial sources, from
customers, or from competitors’ employees and distributors. A more expensive approach would
be to survey customers and project their usage to the total industry.
1. The usage gap:
The usage gap, shown at the top of Table 6.1, reflects under-usages, limited users or the variety
of uses and frequency of usage of the product, which can be substantial. This has to be narrowed
down by taking appropriate management strategies and marketing research. Look at the FMCG
market in India which is estimated to be USD 18 billion in 2008-9. HUL is trying to maximize
its share in the home, personal care and foods divisions.

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2. Growth potential:
Sometimes the need for a product is so apparent that potential growth seems assured. However,
this potential can have a ghost-like quality caused by factors inhibiting or preventing its
realization. For example, a huge demand for educational equipment like projectors, computers,
printers, educational DVDs and CDs exists in underdeveloped countries, but lack of funds
suppress sales.
Another example is the ready-to-eat food segment. Here quality and taste are the limiting
factors. In the beverage sector, bottled mineral water is taken from natural springs, tea leaves
are always garden fresh and packed coffee powder is even estate fresh, at least in the company’s
advertisements.
These are important consumer friendly product factors or we can even say demand drivers.
Sometimes Geographical Indications becomes so important that its potential is easily
exaggerated, like Tata came up with Coorg coffee. As a Lewis Carroll character observed, ‘What I
tell you three times is true! It’s important to understand the assumptions and conditions

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underlying potential markets. Look at the Tata Indicom billboards to lure Delhiites (Figure 6.2).

by Taboola
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Michael Porter’s Five Forces Model: to Analyse Competitive Industry Structure

Read this article to know about Michael Porter’s Five Forces Model to Analyse
Competitive Industry Structure!
An industry is a group of firms that market products which are close substitutes for each other,
(e.g. the car industry, the travel industry). Some industries are more profitable than others.
Why? The answer lies in understanding the dynamics of competitive structure in an industry.
The main purpose of industry analysis, in the context of strategic choice is to determine the
industry attractiveness, and to understand the structure and dynamics of the industry with a
view to find out the continued relevance to strategic alternatives that are there before a firm.
It follows that, for instance, if the industry is not, or no longer, sufficiently attractive (i.e. it does
not offer long-term growth opportunities), then the strategic alternatives that lie within the
industry should not be considered. It also means that alternative may have to be sought outside
the industry calling for diversification moves.
The most influential analytical model for assessing the nature of competition in an industry is
Michael Porter’s five forces Model, which is described below:

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Porter explains that there are five forces that determine industry attractiveness and long-run
industry profitability. These five “competitive forces” are:
(a) The threat of entry of new competitors (new entrants)
(b) The threat of substitutes
(c) The bargaining power of buyers
(d) The bargaining power of suppliers
(e) The degree of rivalry between existing competitors.
(a) Threat of New Entrants:
New entrants to an industry can raise the level of competition, thereby reducing its
attractiveness. The threat of new entrants largely depends on the barriers to entry. High entry
barriers exist in some industries (e.g. ship building) whereas other industries are very easy to
enter (e.g. estate agency, restaurants).
Key barriers to entry include:
i. Economies of scale
ii. Capital/investment requirements
iii. Customer switching costs
iv. Access to industry distribution channels
v. The likelihood of retaliation from existing industry players
(b) Threat of Substitutes:
The presence of substitute products can lower industry attractiveness and profitability because
they limit price levels. The threat of substitute products depends on:
i. Buyers’ willingness to substitute
ii. The relative price and performance of substitutes
iii. The cost of switching to substitutes
(c) Bargaining Power of Suppliers:
Suppliers are the businesses that supply materials and other products into the industry. The cost
of items bought from suppliers (e.g. raw materials, components etc.) can have a significant
impact on a company’s profitability. If suppliers have high bargaining power over a company,
then in theory the company’s industry is less attractive. The bargaining power of suppliers will
be high when:
1. There are many buyers and few dominant suppliers.
2. There are undifferentiated, highly valued products.
3. Suppliers threaten to integrate forward into the industry (e.g. brand manufacturers
threatening to set up their own retail outlets.).
4. Buyers do not threaten to integrate backwards into supply.
5. The industry is not a key customer group to the suppliers.
(d) Bargaining Power of Buyers:
Buyers are the people/organisations who create demand in an industry.
The bargaining power of buyers is greater when:
i. There are few dominant buyers and many sellers in the industry.
ii. Products are standardised.
iii. Buyers threaten to integrate backward into the industry.
iv. Suppliers do not threaten to integrate forward into the buyer’s industry.
v. The industry is not a key supplying group for buyers.
(e) Intensity of Rivalry:
The intensity of rivalry between competitors in an industry will depend on:
i. The structure of competition:
For example, rivalry is more intense where there are many small or equally sized competitors;
rivalry is less when an industry has a clear market leader.
ii. The structure of industry costs:

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For example, industries with high fixed costs encourage competitors to fill unused capacity by
price cutting.
iii. Degree of differentiation:
Industries where products are commodities (e.g. steel, coal) have greater rivalry; industries
where competitors can differentiate their products have less rivalry.
iv. Switching costs:
Rivalry is reduced where buyers have high switching costs-i.e., there is a significant cost
associated with the decision to buy a product from an alternative supplier.
v. Strategic objectives:
When competitors are pursuing aggressive growth strategies, rivalry is more intense. Where
competitors are “milking” profits in a mature industry, the degree of rivalry is less.
vi. Exit barriers:
When barriers to leaving an industry are high (e.g. the cost of closing down factories) then
competitors tend to exhibit greater rivalry.
Supply Chain: Meaning, Example and Benefits (With Diagram)
A supply chain is a network of retailers, distributors, transporters, storage facilities, and
suppliers who take part in the production, delivery, and sale of a product that convert and move
the goods from raw materials to end users, it describes the processes and organisations involved
in converting and conveying the goods from manufactures to consumers.
The activities close to the raw material stage are known as upstream activities and activities
between the manufacturer and end consumer are downstream activities. Marketing distribution
concerns these downstream activities. A typical supply chain consists of multiple companies
which coordinate activities to set themselves apart from the competition.
A supply chain basically has three key parts:
i. Supply:
It focuses on the raw materials supplied to manufacturing, including how, when, and from what
location.
ii. Manufacturing:
It focuses on converting these raw materials into finished products.
iii. Distribution:
It focuses on ensuring that these products reach the consumers through an organized network of
distributors, warehouses, and retailers.

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Though often applied to manufacturing and consumer products, a supply chain can also be used
to show how various processes supply to one another (figure 16.2). The supply chain definition
in this sense can apply to Internet technology, finance, and many other industries.
A supply chain strategy defines how the supply chain should operate in order to compete in the
market. The strategy evaluates the benefits and costs relating to the operation. While a business
strategy focuses on the overall direction a company wishes to pursue, supply chain strategy
focuses on the actual operations of the organization and the supply chain that will be used to
meet a specific goal.

Example of Supply Chain:

Consider a customer walks into Spencer Store to purchase beauty soap. The supply chain begins
with the customer and his need for beauty soap. The next stage of this supply chain is the
Spencer retail store where the customer visits. Spencer stocks its shelves using inventory that
may have been supplied from a finished goods warehouse managed by Wal-Mart or received
from third party (vendor). The vendor in turn is stocked by the manufacturer [say Hindustan
Uni Liver (HUL)].
ADVERTISEMENTS:
The HUL manufacturing plant receives raw material from a variety of suppliers who may
themselves have been supplied by lower tier suppliers. For example, packaging material may
come from Home- foil (an aluminum foil company) while Home-foil receives raw material to
manufacture the packaging material from other suppliers. This forms a typical supply chain.

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In another example, a customer purchases a wrist watch and traveling bag online from Reliance
retail. The supply chain includes, among others, the customer Reliance Website that accepts the
customer’s order, the Reliance store, and all of Reliance’s suppliers and their suppliers.
The Reliance Website provides the customer with information regarding pricing, product
features, and product availability. After selecting the product, the customer clicks on ‘order
form’ and pays for the product. The customer may later return to the Website to check the status
of the order.
ADVERTISEMENTS:
Thus a typical supply chain may involve a variety of stages discussed as under:
(i) Customers.
(ii) Retailers.
(iii) Wholesalers/Distributors.
(iv) Manufacturers.
(v) Component/Raw material supplier.
Benefits of Supply Chains:
(1) It bridges the gaps between the suppliers and the customers.
(2) It helps manufacturers in reducing inventories as finished goods are stored nearer to the
customers.
(3) It allows firms to conduct operations at an appropriate time and place for the benefits of
suppliers and customers.
(4) Effective supply chains results in enhanced customer service as retailers get a choice of goods
and also carry less stock.
(5) Supply chains make movements simple, cost-effective and efficient as transport is simpler.
(6) Expertise can be developed in a particular type of operation.
(7) It allows firms to conduct operations at an appropriate time and place for the benefits of
suppliers and customers.

Competitor Analysis: Competitor Analysis Is Done By Asking the Following Five Key Questions
Competition refers to rivalry among various firms operating in a particular market that satisfy
the same customer needs. An industry’s structure affects its long run profitability. Therefore,
competitors should be understood and monitored.
Competitors’ actions like cutting price can destroy an attractive industry. A company’s
weaknesses like not having a strong distribution infrastructure can be exploited by its
competitors. The success of a company’s marketing moves will depend on how its competitors
react to them-if a company cuts price, and its competitors do not follow suit, it earns market
share.

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A company can gather information about its competitors by conducting marketing research,
hiring their employees, studying their sales literature and by studying their products. They also
obtain competitive information from secondary sources like trade magazines and distributors.
Competitor analysis is done by asking the following five key questions—

1. Who are the competitors?

Due to competitive myopia, a company defines its competition narrowly; resulting in a restricted
view of which companies are its competitors—only those companies who are producing
technically similar products are considered to be its competitors. It ignores products which can
be substitutes of its product, or which can serve the same needs as its product, but in dissimilar
manner.
For example, a paint company considers other paint companies as its competitors, but ignores
polyurethane varnish companies whose products customers consider as substitute of paint. It
also ignores PVC double glazing companies whose products serve the customers’ requirement of
paint, but in a way dissimilar to that of paint.
The company needs to monitor all types of competitors, because their actions will affect its
performance. It also needs to determine its competitors’ reactions to its marketing initiatives,
because the success of its initiatives will depend on the reactions of its competitors.
Companies should always be wary of new entrants. A new entrant can invade a market with a
technically similar product, or it can do so with a product whose underlying technology is
different. Technically similar products are introduced by companies who have core competences
similar to those of other players in the industry, A product with a new underlying technology
makes the products and capabilities of incumbent players obsolete almost immediately. And it is
extremely difficult to predict from where such a product can emerge.
2. What are their strengths and weaknesses?
A precise understanding of competitor strengths and weaknesses is an important prerequisite of
developing competitor strategy. In particular, it locates areas of competitive vulnerability.
Success is achieved when strengths of the firm are concentrated against the competitors’
weakness.
A company needs to collect internal, market and customer related information. It needs to know
profitability, market share, distribution channels and investment plans of its competitors. It also
needs to know the customer perception of competitors’ brands and service quality.
It also needs to take a call on how important each element of information is worth pursuing. The
process of data gathering should be managed in such a way that the company has information to
compare itself with its competitors on the key success factors of the industry.
This is a three stage process:
i. Identify key factors for success in the industry:
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This should be restricted to six to eight factors, otherwise analysis becomes too diffuse. There is
some managerial judgement in their identification. The key success factors may be functional
(financial strength or flexible production), or generic (ability to respond quickly to customer
needs, capability to provide after sales service). Since these factors are critical for success, they
should be used to compare the company with its competitors.
ii. Rate one’s company and competitors on each key success factor using a rating scale:
For instance, out of 5, how many points would accrue to one’s own company and competitors on
parameters such as innovativeness, financial strength, product quality, etc.?
iii. Consumer implications for competitive strategy:
It is important to judge the implications of each of the key success factors on customer
perceptions. For instance, how can the financial strength of a company be translated into better
value delivery for customers? Would it translate into lower prices, hiring more competent
personnel or improving technology to serve customers better, or improving product quality or
introduce innovations?
3. What are the strategic objectives and thrusts of competitors?
A company can decide to build, hold or harvest. A company with build objective seeks to
increase sales and market share. A company with hold objective seeks to maintain sales and
market share. A company with harvest objective seeks to maximize profits by reducing
expenditure and raising prices.
A company should understand its competitors’ strategic objectives; because it’s marketing
moves depend on the strategic objectives of the competitors. For example, if a company cuts
price to build market share, the price cut will be matched by competitors whose strategic
objective is to build or hold, because they too are interested in increasing or maintaining their
market share, but the price cut will be ignored by competitors whose strategic objective is to
harvest, because they are more concerned with profit margins than market share.
But, if a company raises price, the competitors whose strategic objective is to build will not
match the rise, because they will hope that some of the company’s customers will come to them
due to their lower price, but competitors whose strategic objective is to harvest will match the
price rise, because it will increase its profitability.
It may raise its products’ price more than the company that initiated the price increase. The
company whose strategic objective is to hold is most likely to match the price increase because it
does not want to increase its market share, but also does not want lower profitability.
To be able to predict competitors’ marketing moves, a company should know their strategic
objectives. A competitor with build objective will make aggressive price and promotional moves.
A competitor with a hold objective will follow the marketing moves of its major competitors. A
competitor with a harvest objective will seek to reduce cost and will shun expansive marketing
moves.
Strategic thrust refers to ways that a company might seek to expand its business. A company
may increase its market share in its existing markets with its current products, by increasing its
distribution intensity, cutting price and promoting heavily.
Alternatively, it may launch a new product in its existing market or it may launch a new product
in a new market, or enter a new market with its existing product. Knowing the strategic thrust of
competitors helps the company to make the right strategic decisions. For example, if a
competitor is expanding its operations in China, then the company will explore other markets
like India, and will stay away from India as long as it can.
4. What are their strengths?
Competitor analysis helps a company in arriving at its positioning strategy. A company’s
positioning strategy involves assessing the competitors’ target markets and their differential
advantage. Competitors’ marketing mix strategies-price levels, media used for promotion and
distribution channel-give an idea of their target markets.

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The company conducts marketing research to gauge customer perceptions about competitors,
and hence can know their relative differential advantage. A company needs to continuously
monitor its competitors for changes in their positioning strategy.
A company needs to understand its competitors’ competitive scope, i.e., it needs to know if a
competitor seeks to dominate an entire market, a few segments or only a small niche. A
competitor’s current strategies should not be confused with its intent for the future- sometimes
it may appear that a competitor is content to stay in niche, but it may use the niche as a
beachhead to move into larger segments in the future.
Japanese companies have been using niches as spring boards for moving to larger segments. A
competitor may be trying to become the cost leader of its industry, focusing on cost reducing
measures rather than expensive product development and promotion. Such a competitor will
focus its R&D budget on processes to reduce its manufacturing cost, rather than product
development.
5. What are their response patterns?
When a company studies its competitors, it is in a good position to predict their response to
changes in the market and competitive landscape. A competitor’s past behaviour is probably the
only true indicator of what it might do in future. A market leader takes upon itself the task of
managing competitor behaviour- it is probably the only player who is in a position to do so.
For example, if a market leader cuts a price and a belligerent competitor undercuts it, the
market leader takes steps to punish the offender. The market leader cuts price drastically, but
the competitor cannot match it this time around due to its limited market share.
The market leader is able to hold on due to its deep pockets, but the competitor’s business is
badly hurt. A market leader conditions competitors to behave in predictable ways, by punishing
competitor moves that threaten to spoil its industry competitive stability.
A company’s competitive response is also influenced by its history, traditions and personalities
of its managers. Some industries remain competitive and stable for a long time and the
incumbent players do not face serious challenges to their positions – they are able to maintain
their market share and profitability.
The incumbent players become complacent, and lose the will and capability to respond to new
challenges. For example, the incumbent players may clearly see that an entrant has launched a
superior product, but they will not pick themselves up to counter it by launching better products
—they will continue to believe that customers will never buy any other product.
Sometimes a company’s previous strategies restrict its scope for retaliation and it cannot
counter a new challenge. For example, a company faced a new competitor who concentrated on
small markets- its quality was comparable but its price was very low. The company could not
retaliate, since to reduce price in one market would have meant reducing price in all its markets.
Competitors also respond selectively. Companies have come to believe that certain marketing
tools are more effective than others, and hence they will respond to some competitors’ moves
more vigorously than others.
Therefore, a company will match extra sales promotion expenditure of a competitor, but it will
ignore extra advertising expenditure of a competitor-sales promotion is a more effective
marketing tool to gain market share than advertising. Marketing moves have varying degree of
visibility, and a competitor will react more vigorously to a more visible marketing move than a
less visible move. For example, price discount is a highly visible marketing move, and hence will
be strongly contested. Providing retailers with support like training their salespeople is less
visible and may go uncontested for a long time.
A competitor may be whimsical, and is completely unpredictable in its response pattern.
Sometimes it responds and sometimes it does not to the same marketing instrument. And it is
difficult to explain why it behaved one way in one instance and the other way in a similar
instance—it matches a price cut at one time, but does not match similar price cuts at other
times.
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Competitive Advantage – 5 Factors
For any enterprising firm, the competitive advantage may stem from any of the host of functions
it performs. In other words, each of these functions are the sources of generating this much
desired and valued competitive advantage and edge over others in the industry.
Though it is possible to identify functional areas for competitive advantage, at least five broad
functional categories can be identified. It would be nice to call them as factors of competitive
advantage.
To name them:
(A) Marketing factors,
(B) Production factors,
(C) Research and development and engineering factors,
(D) Personnel and expertise factors and
(E) Corporate resources and finance factors. Let us know the possible competitive advantage
factors from the specific angle of these functional categories.
A. Marketing factors:
Marketing is a major corporate function. It is marketing that gives life to the very enterprise for
it has no right to survive unless it produces those goods and services, which are needed by the
market place.
Competitive advantage can be built over wide range of the marketing functional
areas:
1. The corporate product-mix:
The fundamental task of marketing is to deliver the package of offer to the consumer to fulfil his
needs, in terms of his expected terms, attributes and benefits and make out organisational goals
including profit maximisation.
The total offer made warrants choice of right product, making it available at a place he wants,
promoting the product for better understanding through communication component, and at a
price that is reasonable from the angle of consumer and agreeable from his point of view.
All these four Ps – the components of a market-mix help in mining the consumers. Here we are
concerned with the product mix. Product mix as one of the elements has again components.
In-fact, product is the focus of marketing and marketing efforts. It is the sum total of physical
and psychological satisfaction that it provides to the buyer or the user.
It is the sum total of parts like material used in its construction and its ability to perform, its
packaging, its brands and the other intangibles associated with it all that speak about it image or
personality.
The most significant product variables are – product line and product range – product design
the product package, product quality, product labelling, product branding after sale services and
guarantees and warrantees.
The mix chosen to meet a target consumer group has the ability to give an edge over the
competitors. Intelligence lies in its proper match.
2. Packaging:
In-fact, product packaging is one of the variables of product-mix. However, its importance
makes its treatment independent or extra-ordinary. What clothes are to the human- beings so
are the packages for the products. Packages are the container or a wrapper used to house the
product. Packaging is the general group of activities in designing the containers or the wrappers
for the products.
A good package plays a constructive role as it protects ‘the products, provides convenience to
consumers, increases economy and communicates; it keeps contents clean convenience to
consumers and dealers storage and warehouse people display value for merchandising.
Attractive packages are having meaningful communication value.
In a self service store, it helps the consumers to identify the product, builds consumer
confidence, describes merits and limits of products and encourages impulse buying. Good
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package designs has a driven of size, colour, shape, material, construction, closure, copy,
illustration in terms of creative graphics.
3. Service norms:
With every increase in the use of machinery, appliances, equipments and gadgets, there is
inherent need for after-sale services such as installation, guarantees and warrantees against the
manufacturing defects, servicing, repairs, spare-parts, maintenance and the like.
Manufacturers of industrial products and white goods have to establish a clean, clear and second
service policy and a plan for servicing their products after sale.
It is such a tool that keeps the consumers, increases consumers and builds image of the firm on
which it can en-cash. Today, good many dealers in computer hard and software’s do not care for
after-sale service; for them selling a computer is all which means that the relations come to an
end bringing a grinding halt because you can not fool the people all the time. Therefore, it is the
service norms set and practised by manufacturers or dealers that counts.
4. Pricing:
Price is a major marketing tool and helps in directing the product to a specific consumer
segment. It is the powerful instrument in which both the buyers and sellers are interested
directly and the dealers indirectly for their individual and mutual gains.
It is the price of a product or a service that ensures a decent return on investment, guarantees
stable structure, creates, maintains and extends market and market-share.
Price is equal to consumer expectations such as product, its installation, credit, after- sale
services and the like. The price variables are pricing policies and strategies, the terms of credit,
in terms of delivery, amount of margin, resale price maintenance and so on. As a big gun it can
make or mar the competitive strength over others.
5. Market share:
Market share is really a very meaningful measure of success of a firm’s marketing strategy. A
market share that company wants to enjoy depends on good many factors namely, nature of
product, price, quality, packaging, after sale service package, guarantees and warrantees.
Of these entire market share price objective can be either to maintain the market share, to
increase it or, sometimes, to decrease it. The company uses the price as an input to enjoy a
target market share. Target market share means that position of the industry sale which a
company aspires to attain.
This market share is generally expressed as a percentage of total industry sales. Price flexibility
and, very often the profits are linked to the firm’s market share position. Let us take an example
of audio-visual market in India with market shares.
Taking Audios – like transistor, sound gadgets such as two in ones, sound systems, walkmans –
Colour Television sets and Black and White Television sets, the market share has been as under
in 1995.

From the above table, it is quite evident that taking all products together Philips has the highest
share followed by BPL, VIDEOCON and ONIDA rest by others. However in each field their
shares are quite clear. Taking audios – PHILIPS comes first BPL second.
VIDEOCON third, ONIDA fourth and others; coming to Colour Television sets, BPL has highest
share followed ONIDA, VIDEOCON and PHILIPS and others. Turning to Black and White
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Television sets, the ranking is PHILIPS and ONIDA share first place, followed by VIDEOCON
and BPL and others.
6. Marketing organisation:
Any organisation is the vehicle created or structured to achieve certain goals and objectives may
be business or non-business. It is group of persons working together towards the attainment of
certain common goals.
It is one that provides network of working relationships among the different functions to be
performed and a means of co-ordination among the people who perform the functions.
In this context, the structure of marketing organisation has a direct relationship to the
marketing objectives to be attained and the marketing tasks to be performed.
As wide variety of marketing tasks are to be performed, the tasks have to be grouped logically
and allocated to different viable administrative blocks which one calls them as departments. The
markets committed in structuring a marketing organisation will cost in terms of inefficiency,
high cost and failure of the unit.
Care should be taken to avoid the common pit-falls such as haphazard grouping of activities-
unclear responsibilities-ambiguous and misleading designation-dual control-unjustifiable
allocation of functions – improper delegation-over formalization and so on.
It should be subservient to market needs and the development of core- competencies. It should
be highly adaptive, responsive and innovative.
7. Marketing research and marketing intelligence:
Marketing research is not something which is already searched. It stands for the methods of
finding and analysing facts to assist managers in making rational marketing decisions. It is the
systematic, objective and exhaustive search for and study of facts of relevance to any problem in
the field of marketing.
Thus, it is a systematic study, scientific study and a managerial tool. It helps in knowing buyers,
measuring impact of promotional efforts, knowing consumer response, knowing market costs
and profits, in mastering external forces, in designing and implementing marketing control.
Marketing research is based on marketing information intelligence. Information consists of
evaluated data; data based symbols, usually numbers, used to represent the things.
It stands for the cues, or the guidelines which have the potential of influencing decisions; it is
any perceived or recorded fact, opinion or thought. In the field of marketing, the nature of
information needed to manage the marketing functions of an enterprise is unique because of its
dynamism and diversity.
The need for marketing intelligence arises basically because of knowing consumer demand,
increasing complexity of marketing, changing economic parameters, changing competitive
conditions, strides in science and technology, fast grooming consumerism and the like. It keeps
the marketing organisation updated.
8. Brand dominance:
Any successful organisation’s biggest assets are brands because they provide customers a way of
recognising and specifying a particular product in case they want to choose it again or
recommend it to others.
A good brand helps marketers to develop specific images and inter-related marketing strategies
for a particular product or group of products. It helps in commanding a premium price in the
market and it is the only element of a product that competitors cannot copy.
The overall strength of a brand in the market place and its value to the company that own it is
known as brand equity. Of late, the companies are trying to assign financial value to brand
equity.
Brand dominance is the ability of a company to develop brand loyalty. Brand loyalty stands for
the level of commitment that customers feel toward a given brand, as represented by their
continuing purchase of that brand.

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According to experts, when there is a tight race for brand loyalty, three elements
help in assuring the victory namely:
1. Swift management response both to the press as well as to the market-place
2. The ability to create a perception of quality and
3. Maximised spending on marketing.
9. Marketing communications:
One of the four Ps of marketing-mix is “promotion” which speaks of communication mix. Which
deals with the personal and impersonal or direct and indirect persuasive communication about
the product or service of any manufacturer? Though companies communicate with the present
and potential customers in a wide variety of ways, the most distinguishable categories are two
namely personal and impersonal.
Personal communications relate to face and face meeting between the sales-force of the
company and the class of customers. On the other hand, impersonal communications comprise
of advertising, sales- promotion and public relations.
In a competitive market where several companies are striving and sweating to win over the
consumers, mere presence of a quality is not enough; what is important is, it is to be made
known to the people.
Marketing communication, as a phrase, is an attempt to present a set of messages to a target
market through multiple cues and media with the intent of creating favourable responses from
the market towards firm’s total product offering, at the same time providing for the market feed-
back for improving and modifying firm’s total product offering.
Thus, each firm is a sender of marketing messages and also a receiver of market responses. As a
sender of messages, the firm communicates with the market not only through promotional
stimuli but also through product price place and promotion.
As a receiver of market responses, the firm collects information through marketing research and
marketing information system. Product acts as a good carrier of certain messages.
It conveys through its size, colour, shape, material components, its package, labels and the
brand name. Price as a communicator it speaks of price as something more i.e., real value of
money, it gives quality equation, status equation, technological superiority, price reasonability
from the angle of a consumer “place” as a communicator, talks of the store image, store, level
merchandising.
POP appeal and store choice “promotion” as a communicative process has three prongs namely
personal selling, advertising sales-promotion and publicity of late even public relations as noted
earlier “Personal Selling” is the oral presentation in a conversation with one or more prospective
purchasers for selling; it consists of winning the buyer’s confidence for the seller’s house and
goods thereby winning the regular and permanent customer.
Its strengths are flexibility and adaptability minimum waste – agent of feed-back – lasting
impression pulling through logical sequence. The limits are: it is expensive difficulty of getting
right kind of sales force stake in the customer loyalty more administrative problems.
“Advertising” as a macro concept stands for the entire ad industry a social and business
institution; as a micro concept it represents a managerial function sending messages to the
target groups of audiences.
Its strength lies in helping manufacturers by increasing and stabilizing sales maintaining
existing markets and exploring new ones controlling prices; middlemen by guaranteeing quick
sales acting as a salesman, sustaining resale price maintenance; the sales force by creating a
beautiful stage effect reducing job burden instilling self-confidence; the consumers by helping
decision making ensuring better quality products at reasonable prices saving good deal of time;
the society by uplifting the living standards generating gainful employment opportunities
providing new horizons of knowledge upholding the national culture.
The limitations are:

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It has limited capacity, Rigidity of advertisements, Un-believability, Advertise ability. “Sales-
promotion” is a direct and indirect inducement that adds extra value to the product, thus,
prompting and propelling dealers, distributors and consumer to buy the product.
Sales- promotion involves marketing activities, other than personal selling, advertising and
publicity that stimulate consumer purchasing and dealer effectiveness.
The strength of sales- promotion lies in: By helping the manufacturers through creation of new
customer retaining them combating competition waving middlemen; by helping middlemen via
multiplying sales reducing the strain building store image bringing like in earning; by assisting
the consumers by supplying information improving the standard of living granting incentives
building loyalty giving better value for money.
The limitations are: it is a short-run device department tool it damages brand image
undervalued by experts. “Public Relations” are the relations of an organisation with the general
public with publicity.
It is a deliberate, planned and sustained effort to establish and maintain mutual understanding
between an organisation and its public.
Its strengths are image building- clearing misunderstandings – expressing great and deep
concern for the general public. Any efforts, amount and talents put in will not be a waste but a
good investment.
10. Channel strength:
In today’s marketing systems, not all manufacturers and producers sell their production to the
final users or industrial users. That is, goods do not flow directly from producers to the
consumers. Normally, they use a number of marketing intermediaries for taking their products
to the users.
These intermediaries are known by variety of names such as selling agents, marketers,
wholesalers, distributors, stockiest, franchised dealers, retailers, representatives, brokers,
commission agents or even jobbers.
A marketing channel is a pipe- line that moves the products from producers to the consumers. A
channel plays a constructive role in the marketing of a product.
A channel provides distributional efficiency to manufacturers, product assortments,
salesmanship, merchandising, implementation of price mechanism, takes care of physical
distribution; it acts as agent of change and generates demand.
The success of a marketing organisation depends on this effectively, adaptively and innovatively
designed used channel or channels of distribution.
11. New product leadership:
It is rightly said that early birds get the worms. Similarly, another statement is of much
relevance here that pearls are available on sea-bed or in deep-water. A company which is
adaptive rather than passive to changes in demand will do anything to make available some new
products which have edge over that of competitors.
A new product needs not be entirely new – but new in terms of the size, shape, weight, colour,
taste, and price, functional utility, symbolic, synergic and more matching to changing
expectations of society.
It is a modification or refinement that has its role. The product that appeals to the consumer
perceptions has a competitive advantage.
B. Production factors:
It is the set of marketing factors that dictate production factors for a company cannot produce
what it cannot sell lucratively. The field of production has, therefore certain areas where the firm
can have core competency and, therefore, competitive advantage. By nature, production implies
conversion of inputs into value added output as per consumer specifications.
The production factors that can be a source of competitive advantage are:
1. Economies of scale:

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Scale of business stands for the size. Whether it pays to carry on business on mass-scale or
small- scale. Much depends on the circumstances arising out of nature of product, technology,
managerial philosophy, and managerial ability among other things.
One thing is sure that when the business is carried on mass-scale, there will be definite
economies or benefits in the fields of production, managements finance and marketing which we
call as internal economies. In addition, we do enjoy external economies arising out of
concentration, information and disintegration.
External Economies are those which are enjoyed by all the firms and arise from location of
industries and are at the disposal of all the units in the same industry. As stated earlier, three
types of external economies one can think of namely “of concentration”, “of information” and “of
disintegration”.
Concentration of industrial units at a point make available cheap labour both – skilled and
unskilled, transportation, warehousing; banking and communication facilities, secondly, the
firms get information from outside agencies regarding trade, research, environmental and
technological developments. Thirdly, there are certain economies arising out of disintegration
such as coming together of subsidiary and service units might bring in certain economies with
them. Coming to Internal Economies, these are enjoyed specifically by individual units because
of their unique position in each branch of activity.
In production field these can be cost reduction, bulk buying, division of labour, use of machines
and electronics, use of by- products, research and development, optimum use of installed
capacity, acquiring patent rights; the economics in management can be – employment of
experts, reduction of over heads, use of modern techniques and appliances, economy in
organisation; in the field of finance, these can be low rate interest finance, reinvestment of
profits, withstanding of rigors of adversity, spread of risks, proper maintenance, reduction in
bad-debts and better working capital management; in the field of marketing these can be –
lower sales price, lower selling costs, prompt service, effective advertising, better sales agencies
and enjoyment of monopoly position.
2. Locational advantages:
Ultimately, the objective of any industrial location is to make it able to deliver the products to
the customers at a cost equal to or less than that of the competitors within the product field. The
cost of good delivered to the customer depends upon three major factors namely, the cost of
procuring material, the cost of fabrication of material and the cost of distributing the end
product to the final user.
The locational advantages stem from the facts of:
(a) The minimum cost of transporting materials and products.
(b) Easy availability of raw-materials and other factors of production,
(c) Convenience in accessibility to markets,
(d) Availability of adequate space for the site of the enterprise,
(e) Enough scope for further expansion,
(f) The possibility of the unit started to pick-up momentum of an early start and
(g) Integration of the enterprise with economic, social and cultural traits of the community of
the regions.
3. Raw-materials:
Good many companies have competitive advantages over other because of the basic input
namely material. Competitive edge is dependent on the raw-materials cost, equality and
adequacy, in addition to regular supply.
That way getting raw-material is not a problem. However some companies are bestowed with
natural gift of abundant supply raw- materials of very high quality at pretty lower cost.
Thus, De Roger Limited of South Africa is the supplier of world’s 90 percent of rough diamonds.
It is but natural that the quality and cost of final product is dependent on these input
characteristics. It should be noted that the yield of input is of greatest significance.
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4. The strength of maintenance:
Production machines and equipment wear out all the time. Greater the number of parts in the
machine, greater will be the possibility of wear, tear and therefore, breakdowns. When machine
breaks down then there is urgent need for repairs to put it back to normal working.
The costs of machine break down are:
(a) Down time of machines resulting in loss of production and sales.
(b) Idle time of labour force – both direct and indirect.
(c) Increase in scrap and rejection.
(d) Dissatisfaction and loss of loyalty of customers caused by delay in delivery commitments,
and
(e) The actual cost of repairs.
Therefore, preventive maintenance policy and system should replace the fire-fighting system of
corrective maintenance. Thus, prevention is better than cure which acts a great source of
competitive advantage
5. Production and post-production facilities:
It goes without saying that high rate of productivity is the hall-mark of excellence achieved by
making best use of the available or cultivable facilities, faculties, talents and skills of the man-
power within an organisation.
Whether it relates to the selection of suitable sites, assets or inputs or their proper utilisation, it
basically calls for the perfect employment of capabilities and calibre.
The production and post-production facilities should be such that they take shorter time, least
expenditure without compromise on quality or workmanship, with a minimum of waste of
inputs, and reclaiming or recycling wastes of all physical resources in most cost effective
manner.
It is the availability and use of production and post-production facilities that decides the rise in
the rates of output and inputs where the latter should be much lower. The production team must
use profusely the relevant techniques of methods study, work- measurement study, man-power
planning and development, quality control techniques, and various forms of operations
research.
6. Inventory norms:
Materials account for 35 percent to 55 percent of production costs. Estimates and experiences
have proved beyond doubt thus as much as ONE THIRD of company’s TOTAL INVESTMENT is
in the form of stocks of raw-materials, work in progress and finished stock.
Of these three the largest share is that of raw-materials a big source of cost control and
reduction. Therefore, norms are to be set for inventories to be held at any moment of time. The
question is what shall be minimum and maximum quantity of stock to be held, how much
should be bought at a time?
How to treat the items for monitoring purpose?
Should the company be happy with annual stock taking or be it replaced by perpetual inventory
system?
Whether a material is moving faster or at slow pace?
There are good many techniques which have developed and used successfully such as level
settling, economic order quantity, A.B.C. analysis, material turnover ratio, concurrent stock
taking through updated daily recording of transactions. All this reduce material wastages,
investment and hence costs.
C. Research and development and engineering factors:
One cannot under-estimate the role of research and development in these days of cut-throat
competition. Research is the industry of discovery and development is the conversion of a dream
into reality.

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Research and development is a must these days by almost every adaptive firm though it costs in
terms of time, treasure and talent. It is that areas which can mop up all others in the field and
can create place on the map of performance.
The important aspects are basic or fundamental research capabilities, applied research and
development capabilities, speed and advance of research and development process,
development of new products and value engineering that can be considered as a part of it.
1. Basic or fundamental research capabilities:
Basic or fundamental research signifies original investigation for the advancement of scientific
knowledge. It is one which does not have any specific commercial objective or objectives
although undertaken by a particular company. It represents primary investigation for the stake
of knowledge dealing basically with fundamental questions such as why blood is red? grass is
green ? Sky is blue? It is aimed at the discovery or the explanation of the fundamental laws and
phenomena of nature whether organic or inorganic.
Thus, it is concerned with the framing of generalizations leading to the formulation of theory.
Governmental organisations have used this in improving national health, welfare and military
strength; while business organisations aimed at discovering the relationships or the concepts
that enable them to achieve technological edge over others. As an ongoing process, it is time –
consuming, money making and brain-storming.
2. Applied research capabilities:
Applied research is one that is to find the solution for an immediate problem faced by the
society. Applied research represents an investigation focused towards the discovery of new
scientific knowledge which has definite commercial object or objectives to be achieved. It is one
which is directed towards a business problem.
It is the creative process of applying basic science to inputs and outputs or any other industrial
and trading needs. It is applied research that bolsters up the fundamental research. Countless
examples of applied research can be given. Perhaps the best is that of nylon.
As a product, it was named as “nylon” because, the research team consisted of scientists or
researchers from America and England and thus, the took two letters relating to America and
three letters relating to Great Britain namely NY (NEW YORK) and LON (London) thus making
it NYLON.
Today, it has become a basic input for manufacturing, man-made fibers, rope, stockings-,
bristles of brushes of different types; what is true of this nylon, is true of plastic, new-metals,
packaging materials and so on. It has brought about new products, processes, methods,
improvisations.
3. Speed and advance of research and development:
Of late, the question is not one of going in for research or not but one of at what speed and of
what level? It is so because, the competition has grown to such an extent that the success of
research and development efforts are decided by its speed and level. Cost is not a factor, but it is
pace and quality that matters.
Though research and development expenditure by Indian economy is less than half per cent of
national income, there are companies which are capable of spending per day in the range of 15
to 30 lakhs of rupees. It is particularly so in pharmaceuticals, automobiles, computers. The
reason is obvious that early bird gets the worm.
Today lazar colour printing of photos after developing costs just less than Rupee 0.50 and yet
the firms can make profit though they charge Rupees 3.75 per copy of photo. What is true of this
colour processing is equally true of xeroxing the material. Any company that comes out with a
new, improved and effective product, process, and method has the edge over its late beginners.
4. Development of new products:
“Development” signifies congruous contribution towards the improvement in the existing
knowledge through improved ideas, system, methods, techniques; it is a technical activity of
translating the research findings either into general scientific knowledge or products and
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processes or both. Such a development can be technological, engineering, advanced or
innovative. When one talks of new product, really it is difficult to say what is a new product. A
new product is one which is new to the company introducing it, though it might have been made
by others.
New products are those whose degree of change for customers is sufficient to require the design
or redesign of marketing strategies. Very clearly, new products are those that create unique
problems for management, especially in terms of technical development, testing and
commercialisation.
In most industries, competition pressures warrant a constant flow of technologically new
products or improvements in the existing ones if the corporate sales and profits are to be
sustained and enhanced.
The corporate sound health depends on a continuous flow of new products and improvements in
the existing ones. The very survival rather successful and growth depend on incessant
development of an acceptable new and improved product.
5. Value engineering:
“Value analysis” or “value engineering” is a precise, disciplined, one-purpose thinking process. It
is an arrangement of techniques which makes clear precisely the functions that the customer
wants; establishes the appropriate cost for each function by comparison; and causes required
knowledge, creativity, and initiative to be used to accomplish each function for the cost. Quite
often analyses of this kind would reveal the imbalance that exists.
This helps in improving the design of the products or services and many unwanted features
could be eliminated. Finally, the consumer will be given a product of better value.
Value engineering is an essential tool not only for cost reduction but also to improve the overall
value of the product. It could turn out to be a very powerful intervention in a competitive
situation. There are countless cases where cost reduction to the tune of 30 to 40 percent has
been achieved by applying value engineering or value analysis.
The credit of devising the technique or set of techniques goes to Mr. Lorry. D. Miles of America
who was working for General Motors in 1947 and later on became the president of SAVE
(Society of American Value Engineers) Value engineering developed because of the inherent
desire in human-being to make product cheaper and to sell cheaper, of course, keeping the
utility of the products same.
It is worth emphasizing here, which “value” differs from both “price” and “cost” in the sense that
it is the cost proportionate to the function. Therefore value is equal to the function or utility
divided by cost.
Therefore, it can be said clearly that’ value of a product can be increased either by increasing its
utility with the same cost or by decreasing its cost for the same function.
D. Personnel and expertise factors:
It is indeed foregone conclusion that with the advent of more competition the number of
industries has multiplied. In actual practice, with the human resource being scarce,
organisations are vying for same set of individuals and skills. As a result, the shifts of people and
skills, across the organisations have reached new heights.
On the other end, each organisation is compelled to achieve more in terms of performance for
both sheer survival and growth – both in the short and long term perspectives. Factors like
technology finance and service will become common factors in all organisations. There will be
just a marginal difference between one organisation and another.
Therefore, with a view to produce better results, organisations will have to depend to a greater
extent on “human” or “manpower” aspect. It is this manpower difference between the
organisations that brings in competitive edge. This value system of human side is going to be a
crucial and decisive aspect of human-resource exercise.

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The major components of this set of factors are: high calibre employees,
motivational level, lower labour costs, industrial peace and training and
development:
1. High-calibre employees:
No one can deny the economic supremacy of new economic powers namely Japan, Germany and
economies of East Asia dominating the world economic scene today. Though these countries
differ largely in culture, languages, share a few features in common such as natural resource
deficiency, high density of population, except Germany, have risen to their present heights of
economic affluence within a relatively shorter period particularly after Second World War and
have faced acute crisis involving their very survival as a nation.
The wonderful work they have done is that these countries have focused on the development of
human resources as a matter of national priority and insulated their economic processes from
political pressures and therefore, they are featured by a relatively higher egalitarian distribution
of incomes and lower levels of socio- economic inequalities.
Today, these fast growing economies represent essentially thought put economies. Human
resources with very high levels of education and skills constitute their massive distinguishing
asset.
These economies have largely succeeded in overcoming the intricate problems of poverty,
illiteracy, hunger, unemployment, and inflation and population growth. Take the case of Japan
and Germany, the two devastated countries during world war two, but have gained astonishingly
new dizzy heights within two decades enjoying highest per capita income.
In this context we cannot forget South Korea and Taiwan. In 1960’s India and those countries
were counted as “poor” having a per capita income of 80 US dollars; today in 1990’s, South
Korea and Taiwan have per capita income of 6,000 and 8,000 US dollars leaving India far
behind per capita income of 350 US dollars.
Why India failed? and Where? In-spite of the fact that Indians are more talented and
industrious in the world. In-spite of many positive factors such as good and plenty of natural
resources, fertile land, water, year-round sunshine, and variety of minerals.
It means India has failed miserably to develop, mobilize and deploy our human capital. It is the
omega source of its productive excellence, technological strength, economic achievement and
social success.
It also speaks of nation’s most basic resource in terms of their knowledge and learning,
productivity and skills, creativity and innovation. Only through the collective energy,
intelligence, skills and abilities and vision of Indian people, Indian economy can come out of rut
of stagnation and forge ahead in global economy as a future global player.
2. Motivational level:
Employee motivation – that causes channelizes and sustains people’s behaviour has always been
important for managers to understand. By definition, the managers work with and through
people, but people are complex and some times, irrational in their behaviour. Their motives are
not always easy to discern. Motivation is a persuasion for a cause towards a certain conviction or
belief.
It means an act of persuading someone to accept an idea and make him or her act in a particular
way. It is the apt act of pushing or pressing the right button to get desired result. The managers
must channelise people’s motivation to achieve personal and organisational goals.
The theories of motivation are three dimensional namely, content, process and reinforcement.
Content theories highlight the importance of drives or the needs within the individual as
motives for the individual’s action.
Process theories stress “how” and “why” and “by what goals” the individuals are motivated.
Reinforcement theories spotlight on how the consequences of an individual’s actions in the past
affect his or her behaviour in the future.

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In this task, a manager is to know more about employees because; a message that inspires one
group might as well turn to be a flop with others. It is worth remembering here that opinions,
attitudes, and beliefs which are built on over a longer period of time, are difficult to change.
To study the employee attitude or behaviour, it is therefore, necessary to keep in constant touch
with them or to maintain regular programme of communication. A system of perceptive of
motivation would be most useful.
This warrants taking into account the entire set or system of forces operating on the employees
must be considered well before the employee motivation and behaviour is adequately
understood.
Such a system has three variables namely the individual characteristics, job characteristics and
the work characteristics. These can be used to make employees to work at full-steam so that they
contribute their very best.
3. Lower costs of labour:
Labour cost is a second major chunk of total cost of making and serving a product. These days it
is most difficult, if not impossible, to reduce the labour cost as labour is no more commodity and
political support it enjoys.
If not cost reduction, at least labour cost control can be achieved. The labour costs can be
broadly classified as developmental costs, maintenance cost and mismanagement costs.
Development costs relate to employee recruitment, selection, training and placement.
The maintenance costs are those which are paid for the sweat of employees by the employees
both monetary and non- monetary out of legal obligations and corporate policies and
mismanagement costs are hidden costs in terms of labour turn-over, absenteeism, damage to
machinery, more scrap, waste, defectives, industrial accidents and man hours lost due to
abnormal idle time and so on.
However, labour costs can be both controlled and reduced indirectly by improving employee
level of efficiency through motivation. Positive steps such as scientific and impartial selection,
sound training, employee job security, job satisfaction, sound employer, employee relations are
likely to like up employee morale, a sense of belongingness and employee loyalty, of all these
sound remuneration system plays a constructive role. Again, employee empowerment,
participation and commitments go a long-way to achieve this goal.
4. Industrial peace:
Industrial peace is the hall-mark of industrial growth and prosperity. Industrial growth and
prosperity implies economic and social progress and prosperity. It is one which is opposite of
industrial unrest or a state of instability and trouble. Industrial peace is something that benefits
every segment of society, employees, employers, suppliers, customers, lenders, stock holders
and above all the government.
Industrial peace is an ideal situation characterized by sound employer and employee relations,
high employee morale, low rates of labour turnover and absenteeism, more output with high
quality at lower cost.
Industrial peace is not the product that is available and which can be bought and installed. It is
to be created, cultivated, maintained and improved.
It calls for cautions, continuous and sacrifice of individualism. Industrial peace is the outcome of
strong trade unionism featured by democratic, enlightened and constructive leadership,
progressive and positive outlook of managements, effective communication system for open-
door negotiations, faith in democratic and peaceful mean of settlement of disputes, if any,
encouraging collective bargaining, employee participation, congenial physical and psychological
working conditions, acceptable and progressive employee remuneration, supportive and
protective governmental policies in favour of working class, employee education and
employment. Industrial peace is the outcome is those who are party to it and contribute towards
it.
5. Employee training and development:
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One of the most disturbing aspects of majority organisations is that they perceive costs incurred
on training as burden on the financial front instead of treating it as an investment. The
implications of this relatively low level of investment are that many front-line staff is expected to
deliver high levels of quality service without the skills or the knowledge of what they are trying
to achieve.
Both experienced and newly hired employees need training to help them in their new roles that
they are going to play. However, their needs are different from one another.
Experienced employees usually have more difficulty in accepting the decision-making
responsibility, because, they are used to reverse delegation which means the problems to their
bosses or perhaps to another department.
It is not the case with the new entrants. In this regard, the companies are moving away from
blanket training and turning to competency based recruitment as an alternative.
There are six competencies such as initiative – problem solving skills – customer orientation –
technical skills, work style and behaviour. Training and development is that crucial process
which brings about suitable changes in employee attitudes, skills and abilities to make them full-
steamed power packed persons to increase organisational effectiveness and make them service
minded with loyalty and productivity.
E. Corporate resources factors:
Corporate resource factors are the parameters of corporate strength and weakness. If external
forces give opportunities and threats to the corporation, these opportunities can be en-cashed or
left out based on the internal forces namely strengths and weakness.
The corporate resource factors to be considered among other things are: Corporate image and
status, the Chief Executive Officer, size of the company, corporate performance record, financial
health and corporate structure and systems.
Let us note these factors in brief:
1. The corporate image:
Corporate status or image has its own impinging effect on competitors. Company as an artificial
person has its own personality, standing and status. In this dynamic and highly competitive
world the “image” of “corporate” image has its own place. The trend is not the “biggest” but the
“latest”.
A corporate image is the outcome of good many inputs for which it has to struggle over years. It
is determined by its philosophy, attitude, mission, objectives, policies and practices it is
following. A corporate image or its outstanding character from others is seen basically in capital-
market, product market, labour-market and public relations.
Generally the goodwill or the premium placed by the general public and corporate publics is
determined by its financial soundness and discipline, profitability, product image including
brand image and its relations with labour the human-side of management. The company image
or personality is built over years and it is not a sudden and accidental picture.
Again, the image once achieved in terms of turnover, investment, man-power absorption,
technology employed, research and developmental activities, its care for societal and
environmental development and maintenance, rate of return, the growth rate all are to be
maintained and refined under ever changing circumstances.
2. The Chief executive officer:
The success or failure of any organisation is founded on the head and shoulders of CEO or the
chief executive officer. He is the king maker or trouble maker. It he who makes or mars the
things.
CEO is the top most officers- the crown of the organisation. Good and effective leadership
qualities of a CEO go a long way in future prosperity, progress and achievement or otherwise.
The starting point is vision, courage of conviction and judgment the most significant mental
faculties of a CEO that make him to move the organisation at full steam to Skim the cream for
the benefit of one and all.
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Though ail have dreams – both morning and day, they do not come true:
However, very few of us realize that a positive vision about the future ignites hopes and passions
about successes and brings meanings to our lives and living and the field of work.
It is the visions, courage of conviction and the sound judgment of leaders that have made the
world to achieve successes that none could ever imagine. Leave aside business leader let us take
the great personalities like Martin Luther King, who said “I HAVE A DREAM” and he spelt it out
of world peace and he succeeded even by sacrificing his life.
Take another case of John. F. Kennedy, who said “WE SHALL SEND A MAN ON THE MOON
AND BRING HIM BACK SAFELY ON THIS EARTH” These words, came true. A CEO has a killer
instinct, ability to achieve, a strong – marketing acumen with strong financial backing.
Similarly, every CEO who runs his company has a vision in his head as to what he wants the
company to look like in the future. The next job is to spend time in articulating his vision to all
the levels of the organisation; such visions resemble to those of magnates around which all the
activities of the organisation are focused.
A visionary sees the business as a place to apply his original vision producing disposable
products for mass consumption at lowest manufacturing and distribution costs.
Though individuals have believed their leader’s visions about the future and have seen their
dreams came true, very few CEOs in the corporate jungle and used to develop vision about
future for either they are not used to thinking in this direction due to limited paradigms or are
simply fighting today without thinking about future.
However, one cannot forget that a dream, a vision about the shape of things to come will caution
one against the risks that one is taking or are on the way of which business is being conducted.
Every CEO must use three keys to predict the future namely anticipation and intuition –
innovation and excellence – all depend on his mental traits supported by physical and character
qualities.
3. The size of the company:
The optimum utilisation of company resources is dependent upon the size of the organisation.
Size represents the scale of operation that is large – or small or medium. What is “large” –
“small” or “medium” size is a matter of relativity.
Taking certain parameters one can say that a corporate is of “large” or “medium” or “small” size.
This concept is best defined by the governments of the nation mostly based on investment,
employability.
However, we have certain input and output measures. The input measures are: capital
investment, number of persons employed, amount of power used, and amount of raw-materials
consumed, plant capacity, the total size of assets.
The output measures are the volume of output, value of output and the amount of income tax
paid. It is left to the individual company whether it wants to be in small sector or large for there
is definite reasons for being growing or remaining small.
4. The corporate performance record:
The corporate profile speaks of its origin, ups and down, path and rate of progress achieved or
failed to achieve, philosophies followed, policies designed, strategies employed to move up and
up to dizzy heights and retain that zenith point for longer time.
It is because; taking birth, growing, reaching the point of pinnacle and then withering away are
the common features of these natural and artificial persons.
Take the annual Economic Time Top 500 corporate units. It ranks every company based on the
accepted parameters how each company fared well. Economic Times of 9th May 1996 reports
that Reliance Industries has become India’s first private sector company to post a total income
of over Rs. 8,000 crores, with a record profit of Rs. 1,305 crores for the year 31st March 1996
which is 22.5 percent higher than previous year. The company’s sales increased by 11 percent to
a figure of Rs. 7.786 crores. The profile of growth implies a mega-league.
The following statement makes it very clear:
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Growth Profile of Reliance Ind. Ltd:

What is astonishing is that the company expects to reach growth target of 20 to 30 percent as
against nominal overall growth of two percent.
5. Financial health of the company:
Company financial health speaks of asset liability position on one hand and proportion of fixed
assets to working assets, debt equity ratio or leverage ratios. It also relates to financial and
operating leverage.
More important is financial discipline that is followed. The resources both human and material
are greatly and deeply influenced by the financial resources.
Good many companies have failed not because of shortage of capital or monetary resources but
misuse of funds. Judicious allocation of financial resources and continuous monitoring of
financial results would go a long way in keeping the company’s financial health in sound
position which helps to compete with others.
6. The Structure and the systems:
A successful organisation is one which changes its strategies, operations and redefines its
organisational structure and markets as it moves from one phase of organisational life-cycle to
another. Like a product life cycle, each organisation has art organisational life cycle.
Broadly, these phases can be the phase of infancy or the high growth phase; the second phase
namely middle age or the stabilizing phase; the third phase namely maturity or the restructuring
phase and the last phase- the death or the declining phase. A successful organisation naturally
goes through only the first three phases.
The fourth phase may occur not for entire organisation but for a particular branch, division or a
product of the organisation. As far as the specific division or branch of the organisation is
involved, the organisation, in order to maintain the group’s existence will warrant the decision
on divestment.
Selling or scrapping the declining division or a branch or a product as dead wood is an ugly spot
on the mammoth green tree. The structure designed is to serve the changing organisational
goals.
The organisation structure should try to gain market share in different geographical segments,
income segments through appropriate pricing, distribution and promotion strategies as it moves
from sun-rise stage to sunset stage.
While some organisations believe in maintenance of areas of core competence and diversifying
in and around them, others believe in diversifications in high growth potential sectors, which
may be totally unrelated to the core-products.
What is important is that the organisation structures and systems existing must be amended,
redefined, and refined to fit in according to the changing demands of external environmental
factors.
Today’s competitive and fast changing business world needs flat, sleek, slim and trim type of
organisational structures. Good many organisations are capable of developing systems or
arrangements that enhance company skills.

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Generally such arrangements result in enhanced positions of advantages by virtue of
strengthening a company’s ties with the customers.
To mention a few of this kind can be:
(a) Long-term contractual arrangements whereby customers receive special prices or services in
exchange for buying in specified quantities.
(b) Complementary products and services that enhance the value utilization of the main product
and
(c) Customised product specifications or Customised on-line product ordering systems that
simplify customer ordering.
From the foregoing pages we could identify as many as five major functional categories
providing wide range of competitive advantage factors or sources. In the final analysis, the
competitive cost advantage is reflected in comparative cost advantage or differentiation
advantage.
A cost or differential advantage might stem from unique production facilities, latest
technologies, effective inventory management, innovative and judicious use of raw-materials,
highly professionalized management, effective and efficient distribution and the unique
communication mix used to build customers.

Useful notes on Competitive Advantage (Explained With Examples)

Developing and having competitive advantage over competitors is necessary not only in
business, but in all walks of human life. For example, a student also needs to acquire
competitive advantage over his/her classmates to perform well and succeed.
Business history is replete with instances that competition makes the business vulnerable.
Hence, there is a need to find out solution to overcome the problems of vulnerability in business.
Competitive advantage is considered as the long-term answers to vulnerability. What is
competitive advantage? In simple words, competitive advantage is a position of superiority in
relation to competition.
This is an advantage over competitors gained by offering consumers greater value, either
through lower prices or by providing more benefits that justify higher prices. The superiority can
be in any of the functions performed by the firm. The extent of the superiority will decide the
extent of competitive advantage the firm can enjoy in the market.
Developing and having competitive advantage over competitors is necessary not only in
business, but in all walks of human life. For example, a student also needs to acquire
competitive advantage over his/her classmates to perform well and succeed.
Look at the successful classmates of yours; they certainly enjoy competitive advantage in one
function or other. For example, one is good at handwriting, other is in language, yet another in
the style of expression and someone is in articulating the subject-knowledge to answer the
questions.
A business firm can gain competitive advantage in different ways by way of its superiority gained
in different functions. For example, some firm may have competitive advantage in production by
having flexible production system; some big firm may gain the competitive edge because of size;
a small-scale enterprise may have the flexibility in functioning.
The fact remains that the competitive advantage can be gained by doing the things differently
and distinctively. It means, in order to gain an advantage or edge over competitors, a small
business enterprise has to try to see how uniquely and advantageously it can perform a
particular function compared to its competitors.
The need for and significance of acquiring competitive advantage lie in the fact that even some
of the most imaginative and well written business strategies fail in the market because of the
absence of competitive advantage to make the strategy work well.
Putting it alternatively, in the absence of competitive advantage, business objectives remain
simply elusive and strategies remain just hollow. Evidences demonstrate that both scoring over
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competition and defending against competition hinge on competitive advantage only. Thus,
competitive advantage serves as the heart of the business strategy. As regards the sources of
competitive advantage, it can emanate from any of the functions a business enterprise performs.
Accordingly, the sources or factors of competitive advantage based on the several
functions performed by a business enterprise can be grouped under the following
functional categories:
i. Production Factors
ii. Human Resource Factors
iii. Research and Development Factors
iv. Financial Resource Factors
v. Marketing Factors
While the sources of competitive advantage may be many, finally it amounts to either a ‘Cost’ or
a ‘Differential Advantage’ to the firm.
Here is an excellent example of competitive advantage achieved through ‘Cost Advantage’.
Dr. Devi Prasad Shetty: Sam Walton of Indian Health Care Industry:
There is a case of Dr. Devi Prasad Shetty, a famous heart surgeon and founder of Narayana
Hrudayalaya Cardiac Hospital in Bengaluru. He is dubbed as the ‘Sam Walton’ – the founder of
Walmart, a global discount store chain – of Indian healthcare industry. He has been
instrumental in making expensive heart surgeries affordable to the common man.
The doctor has embarked on a mission to realise his dream of bringing down the cost of heart
operations to Rs. 25,000 from the current Rs. 65, 000. It is Dr. Shetty’s low cost heart surgery;
today his Narayana Hrudayalaya performs 23-heart surgery every day, almost half of them on
children.
Patients from 22 countries across Asia, Africa and Europe have been treated here. Even the
stand-off between India and Pakistan following the Nuclear Tests could not restrain Shetty from
offering medical help to a petty Pakistani girl, Noor, who needed urgent heart surgery.
Dr. Shetty had a great passion for heart surgeon who earned him the name “the operating
machine” among his colleagues. He has so far conducted over 4000 heart surgeries. The doctor
says, ” the point is 100 or 200 bed hospitals are not viable. We have to come up with a concept of
‘health cities’ in Bengaluru and Kolkoti”, with each city having 5000 beds, and that will treat
about 20,000 out patients every day. This will, in turn, bring down the cost of heart surgeries
manifold.”
The doctor dreams of setting up ‘health cities’ offering advanced heart and brain surgeries in
every state capital in the country. This is how the doctor has been bringing about Wal-
martisation in the health care industry in India.
Dr. Shetty plans to make his Narayana Hrudayalaya, the largest heart hospital in the world,
doing 70 heart operations every day. He wishes to serve poor people. He says, “Ten years ago,
nobody believed that auto drivers could afford mobile phones, but now most of them own it. It is
not because their earnings have gone up substantially, but the cost of cell phones have come
down. Similar things will happen in the healthcare sector also”.
Here, we are presenting the “Competitive Advantage Profile (CAP)” of Bajaj Auto Limited as an
illustration. It will help you better understand about the sources of competitive advantage of a
business enterprise.
CAP of Bajaj Auto Limited:

Compet Nature of Competitive Strength / Weaknesses

itive
Advant
age
Factors

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Marketin Wide product line; full range of scooters, mobikes, mopeds and three wheelers;
g factors 76 per cent market share in scooters, 27 per cent in mobikes, 6 per cent on mopeds;
overall 48 per cent in two wheelers.
Did not have a full fledged marketing organisation till 1987?

Producti World third largest two wheeler manufacturer and the largest in India.
on Capacity 10 lakh vehicles per year. Strong in engineering.
factors 400 strong quality assurance outfit. One of the finest automotive units in the world

R&D and ADVERTISEMENTS:

Engineer Strong in-house R&D facilities for consistent product augmentation.
ing High budget for R&D
factors

Personne Medium position

l and
Expertise
factors

Role and scope of production management

Functions and Scope of Production Management
Functions and Scope of Production Management!
Function of Production Management:
The activities of production department of an organisation are grouped into two
broad categories:
1. The activities that convert the available capital in to physical resources required for
production
2. The activities that convert the physical resources in to saleable goods and services.
In carrying out the above activities, the production department must perform the
following activities:
A. Production of goods at the right time and in sufficient quantity to meet the demand
B. Production of goods at minimum possible cost.
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C. Production of goods of acceptable quality.
Thus, the functions of production personnel are:
1. Forecasting the demand for the products and using the forecast to determine the
requirements of various factors of production.
2. Arranging for the procurement of required factors of production.
3. Arranging for the services such as maintenance, store keeping material handling, inspection
and quality control etc. that would be required to attain the targeted level of production.
4. Utilizing effectively the factors of production and service facilities available to produce the
product.
Scope of Production Management:
The objectives of production management are aimed at satisfying the needs of the customers
through offering organisations products/services. The scope of production management can be
considered from the point of view of both strategic decisions influencing the production system
and at the operation level. The strategic level decisions are mainly concerned with the design of
product and production system. These decisions involve decisions, which have long terms
implications.
The strategic level decisions are:
1. New Product Identification and Design:
The success of an organisation depends upon the product mix that it offers to the customer.
There exists a demands for the products if the product has good market acceptability. The
products should be designed in such way as to meet the expectations of customers. The tools like
value analysis should be applied at the design stage to avoid unnecessary cost building up in to
the product.
2. Process Design and Planning:
This involves the appropriate technology for conversion of raw materials in to products. The
choice of technology depends upon several factors such as demand, investment capability,
labour availably and degree of automation required. This is followed by selection of the process
of conversion and determining the workstations and the flow of work. At this stage, macro level
process planning is done.
3. Facilities Location and Layout Planning:
The facilities location is a strategic decision and facilities once located will not be altered in near
feature. So due considerations should be given to all the factors that affect the location.
4. Design of Material Handling System:
As per the principle of Material handling, the handling should be kept at minimum though it is
not possible to avoid handling. The selection of particular flow pattern and material handling
equipment is dependent on the distance between the workstations, intensity of flow or traffic
and size, shape and nature of materials to be handled.
5. Capacity Planning:
This decision is concerned with the procurement of fixed assets like plant and machineries. The
decision regarding the size of the plant, output etc. are decided at this stage. The capacity
planning activity is again a function of volume of demand. The operational level decisions are
short-term decisions. These are mainly concerned with planning and control of production
activities.
The operational level decisions are:
1. Production planning:
It is concerned with determining the future course of action regarding production to achieve the
organisation objectives.
2. Production control:
It is a management technique, which aims to see that the activities are carried out as per the
plan. Production control activity is concerned with comparing actual output with standard
output and to take corrective action if there exists a deviation between actual and standard.
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3. The other activities include:
Inventory control, maintenance and replacement, cost reduction and cost control and work
system design.
Production Management : it’s Meaning, Definition, Function and Scope
Meaning of Production Management:
Production Management refers to the application of management principles to the production
function in a factory. In other words, production management involves application of planning,
organizing, directing and controlling the production process.
The application of management to the field of production has been the result of at
least three developments:
(i) First is the development of factory system of production. Until the emergence of the concept
of manufacturing, there was no such thing as management as we know it. It is true that people
operated business of one type or another, but for the most part, these people were owners of
business and did not regard themselves as managers as well,
(ii) Essentially stems from the first, namely, the development of the large corporation with many
owners and the necessity to hire people to operate the business,
(iii) Stems from the work of many of the pioneers of scientific management who were able to
demonstrate the value, from a performance and profit point of view, of some of the techniques
they were developing.
Definition of Production Management:
It is observed that one cannot demarcate the beginning and end points of Production
Management in an establishment. The reason is that it is interrelated with many other
functional areas of business, viz., marketing, finance, industrial relation policies etc.
Alternately, Production Management is not independent of marketing, financial and personnel
management due to which it is very difficult to formulate some single appropriate definition of
Production Management.
The following definitions try to explain main characteristics of production
management:
(i) In the words of Mr, E.L. Brech:
“Production Management is the process of effective planning and regulating the operations of
that section of an enterprise which is responsible for the actual transformation of materials into
finished products.” This definition limits the scope of production management to those activities
of an enterprise which are associated with the transformation process of inputs into outputs. &
the definition does not include the human factors involved in a production process. It lays stress
on materialistic features only.
(ii) Production Management deals with decision-making related to production process. So that
the resulting goods and services are produced in accordance with the quantitative specifications
and demand schedule with minimum cost.
According to this definition design and control of the production system are two main functions
of production management.
(iii) Production Management is a set of general principles for production economies, facility
design, job design, schedule design, quality control, inventory control, work study and cost and
budgetary control. This definition explains the main areas of an enterprise where the principles
of production management can be applied. This definition clearly points out that production
management is not a set of techniques.
It is evident from above definitions that production planning and its control are the main
characteristics of production management. In the case of poor planning and control of
production activities the organization may not be able to attain its objectives and may result in
loss of customer’s confidence and retardation in the progress of the establishment.
In short, the main activities of production management can be listed as:

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(i) Specification and procurement of input resources namely management, material, and land,
labour, equipment and capital.
(ii) Product design and development to determine the production process for transforming the
input factors into output of goods and services.
(iii) Supervision and control of transformation process for efficient production of goods and
services.
Functions of Production Management:
The definitions discussed above clearly shows that the concept of production management is
related mainly to the organizations engaged in production of goods and services. Earlier these
organizations were mostly in the form of one man shops having insignificant problems of
managing the productions.
But with development and expansion of production organizations in the shape of factories more
complicated problems like location and lay out, inventory control, quality control, routing and
scheduling of the production process etc. came into existence which required more detailed
analysis and study of the whole phenomenon.
This resulted in the development of production management in the area of factory management.
In the beginning the main function of production management was to control labour costs
which at that time constituted the major proportion of costs associated with production.
But with development of factory system towards mechanization and automation the indirect
labour costs increased tremendously in comparison to direct labour costs, e.g., designing and
packing of the products, production and inventory control, plant layout and location,
transportation of raw materials and finished products etc. The planning and control of all these
activities required more expertise and special techniques.
In modern times production management has to perform a variety of functions,
namely:
(i) Design and development of production process.
(ii) Production planning and control.
(iii) Implementation of the plan and related activities to produce the desired output.
(iv) Administration and co-ordination of the activities of various components and departments
responsible for producing the necessary goods and services.
However, the responsibility of determining the output characteristics and the distribution
strategy followed by an organization including pricing and selling policies are normally outside
the scope of Production Management.
Scope of Production Management:
The scope of production management is indeed vast. Commencing with the selection of location,
production management covers such activities as acquisition of land, constructing building,
procuring and installing machinery, purchasing and storing raw materials and converting them
into saleable products. Added to the above are other related topics such as quality management,
maintenance management, production planning and control, methods improvement and work
simplification and other related areas.
Production management in short, deals with the following activities:
(i) Deciding and procuring various inputs such as material, labour, land, equipment, capital,
(ii) Determining the production process by designing the product. The inputs are transformed
into goods and services.
(iii) Supervision and control of transformation process for achieving good results.
Types of Production:
There can be many methods of production. A production manager will have to choose an
appropriate method for his unit. The nature of product and the quantity to be produced should
be taken into account while selecting a particular method. Production methods may be broadly
classified as: Job Production, Batch Production and Flow Production.
1. Job Production:
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Job production involves the procedure of manufacturing a product according to a specific
customer order. The products manufactured are generally non-standardized and heterogeneous
in nature. It usually refers to
(i) The supply of components to a larger manufacturer;
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(ii) The provision of one particular area of production to a large one; or
(iii] Making of special equipment or material.
The manufacture of single product is considered as one operation. It consists of bringing
together of materials, parts, and components, in order to assemble and commission a single
piece of equipment or product. Ship building, dam construction, bridge building, book printing,
are some of the examples of job production.
2. Batch Production:
Batch production pertains to repetitive production. It refers to the production of goods, the
quantity of which is known in advance. Under batch system the work is divided into operations
and one operation is done at a time. After completing the work on one operation it is passed on
to the next operation and so on till the product is complete. Batch production may be explained
with the help of an example. A company wants to manufacture 50 electric motors. The work will
be divided into different operations. The first operation on all the motors will be completed in
the first batch and then it will pass on to the next operation.
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The second group of operators will complete the second operation before passing to the next and
so on. Under job production the same operators will manufacture full machine and not one
operation only. Batch production can fetch the benefits of repetitive production to a
considerable degree, provided the batch is of a sufficient quantity. Thus batch production may
be defined as the manufacture of a product in small or large batches or lots by a series of
operations, each operation being carried out on the whole batch before any subsequent
operation is operated.
3. Mass or Flow Production:
Flow production, also called on-line mass production and continuous production, refers to the
production on a large-scale to provide a continuous supply. Flow production is the manufacture
of a product by a series of operations, each article going on to a succeeding operation as soon as
possible. The manufacturing process is broken into separate operations. The product completed
at one operation is automatically passed on to the next till it is complete. There is no time gap
between the work done at one process and the starting at the next. The flow of production is
continuous and progressive.
F acility
location;
Location, localization and planned location of industries are often felt to be synonymous. But,
the distinction among these three terms is of immense importance. Entrepreneurs locate their
enterprises where the cost of production comes, the lowest at the time of establishing industries.
This is known as ‘location of industries’.
The concentration of a particular industry mainly in one area, as occurred with many industries
in India, for example, textile industry in Mumbai is known as ‘localisation of industries’.
‘Planned location of industries’ is a term whereby the location of industries is planned to give
each industrial area a variety of industries so that large industries are dispersed and not
localised.
It was Alfred Weber (1929) to whom the credit of enunciating the theory of industrial location
went when his magnum opus “The Theory of the Location of Industry,” was published in
German in 1909 and English in 1929.

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The early theories of industrial location carried out the analysis on a simple framework where
the locational and special diversification was simply determined by an adjustment between
location and weight distance characteristics of inputs and outputs.
The reason is that the then industrial structure was heavily dominated by the natural resource-
base and consumer-oriented industries. But, over the period the very consideration for locating
industries in a particular region has undergone a considerable change so the early theories of
industrial location have become improper to explain location. Consideration of natural
resources in the choice of industrial location has declined and the industries are likely to be
established even in those areas with poor natural endowment.
This holds especially true in the case of industries which are not heavily biased in favour of raw
material source for their location. It is seen that such industries are gaining increasingly greater
importance in the industrial map of India during the recent decades. Concentration of IT
industries in Bangalore and Hyderabad are such examples.
It is not always possible to explain industrial location independently with the help of any one
factor. In fact, several factors/ considerations influence the entrepreneur’s decision in selecting
the location for industry. Selection of industrial location is a strategic decision. It is a onetime
decision and not be retracted again and again without bearing heavy costs.
Nonetheless, regardless of the type of business/enterprise, there are host of
factors but not confined to the following only that influence the selection of the
location of an enterprise:
(i) Availability of Raw Materials
(ii) Proximity to Market
(iii) Infrastructural Facilities
(iv) Government Policy
(v) Availability of Manpower
(vi) Local Laws, Regulations and Taxation
(vii) Ecological and Environmental Factors
(viii) Competition
(ix) Incentives, Land costs. Subsidies for Backward Areas
(x) Climatic Conditions
(xi) Political conditions.
Let us discuss these in some details.
(i) Availability of Raw Materials:
One of the most important considerations involved in selection of industrial location has been
the availability of raw materials required. The biggest advantage of availability of raw material at
the location of industry is that it involves less cost in terms of ‘transportation cost.
If the raw materials are perishable and to be consumed as such, then the industries always tend
to locate nearer to raw material source. Steel and cement industries can be such examples. In
the case of small- scale industries, these could be food and fruit processing, meat and fish
canning, jams, juices and ketchups, etc.
(ii) Proximity to Market:
If the proof of pudding lies in eating, the proof of production lies in consumption. Production
has no value without consumption. Consumption involves market that is, selling goods and
products to the consumers. Thus, an industry cannot be thought of without market.
Therefore, while considering the market an entrepreneur has not only to assess the existing
segment and the region but also the potential growth, newer regions and the location of
competitors. For example, if one’s products are fragile and susceptible to spoilage, then the
proximity to market condition assumes added importance in selecting the location of the
enterprise.
Similarly if the transportation costs add substantially to one’s product costs, then also a location
close to the market becomes all the more essential. If the market is widely scattered over a vast
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territory, then entrepreneur needs to find out a central location that provides the lowest
distribution cost. In case of goods for export, availability of processing facilities gains
importance in deciding the location of one’s industry. Export Promotion Zones (EPZ) are such
examples.
(iii) Infrastructural Facilities:
Of course, the degree of dependency upon infrastructural facilities may vary from industry to
industry, yet there is no denying of the fact that availability of infrastructural facilities plays a
deciding role in the location selection of an industry. The infrastructural facilities include power,
transport and communication, water, banking, etc.
Yes, depending upon the types of industry these could assume disproportionate priorities.
Power situation should be studied with reference to its reliability, adequacy, rates (concessional,
if any), own requirements, subsidy for standby arrangements etc. If power contributes
substantially to your inputs costs and it is difficult to break even partly using your own standby
source, entrepreneur may essentially have to locate his/her enterprise in lower surplus areas
such as Maharashtra or Rajasthan.
Similarly adequate water supply at low cost may become a dominant decisional factor in case of
selection of industrial location for leather, chemical, rayon, food processing, chemical and alike.
Just to give you an idea what gigantic proportions can water as a resource assumes. Note that a
tone of synthetic rubber requires 60 thousand gallons, a tone of aluminum takes 3 lakhs gallons,
and a tone of rayon consumes 2 lakh gallons of water.
Similarly, location of jute industry on river Hoogly presents an example where transportation
media becomes a dominant decisional factor for plant location. Establishing sea food industry
next to port of embarkation is yet another example where transportation becomes the deciding
criteria for industrial location.
(iv) Government Policy:
In order to promote the balanced regional development, the Government also offers several
incentives, concessions, tax holidays for number of years, cheaper power supply, factory shed,
etc., to attract the entrepreneurs to set up industries in less developed and backward areas.
Then, other factors being comparative, these factors become the most significant in deciding the
location of an industry.
(v) Availability of Manpower:
Availability of required manpower skilled in specific trades may be yet another deciding factor
for the location of skill- intensive industries. As regards the availability of skilled labour, the
existence of technical training institutes in the area proves useful. Besides, an entrepreneur
should also study labour relations through turnover rates, absenteeism and liveliness of trade
unionism in the particular area.
Such information can be obtained from existing industries working in the area. Whether the
labour should be rural or urban; also assumes significance in selecting the location for one’s
industry. Similarly, the wage rates prevalent in the area also have an important bearing on
selection of location decision.
While one can get cheaper labour in industrially backward areas, higher cost of their training
and fall in quality of production may not allow the entrepreneur to employ the cheap manpower
and, thus, establish his/her enterprise in such areas.
(vi) Local Laws, Regulations and Taxes:
ADVERTISEMENTS:
Laws prohibit the setting up of polluting industries in prone areas particularly which are
environmentally sensitive. Air (Prevention and Control of Pollution) Act, 1981 is a classical
example of such laws prohibiting putting up polluting industries in prone areas. Therefore, in
order to control industrial growth, laws are enforced to decongest some areas while
simultaneously encourage certain other areas.

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For example, while taxation on a higher rate may discourage some industries from setting up in
an area, the same in terms of tax holidays for some years may become the dominant decisional
factor for establishing some other industries in other areas. Taxation is a Centre as well as State
Subject. In some highly competitive consumer products, its high quantum may turn out to be
the negative factor while its relief may become the final deciding factor for some other industry.
(vii) Ecological and Environmental Factors:
In case of certain industries, the ecological and environmental factors like water and air
pollution may turn out to be negative factor in deciding enterprise location. For example,
manufacturing plants apart from producing solid waste can also pollute water and air.
Moreover, stringent waste disposal laws, in case of such industries, add to the manufacturing
cost to exorbitant limits.
In view of this, the industries which are likely to damage the ecology and environment of an area
will not be established in such areas. The Government will not grant permission to the
entrepreneurs to establish such industries in such ecologically and environmentally sensitive
areas.
(viii) Competition:
ADVERTISEMENTS:
In case of some enterprises like retail stores where the revenue of a particular site depends on
the degree of competition from other competitors’ location nearby plays a crucial role in
selecting the location of an enterprise. The areas where there is more competition among
industries, the new units will not be established in these areas. On the other hand, the areas
where there is either no or very less competition, new enterprises will tend to be established in
such areas.
(ix) Incentives, Land Costs, Subsidies for Backward Areas:
With an objective to foster balanced economic development in the country, the Government
decentralizes industries to less developed and backward areas in the country. This is because the
progress made in islands only cannot sustain for long. The reason is not difficult to seek.
“Poverty anywhere is dangerous for prosperity everywhere.” That many have-not’s will not
tolerate a few haves is evidently clear from ongoing protests leading to problems like terrorism.
Therefore, the Government offers several incentives, concessions, tax holidays, cheaper lands,
assured and cheaper power supply, price concessions for departmental (state) purchases, etc. to
make the backward areas also conducive for setting up industries.
It is seen that good number of entrepreneurs considers these facilities as decisive factor to
establish industries in these locations. However, it has also been observed that these facilities
can attract entrepreneurs to establish industries in backward areas provided other required
facilities do also exist there.
For example, incentives and concessions cannot duly compensate for lack of infrastructural
facilities like communication and transportation facilities. This is precisely one of the major
reasons why people in-spite of so many incentives and concessions on offer by the Government,
are not coming forward to establish industries in some backward areas.
(x) Climatic Conditions:
Climatic conditions vary from place to place in any country including India. And, climatic
conditions affect both people and manufacturing activity. It affects human efficiency and
behaviour to a great extent. Wild and cold climate is conducive to higher productivity. Likewise,
certain industries require specific type of climatic conditions to produce their goods. For
example, jute and textiles manufacturing industries require high humidity.
As such, these can be established in Kashmir experiencing humidity-less climate. On the other
hand, industrial units manufacturing precision goods like watches require cold climate and
hence, will be established in the locations having cold climate like Kashmir and Himachal
Pradesh.
(xi) Political Conditions:
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Political stability is essential for industrial growth. That political stability fosters industrial
activity and political upheaval derails industrial initiates is duly confirmed by political situations
across the countries and regions within the same country. The reason is not difficult to seek.
The political stability builds confidence and political instability causes lack of confidence among
the prospective and present entrepreneurs to venture into industry which is filled with risks.
Community attitudes such as the “Sons of the Soil Feeling” also affect entrepreneurial spirits
and may not be viable in every case.
Besides, an entrepreneur will have also to look into the availability of community services such
as housing, schools and colleges, recreational facilities and municipal services. Lack of these
facilities makes people hesitant and disinterested to move to such locations for work.
Very closer to political conditions is law and order situation prevalent in an area also influences
selection of industrial location. Hardly any entrepreneur will be interested to establish his / her
industry in an area trouble-torn by nexalites and terrorists like Jharkhand, Nagaland and
Jammu & Kashmir.
People will be interested to move to areas having no law and order problem to establish their
industries like Maharashtra and Gujarat. It is due to this law and order problem the Nano car
manufacturing unit shifted from Nandigram in West Bengal to Gujarat.
There are many qualitative and quantitative techniques adopted to interpolate the above factors
to arrive at a logical decision. The simplest and most commonly adopted is weight rating method
illustrated in Figure below.
Besides above factors, the location of certain industries also depends upon the delivery of
emergency services like fire, police, hospital, etc. (Buffa 1983).
It seems in the fitness of the context to present the real cases of locational considerations of the
entrepreneurs of small-scale industries in India. Based on extensive research study, one
researcher (Khanka 2010: 45-46) has found the following most important considerations that
entrepreneurs consider for selecting the location of their enterprises.

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It is revealed from Table 27.1 that ‘home land’ factor, i.e., to start the industry at one’s native
place has been reported as the most important factor for locating industries in one’s own native
area. Availability of market and ‘infrastructural facilities’ ranked the second and third most
important considerations.
However, the ‘Government incentives’ could not figure significantly in determining the location
of industry. This can be explicated on two grounds. One, the heavy preference accorded to the
home land factor in the location of industries suggests that enterprise is not a freely mobile
factor, willing to move to any place for only marginal advantage (Wianka 2009).
Two, possibly more important, the accumulation of capital may be a necessary but not sufficient
condition for establishing an enterprise. Because, fiscal concessions and financial assistance on
soft terms cannot adequately, compensate for the lack of infrastructure like transport and
marketing services.
Therefore, concessions and assistance would find it difficult to attract industries to remote,
inaccessible and highly backward areas. On the whole, the major apprehension accorded to the
home land factor in the hills in contrast to the infrastructural and market facilities in the plains
indicate that the location considerations undergo change with differences in the levels of
development across the regions.

The leading factors affecting plant location are as follows: 1. Selection of Region 2. Township
Selection 3. Question of Urban and Rural Area 4. Location of a Factory in a Big City 5. Location
of an Industry in Small Town 6. The Sub-urban Location for a Factory 7. Site Selection 8.
Current Trends in Pant Location 9. Appropriate Site Selection 10. The Design of Factory Plant
Building.
1. Selection of Region:
The selection of a region or area in which plant is to be installed requires the
consideration of the following:
Availability of Raw Materials:
Proximity of sources of raw materials is the obvious explanation of the location of majority of
sugar mills in Uttar Pradesh. This means that the raw material should be available within the
economical distance. Easy availability of supplies required for maintenance and operation of the
plant should also be considered.
Proximity to Markets:
Cost of distribution is an important item in the overhead expenses. So it will be advantageous to
be near to the center of demand for finished products. Importance of this is fully realized if the
material required for the manufacturing of products are not bulk and fright charges are small.
Consumer industries like cycles, sewing machines, radio televisions and other luxury goods etc.
are set up near the marketing centers whereas producer industries like steel mills are located
near the vicinity of raw material.
For this purpose market analysis should be carried out keeping in view the
following points:

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(a) Market trend and competition regarding product to be manufactured.
(b) Industrial market
(c) Consumer habits and income
(d) Population
(e) Scope of export to neighbouring countries.
Transport Facilities:
Since freight charges of raw materials and finished goods enter into the cost of production,
therefore transportation facilities are becoming the governing factor in economic location of the
plant. Depending upon the volume of the raw materials and finished products, a suitable
method of transportation like rail, road, water transportation (through river, canals or sea) and
air transport is selected and accordingly plant location is decided. Important consideration
should be that the cost of transportation should remain fairly small in comparison to the total
cost of production.
Availability of Power, Fuel or Gas:
Because of the wide spread use of electrical power the availability of fuel or gas has not remained
a deciding factor in most of the cases for plant location. The location of thermal power plants
(like Bokaro Thermal Plant) and steel plants near coal fields are for cutting down cost of the fuel
transportation. The reliability of continuous supply of these facilities is an important factor.
Water Supply:
Water is required for processing as in chemical, sugar and paper industries and is also used for
drinking and sanitary purposes. Investigation for quality and probable source of supply is
important, since the cost of treating water is substantial so the chemical properties like
hardness, alkalinity and acidity.
Presence of dissolved gases and organic material etc. should be thoroughly investigated. In case
of water supply form an external source such as municipality, dependability of the source,
pumping and storage capacity for present and future demands should be found out.
Disposal Facility for Waste Products:
Thorough study should be made regarding disposal of water like effluents, solids, chemicals and
other waste products likely to be produced during the production process.
Climatic and Atmospheric Conditions:
The climate of the region/ area where the plant is to be located has an important bearing on
both the capital and operational costs.
Normally following aspects are considered:
(a) Rain fall or snow fall in the area concerned
(b) Ambient temperatures
(c) Humidity
(d) Wind velocities and direction
(e) Incidence of cyclones, storms etc.
Availability of Labour:
Potential supply of requisite type of labour governs plant location to major extent. Some
industries need highly skilled labour while other need unskilled and intelligent labour. But the
former type is difficult in rural areas in comparison with industrially developed location.
Momentum of an Established Industry:
Already established industry in a certain area will produce skilled labour in that trade. Thus
future industries in that area will have no difficulty with respect to the skilled labour e.g.
Ludhiana is famous for cycle industries and Faridabad for engineering industries.
Preference of Outstanding Businessmen and Government Subsidies:
Some of the factory locations do not consider the above factors but locate industries in a
particular district or area just to develop that area. It may be due to State Government policies
regarding workers, pollution and smoke control requirements, waste disposal rules for
industries etc.
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2. Township Selection:
The factors to be considered regarding township selection are:
(i) Availability of men power of requisite skill
(ii) Competitive wage rates of workers
(iii) Other enterprises which are complementary or supplementary regarding raw materials,
other input, labour and skill required.
(iv) Moderate taxes and the absence of restricting laws.
(v) A favourable cooperative and friendly attitude towards the industry.
(vi) Favourable living conditions and standards keeping in view the availability of medical and
educational facilities, housing, fire service, recreational facilities, cost of living etc.
3. Question of Urban and Rural Area:
Question of urban and rural area should be decided in view of the following:
Advantages of Rural Area:
(i) The initial cost of land, erection cost of building and plant is less in rural area as compared to
urban or city area.
(ii) Acquisition for additional area for extension work expansion of plant is possible without
much difficulty whereas urban area being congested; the additional land is not easily available.
(iii) Rural areas are free form labour trouble which is most common in towns and cities.
(iv) Over crowding of working class population in cities is avoided.
Advantages of Urban Area:
(i) Better modes of transportation for collection and distribution of materials and finished
products.
(ii) Availability to requisite type of labour for special and specific jobs is there.
(iii) Utilities like water, power, fuels etc. are easily available.
(iv) Industries do not need to construct colonies to provide residential facilities to their workers
since houses are available on rental basis whereas in rural areas, houses have to be build for
workers.
4. Location of a Factory in a Big City:
Generally factories are located in big cities for obvious reasons of skilled labour, market
proximity for both raw materials and end products.
Its advantages and disadvantages are mentioned below:
Advantages:
(i) Existence of educational and recreational facilities is advantageous for children and
dependents of workers.
(ii) Facilities for technical/ industrial education and training for children of workers are
available.
(iii) Evening classes facilities are available.
(iv) Discussion opportunities and facilities for exchange of thoughts are available for interested
people in societies and clubs.
(v) All types of skilled man power is available.
(vi) Repair, maintenance and service facilities for various utilities are available in abundance.
(vii) Banking facilities regarding finance (loan etc.) for industry in case of necessity are available.
(ix) Big markets for sale of products available.
(x) Better transport facilities for movement of raw materials, finished products and workers are
available.
(xi) Many similar industries/plants exist in nearby areas.
(xii) Housing facilities workers & employees.
(xiii) Police and fire protection facilities available in near by area.
Disadvantages:
(i) Insurance and taxation rates are high.
(ii) Due to higher living standards, cost of consumer goods and wage rates are high.
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(iii) Possibilities of expansion are minimum due to scarcity of land.
(iv) Cost of land is more if needed for expansion of the plant etc.
(v) Building costs very high in comparison to rural or semi urban areas.
(vi) Atmospheric conditions not very pleasant rather suffocating.
(vii) Local bye laws present a problem for future, working & expansion etc.
Thus, small plants may find location in big cities that too in upper stories of the buildings. Such
accommodation may be utilized in view of availability of requisite type of labour in big cities.
5. Location of an Industry in Small Town:
There are some industries which are located in the rural areas or small towns specifically for the
want of raw material and cheap labour.
Its advantages and disadvantages are mentioned below:
Advantages:
(i) Less labour trouble and co-ordinal employee-employer relation.
(ii) Suitable land for current and future requirements easily available.
(iii) Local bye laws do not impose problem in working of the unit.
(iv) No resistance from existing industries.
(v) Possibility of tax exemptions exist.
(vi) Not much congestion.
(vii) Lower rents in comparison to big cities and urban areas.
(viii) Lower wage rates for labour/ employees / workers.
(ix) Less fire risks.
(x) Noise not much problem.
Disadvantages:
(i) Scarcity of skilled labour of requisite type.
(ii) Lack of recreational and amusement facilities for staff.
(iii) Facilities like evening classes and industrial training do not exist.
(iv) Employees, workers do not get accustomed to factory life easily.
(v) Specialized services needed for various purposes are not available.
(vi) Police and fire protection less satisfactory.
(vii) Transportation and marketing facilities not satisfactory as required.
6. The Sub-urban Location for a Factory:
Such a location generally provides advantages of both the large city and small towns.
Benefits of such a locality may be summarized as follows:
(i) Land is easily and cheaply available in comparison to big cities.
(ii) Lower tax rates in comparison to big cities and urban areas.
(iii) Transportation facilities equal to big cities available.
(iv) Good living accommodation to enjoy advantages of big cities available for
workers/employees.
(v) Unskilled labour cheaply available.
(vi) Recreational facilities of cities available due to easy transport facilities.
7. Site Selection:
The third step is to select the exact plant site with the following considerations:
(i) The cheap availability of land for current and future requirements, soil characteristics sub
soil water, availability or possibility of economic drainage and waste disposal system are
desirable parameters.
(ii) The site should be easily accessible to various modes of transport as required so that apart
from input materials, employees can also reach the site conveniently.
(iii) The site should be free from zonal restrictions like from railways or civil aviation
restrictions.
8. Current Trends in Pant Location:
1. Location in Proximity of Cities:
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First tendency is to locate the industries or enterprises in the proximity of cities rather than in
rural or urban areas. These sub-urban sites offer today practically all advantages, facilities and
services available in cities and towns with the added advantage of land required for future
expansion on cheap rates.
2. Planned Industrial Centres:
While industrial towns may be planned and developed by big industrial houses or govt., the late
trend is to develop areas as industrial estates and sell these to people interested in starting their
units at various places. Noida and Faridabad are the examples of this type of development.
3. Competition for Development of Industries:
In order to generate the employment opportunities the state and central govt. offer concessions
to attract industrialists to set up industries in their states or territories.
9. Appropriate Site Selection:
Appropriate site selection is important because of the following:
(i) A good location may minimize the cost of production and distribution to a considerable
extent. Such reduction in the cost of production helps in elevating either the competitive
strength or the profit margin of the business.
(ii) Initiation of an enterprise involve a relatively large permanent investment. If the selected
site is not proper, all the money invested on factory building, installation of machinery etc. will
go waste and the owner will have to suffer a great loss.
(iii) Location put constraints for the physical factors of the overall plant designs heating,
ventilation requirements, storage capacity for raw materials, transportation requirements for
input material and finished products, energy requirements cost of labour, taxes and
construction costs.
(iv) Location of plant decides the nature of investment cost to be incurred.
(v) Government policies sometimes play an important role in site selection.
(vi) Probably no location is so perfect as to guarantee success but locations can be so bad as to
bankrupt an enterprise.
10. The Design of Factory Plant Building:
After a plant location has been decided upon, management’s next problem deals with the design
of building. A building is designed and built to protect the property and employees of an
organization. This basic fact is mostly overlooked in planning the requirement for building
structures.
For those plants where employees, materials and infrastructure facilities require protection, the
problems involved in designing and constructing effective and economical structures are many.
Good building design and planning can reduce manufacturing cost due to
following reasons:
1. Reduction of work-in process inventory.
2. Lowering down material handling cost.
3. Reducing storage costs.
4. Reducing the manufacturing cycle time
5. Simplifying manufacturing and employees control procedure.
6. Reducing plant repair & maintenance costs.
7. Decreasing work stoppage and interruptions during production cycle.
8. Increasing plant flexibility and utilization.
9. Reducing employee hiring and training cost.
10. Increasing morale of workers and reducing employee turnover.
Practically in all industrial situations, plants or building is composed of rectangular or square
area. The combinations result commonly in building of the shape L, T, U, G, H, F, E, I, O and
polygonal. Generally speaking a square building is cheaper to construct than a rectangular
building because the square will have less perimeter per square meter of usable area. This

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reduction in perimeter length results in lower foundation and outside site and boundary wall
costs.
At the same time however the square shape of the building normally does not suit to efficient
production or assembly lines patterns. Furthermore, the cost of structural steel for floor and
roof supports in the square building will likely to exceed that for a rectangular building and may
offset the possible savings in foundation and wall costs.

Most industrial building can be categorised into three groups as mentioned below:
Single Storey Building:
The trend today is towards the construction of single storey buildings particularly where land is
available a reasonable price.
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Following are the advantages offered by single storey building:
(i) It provides the cheapest overall cost per square meter of operating space of the plant.
(ii) It is easily and quickly constructed.
(iii) Greater flexibility in layout of the plant possible.
(iv) Truss construction makes for unimpaired operating space.
(v) Minimum vibrations from floors being on the ground.
(vi) Ease of ventilation, heating and air conditioning of the space.
(vii) Elimination of costs and maintenance of stairways.
(viii) Easy to expand by removing walls.
(ix) All equipment is on the same level, providing easier, more effective layout and control.
(x) Unrestricted floor load capacities available.
(xi) Supervision on one floor easy.
Following are the limitations of single storey buildings:
(i) Cost of heating and ventilation is more.
(ii) Roof maintenance cost is higher.
(iii) Longer ground runs for drainage required.
(iv) Water storage less convenient.
(v) Maintenance of glasses and lights is expensive affair.
Single storey building’s roof structure are of the following four types:
(i) Flat
(ii) Gable
(iii) Saw tooth
(iv) Bow string.

High bay and Monitor Type Buildings:

These types of single storey buildings are designed to give maximum overhead space for a given
floor space if properly designed and constructed almost all the vertical walls can have windows
for natural illumination.

The monitor type building is usually found in companies requiring good natural ventilation and
considerable overhead room for operating cranes and other overheads facilities. Buildings for
foundries and steel mills are often of the monitor or highway type enabling the firms to take
advantage of the natural ventilation resulting from the high roof.
Multistory Building:

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Following are the advantage of multistory buildings:
(i) Less roof repairs.
(ii) Heating and ventilation cost less.
(iii) Small ground runs for drainage.
(iv) More compact layout.
(v) Provides for maximum operating floor space per square meter of land.
(vi) Easily adopted for the manufacture of light goods.
Following are the limitations of multistory buildings:
(i) These present problems in heavy goods industries.
(ii) Material handling can be relatively expensive for bulky materials because of the vertical
transfer between floors.
(iii) Natural illumination in the center of a multistory building is after poor.
(iv) Flexibility is hampered in multistory buildings because changes in the width and length of
floor are usually impossible except at ground level.
Plant Layout: Meaning, Need and Importance
After reading this article you will learn about:- 1. Meaning and Definition of Plant
Layout 2. Need of Plant Layout 3. Importance 4. Objectives 5. Factors Affecting 6.
Types 7. Advantages.
Meaning and Definition of Plant Layout:
Plant layout is the most effective physical arrangement, either existing or in plans of industrial
facilities i.e arrangement of machines, processing equipment and service departments to achieve
greatest co-ordination and efficiency of 4M’s (Men, Materials, Machines and Methods) in a
plant.
Layout problems are fundamental to every type of organisation/enterprise and are experienced
in all kinds of concerns/undertakings.
The adequacy of layout affects the efficiency of subsequent operations. It is an important pre-
requisite for efficient operations and also has a great deal in common with many problems. Once
the site of the plant has been decided, the next important problem before the management of the
enterprise is to plan suitable layout for the plant.
Definitions:
According to James Lundy, “Layout identically involves the allocation of space and the
arrangement of equipment in such a manner that overall operating costs are
minimized.”
In the words of Mallick and Gandreau, “Plant layout is a floor plan for determining and
arranging the designed machinery and equipment of a plant, whether established or
contemplated, in the best place, to permit the quickest flow of material, at the lowest cost and
with the minimum handling in processing the product, from the receipt of raw material to the
shipment of finished product.”
According to Apple, “Plant layout is planning the path each component/part of the product is to
follow through the plant, coordinating the paths of the various parts so that the manufacturing
processes may be carried out in the most economical manner, then preparing drawing or other
representation of the arrangement and finally seeing that the plan is properly put into effect.”
(Plant Layout and Material Handling by Apple).
In the words of Sansonneti and Mallick (Factory Management, Vol. 103) “It is placing the
right equipment, coupled with right place, to permit the processing of a product
unit in the most effective manner, through the shortest possible distance and in
the shortest possible time.” The last definition seems to be most appropriate.
Need of Plant Layout:
Many situations give rise to the problem of plant layout. Two plants having similar operations
may not have identical layouts. This may be due to size of the plant, nature of the process and
management’s calibre.
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The necessity of plant layout may be felt and the problem may arise when:
(i) There are design changes in the product.
(ii) There is an expansion of the enterprise.
(iii) There is proposed variation in the size of the departments.
(iv) Some new product is to be added to the existing line.
(v) Some new department is to be added to the enterprise and there is reallocation of the
existing department.
(vi) A new plant is to be set up.
Importance of Plant Layout:
The layout of a plant is quite important in view of the above definition but the importance of a
layout may greatly vary from industry to industry.
The possibility of attaining the best possible layout is directly proportional to
following factors:
(i) The Weight, Volume or Mobility of the Product:
If the final product is quite heavy or difficult to handle involving costly material handling
equipment or a large amount of labour, important consideration will be to move the product
minimum possible e.g. boiler, turbines, locomotive industries and ship building companies etc.
(ii) Complexity of the Final Product:
If the product is made up of a very large number of components and parts i.e. large number of
people may be employed for handling the movement of these parts from shop to shop or from
machine to machine or one assembly point to another e.g. automobile industry.
(iii) The Length of the Process in Relation to Handling Time:
If the material handling time represents a appreciable proportion of the total time of
manufacturing, any reduction in handling time of the product may result in great productivity
improvement of the industrial unit e.g. Steam Turbine Industry.
(iv) The Extent to which the Process Tends towards Mass Production:
With the use of automatic machines in industries for adopting mass production system of
manufacturing the volume of production will increase. In view of high production output, larger
percentage of manual labour will be engaged in transporting the output unless the layout is
good.
Objectives of Good Plant Layout:
A good rather an optimum layout is one which provides maximum satisfaction to all concerned
i.e. shareholders, management employees and consumers.
The objectives of a good layout are as follows:
(i) Should provide overall satisfaction to all concerned.
(ii) Material handling and internal transportation from one operation to the next is minimized
and efficiently controlled.
(iii) The production bottle necks and points of congestions are to be eliminated so that input raw
materials and semi-finished parts move fast from one work station to another.
(iv) Should provide high work in process turnover.
(v) Should utilize the space most effectively; may be cubical utilization.
(vi) Should provide worker’s convenience, promote job satisfaction and safety for them.
(vii) Should avoid unnecessary investment of capital.
(viii) Should help in effective utilization of labour.
(ix) Should lead to increased productivity and better quality of the product with reduced capital
cost.
(x) Should provide easy supervision.
(xi) Should provide space for future expansion of the plant.
(xii) Should provide proper lighting and ventilation of the areas of work stations
Factors Affecting Plant Layout:

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Whatever be the type of layout being contemplated the following factors are to be considered
because these factors have got significant influence on the design of the layout.
(i) Man Factor:
The man is very flexible element who can be made suitable for all sort of layouts.
Main considerations are as follows:
(i) Safety and working conditions.
(ii) Man power requirements-skill level of workers, their number required and their training
programme.
(iii) Man power utilization in the plant.
(iv) Human relations.
(ii) Material Factor:
It includes the various input materials like raw materials, semi-finished parts, and materials in
process scrap, finished products, packing materials, tools and other services.
The main considerations are:
(i) Design and specifications of the product to be manufactured.
(ii) Quantity and variety of products and materials.
(iii) Physical and chemical characteristics of various inputs materials.
(iv) Component parts or material and their sequence of operations i.e. how they go together to
generate the final product.
(iii) Machinery Factor:
The operating machinery is also one of the most important factors therefore all the information
regarding equipment and the tools are necessary for inspection, processing and maintenance
etc.
(i) The processes and methods should be standardized first.
(ii) Machinery and tools selections depend upon the type of process and method, so proper
machinery and other supporting equipment should be selected on the basis of volume of
production.
(iii) Equipment utilization depends on the variation in production, requirements and operating
balance.
(iv)Machines should be used to their optimum levels of speed, feed and depth of cut.
(v) Machinery requirement is mostly based on the process/method.
(v) Maintenance of machines and replacement of parts is also important.
(iv) Movement Factor:
It mainly deals with the movement of men and materials. A good layout should ensure short
moves and should always tend towards completion of product. It also includes
interdepartmental movements and material handling equipment. This includes the flow pattern
reduction of unnecessary handling, space for movement and analysis of handling methods.
(v) Waiting Factor:
Whenever material or men is stopped, waiting occurs which costs money. Waiting cost includes
handling cost in waiting area, money tied up with idle material etc.
Waiting may occur at the receiving point, materials in process, between the operations etc.
The important considerations in this case are:
(a) Location of storage or delay points.
(b) Method of storing.
(c) Space for waiting.
(d) Safeguard equipment for storing and avoiding delay.
(vi) Service Factor:
It includes the activities and facilities for personnel such as fire protection, lighting, heating and
ventilation etc. Services for material such as quality control, production control, services for
machinery such as repair and maintenance and utilities like power, fuel/gas and water supply
etc.
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(vii) Building Factor:
It includes outside and inside building features, shape of building, type of building (single or
multi-storey) etc.
(viii) Flexibility Factor:
This includes consideration due to changes in material, machinery, process, man, supporting
activities and installation limitations etc. It means easy changing to new arrangements or it
includes flexibility and expendability of layouts.
Types of Plant Layout:
Production results from men, materials and machinery together with management. The
characteristics are changed. To manufacture a product layout begins with which element or
elements mentioned above move.
Keeping in view the type of industry and volume of production, the type of layout
to be selected is to be decided from the following:
1. Product or Line Layout.
2. Process or Functional Layout.
3. Fixed Position Layout.
4. Combination type of Layout.
1. Product or Line Layout:
If all the processing equipment and machines are arranged according to the sequence of
operations of a product, the layout is called product type of layout. In this type of layout, only
one product or one type of products is produced in an operating area. This product must be
standardized and produced in large quantities in order to justify the product layout.
The raw material is supplied at one end of the line and goes from one operation to the next quite
rapidly with a minimum work in process, storage and material handling. Fig. 3.3 shows product
layout for two types of products A and B.

Advantages offered by Product Layout:

(i) Lowers total material handling cost.
(ii) There is less work in process.
(iii) Better utilization of men and machines.
(iv) Less floor area is occupied by material in transit and for temporary storages.
(v) Greater simplicity of production control.
(v) Total production time is also minimized.
Limitations of Product Layout:
(i) No flexibility which is generally required is obtained in this layout.
(ii) The manufacturing cost increases with a fall in volume of production.
(iii) If one or two lines are running light, there is a considerable machine idleness.
(iv) A single machine breakdown may shut down the whole production line,
(v) Specialized and strict supervision is essential.
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2. Process or Functional Layout:
The process layout is particularly useful where low volume of production is needed. If the
products are not standardized, the process layout is more desirable, because it has greater
process flexibility than other. In this type of layout the machines are not arranged according to
the sequence of operations but are arranged according to the nature or type of the operations.
This layout is commonly suitable for non-repetitive jobs. Same type of operation facilities are
grouped together such as lathes will be placed at one place all the drill machines are at another
place and so on. See Fig. 3.4 for process layout. Therefore, the process carried out in any area is
according to the machine available in that area.

Advantages of Process Layout:

(i) There will be less duplication of machines. Thus total investment in equipment purchase will
be reduced.
(ii) It offers better and more efficient supervision through specialization at various levels.
(iii) There is a greater flexibility in equipment and man power thus load distribution is easily
controlled.
(iv) Better utilization of equipment available is possible.
(v) Breakdown of equipment can be easily handled by transferring work to another machine/
work station.
(vi) There will be better control of complicated or precision processes, especially where much
inspection is required.
Limitations of Process Layout:
(i) There are long material flow lines and hence the expensive handling is required.
(ii) Total production cycle time is more owing to long distances and waiting at various points.
(iii) Since more work is in queue and waiting for further operation hence bottlenecks occur.
(iv) Generally more floor area is required.
(v) Since work does not flow through definite lines, counting and scheduling is more tedious.
(v)Specialization creates monotony and there will be difficulty for the laid workers to find job in
other industries.
3. Fixed Position Layout:
This type of layout is the least important for today’s manufacturing industries. In this type of
layout the major component remain in a fixed location, other materials, parts, tools, machinery,
manpower and other supporting equipment are brought to this location.
The major component or body of the product remains in a fixed position because it is too heavy
or too big and as such it is economical and convenient to bring the necessary tools and
equipment’s to work place along-with the man power. This type of layout is used in the
manufacture of boilers, hydraulic and steam turbines and ships etc.
Advantages Offered by Fixed Position Layout:
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(i) Material movement is reduced
(ii) Capital investment is minimized
(iii) The task is usually done by gang of operators, hence continuity of operations is ensured
(iv) Production centres are independent of each other. Hence effective planning and loading can
be made. Thus total production cost will be reduced and
(v) It offers greater flexibility and allows change in product design, product mix and production
volume.
Limitations of Fixed Position Layout:
(i) Highly skilled man power is required.
(ii) Movement of machines equipment’s to production centre may be time consuming.
(iii) Complicated fixtures may be required for positioning of jobs and tools. This may increase
the cost of production.
4. Combination Type of Layout:
Now days in pure state any one form of layouts discussed above is rarely found. Therefore
generally the layouts used in industries are the compromise of the above mentioned layouts.
Every layout has got certain advantages and limitations therefore, industries would not like to
use any type of layout as such.
Flexibility is a very important factor, so layout should be such which can be moulded according
to the requirements of industry, without much investment. If the good features of all types of
layouts are connected, a compromise solution can be obtained which will be more economical
and flexible.
Principles of Plant Layout:
According to Muther there are six basic principles of “best layout”.
These are:
(i) Principle of Overall Integration:
According to this principle the best layout is one which provides integration of production
facilities like men, machinery, raw materials, supporting activities and any other such factors
which result in the best compromise.
(ii) Principle of Minimum Distance:
According to this principle the movements of men and materials should be minimized.
(iii) Principle of Flow:
According to Muther, the best layout is one which arranges the work station for each operation
process in same order or sequence that forms treats or assembles the materials.
(iv) Principle of Cubic Space Utilization:
According to this, the best layout utilizes cubic space i.e. space available both in vertical and
horizontal directions is most economically and effectively utilized.
(v) Principle of Satisfaction and Safety:
According to this principle best layout is one which provides satisfaction and safety to all
workers concerned.
(vi) Principle of Flexibility:
In automotive and other allied industries where models of products change after sometime the
principle of flexibility provides adoption and rearrangement at a minimum cost and least
inconvenience.
Advantages of a Good Plant Layout:
The advantages expressed by Mallick and Gandeau are as follows:
To the Worker:
(i) Reduces the effort of the worker.
(ii) Reduces the number of handlings.
(iii) Extends the process of specialization.
(iv) Permits working at optimum conditions by eliminating congestions.
(v) Produces better working conditions by eliminating congestions.
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(vi) Reduces the number of accidents.
(vii) Provides better employee service facilities/conditions.
(viii) Provides basis for higher earning for employees.
In Labour Cost:
(i) Increases the output per man-hour.
(ii) Reduces set up time involved.
(iii) Reduces the number of operations or some operations may be combined.
(iv) Reduces the number of handlers. Thus reducing labour cost.
(v) Reduces the length of hauls.
(vi) Reduces lost motions between operations.
(vii) Converts operator into a producer instead of a handler by eliminating the various
unnecessary movements.
In Other Manufacturing Costs:
(i) Reduces the cost of expensive supplies.
(ii) Decreases maintenance costs.
(iii) Decreases tool replacement costs.
(iv) Effects a saving in power loads.
(v) Decreases spoilage and scrap. Thus waste is minimized
(v) Eliminates some of the waste in raw material consumption.
(vii) Improves the quality of the product by decreasing handling.
(viii) Provides better cost control.
In the Manufacturing Cycle:
(i) Shortens the moves between work-stations.
(ii) Reduces the manufacturing cycle in each department.
(iii) Reduces the length of the travel by the product for completion.
(iv) Reduces the overall time of manufacturing the product.
In Production Control:
(i) Facilitates receipts, shipments and delivery of inputs and finished goods.
(ii) Provides adequate and convenient storage facilities.
(iii) Permits the maximum possible output with same input.
(iv) Paces production & determines production flow.
(v) Makes production time predictable.
(vi) Makes scheduling and dispatching automatic.
(vii) Sets up production centre & permits straight line layout by products for mass production.
(viii) Permits layout by process for job order manufacturing.
(ix) Moves work in process by most direct lines.
(x) Reduces the number of lost or mishandled parts leading to waste minimization.
(xi) Reduces the paper work for production control & reduces the number of stock chasers. Thus
reduces production control expenses.
In Supervision:
(i) Tends to ease the burden of supervision.
(ii) Determines the supervisory control.
(iii) Reduces the cost of supervision process.
(iv) Reduces cost of piece counts.
(v) Decreases the amount of inspection involved.
In Capital Investment:
(i) Holds permanent investment at its minimum level.
(ii) Keeps the plant from becoming obsolete before it is worn out.
(iii) Reduces the investment in machinery and equipment by
(a) Increasing the production per machine.
(b) Utilizing idle machine time.
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(c) Reducing the number of operations per machine.
(iv) Maintains a proper balance of departments.
(v) Eliminates wasted aisle space.
(vi) Reduces the capital investment by proper space utilization of material handling equipment
required.
(vii) Reduces the inventory level of work in process and of finished product.
Production planning and
Control

Some of the important functions of production planning and control are listed
below:
1. Materials Function:
Raw materials, finished parts and bought out components should be made available in required
quantities and at required time to ensure the correct start and end for each operation resulting
in uninterrupted production. The function includes the specification of materials (quality &
quantity) delivery dates, variety reduction (standardisation) procurement and make or buy
decisions.
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2. Machines and Equipment:
This function is related with the detailed analysis of available production facilities, equipment
down time, maintenance policy procedure and schedules. Concerned with economy of jigs and
fixtures, equipment availability. Thus the duties include the analysis of facilities and making
their availability with minimum down time because of breakdowns.
3. Methods:
This function is concerned with the analysis of alternatives and selection of the best method with
due consideration to constraints imposed. Developing specifications for processes is an
important aspect of PPC and determination of sequence of Operations.
4. Process Planning (Routing):
It is concerned with selection of path or route which the raw should follow to get transformed in
to finished product.
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The duties include:
(a) Fixation of path of travel giving due consideration to layout.
(b) Breaking don of operations to define each operation in detail.
(c) Deciding the set up time and process time for each operation.
5. Estimating:
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Once the overall method and sequence of operations is fixed and process sheet for each
operation is available, then the operations times are estimated. This function is carried out using
extensive analysis of operations along with methods and routing and standard times for
operation are established using work measurement techniques.
6. Loading and Scheduling:
Scheduling is concerned with preparation of machine loads and fixation of Starting and
completion dates for each of the operations. Machines have to be loaded according to their
capability of performing the given task and according to their capacity.
Thus, the duties include:
(a) Loading the machines as per their capability and capacity.
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(b) Determining the start and completion times for each operation.
(c) To Co-ordinate with sales department regarding delivery schedules.
7. Dispatching:
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This is the execution phase of planning. It is the process of setting production activities in
motion through release of orders and instructions. It authorises the start of Production activities
by releasing materials, components, tools, fixtures and instruction sheets to the operator.
The activities involved are:
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(a) To assign definite work to definite machines, work centres and men.
(b) To issue required materials from stores.
(c) To issue jigs, fixtures and make them available at correct point of use.
(d) Release necessary work orders, time tickets etc. to authorise timely start of operations.
(e) To record start and finish time of each job on each machine or by each man.
8. Expediting:
This is the control tool that keeps a close observation on the progress of the work. It is a logical
step after dispatching which is called “follow-up” or “Progress”. It co-ordinates extensively to
execute the production plan. Progressing function can be divided in to three parts, i.e. follow up
of materials, follow up of work in process and follow up of assembly.
The duties include:
1. Identification of bottlenecks and delays and interruptions because of which the production
schedule may be disrupted.
2. To devise action plans (remedies) for correct the errors.
3 To see that production rate is in line with schedule.
9. Inspection:
It is a measure control tool. Though the aspects of quality control are the separate function, this
is of very much important to PPC both for the execution of the current plans and in scope for
future planning. This forms the basis for knowing the limitations with respects to methods,
processes etc. which is very much useful for evaluation phase.
10. Evaluation:
This stage though neglected is a crucial to the improvement of productive efficiency. A thorough
analysis of all the factors influencing the production planning and control helps to identify the
weak spots and the corrective action with respect to preplanning and planning will be effected
by a feed back. The success of this step depends on the communication, Data and information
gathering and analysis.

Concept of Production Planning and Control Defined:

Production planning and control could be defined as under:
Production planning and control is a device that regulates the movements of materials,
performance of machines and operation of labour in the best technical and economical manner;
so as to obtain right quantity of production of required quality – at a time which is promised for
delivery of goods to customers.
Spriegel and Lansburgh define production control as follows:
“Production control is the process of planning production in advance of operations, establishing
the exact route of each individual item, part or assembly; setting starting and finishing dates for
each important item, assembly and the finished products, and releasing the necessary orders as
well as initiating the required follow-up to effectuate the smooth functioning of the enterprise.”
Steps in Production Planning and Control:
Production control involves the following steps:
(i) Planning
(ii) Routing
(iii) Scheduling
(iv) Dispatching
(v) Follow-up or checking the progress
(vi) Inspection
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Out of these six steps involved in production control, the first three steps relate to planning; the
fourth relates to execution of plan and the last two refer to the control aspect of planning.
The above idea is depicted by means of the following diagram:

(1) Planning:
For planning of productive operations in detail, the planning department will receive full
information from management about the quantity to be produced and the dates when delivery
has been promised to customers. The planning department will also get the necessary
engineering and drawing specifications from the engineering department.
Broadly, at the stage of planning the following issues are considered on which
bases charts and written plans are prepared:
(a) What work should be done?
(b) How shall the work be done?
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(c) Where shall the work be done?
(d) When shall the work be done?
(2) Routing:
Routing involves the determination of the path that work shall follow and the order in which
various operations will be carried out. The objective of routing is to find out the best and the
cheapest sequence of operations. While preparing the route card, it must be kept in mind that
machines in the plant are operated at their full capacity; and manpower and other facilities are
best utilized.
(3) Scheduling:
Scheduling is the determination of the time that should be required to perform each operation
and also the time necessary to perform the entire series, as routed, making allowance for factors
concerned. It involves the preparation of a time-table, indicating the total time needed for the
manufacture of a product as also the time expected to be spent at each machine and process.
In preparing schedules, the persons concerned will have to take into consideration the various
types of orders on hand and the dates by which their completion has been promised. Some
orders may be such as will require over-time work; because completion is not possible according
to the delivery dates set for them, in the regular course of production.
(4) Dispatching:
Dispatching literally means sending something towards a particular destination. Here, it means
taking all such steps, as are necessary to implement the programme of production chalked out as
per routing and scheduling steps.
In particular, dispatching refers to:
1. Procurement of necessary tools, jigs and fixtures etc.; before they are actually required by the
workmen.
2. Giving workers the necessary work orders, instructions, drawings etc. for initiating the work.
(5) Follow-Up (or Checking the Progress):

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Follow-up is the control aspect of production planning and control. It involves taking steps to
check up whether work proceeds according to plans and how far there are variances from
standards; and also taking necessary corrective steps to set things in order.
(6) Inspection:
Inspection is the quality control aspect of production planning and control. It ensures that goods
produced are of the right quality. The inspectors may inspect materials, semi-finished and
finished products either at the work bench or in special laboratories or testing rooms.
To ensure maintenance of high standards of quality, a programme of SQC (Statistical Quality
Control) may be fused with a system of production planning and control.
Objectives/Advantages of Production Planning and Control:
Following are the objectives (advantages) of production planning and control:
(i) Continuous Production:
Production control ensures continuous production with least possible interruptions; as it
eliminates all sources of interruptions in production like-non-availability of materials, tools,
poor maintenance of machines etc.
(ii) Cost Control and Profit Maximization:
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Production control helps in cost control (and thus in profit maximization) by optimizing use of
productive resources and eliminating waste and spoilage.
(iii) Customer Satisfaction:
Production control ensures better service to customers due to timely delivery of goods and
qualitative products. It, thus, leads to customer satisfaction and better business relations with
customers.
(iv) Planning of Resource Requirements and Inventory Control:
Production control seeks to assess in advance requirements of manpower, machinery and other
facilities to meet the desired targets of production. It also helps to maintain regular supply of
raw-materials, work-in-progress and finished goods with minimum investment in inventories.
(v) Minimum Material Handling and Storage Costs:
Production control helps in minimization of material handling and storage costs.
(vi) Economy in Production Time:
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Production control reduces the loss of time by the workers waiting for materials, and causes
improvement in plant morale.
(vii) Equipment Utilization:
Production control makes for the most effective use of equipment.

Demand Forecasting: It’s Meaning, Types, Techniques and Method | Economics

Demand Forecasting: It’s Meaning, Types, Techniques and Method!
Contents:
1. Meaning
2. Types of Forecasting

142
3. Forecasting Techniques
4. Criteria of a Good Forecasting Method
Meaning:
Forecasts are becoming the lifetime of business in a world, where the tidal waves of change are
sweeping the most established of structures, inherited by human society. Commerce just
happens to the one of the first casualties. Survival in this age of economic predators, requires the
tact, talent and technique of predicting the future.
Forecast is becoming the sign of survival and the language of business. All requirements of the
business sector need the technique of accurate and practical reading into the future. Forecasts
are, therefore, very essential requirement for the survival of business. Management requires
forecasting information when making a wide range of decisions.
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The sales forecast is particularly important as it is the foundation upon which all company plans
are built in terms of markets and revenue. Management would be a simple matter if business
was not in a continual state of change, the pace of which has quickened in recent years.
It is becoming increasingly important and necessary for business to predict their future
prospects in terms of sales, cost and profits. The value of future sales is crucial as it affects costs
profits, so the prediction of future sales is the logical starting point of all business planning.
A forecast is a prediction or estimation of future situation. It is an objective assessment of future
course of action. Since future is uncertain, no forecast can be percent correct. Forecasts can be
both physical as well as financial in nature. The more realistic the forecasts, the more effective
decisions can be taken for tomorrow.
In the words of Cundiff and Still, “Demand forecasting is an estimate of sales during a specified
future period which is tied to a proposed marketing plan and which assumes a particular set of
uncontrollable and competitive forces”. Therefore, demand forecasting is a projection of firm’s
expected level of sales based on a chosen marketing plan and environment.
Procedure to Prepare Sales Forecast:
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Companies commonly use a three-stage procedure to prepare a sales forecast. They make an
environmental forecast, followed by an industry forecast, and followed by a company’s sales
forecast, the environmental forecast calls for projecting inflation, unemployment, interest rate,
consumer spending, and saving, business investment, government expenditure, net exports and
other environmental magnitudes and events of importance to the company.
The industry forecast is based on surveys of consumers’ intention and analysis of statistical
trends is made available by trade associations or chamber of commerce. It can give indication to
a firm regarding tine direction in which the whole industry will be moving. The company derives
its sales forecast by assuming that it will win a certain market share.
All forecasts are built on one of the three information bases:
What people say?
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What people do?
What people have done?
Types of Forecasting:

Forecasts can be broadly classified into:

(i) Passive Forecast and
(ii) Active Forecast. Under passive forecast prediction about future is based on the assumption
that the firm does not change the course of its action. Under active forecast, prediction is done
under the condition of likely future changes in the actions by the firms.
From the view point of ‘time span’, forecasting may be classified into two, viz.,:

143
(i) Short term demand forecasting and (ii) long term demand forecasting. In a short run
forecast, seasonal patterns are of much importance. It may cover a period of three months, six
months or one year. It is one which provides information for tactical decisions.
Which period is chosen depends upon the nature of business. Such a forecast helps in preparing
suitable sales policy. Long term forecasts are helpful in suitable capital planning. It is one which
provides information for major strategic decisions. It helps in saving the wastages in material,
man hours, machine time and capacity. Planning of a new unit must start with an analysis of the
long term demand potential of the products of the firm.
There are basically two types of forecast, viz.,:
(i) External or national group of forecast, and (ii) Internal or company group forecast. External
forecast deals with trends in general business. It is usually prepared by a company’s research
wing or by outside consultants. Internal forecast includes all those that are related to the
operation of a particular enterprise such as sales group, production group, and financial group.
The structure of internal forecast includes forecast of annual sales, forecast of products cost,
forecast of operating profit, forecast of taxable income, forecast of cash resources, forecast of the
number of employees, etc.
At different levels forecasting may be classified into:
(i) Macro-level forecasting,
(ii) Industry- level forecasting,
(iii) Firm- level forecasting and
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(iv) Product-line forecasting.
Macro-level forecasting is concerned with business conditions over the whole economy. It is
measured by an appropriate index of industrial production, national income or expenditure.
Industry-level forecasting is prepared by different trade associations.
This is based on survey of consumers’ intention and analysis of statistical trends. Firm-level
forecasting is related to an individual firm. It is most important from managerial view point.
Product-line forecasting helps the firm to decide which of the product or products should have
priority in the allocation of firm’s limited resources.
Forecast may be classified into (i) general and (ii) specific. The general forecast may generally be
useful to the firm. Many firms require separate forecasts for specific products and specific areas,
for this general forecast is broken down into specific forecasts.
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There are different forecasts for different types of products like:
(i) Forecasting demand for nondurable consumer goods,
(ii) Forecasting demand for durable consumer goods,
(iii) Forecasting demand for capital goods, and
(iv) Forecasting demand for new-products.
Non-Durable Consumer Goods:
These are also known as ‘single-use consumer goods’ or perishable consumer goods. These
vanish after a single act of consumption. These include goods like food, milk, medicine, fruits,
etc. Demand for these goods depends upon household disposable income, price of the
commodity and the related goods and population and characteristics. Symbolically,
Dc =f(y, s, p, pr) where
Dc = the demand for commodity с
у = the household disposable income
s = population
p = price of the commodity с
pr = price of its related goods
(i) Disposable income expressed as Dc = f (y) i.e. other things being equal, the demand for
commodity с depends upon the disposable income of the household. Disposable income of the
144
household is estimated after the deduction of personal taxes from the personal income.
Disposable income gives an idea about the purchasing power of the household.
(ii) Price, expressed as Dc = f (p, pr) i.e. other things being equal, demand for commodity с
depends upon its own price and the price of related goods. While the demand for a commodity is
inversely related to its own price of its complements. It is positively related to its substitutes.’
Price elasticities and cross elasticities of non-durable consumer goods help in their demand
forecasting.
(iii) Population, expressed as Dc= f (5) i.e. other things being equal, demand for commodity с
depends upon the size of population and its composition. Besides, population can also be
classified on the basis of sex, income, literacy and social status. Demand for non-durable
consumer goods is influenced by all these factors. For the general demand forecasting
population as a whole is considered, but for specific demand forecasting division of population
according to different characteristics proves to be more useful.
Durable Consumer Goods:
These goods can be consumed a number of times or repeatedly used without much loss to their
utility. These include goods like car, T.V., air-conditioners, furniture etc. After their long use,
consumers have a choice either these could be consumed in future or could be disposed of.
The choice depends upon the following factors:
(i) Whether a consumer will go for the replacement of a durable good or keep on using it after
necessary repairs depends upon his social status, level of money income, taste and fashion, etc.
Replacement demand tends to grow with increase in the stock of the commodity with the
consumers. The firm can estimate the average replacement cost with the help of life expectancy
table.
(ii) Most consumer durables are consumed in common by the members of a family. For
instance, T.V., refrigerator, etc. are used in common by households. Demand forecasts for goods
commonly used should take into account the number of households rather than the total size of
population. While estimating the number of households, the income of the household, the
number of children and sex- composition, etc. should be taken into account.
(iii) Demand for consumer durables depends upon the availability of allied facilities. For
example, the use of T.V., refrigerator needs regular supply of power, the use of car needs
availability of fuel, etc. While forecasting demand for consumer durables, the provision of allied
services and their cost should also be taken into account.
(iv) Demand for consumer durables is very much influenced by their prices and their credit
facilities. Consumer durables are very much sensitive to price changes. A small fall in their price
may bring large increase in demand.
Forecasting Demand for Capital Goods:
Capital goods are used for further production. The demand for capital good is a derived one. It
will depend upon the profitability of industries. The demand for capital goods is a case of
derived demand. In the case of particular capital goods, demand will depend on the specific
markets they serve and the end uses for which they are bought.
The demand for textile machinery will, for instance, be determined by the expansion of textile
industry in terms of new units and replacement of existing machinery. Estimation of new
demand as well as replacement demand is thus necessary.
Three types of data are required in estimating the demand for capital goods:
(a) The growth prospects of the user industries must be known,
(b) the norm of consumption of the capital goods per unit of each end-use product must be
known, and
(c) the velocity of their use.
Forecasting Demand for New Products:
The methods of forecasting demand for new products are in many ways different from those for
established products. Since the product is new to the consumers, an intensive study of the
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product and its likely impact upon other products of the same group provides a key to an
intelligent projection of demand.
Joel Dean has classified a number of possible approaches as follows:
(a) Evolutionary Approach:
It consists of projecting the demand for a new product as an outgrowth and evolution of an
existing old product.
(b) Substitute Approach:
According to this approach the new product is treated as a substitute for the existing product or
service.
(c) Growth Curve Approach:
It estimates the rate of growth and potential demand for the new product as the basis of some
growth pattern of an established product.
(d) Opinion-Poll Approach:
Under this approach the demand is estimated by direct enquiries from the ultimate consumers.
(e) Sales Experience Approach:
According to this method the demand for the new product is estimated by offering the new
product for sale in a sample market.
(f) Vicarious Approach:
By this method, the consumers’ reactions for a new product are found out indirectly through the
specialised dealers who are able to judge the consumers’ needs, tastes and preferences.
The various steps involved in forecasting the demand for non-durable consumer goods are the
following:
(a) First identify the variables affecting the demand for the product and express them in
appropriate forms, (b) gather relevant data or approximation to relevant data to represent the
variables, and (c) use methods of statistical analysis to determine the most probable relationship
between the dependent and independent variables.
Forecasting Techniques:

Demand forecasting is a difficult exercise. Making estimates for future under the changing con-
ditions is a Herculean task. Consumers’ behaviour is the most unpredictable one because it is
motivated and influenced by a multiplicity of forces. There is no easy method or a simple
formula which enables the manager to predict the future.
Economists and statisticians have developed several methods of demand forecasting. Each of
these methods has its relative advantages and disadvantages. Selection of the right method is
essential to make demand forecasting accurate. In demand forecasting, a judicious combination
of statistical skill and rational judgement is needed.
Mathematical and statistical techniques are essential in classifying relationships and providing
techniques of analysis, but they are in no way an alternative for sound judgement. Sound
judgement is a prime requisite for good forecast.
The judgment should be based upon facts and the personal bias of the forecaster should not
prevail upon the facts. Therefore, a mid way should be followed between mathematical
techniques and sound judgment or pure guess work.
The more commonly used methods of demand forecasting are discussed below:
The various methods of demand forecasting can be summarised in the form of a chart as shown
in Table 1.

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1. Opinion Polling Method:
In this method, the opinion of the buyers, sales force and experts could be gathered to determine
the emerging trend in the market.
The opinion polling methods of demand forecasting are of three kinds:
(a) Consumer’s Survey Method or Survey of Buyer’s Intentions:
In this method, the consumers are directly approached to disclose their future purchase plans. I
his is done by interviewing all consumers or a selected group of consumers out of the relevant
population. This is the direct method of estimating demand in the short run. Here the burden of
forecasting is shifted to the buyer. The firm may go in for complete enumeration or for sample
surveys. If the commodity under consideration is an intermediate product then the industries
using it as an end product are surveyed.
(i) Complete Enumeration Survey:
Under the Complete Enumeration Survey, the firm has to go for a door to door survey for the
forecast period by contacting all the households in the area. This method has an advantage of
first hand, unbiased information, yet it has its share of disadvantages also. The major limitation
of this method is that it requires lot of resources, manpower and time.
In this method, consumers may be reluctant to reveal their purchase plans due to personal
privacy or commercial secrecy. Moreover, at times the consumers may not express their opinion
properly or may deliberately misguide the investigators.
(ii) Sample Survey and Test Marketing:

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Under this method some representative households are selected on random basis as samples
and their opinion is taken as the generalised opinion. This method is based on the basic
assumption that the sample truly represents the population. If the sample is the true
representative, there is likely to be no significant difference in the results obtained by the survey.
Apart from that, this method is less tedious and less costly.
A variant of sample survey technique is test marketing. Product testing essentially involves
placing the product with a number of users for a set period. Their reactions to the product are
noted after a period of time and an estimate of likely demand is made from the result. These are
suitable for new products or for radically modified old products for which no prior data exists. It
is a more scientific method of estimating likely demand because it stimulates a national launch
in a closely defined geographical area.
(iii) End Use Method or Input-Output Method:
This method is quite useful for industries which are mainly producer’s goods. In this method,
the sale of the product under consideration is projected as the basis of demand survey of the
industries using this product as an intermediate product, that is, the demand for the final
product is the end user demand of the intermediate product used in the production of this final
product.
The end user demand estimation of an intermediate product may involve many final good
industries using this product at home and abroad. It helps us to understand inter-industry’
relations. In input-output accounting two matrices used are the transaction matrix and the input
co-efficient matrix. The major efforts required by this type are not in its operation but in the
collection and presentation of data.
(b) Sales Force Opinion Method:
This is also known as collective opinion method. In this method, instead of consumers, the
opinion of the salesmen is sought. It is sometimes referred as the “grass roots approach” as it is
a bottom-up method that requires each sales person in the company to make an individual
forecast for his or her particular sales territory.
These individual forecasts are discussed and agreed with the sales manager. The composite of all
forecasts then constitutes the sales forecast for the organisation. The advantages of this method
are that it is easy and cheap. It does not involve any elaborate statistical treatment. The main
merit of this method lies in the collective wisdom of salesmen. This method is more useful in
forecasting sales of new products.
(c) Experts Opinion Method:
This method is also known as “Delphi Technique” of investigation. The Delphi method requires
a panel of experts, who are interrogated through a sequence of questionnaires in which the
responses to one questionnaire are used to produce the next questionnaire. Thus any
information available to some experts and not to others is passed on, enabling all the experts to
have access to all the information for forecasting.
The method is used for long term forecasting to estimate potential sales for new products. This
method presumes two conditions: Firstly, the panellists must be rich in their expertise, possess
wide range of knowledge and experience. Secondly, its conductors are objective in their job. This
method has some exclusive advantages of saving time and other resources.
2. Statistical Method:
Statistical methods have proved to be immensely useful in demand forecasting. In order to
maintain objectivity, that is, by consideration of all implications and viewing the problem from
an external point of view, the statistical methods are used.
The important statistical methods are:
(i) Trend Projection Method:
A firm existing for a long time will have its own data regarding sales for past years. Such data
when arranged chronologically yield what is referred to as ‘time series’. Time series shows the
past sales with effective demand for a particular product under normal conditions. Such data
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can be given in a tabular or graphic form for further analysis. This is the most popular method
among business firms, partly because it is simple and inexpensive and partly because time series
data often exhibit a persistent growth trend.
Time series has got four types of components namely, Secular Trend (T), Secular Variation (S),
Cyclical Element (C), and an Irregular or Random Variation (I). These elements are expressed
by the equation O = TSCI. Secular trend refers to the long run changes that occur as a result of
general tendency.
Seasonal variations refer to changes in the short run weather pattern or social habits. Cyclical
variations refer to the changes that occur in industry during depression and boom. Random
variation refers to the factors which are generally able such as wars, strikes, flood, famine and so
on.
When a forecast is made the seasonal, cyclical and random variations are removed from the
observed data. Thus only the secular trend is left. This trend is then projected. Trend projection
fits a trend line to a mathematical equation.
The trend can be estimated by using any one of the following methods:
(a) The Graphical Method,
(b) The Least Square Method.
a) Graphical Method:
This is the most simple technique to determine the trend. All values of output or sale for
different years are plotted on a graph and a smooth free hand curve is drawn passing through as
many points as possible. The direction of this free hand curve—upward or downward— shows
the trend. A simple illustration of this method is given in Table 2.
Table 2: Sales of Firm

Year Sales (Rs. Crore)

1995 40

1996 50

1997 44

1998 60

1999 54

2000 62

In Fig. 1, AB is the trend line which has been drawn as free hand curve passing through the
various points representing actual sale values.

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(b) Least Square Method:
Under the least square method, a trend line can be fitted to the time series data with the help of
statistical techniques such as least square regression. When the trend in sales over time is given
by straight line, the equation of this line is of the form: y = a + bx. Where ‘a’ is the intercept and
‘b’ shows the impact of the independent variable. We have two variables—the independent
variable x and the dependent variable y. The line of best fit establishes a kind of mathematical
relationship between the two variables .v and y. This is expressed by the regression у on x.
In order to solve the equation v = a + bx, we have to make use of the following
normal equations:
Σ y = na + b ΣX
Σ xy =a Σ x+b Σ x2
(ii) Barometric Technique:
A barometer is an instrument of measuring change. This method is based on the notion that “the
future can be predicted from certain happenings in the present.” In other words, barometric
techniques are based on the idea that certain events of the present can be used to predict the
directions of change in the future. This is accomplished by the use of economic and statistical
indicators which serve as barometers of economic change.
Generally forecasters correlate a firm’s sales with three series: Leading Series,
Coincident or Concurrent Series and Lagging Series:
(a) The Leading Series:
The leading series comprise those factors which move up or down before the recession or
recovery starts. They tend to reflect future market changes. For example, baby powder sales can
be forecasted by examining the birth rate pattern five years earlier, because there is a correlation
between the baby powder sales and children of five years of age and since baby powder sales
today are correlated with birth rate five years earlier, it is called lagged correlation. Thus we can
say that births lead to baby soaps sales.
(b) Coincident or Concurrent Series:
The coincident or concurrent series are those which move up or down simultaneously with the
level of the economy. They are used in confirming or refuting the validity of the leading indicator
used a few months afterwards. Common examples of coinciding indicators are G.N.P itself,
industrial production, trading and the retail sector.
(c) The Lagging Series:
The lagging series are those which take place after some time lag with respect to the business
cycle. Examples of lagging series are, labour cost per unit of the manufacturing output, loans
outstanding, leading rate of short term loans, etc.
(iii) Regression Analysis:

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It attempts to assess the relationship between at least two variables (one or more independent
and one dependent), the purpose being to predict the value of the dependent variable from the
specific value of the independent variable. The basis of this prediction generally is historical
data. This method starts from the assumption that a basic relationship exists between two
variables. An interactive statistical analysis computer package is used to formulate the
mathematical relationship which exists.
For example, one may build up the sales model as:
Quantum of Sales = a. price + b. advertising + c. price of the rival products + d. personal
disposable income +u
Where a, b, c, d are the constants which show the effect of corresponding variables as sales. The
constant u represents the effect of all the variables which have been left out in the equation but
having effect on sales. In the above equation, quantum of sales is the dependent variable and the
variables on the right hand side of the equation are independent variables. If the expected values
of the independent variables are substituted in the equation, the quantum of sales will then be
forecasted.
The regression equation can also be written in a multiplicative form as given
below:
Quantum of Sales = (Price)a + (Advertising)b+ (Price of the rival products) c + (Personal dispos-
able income Y + u
In the above case, the exponent of each variable indicates the elasticities of the corresponding
variable. Stating the independent variables in terms of notation, the equation form is QS = P° 8.
Ao42 . R°.83. Y2°.68. 40
Then we can say that 1 per cent increase in price leads to 0.8 per cent change in quantum of
sales and so on.
If we take logarithmic form of the multiple equation, we can write the equation in
an additive form as follows:
log QS = a log P + b log A + с log R + d log Yd + log u
In the above equation, the coefficients a, b, c, and d represent the elasticities of variables P, A, R
and Yd respectively.
The co-efficient in the logarithmic regression equation are very useful in policy decision making
by the management.
(iv) Econometric Models:
Econometric models are an extension of the regression technique whereby a system of
independent regression equation is solved. The requirement for satisfactory use of the
econometric model in forecasting is under three heads: variables, equations and data.
The appropriate procedure in forecasting by econometric methods is model building.
Econometrics attempts to express economic theories in mathematical terms in such a way that
they can be verified by statistical methods and to measure the impact of one economic variable
upon another so as to be able to predict future events.
Utility of Forecasting:
Forecasting reduces the risk associated with business fluctuations which generally produce
harmful effects in business, create unemployment, induce speculation, discourage capital
formation and reduce the profit margin. Forecasting is indispensable and it plays a very
important part in the determination of various policies. In modem times forecasting has been
put on scientific footing so that the risks associated with it have been considerably minimised
and the chances of precision increased.
Forecasts in India:
In most of the advanced countries there are specialised agencies. In India businessmen are not
at all interested in making scientific forecasts. They depend more on chance, luck and astrology.
They are highly superstitious and hence their forecasts are not correct. Sufficient data are not
available to make reliable forescasts. However, statistics alone do not forecast future conditions.
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Judgment, experience and knowledge of the particular trade are also necessary to make proper
analysis and interpretation and to arrive at sound conclusions.
Conclusion:
Decision support systems consist of three elements: decision, prediction and control. It is, of
course, with prediction that marketing forecasting is concerned. The forecasting of sales can be
regarded as a system, having inputs apprises and an output.
This simplistic view serves as a useful measure for the analysis of the true worth of sales
forecasting as an aid to management. In spite of all these no one can predict future economic
activity with certainty. Forecasts are estimates about which no one can be sure.
Criteria of a Good Forecasting Method:

There are thus, a good many ways to make a guess about future sales. They show contrast in
cost, flexibility and the adequate skills and sophistication. Therefore, there is a problem of
choosing the best method for a particular demand situation.
There are certain economic criteria of broader applicability. They are:
(i) Accuracy, (ii) Plausibility, (iii) Durability, (iv) Flexibility, (v) Availability, (vi) Economy, (vii)
Simplicity and (viii) Consistency.
(i) Accuracy:
The forecast obtained must be accurate. How is an accurate forecast possible? To obtain an
accurate forecast, it is essential to check the accuracy of past forecasts against present
performance and of present forecasts against future performance. Accuracy cannot be tested by
precise measurement but buy judgment.
(ii) Plausibility:
The executive should have good understanding of the technique chosen and they should have
confidence in the techniques used. Understanding is also needed for a proper interpretation of
results. Plausibility requirements can often improve the accuracy of results.
(iii) Durability:
Unfortunately, a demand function fitted to past experience may back cost very greatly and still
fall apart in a short time as a forecaster. The durability of the forecasting power of a demand
function depends partly on the reasonableness and simplicity of functions fitted, but primarily
on the stability of the understanding relationships measured in the past. Of course, the
importance of durability determines the allowable cost of the forecast.
(iv) Flexibility:
Flexibility can be viewed as an alternative to generality. A long lasting function could be set up
in terms of basic natural forces and human motives. Even though fundamental, it would
nevertheless be hard to measure and thus not very useful. A set of variables whose co-efficient
could be adjusted from time to time to meet changing conditions in more practical way to
maintain intact the routine procedure of forecasting.
(v) Availability:
Immediate availability of data is a vital requirement and the search for reasonable
approximations to relevance in late data is a constant strain on the forecasters patience. The
techniques employed should be able to produce meaningful results quickly. Delay in result will
adversely affect the managerial decisions.
(vi) Economy:
Cost is a primary consideration which should be weighted against the importance of the
forecasts to the business operations. A question may arise: How much money and managerial
effort should be allocated to obtain a high level of forecasting accuracy? The criterion here is the
economic consideration.
(vii) Simplicity:
Statistical and econometric models are certainly useful but they are intolerably complex. To
those executives who have a fear of mathematics, these methods would appear to be Latin or
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Greek. The procedure should, therefore, be simple and easy so that the management may
appreciate and understand why it has been adopted by the forecaster.
(viii) Consistency:
The forecaster has to deal with various components which are independent. If he does not make
an adjustment in one component to bring it in line with a forecast of another, he would achieve a
whole which would appear consistent.
Conclusion:
In fine, the ideal forecasting method is one that yields returns over cost with accuracy, seems
reasonable, can be formalised for reasonably long periods, can meet new circumstances adeptly
and can give up-to-date results. The method of forecasting is not the same for all products.
There is no unique method for forecasting the sale of any commodity. The forecaster may try
one or the other method depending upon his objective, data availability, the urgency with which
forecasts are needed, resources he intends to devote to this work and type of commodity whose
demand he wants to forecast.

Product Mix: Top 10 Factors Affecting Product Mix

Product mix is expanded, contracted, or modified depending on following factors:
1. Profitability:
Every business unit tries to maximize its profits. It makes certain changes in its product mix in a
way to realize positive impact on profitability. Company prefers to introduce more product lines
or product items in existing product lines to improve its profitability. Product mix is constantly
adjusted to realize more profits.
2. Objectives and Policy of Company:
Company frames its product mix to achieve its objective. Product mix is prepared, modified, or
changed in light of objectives. Therefore, addition, subtraction, or replacement of product lines
or product items is based on what a company wants to achieve. Product mix is prepared and
modified according to a company’s policy.
3. Production Capacity:
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Marketing mix decisions, to a greater extent, depend on plant or production capacity of
company. Company will design its product mix in a way that optimum production capacity can
be utilized.
4. Demand:
Product mix decisions are taken with reference to demand. Marketer should study consumer
behaviour to find the popularity of products. Changes in consumers’ preference, fashion,
interest, habits, etc., must be reflected in product mix of company. Company, naturally, priories
those products which have more demand. In case of falling demand, company must drop poor
products gradually. Thus, product mix is constantly adjusted to meet consumer needs and
wants.
5. Production Costs:
Product mix is widened or narrowed depending upon production costs. Company will prefer
those products, which can be produced within budgeted limit. Sometimes, for any reason, the
manufacturing costs for existing products rise, the company decides to drop such products to
reduce their production costs. It tries to balance selling price, profit margin, and production
costs.
6. Government Rules and Restriction:
Every company produces such products, which are not restricted or banned by the governments.
Even, sometimes, company has to stop certain products or varieties when it is declared as illegal.
In same way, social and religious protests also play a vital role in this regard. Contemporary
legal framework has direct impact on size and composition of product mix.
7. Demand Fluctuation:
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ADVERTISEMENTS:
Apart from consumer behaviour, demand is also fluctuated due to many reasons. Especially,
demand is affected due to seasonal effect, non-availability of substitutes, increase in population,
war, draught, flood, or any other reason. In order to meet with the changed demand of certain
products, the company has to adjust its product mix.
8. Competition:
It is one of the powerful factors affecting product mix. A company formulates its product mix in
such a way that competitors can be strongly responded. Product mix strategy adopted by the
close competitors has direct impact on company’s product mix.
9. Impact of Other Elements of Marketing Mix:
Over and above these factors, other elements of marketing mix such as price, promotion, and
distribution are also equally important in designing product mix. Company tries to maintain
consistency among these all elements to carry out marketing activities effectively and efficiently.
10. Overall Business Condition or Condition of Economy:
Domestic as well as global economic conditions are also important considerations. Because of
liberalization and globalization, no business can dare underestimate macro picture of the world
economy. A company should keep in mind health of domestic economy with reference to the
world economy. This is more relevant when a company is involved in international trade.
Production scheduling:
Meaning of Scheduling:
Scheduling is the process of prescribing “When” each operation in a production process is to be
executed. According to Kimball and Kimball, Scheduling is “The determination of time that
is required to perform each operation and also the time required to perform the
entire series of operations as routed.”
Thus scheduling can be termed as:
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(i) A detail of when and where each operation in the a manufacturing process is to be performed
or executed.
(ii) Establishment of an activity time table which gives at which time to start and/or finish each
event or operation comprising any procedure or process.
Objectives of Scheduling:
The fundamental objective of scheduling is to arrange the manufacturing activities in such a way
that the cost of production is minimized and the goods produced are delivered on due dates.
In general scheduling meets the following objectives:
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(i) In order to meet the delivery dates the sequence of operations is properly planned.
(ii) To have minimum total time of production by having better resources utilisation.
(iii) For having maximum capacity utilization and reducing the labour cost by minimization of
idleness of machines and manpower.
(iv) To avoid unbalanced allocation of work among the various departments and workstations.
Factors Affecting Scheduling:
Scheduling finalizes the planning phase of P.P.C. The following factors affect production
scheduling and are to be considered before finalising the scheduling plan.
External Factors:
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These are the factors which are not within the control of the organisation’s management. They
are dictated by the outside forces to which the management adjusts.
Such important factors are as follows:
(i) Customer’s demand:
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This demand is estimated by the sales forecasting deptt. Scheduling is based on the forecasts of
the expected sales of specific products in the continuous production. The forecast is made on the
basis of expected volume of business in case of intermittent production.
(ii) Delivery dates of customer’s:
In a continuous or mass production with seasonal demand, the scheduling should be decided in
such a way that there is a balanced production throughout the year reducing the stock of
inventories with a constant level of production. In case of the intermittent production with the
seasonal demand, it may be adjusted by giving delivery on agreeable delivery dates to the
consumer orders.
(iii) Stock of goods already lying with dealers and retailers:
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This situation arises in case of continuous production of standardized goods. Usually the dealers
and retailers are maintaining certain stock levels with them. The scheduling should be based on
the stock position with the retailers and dealers.
Internal Factors:
The factors within the control of management should be manipulated in such a way that
objectives of the production function can be achieved most efficiently and economically.
Some important such factors are as follows:
1. Stock of Finished Products with the Enterprise:
Where the production is made to stock, the scheduling should be adjusted to the stock of
finished products with the dealers. The new sales forecast should be made and the scheduling
should be done in the light of the fluctuations in the stock holding.
2. Time Interval to Process Finished Products from Raw Material:
This is the time required to process every sub assembly, and the finished product from the raw
materials.
3. Availability of Machines and Equipment:
The various machines and equipment have varying production capacities. Moreover their
occupancy scheduling can be prepared with the help of machine load charts.
4. Availability of Manpower:
The scheduling should be done in the light of the availability of the manpower. The production
rush should be adjusted to overtime working or hiring of the temporary labour.
5. Availability of Materials:
Sometimes stock out conditions interrupts the production flow. Proper stock levels should be
maintained to facilitate scheduling in continuous production. In case of probable stock out of
strategic goods, extra efforts should be made to procure them as far as possible and the limited
stock in hand should be issued only for critical operations.
6. Manufacturing Facilities:
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The manufacturing facilities in terms of power requirements, material handling services, store
keeping and such other facilities should be provided in accurate quantities so that it may not
affect the smooth production flow adversely and facilitate the scheduling function.
7. Feasibility of Economic Production Runs:
Under the economic lot production, the two costs i.e. set up cost and the carrying cost are
equated.
8. Types of Manufacturing a Product:
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This determines the proper scheduling procedure.
The difference is as follows:
(a) Lot Manufacture:
In this case product is manufactured in lots or on job orders. It can be further divided as follows:
(i) Manufacturing to Order:
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Whenever orders go through the shops for separate parts, in single or multiple pieces, each part
has to pass through many processes. Assembly shall depend on all parts ready at same time. e.g.,
castings and stampings (finished and unfinished) both requiring assembly.
(ii) Manufacturing to Stock:
This is different from the previous one principally in that very large number of pieces is
involved, so it is more convenient to produce large quantities and put them into stock to be used
for assembly as required. Parts are produced through separate lots at predetermined intervals
over a period. In this case assembly is an independent operation and can run as long as parts are
available in stock.
(b) Continuous/Mass Manufacture:
The case may be for single product, multiproduct or assembly product continuous manufacture.
In single product, it goes through a series of processes without assembly. Output is usually
calculated in weeks or months instead of by orders. The only change can be increase or decrease
in output as demand indicates.
In the multi- or assembly-product manufacture, parts rather more important parts are produced
continuously, each operation having a given output per-day, all being proportionately increased
or decreased as indicated by demand.
As far as scheduling is concerned this is equivalent to several streams of continuous
manufacture sub assembly, assembly and simultaneous final products increase or decrease with
the output of the parts/components.
Components of Scheduling:
Starting from the customer’s orders to delivery of finished products, the schedule cycle may be
divided into following steps. Every step shall require some time which may vary from order to
order. These steps will occur in the beginning in case of the standardized production processes,
but may be modified whenever there is a change in design, processing, procurement or sales
volume.
(i) Preliminaries to Manufacture:
(a) Credit Checking Period:
This is very little for well-established customers and well-known companies.
(b) Time for Preparing Production Order by Sales Deptt:
It consists of expressing and rewriting the orders into production orders with some identifying
number, shipping date and authorizing the manufacturing deptt to proceed with production.
(c) Time for Engineering Department:
The manufacturing department and the engineering department will concurrently receive a copy
of production order and if necessary will proceed with the design, drafting, specification and bill
of materials etc.
(ii) Time Consumed in Production Planning:
The production control department is to determine the shipping date by fitting the work into the
current plant manufacturing schedule. Too liberal or tight schedules should be avoided.
Practically it is difficult to predict the actual course of events, but good approximation will help
in establishing various allowances.
Time taken by planning department for processing and onward transmission of the order to the
production department is known as production planning time. By overlapping the activities of
various departments much time can be saved.
(iii) Procurement Cycle Time:
Procurement cycle time is the time consumed for receiving, inspection of various raw materials
and purchased components parts. The activities of ordering, raw materials or parts, their
inspection and deliveries may be simultaneous, only the largest time among these should be
considered.
(iv) Time for Storage of Raw Materials:

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The time between the receiving of the raw material and its delivery for production purposes is
known as raw material storage time.
(v) Tooling Time:
The delivery dates may be delayed due to non-availability of tooling such as jigs, fixtures and
other tools. Thus these require planning well in advance by the methods engineering
department. When the procurement for materials or parts is started, the design and
manufacture or purchase of materials should also start. The availability of tools should be
ascertained before they are put on the job.
(vi) Processing Cycle Time in Factory:
The factory processing requires planning and scheduling which should give the shortest cycle
time commensurate with existing load and most economic utilization of available equipment
capacity.
Most of the processes are of over lapping nature as they are scheduled according to (i) the
available and open machine capacity (ii) time when materials can be obtained (iii) sequence in
which parts are required and (iv) coordination of sub assembly and assembly programme.
The schedule will provide the net overall processing time beginning with the first part to the
finish of last. Thus the net factory time may be determined by subtracting the overlap time if
any.
(vii) Time for Storage of Components/Parts:
This will be considered only if parts are manufactured in advance of schedule and must wait for
their turn for assembly or assembly in the store.
(viii) Transit Time:
The time consumed in moving the work between various departments. It must be taken into
scheduling.
(ix) Sub-Assembly Time:
In most cases it over laps with factory processes.
(x) Final Assembly, Testing and Shipping Time:
Final testing time of the assembly can be calculated by totalling the time taken by each unit of
product in testing. Most of the times, units are inspected in groups. The net time from beginning
to finish is the time to be included in the schedule. In case of packing and shipping one unit, the
time consumed for this purpose should be taken into consideration.
Scheduling Procedure:
Scheduling normally starts with the master schedule typical form of which i.e. the master
schedule of a milling machine is shown following figure as described in the example.
A master schedule resembles control office which completes information regarding all the
orders in hand. Master schedule is a weekly breakdown of the production requirements. The
total capacity in any week can be calculated.
As the orders are received, depending upon their delivery dates they are recorded on the master
schedule. When the shop capacity is full for the concerned week newly acquired orders are
carried to next week and so on. So a master schedule is continuously updated, it tells the
running total of master schedule is basis for further scheduling techniques.
Scheduling Procedure for Different Types of Production:
The scheduling procedure varies from plant to plant and with type of production.
The following are different cases:
1. For Intermittent Production: It involves the following:
(a) Scheduling within the Order:
Relative dates at which each process on each component or lot shall be started or finished is
essential to be determined so as to fit it in other orders.
(b) Scheduling of Order in Relation to Other Orders:

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In stock manufacturing this will depend upon the relative dates at which each component
should be completed for stock, whereas in case of customer production. This will depend upon
delivery date of order. Sequence of order to be assigned to each machine can be determined.
(c) Scheduling to Machine:
With the required completion date for an order, reference to a schedule of relative processing
dates will show when each process should be initiated. Reference to machine load records will
provide the nearest available date for starting. When all processes on all parts or lots have been
assigned to machines, scheduling is complete.
In custom order production, in the absence of rush orders, scheduling is very easy. In situations
like this, company must have at hand the exact load data to make detailed, accurate schedule for
keeping a tight production control to meet the delivery commitments. In production to stock,
manufacturing is done for stock and control problems are simple.
Gantt chart are normally used to give the detailed picture of the load and schedule of
departments or plants.
2. For Continuous Production:
In this case scheduling is a simple problem but to coordinate production with sales, inventory
levels, purchasing, engineering and financial operations, the careful planning is essential.
In case of single product continuous production, variation in the production can be achieved
very easily. In case of assembly product continuous production, scheduling problem increases.
In practice owing to the limitation of equipment manpower and materials, it is difficult to
achieve completion of all parts when required. This may be due to breakdowns, excessive
rejection and inaccuracy of estimates.
Example:
Prepare the master schedule for working on a milling machine for a month. From the past data
it is known that the machine works 20 hrs a day. So max number of M/C – hrs per week = 20 x 6
= 120
Now the scheduling is to be done in such a way that the maximum number of M/c – hrs should
not exceed 120 per week and should be below minimum number of M/c – hrs (say 6 machine –
hours)
Master Schedule:
For a Milling Machine.
Max. Productions =120 hrs.
Min. Production = 6 hrs. (say)

From this chart it is evident that the M/c is engaged in first week for 100 hrs, in second week for
85 hrs, in third week for 40 hrs and in the fourth week there is no load on the m/c. Now there is
a fourth job on this m/c.
If this new job takes less than 20 hrs in processing on that m/c then it can be directly loaded
either in first week or in second week or in 3rd or 4th. If the completion time is more than 20
hours then the job has to be loaded in different weeks or where there is no load.
The Objectives of Master Schedule:
(i) It provides a means of keeping a running total of the manufacturing requirements.
(ii) It facilitates the production manager to plan in advance for any shifting necessity from one
product to another or for a possible overall increase or decrease in manufacturing requirements.
(iii) It provides the required data for calculating the back log of workload ahead of each
machine.

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(iv) With the help of master schedules the customer can be supplied with probable or sometimes
certain definite date of delivery after his order has been placed on the master schedule
Advantages:
(i) Very simple and easy to understand
(ii) It provides overall picture and current production schedule
(iii) Can be easily maintained by non-technical staff
(iv) Making and maintenance of this chart is cheap
(v) In view of rush of orders certain percentage of total capacity can be reallocated.
Disadvantages:
(i) Provides only overall picture and detailed operations are not indicated.
(ii) It does not provide detailed information, so this system is applicable for smaller plants.

Operation Research: Applications, Methodology and Tools

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After reading this article you will learn about:- 1. Definition of Operation Research
2. Applications of Operation Research 3. Methodology 4. Tools.
Definition of Operation Research:
Uniform and acceptable definition of O.R. is not available.
However, few definitions available in literature are given below:
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1. “Operation research is a scientific method of providing executive departments with a
quantities basis for decisions regarding the operations under their control”.
2. “Operation research is concerned with scientifically deciding how best to design and operate
man machine systems usually under conditions requiring the allocation of & care resources”.
O.R. Society of America
3. “Operation research is a scientific approach to problem solving for executive management”.
H.M. Warner
4. “O.R is the application of scientific method by interdisciplinary teams to problems involving
the control of organized (men-machines) systems so as to provide solution which best serve the
purpose of the organisation as a whole”.
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5. “Operation research is an aid for the executive in making his decisions by providing him with
the needed quantitative information based on the scientific method of analysis”.
6. “O.R in the most general sense can be characterized as the application of scientific methods
techniques and tools to problems involving the operations of systems so as provide those in
control of the operation with optimum solution to the problems”.
Applications of Operation Research:
O.R. is a problem solving and decision taking technique. It is considered a kit of scientific and
programmable rules which provides the management a “quantitative basis” for decisions
concerning the operation under its control.
Some areas of management where O.R techniques have been successfully utilized
are as follow:
1. Allocation and Distribution in Projects:
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(i) Optimal allocation of resources such as men materials machines, time and money to projects.
(ii) Determination and deployment of proper workforce.
(iii) Project scheduling, monitoring and control.
2. Production and Facilities Planning:
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(i) Factory size and location decision.
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(ii) Estimation of number of facilities required.
(iii) Preparation of forecasts for the various inventory items and computation of economic order
quantities and reorder levels.
(iv) Scheduling and sequencing of production runs by proper allocation of machines.
(v) Transportation loading and unloading,
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(vi) Warehouse location decision.
(vii) Maintenance policy decisions.
3. Programmes Decisions:
(i) What, when and how to purchase to minimize procurement cost.
(ii) Bidding and replacement policies.
4. Marketing:
(i) Advertising budget allocation.
(ii) Product introduction timing.
(iii) Selection of advertising media.
(iv) Selection of product mix.
(v) Customer’s preference of size, colour and packaging of various products.
5. Organization Behaviour:
(i) Selection of personnel, determination of retirement age and skills.
(ii) Recruitment policies and assignment of jobs.
(iii) Recruitment of employees.
(iv) Scheduling of training programs.
6. Finance:
(i) Capital requirements, cash flow analysis.
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(ii) Credit policies, credit risks etc.
(iii) Investment decision.
(iv) Profit plan for the company.
7. Research and Development:
(i) Product introduction planning.
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(ii) Control of R&D projects.
(iii) Determination of areas for research and development.
(iv) Selection of projects and preparation of their budgets.
(v) Reliability and control of development projects thus it may be concluded that operation
research can be widely utilized in management decisions and can also be used as corrective
measure.
Methodology of Operation Research:
Quantitative basis for decision making is provided to managers by O.R. it enhances a manager’s
ability to make long range plans and to solve the routine problems of running a
enterprise/concern OR is a systematic and logical approach to provide a rational footing for
taking decisions. Operation research, like scientific research is based on scientific methodology
which involves following steps.
1. Formulating the Problem:
OR is a research into the operation of a man machine organisation and must
consider the economics of the operation in formulating a problem for O.R. study
analysis must be made of the following major components:
(i) The environment.
(ii) The objectives.
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(iii) The decision maker.
(iv) The alternative courses of action and constraints out of the above four component,
environment is most comprehensive as it provides a setting for the remaining three. The
operation researcher shall attend conferences, pay visits, send observation and perform research
work thus succeeds in getting sufficient date to formulate the problems.
2. Constructing a Model to Represent the System under Study:
Once the project is approved by the management, the next step is to construct a model for the
system under study. The operation researcher can now construct the model to show the
relations and interrelations between a cause and effect or between an action and a reaction.
Now the aim of operation researcher is to develop a model which enables him to forecast the
effect of factors crucial to the solution of given problem. The proposed model may be tested and
modified in order to work under stated environmental constraints. A model may also be
modified if the management is not satisfied by its performance.
3. Deriving Solution from the Model:
A solution may be extracted from a model either by conducting experiments on it i.e., by
simulation or by mathematical analysis. No model will work appropriately if the data is not
appropriate. Such information may be available from the results of experiments or from
hunches based on experience.
The data collection can clearly effect the models output significantly. Operation researcher
should not assume that once he has defined his objective and model, he has achieved his aim of
solving the problem. The required data collection consumes time to prepare if date collection
errors are to be minimized
4. Testing the Model and the Solution Derived from it:
As has been pointed out earlier a model is never a perfect representation of reality. But if
properly formulated and correctly manipulated, it may be useful in providing/predicting the
effect of changes in control variables on overall system effectiveness.
The usefulness or utility of a model is checked by finding out how well it predicts the effect of
these changes. Such an analyse is usually known as sensitivity analysis. The utility or validity of
the solution can be verified by comparing the results obtained without applying the solution
with the results obtained when it is used.
5. Establishing Controls over the Solution:
The next phase for the operation researcher is to explain his findings to the management. It may
be pointed out that he should specify those conditions under which the solution can be utilized.
He should also point out weaknesses if any so that management will know what risks they are
taking while employing the model to generate results. Thus he should also specify the limits with
in which the results obtained from using the model are valid. He should also define those
conditions under which the model will not work.
6. Implementation of the Solution:
The last phase of the operation research methodology is implementation of solutions obtained in
the previous steps. In operation research though decision making is scientific but its
implementation involves so many behavioural issues. Therefore the implementing authority has
to resolve the behavioural issues. He has to sell the idea of utility of O.R not only to the workers
but also to superiors.
The distance between O.R scientist and management may create huddles thus the gap between
one who provides a solution and the other who wants to utilize it must be eliminated. To achieve
this both the management and O.R scientist should play positive role A properly implemented
solution obtained through application of O.R techniques results in improved working conditions
and gains the management support.
Tools of Operation Research:

161
In any area of human endeavour, whether it is a production system, business system or service
system where an objective is to be optimized, the problem falls into the domain of operation
research.
Some of the commonly used techniques of operation research are as follows:
1. Linear programming.
2. Waiting line theory or queuing theory.
3. Inventory control models.
4. Replacement problems.
5. Network Analysis.
6. Sequencing.
7. Dynamic programming.
8. Assignment problems.
9. Decision theory.
10. Integer Programming.
11. Transportation Problems.
12. Simulation.
13. Goal Programming.
14. Markov Analysis.
15. Game Theory.
16. Heuristic Models.
17. Routing Models.
18. Symbolic logic.

PERT and CPM: Techniques of Project Management (Advantages and Disadvantages)

PERT and CPM: Techniques of Project Management (Advantages and
Disadvantages)!
PERT and CPM are techniques of project management useful in the basic managerial functions
of planning, scheduling and control. PERT stands for “Programme Evaluation & Review
Technique” and CPM are the abbreviation for “Critical Path Method”. These days the projects
undertaken by business houses are very large and take a number of years before commercial
production can start.
The techniques of PERT and CPM help greatly in completing the various jobs on schedule. They
minimise production delays, interruptions and conflicts. These techniques are very helpful in
coordinating various jobs of the total project and thereby expedite and achieve completion of
project on time.
PERT is a sophisticated tool used in planning, schedu ling and controlling large projects
consisting of a number of activities independent of one another and with uncertain completion
times. It is commonly used in research and development projects.
The following steps are required for using CPM and PERT for planning
andscheduling:
(i) Each project consists of several independent jobs or activities. All these jobs or activities must
be separately listed. It is important to identify and distinguish the various activities required for
the completion of the project and list them separately.
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(ii) Once the list of various activities is ready the order of precedence for these jobs has to be
determined. We must see which jobs have to be completed before others can be started.
Obviously, certain jobs will have to be done first.
Many jobs may be done simultaneously and certain jobs will be dependent upon the successful
completion of the earlier jobs. All these relationships between the various jobs have to be clearly
laid down.

162
(iii) The next step is to draw a picture or a graph which portrays each of these jobs and shows
the predecessor and successor relations among them. It shows which job comes first and which
next. It also shows the time required for completion of various jobs. This is known as the project
graph or the arrow diagram.
The three steps given above can be understood with the help of an example. Suppose, we want to
construct a project graph of the simple project of preparing a budget for a large manufacturing
firm. The managing director of this company wants his operating budget for the next year
prepared as soon as possible.
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To accomplish this project, the company salesmen must provide sales estimates in units for the
period to the sales manager. The sales manager would consolidate this data and give it to the
production manager.
He would also estimate market prices of the sales and give the total value of sales schedules of
the units to be produced and assign machines for their manufacture. He would also plan the
requirements of labour and other inputs and give all these schedules together with the number
of units to be produced to the accounts manager who would provide cost of production data to
the budget officer.
Using the information provided by the sales, production and accounting departments, and the
budget officer would make the necessary arrangements for internal financing and prepare the
budget. We have seen that the project of preparing the budget involves a number of activities.
These activities listed in the order of precedence are given below:
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In this graph jobs are shown as arrows leading from one circle on the graph to another. Thus,
the arrow connecting the two circles represents a job. Circle one and two represent job a i.e.
forecasting of units sale which would take 14 days.

Circles 2 and 4 represent job b which will take ten days and so on. It would be seen that job c is
not dependent upon job b and therefore, the two jobs can be done simultaneously. Once we

163
reduce the project to network of activities and events and we estimate activity durations, we are
in a position to determine the minimum time required for completion of the whole project.
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To do so, we must find the longest path or sequence connecting the activities through the
network. This is called the ‘critical path’ of the project. The longest path is the critical path. In
our example, there are two paths. One is connecting circle numbers 1, 2, 4 and 5. This path will
take 14+10 + 10 = 34 days.
The other path, is connecting circles 1,2,3,4 and 5, this path will takes 14 + 7 + 4+ 10 = 35 days.
Obviously the 2nd path is the critical path and the project of budget presentation will take this
much of time. The students will however notice that this time is shorter than the total time listed
under Table 1 which will be 45 days. This is because jobs b and c can be done simultaneously.
What we have basically described above is the very careful technique of CPM and PERT which
consists of decomposing project into activities and then ordering activities according to their
relationships to find out the shortest time required to carry on an activity.
This technique is very useful in case of projects which involve a large number of activities. It
makes the project manager list out all the possible activities, their relationships, find out which
activities can be performed first, which next and which can be performed simultaneously so as
to find out the best possible manner of completing the project.
A good project network goes a long way in reducing costs. Many companies work out the cost
estimate of each activity and show

Advantages of Pert:
The following advantages are derived from the pert:
1. It compels managers to plan their projects critically and analyse all factors affecting the
progress of the plan. The process of the network analysis requires that the project planning be
conducted on considerable detail from the start to the finish.
2. It provides the management a tool for forecasting the impact of schedule changes and be
prepared to correct such situations. The likely trouble spots are located early enough so as to
apply some preventive measures or corrective actions.
3. a lot of data can be presented in a highly ordered fashion. The task relationships are
graphically represented for easier evaluation and individuals in different locations can easily
determine their role in the total task requirements.
4. The PERT time (Te) is based upon 3-way estimate and hence is the most objective time in the
light of uncertainties and results in greater degree of accuracy in time forecasting.

164
5. It results in improved communication; the network provides a common ground for various
parties such as designers, contractors, project managers etc. and they must all understand each
other’s role and contributions.
The network will highlight areas that require attention of higher priority so that concentration
can be applied to the key jobs without ignoring the lower priority tasks. This gives the
management an opportunity to shift attention to any critical task so that the entire project is
completed in time.
Limitations of Pert:
Some of the limitations and problems that arise are:
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1. Uncertainly about the estimate of time and resources. These must be assumed and the results
can only be as good as the assumptions.
2. The costs may be higher than the conventional methods of planning and control. Because of
the nature of net working and net work analysis, it needs a high degree of planning skill and
greater amount of details which would increase the cost in time and manpower resources,
3. It is not suitable for relatively simple and repetitive processes such as assembly line work
which are fixed-sequence jobs.
Hence PERT is not very effective in manufacturing operations, since it deals in the time domain
only and does not deal with the quality information which is necessary in manufacturing
processes.
Critical Path Method (CPM): Definition, Advantages and Limitations
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Critical Path Method (CPM): Definition, Advantages and Limitations!
Definition:
The Critical Path Method (CPM) was first developed in USA by the E.I DuPont Nemours & Co.
in 1956 for doing periodic overhauling and maintenance of a chemical plant. It resulted in
reducing the shut-down period from 130 hours to 90 hours and saving the company $ 1 million.
The CPM differentiates between planning and scheduling of the project. While planning refers
to determination of activities to be accomplished, scheduling refers to the introduction of time
schedule for each activity of the project. The duration of different activities in CPM is
deterministic. There is a precise known time that each activity in the project will take. Let us
illustrate the CPM technique with an example of a research project.
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The following activities are identified in the project:

165
Advantages of CPM:
The important advantages of CPM technique are:
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1. It helps in ascertaining the time schedule of activities having sequential relationship.
2. It makes control easier for the management.
3. It identifies the most critical elements in the project. Thus, the management is kept alert and
prepared to pay due attention to the critical activities of the project.
4. It makes better and detailed planning possible.
Limitation of CPM:
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The main limitations of the CPM are:
1. CPM operates on the assumption that there is a precise known time that each activity in the
project will take. But, it may not be true in real practice.
2. CPM time estimates are not based on statistical analysis.
3. It cannot be used as a controlling device for the simple reason that any change introduced will
change the entire structure of network. In other words, CPM cannot be used as a dynamic
controlling device.
Total Quality Management (TQM): Concept, Advantages and Limitations
Introductory Observations of Total Quality Management (TQM):
A total approach to quality is the current thinking of today; which is popularly called total
quality management (TQM).
The idea behind TQM is to create a quality culture throughout the organisation.
The credit for pioneering the concept of TQM should be bestowed upon W.Edward Deming of
Japan; who introduced this philosophy in Japan over four decades ago. Gradually, the concept
of TQM caught the attention of industrialists, all over the world, including India.
Concept and Elements of TQM:
TQM could simply be defined as follows:
TQM is a philosophy that believes in a company-wide responsibility toward quality via fostering
a quality culture throughout the organisation; involving continuous improvement in the quality
of work of all employees with a view to best meeting the requirements of customers.
Elements of TQM:
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The following are the basic elements of TQM:
(i) Meeting Customers’ Requirements:
Customer satisfaction is the key to the survival and growth of an organisation. TQM aims at best
satisfying the requirements of customers which never remain constant; but keep changing with
changes in environment and needs, preferences etc. of customers.
(ii) Continuous Improvement:
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166
TQM is a total concept. It involves the integration of all functions and processes within an
organisation, in order to achieve continuous improvement in the quality of products/services.
Moreover, quality is a dynamic concept.
With advancement in technology, an organisation must adopt new processes and redesign
products to yield continuous improvement in quality to give the best advantage of technology to
customers.
(iii) Involvement of all Employees:
TQM is called people’s success. According to TQM philosophy, quality is not the responsibility
only of production personnel. Rather it is a company-wide responsibility. TQM can be successful
only when the total organisation is quality-conscious.
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Hence the nomenclature of this philosophy as TQM i.e. totals quality management. TQM calls
for improvement in the quality of work of all employees through popularizing the concept of
quality culture. In fact, TQM should be the concern of all managers and workers, in the
organisation.
(3) Deming’s Recommendations for Successful TQM:
W. Edward Deming makes fourteen recommendations to management for successful TQM.
For sake of simplicity and quick comprehension, these fourteen recommendations
have classified into following four categories:
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(I) General Recommendations:
(i) Create constancy of purpose for improvement of product/service; and aim of continuous
improvement should be reflected in all aspects of organisational strategy.
(ii) Put everyone in the company to work on the transformation. Have patience to accomplish
the transformation.
(iii) Adopt the new technology
(iv) Improve constantly and forever the system of production, quality and service. Continuous
improvement is a competitive imperative.
(v) End the practice of awarding business on the basis of price tag alone. Do not drive price
down at the cost of quality.
(II) Recommendations vis-a-vis Directing:
(vi) Adopt and institute leadership. Do not attain control at the expense of leadership.
(vii) Break down barriers between staff areas. Develop high level of understanding to mutual
problem solving, throughout the organisation.
(viii) Drive out fear. Fear of losing job/punishment produces losses.
(ix) Stop to harangue workers. Eliminate slogans, exhortations for the workforce; as these are
evidence of failure to manage. (To harangue means to speak loudly and angrily to persuade
people to do something).
(III) Recommendations vis-a-vis Staffing:
(x) Institute training a precondition for continuous improvement.
(xi) Institute a vigorous programme of education and self-improvement.
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(xii) Remove barriers that rob people of pride of workmanship. Annual performance and merit
rating are the biggest obstacles.
(IV) Recommendations vis-a-vis Controlling:
(xiii)Build quality into product. Cease dependence on mass inspection. In fact, the greater the
number of inspectors; the greater the number of defects.
(xiv)Eliminate numerical controls for workforce. Change system to support and help people to
ensure that targets are met.
Advantages of TQM:
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(i) Sharpens Competitive Edge of the Enterprise:
TQM helps an organisation to reduce costs through elimination of waste, rework etc. It increases
profitability and competitiveness of the enterprise; and helps to sharpen the organisation’s
competitive edge, in the globalized economy of today.
(ii) Excellent Customer Satisfaction:
By focusing on customer requirements, TQM makes for excellent customer satisfaction. This
leads to more and more sales, and excellent relations with customers.
(iii) Improvement in Organisational Performance:
Through promoting quality culture in the organisation, TQM lead to improvements in
managerial and operative personnel’s performance.
(iv) Good Public Image of the Enterprise:
TQM helps to build an image of the enterprise in the minds of people in society. This is due to
stress on total quality system and customers’ requirements, under the philosophy of TQM.
(v) Better Personnel Relations:
TQM aims at promoting mutual trust and openness among employees, at all levels in the
organisation. This leads to better personnel relations in the enterprise.
Limitations of TQM:
The philosophy of TQM suffers from the following major limitations:
(i) Waiting for a Long Time:
TQM requires significant change in organisation; consisting of:
1. Change in methods, processes etc. of organisation.
2. Change in attitude, behaviour etc. of people
Launching of TQM and acceptance of the philosophy of TQM requires a long waiting for the
organisation. It is not possible to accept and implement TQM overnight.
(ii) Problem of Labour Management Relations:
Success of TQM depends on the relationships between labour and management; because
participation of people at all levels is a pre-requisite for TQM programme implementation. In
many organisations, here and abroad, labour-management relations are quite tense. As such,
launching, acceptance and implementation of TQM programme is nothing more than a dream
for such organisations.

by Taboola
Business Ethics: Meaning, Sources and Importance
Meaning:
The term ‘Business Ethics’ refers to the system of moral principles and rules of the conduct
applied to business. Business being a social organ shall not be conducted in a way detrimental to
the interests of the society and the business sector itself. Every profession or group frames
certain do’s and do not’s for its members. The members are given a standard in which they are
supposed to operate. These standards are influenced by the prevailing economic and social
situations. The codes of conduct are periodically reviewed to suit the changing circumstances.
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Definitions:
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“Business Ethics is generally coming to know what is right or wrong in the work place and doing
what is right. This is in regard to effects of products/services and in relationship with the stake
holders.” —Cater Mcnamara
“Business ethics in short can be defined as the systematic study of ethical matters pertaining to
the business, industry or related activities, institutions and beliefs. Business ethics is the
systematic handling of values in business and industry.” —John Donaldson
There is no unanimity of opinion as to what constitutes business ethics. There are no separate
ethics of business but every individual and organ in society should abide by certain moral
orders.
Business ethics should take into consideration the following factors:
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1. A business should aim to have fair dealing with everyone dealing with it.
2. Ethics should be fixed for everyone working in the organisation at any level and their
implementation should be linked with reward- punishment system.
3. Any violation of ethics should be detected at the earliest and remedial measures taken
immediately.
4. Business ethics should be based on broad guidelines of what should be done and what should
be avoided.
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5. The ethics should be based on the perception of what is right.
Sources of Business Ethic:
In every society there are three sources of business ethics-Religion, Culture and Law. The HR
manager in every organisation, thus, has to be well versed with the unique system of values
developed by these three sources.
These sources are discussed as follows:
1. Religion:
Religion is the oldest source of Religion is the oldest source of ethical inspiration. There are
more than ethical inspirations. 1, 00,000 religions which exist across the whole world, but all of
them are in agreement on the fundamental principles. Every religion gives an expression of what
is wrong and right in business and other walks of life. The Principle of reciprocity towards one’s
fellow beings is found in all the religions. Great religions preach the necessity for an orderly
social system and emphasize upon social responsibility with an objective to contribute to the
general welfare. With these fundamentals, every religion creates its own code of conduct.
2. Culture:
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Culture is the set of important understandings that members of a community share in common.
It consists of a basic set of values, ideas, perceptions, preferences, concept of morality, code of
conduct etc. which creates distinctiveness among human groups. When we talk about culture we
typically refer to the pattern of development reflected in a society’s pattern of knowledge,
ideology, values, laws, social norms and day to day rituals. Depending upon the pattern and
stage of development, culture differs from society to society. Moreover culture is passed from
generation to generation. Culture facilitates the generation of commitment to something larger
than one’s individual self interest.
Culture encourages the members of the organisation to give priority to organizational goals over
and above their personal interests. Culture also serves as a sense making and control
mechanism that guides and shapes the attitudes and behaviour of people. Managers have to run
an industrial enterprise on the cutting edge of cultural experience. The tension that their actions
create makes the business ethically more complex.
3. Law:
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The legal system of any country, guide the human behaviour in the society. Whatever, ethics the
law defines are binding on the society. The society expects the business to abide by the law.
Although it is expected that every business should be law abiding, seldom do the businesses
adhere to the rules and regulations. Law breaking in business is common eg. Tax evasion,
hoarding, adulteration, poor quality & high priced products, environment pollution etc.
Importance of Business Ethics:
1. Corresponds to Basic Human Needs:
The basic need of every human being is that they want to be a part of the organisation which
they can respect and be proud of, because they perceive it to be ethical. Everybody likes to be
associated with an organisation which the society respects as a honest and socially responsible
organisation. The HR managers have to fulfill this basic need of the employees as well as their
own basic need that they want to direct an ethical organisation. The basic needs of the
employees as well as the managers compel the organizations to be ethically oriented.
2. Credibility in the Public:
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Ethical values of an organisation create credibility in the public eye. People will like to buy the
product of a company if they believe that the company is honest and is offering value for money.
The public issues of such companies are bound to be a success. Because of this reason only the
cola companies are spending huge sums of money on the advertisements now-a-days to
convince the public that their products are safe and free from pesticides of any kind.
3. Credibility with the Employees:
When employees are convinced of the ethical values of the organisation they are working for,
they hold the organisation in high esteem. It creates common goals, values and language. The
HR manager will have credibility with the employees just because the organisation has
creditability in the eyes of the public. Perceived social uprightness and moral values can win the
employees more than any other incentive plans.
4. Better Decision Making:
Respect for ethics will force a management to take various economic, social and ethical aspects
into consideration while taking the decisions. Decision making will be better if the decisions are
in the interest of the public, employees and company’s own long term good.
5. Profitability:
Being ethical does not mean not making any profits. Every organisation has a responsibility
towards itself also i.e., to earn profits. Ethical companies are bound to be successful and more
profitable in the long run though in the short run they can lose money.
6. Protection of Society:
Ethics can protect the society in a better way than even the legal system of the country. Where
law fails, ethics always succeed. The government cannot regulate all the activities that are
harmful to the society. A HR manager, who is ethically sound, can reach out to agitated
employees, more effectively than the police.

Essay on the Definition of Business Ethics:

Business Ethics is the application of ethical principles and methods of analysis to business.
Business ethics deals with the topic of study that has been given its due importance in business,
commerce and industry since last three decades.
Most of ethical questions are divided in two types:
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1. Overt and
2. Covert.
These two types, their meanings and examples are detailed in Fig. 8.6 below:

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The overt ones are generally deplored. The business avoids overt unethical practices. In business
most activities are covert. The covert activities are bad and harm business.
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The characteristics that make a business decision ethical are:
(i) Equitable:
The decision be just and equal.
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(ii) Right:
Morally correct and due.
(iii) Proper:
That which is appropriate to the situation and generally acceptable.
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(iv) Good:
Which highest good for highest number of concerned people.
(v) Fair:
Which is honest and due.
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(vi) Just:
Justice is done to all and it should appear that justice is given to due.
Ethics means different meaning to different people. It is abstract and does not have universal
standards or acceptance due to the fact that ethics depend on morals and morals on value
system of people.
(1) Moral standards change depending on value system.
(2) Ethical standards depend on moral standards.
(3) Value system is built by in family, upbringing, background and experience.
(4) Ethical practices differ in different organisations. Experiences in turn alter ethical practices.
Many business men do not agree that ethics is necessary in his business dealings. They also say
that business and ethics are opposite terms and hence, combining them is not proper. In the
keep competition in the market place earning money is most important and how it is done is of
secondary or no importance.

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The golden rule is that a person should have gold to rule. There is lot of misconceptions or
myths about business ethics and business should be done with ethics in mind. Myths are
popular unexplained beliefs but not truths.
There are 5 myths:
Myth No.1:
Business and ethics do not go together:
Business runs on scientific management principles whereas ethics is religious.
Myth No. 2:
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Ethics in business is relative:
Ethics is in the thinking and eyes of the man who sees business. One customer see business
ethically excellent other customer see it is poor. The experiences are contradictory and cannot be
measured as so many kilos.
Myth No.3:
Good business makes good ethics:
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Ethical means may be or may not be always in the interest of business or better profits.
Whatever the profit or business of a company, CEO of the company has to act ethically. The
company should be prepared to pay costs for instituting and maintaining ethical values in the
company.
Myth No.4:
MIS is amoral:
Management information systems (MIS) is neither immoral nor moral. While MIS is good
management productive tool and positive dimensions, there are dark usage areas. MIS may be
misused. Information and computing can be put to bad use. There are violations of privacy and
questionable use of data or putting the MIS in wrong perspective.
Myth No.5:
Ethics is an individual matter:
The right or wrong thinking is based on religious belief of individuals. Business ethics is not for
individuals. Individuals make ethical choices for their individual or own family life as well as for
business. The choices in organisational decision making are based on data, discussions, purpose
and directions in the organisation.
Organisations that do not act in a socially responsible ways often pay penalties. In all the 5
myths it may be seen that business ethics is seen in simplistic and unrealistic light. Box 8.2
below gives dilemmas of Director Finance. The 5 myths can be discussed for the case-let.

Essay on the Factors Influencing Business Ethics:

Business Ethics is quality of being useful or desirable. It is commonly used to all things which
people regard as good, desirable and just. We generally make value judgments on many matters
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like good, skilled, unskilled, bad etc. The statements are comparative. We have few terms
generally used with different meaning at times not correctly.
These words and their means are:
(i) Norms:
Norms of expectations of a proper behaviour in a society. These are not requirements or must.
Example: We in India treat elder with respect. When we address our teacher we say ‘Sir’.
(ii) Beliefs:
Ethical codes of thought. Belief is an abstract thinking process. Here there is no action as in
norms. Beliefs support norms. Example: Thinking saving money, or energy.
(iii) Ethos:
Characteristics of a community or of a culture. Code of values by which a group or a society lives.
Example: Generosity of a group.
(iv) Moral:
Concerns regarding principles of right and wrong. Example: It is always right to tell truth.
(v) Morality:
It is the standard that an individual or a group that knows that is good, what is right and which
is proper. Example: Since last decade political morality is decreasing in India.
(vi) Moral norms:
Are expectations of society a level of morals in the society. Example: Do not harm innocent man.
(vii) Moral values:
Are desired level of morals. Usually these are statements, regarding describing moral features.
Example: Honesty is best policy.
(viii) Moral behaviour:
Moral behaviour is a study of right and wrong in human behaviours.
Values of managers:
Business is driven by values. Values guide what a business manager should do and how the
stakeholder reaction to these action. Following a set of good values a value system can be built in
the organisation business thus can create good, services, employment of larger value.
A manager while accepting the values the considerations are:
(a) The values should be universal.
(b) Maximum good to greatest number of people.
The manager should be pragmatic in his approach. This comes by his experience and skill in
knowing as to how a decision works in a given situation. Manager should have a feel of what is
good for highest number. Manager should also evaluate the value built up in his control.
The manager has to choose values in his day to day business decisions. Basic values cut across
culture time and type of industry. Some values appear overlapping. Selection of values by a
manager is given in Fig. 8.7. The selection values show a person’s judgment, prejudices and a
view of the world of the person.

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Essay on the Objectives of Business Ethics:
The Objectives of Ethics are to evaluate the human behaviours and calling up on the moral
standards. The ethical standards also prescribe how to act morally in specified situations.
The objectives of business ethics are:
(i) Personal level:
At personal level the policy should be set that not to misuse the properties of the others or of the
organisation keeping the promises and extending the mutual help, not to seek quick gains and
not to indulge in politics to gain power.
(ii) Internal policy level:
The business organisation should follow fair practices in dealing with employees and other
stakeholders. The organisation should have open and better communication at all levels. The
organisation leadership should motivate employees for better productivity and for common
good.
(iii) Societal level:
The social concerns like no discrimination concerned for the down trodden be the prime
concerns of the business organisations. Optimal use of scarce resources, clean environment and
ensuring better quality of life to all the stakeholders should be stressed in the internal policies.
(iv) Stakeholder’s level:
The organisation should take care of the maximum number of stakeholders and follow ethical
means with shareholders, customers, suppliers, employees, banks and financial institutions,
government and all others that are connected with the organisation
7 Ethical Issues Faced by Human Resource
This article throws light on the seven major issues faced by human resource, i.e,
(1) Employment Issues, (2) Cash and Incentive Plans, (3) Employees
Discriminations, (4) Performance Appraisal, (5) Privacy, (6) Safety and Health,
and (7) Restructuring and layoffs.
1. Employment Issues:
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HR professionals are likely to face maximum ethical dilemmas in the areas of hiring of
employees.
Major challenges in this area are:
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a. Pressure to hire a friend or relative of a highly placed executive.
b. Faked credentials submitted by a job applicant.
c. Discovery that an employee who has been with the organisation for some time, is skilled and
has established a successful record, had lied about his educational credentials.
2. Cash and Incentive Plans:
Cash and incentive plans include issues like basic salaries, annual increments or incentives,
executive perquisites and long term incentive plans:
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Basic Salaries:
HR managers have to justify a higher level of basic salaries or higher level of percentage increase
than the competitors to retain some employees. In some situations, where the increase is larger
than normal they have to elevate some positions to higher grades. Annual increment/incentive
Plans. This situation is particularly true in case of top management executives. The fear of losing
some outstanding executives, the HR managers is forced to give higher incentives to them than
what the individuals actually deserve.
Executive Perquisites:
In the name of executive perquisites, sometimes excesses are often committed, the ethical
burden of which falls on the HR managers. Sometimes the costs of these perquisites are out of
proportion to the value added. For example, the CEO of a loss making company buys a Mercedes
for his personal use or wants a swimming pool built at his residence.
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Long term incentive Plans. Long term incentive plans are to be drawn by the HR managers in
consultation with the CEO and an external consultant. Ethical issues arise when the HR
manager is put to pressure to favour top executive interests over the interests of the other
employees and the investors.
3. Employees Discriminations:
A framework of laws and regulations has been evolved to avoid the practices of treatment of
employees on the basis of their caste, sex, religion, disability, age etc. No organisation can
openly practice any discriminatory policies, with regard to selection, training, development,
appraisal etc. A demanding ethical challenge arises when there is pressure on the HR manager
to protect the firm or an individual at the expense of someone belonging to the group which is
being discriminated against.
4. Performance Appraisal:
Ethics should be the basis of performance evaluation. Highly ethical performance appraisal
demands that there should be an honest assessment of the performance and steps should be
taken to improve the effectiveness of employees. However, HR managers, sometimes, face the
dilemma of assigning higher rates to employees who are not deserving them; based on some
unrelated factors eg. closeness to the top management. Some employees are, however, given low
rates, despite their excellent performance on the basis of factor like caste, religion or not being
loyal to the appraiser.
5. Privacy:
The private life of an employee which is not affecting his professional life should be free from
intrusive and unwarranted actions.
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HR managers face three dilemmas in this aspect:
(i) The first dilemma relates to information technology. A firm’s need for information
particularly about employees while on job may be at odds with the employee’s privacy. Close
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circuit cameras, tapping the phones, reading the computer files of employees etc. breach the
privacy of employees.
(ii) The second ethical dilemma relates to the AIDS testing. AIDS has become a public health
problem. HR managers are faced with two issues: Whether all the new employees should be
subject to AIDS test and what treatment should be melted out to an employee who is affected
with the disease. It is however generally understood that since AIDS cannot be contracted by
casual and normal workplace contract, employees with this illness should not be discriminated
against and they should be allowed to perform jobs for which they are qualified.
(iii) The third ethical dilemma relates to Whistle Blowing. Whistle blowing refers to a public
disclosure by former or current employees of any illegal, immoral or illegitimate practices
involving their employers. Generally, employees are not expected to speak against their
employers, because their first loyalty in towards the organisation for which they work. However,
if the situation is such that some act of the organisation can cause considerable harm to the
society, it may become obligatory to blow the Whistle. The HR manager is in the dilemma how
to solve this issue between the opponents and defenders of whistle blowing.
6. Safety and Health:
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Industrial work is often hazardous to the safety and health of the employees. Legislations have
been created making it mandatory on the organisations and managers to compensate the
victims of occupational hazards. Ethical dilemmas of HR managers arise when the justice is
denied to the victims by the organisation.
7. Restructuring and layoffs:
Restructuring of the organisations often result in layoffs and retrenchments. This is not
unethical, if it is conducted in an atmosphere of fairness and equity and with the interests of the
affected employees in mind. If the restructuring company requires closing of the plant, the
process by which the plant is chosen, how the news is to be communicated and the time frame
for completing the layoffs is ethically important.
What does it mean to be a values-based organization?
A values-based organization (VBO) is a living, breathing culture of shared core values among all
employees. This is different from the traditional structure which is a more machine-like, business
approach that focuses on an authoritarian type relationship or rigid organizational structure. A values-
based organization is a culture shaped by a clear set of ground rules establishing a foundation and
guiding principles for decision-making, actions and a sense of community. In a values-driven culture,
employees find alignment between their personal values and the organization’s values creating a unified
and motivated workforce. Management and leadership set examples for their organizations and live the
values they preach. Strongly held value-systems rarely change yet remain flexible to handle changes in
strategy or outside influences such as competition or the economy. A strongly held values-based culture
or purpose will remain more stable over time characterized by productivity and employee commitment.
Benefits of a Values-based Organization: Common purpose and common values are critical to
ensuring progressive and innovative business models. All organizations experience change and
require flexibility from their employees, but this is made more manageable when the individual’s
and organization’s values are aligned: this is the definition of a values-based organization.
Often, people fear professional change and can be overwhelmed because they aren’t sure
of how to adapt to new procedures. The beauty of modelling values-based leadership is
that it empowers all staff members to cope better with uncertainty because by following
the organization’s guiding principles much of this fear can be alleviated. For example, if
certain organizational values are present and refined within employees, it provides a
roadmap to achieving the common long-term vision of the organization. Market research

176
shows that companies with a culture based on shared values consistently outperform
other companies by significant margins. So, here are some other major benefits of a
values-based organization:
It’s good for productivity
The values-based organizational culture raises team morale and fulfilment. Because
employees feel more in tune with the organization, they become more enthusiastic about
their work and prouder of their input into the business’ success. Therefore, they are more
productive and creative in their thinking. The ultimate result is the most important goal of
any organization: increased customer satisfaction.
It makes for great working relationships
Common purpose and shared values encourage open dialogue. And this, in turn, leads to
better internal communication and understanding. Ultimately, this means more harmony
and information-sharing between groups and departments, making for more effective
working relations.
It empowers employees
Values-based leadership sets an example within organizations. As employees become
more motivated in their work their confidence grows and they inevitably become more
flexible in their attitudes and more responsive to handle strategic change and market
challenges. This determination also leads them to be more creative and innovative when
finding solutions for challenges.
It grows customer satisfaction
Higher employee satisfaction invariably leads to greater customer satisfaction. It is the vital
difference between dealing with a person who is simply going through the motions of their
role, and dealing with someone who is on a personal mission to design solutions that tick
every box and alleviate every concern. This can only have a positive effect on customer
satisfaction.
It impresses partners
A values-based culture also lends itself to better performance management and increased
effectiveness in the management system- something that will be noticeable to external
partners. The result is an increased level of trust for the organization and its capabilities,
and greater industry standing and respect.
Value-based organizations thrive because they foster a common purpose among all
employees. Sharing values provides guiding principles that everyone can use when
performing their functions; vital for personal accountability, better decision-making, and a
great team spirit.
Social
responsibilities of business
Concept of Social Responsibilities – Defined:
Concept of social responsibility might be defined as follow:
Social responsibility implies formulation of business objectives, plans, policies and programmes
etc. with emphasis on not only the economic concept of the profit-maximisation; but also with
an orientation towards meeting social obligations.
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Some popular definitions of social responsibility are given below:
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(1) “Social responsibilities refer to the businessman’s decisions and actions taken to reasons at
least partially beyond the firm’s direct economic or technical interests.” —Keith Davis
(2) “Social responsibilities refer to the obligation (of businessmen) to pursue those policies, to
make those decisions, or to follow those lines of action which are desirable, in terms of
objectives and values of society.” —Howard R. Bowen
Case for Social Responsibilities:
Protagonists of social responsibility put forward the following arguments in
favour of the assumption of social responsibilities by the businessmen:
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(i) Creation of Society:
A business enterprise is a creation of society. It gets all inputs-men, money, materials,
technology, information etc. from society; and unloads its output onto society by marketing
goods and services in society. Therefore, it must be loyal to society; and perform its social
responsibilities.
(ii) Theory of Trusteeship:
Mahatma Gandhi evolved the theory of trusteeship, according to which businessmen are the
trustees of the wealth of society; and should not use this wealth for their self-enrichment, at the
cost of society. Hence, businessmen must perform social responsibilities to justify their role as
trustees of the wealth of society.
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(iii) Long – Term Interest of Business:
Fulfillment of social responsibilities is in the long-term best interest of business. Performance of
social responsibilities will help in the survival and growth of business enterprises.
For example, if the business sector helps in spreading education in society; in the long-run, it
will get more skilled and educated manpower for its functioning. If, it takes care of employees; it
will get a loyal and dedicated work-force, as a reward for performing social responsibilities.
(iv) ‘Joint-Venture’ Concept:
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A business enterprise is not an exclusive creation of owners, who provide funds for its
functioning. Rather, it is run on a joint-venture concept i.e. employees, consumers, suppliers etc.
all support the functioning of the enterprise, in their own ways.
Therefore, the business should adopt a balanced approach and meet the expectations of various
segments of society rather than be only concerned with making profits to meet the needs of
owners.
(v) Public Image:
Performance of social responsibilities makes for the image of business in society. Such public
image, is, yet another name for the goodwill of business. Creation of business goodwill pays
huge rewards to business, in many ways.
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(vi) Government Intervention:
Businessmen should perform social responsibilities voluntarily. In case otherwise, the
government might intervene and force businessmen to perform social responsibilities through
enactment and enforcement of suitable legislation vis-a-vis social responsibilities.
(vii) Ample Financial Resources:
There is no doubt that the ‘business-class’ is the richest class of society, endowed with huge
financial resources. This class is the fittest agency to perform social responsibilities, by virtue of,
its financial powers.
(viii) Business Leadership Needed:
Business leadership is very powerful and dynamic. Such leadership is needed to solve those
social problems, which even the government cannot solve.

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Hence, business should make a available to society the advantage of its talented leadership,
through undertaking critical social responsibilities like controlling environmental pollution,
promoting rural development, generation of employment opportunities in society etc.
(ix) No Law for all Situations:
Government cannot enact legislations covering all aspects and spheres of social responsibilities.
The business should morally undertake to perform social responsibilities in those areas which
are not regulated or guided by any of the governmental legislations e.g. eradication of poverty,
holding the price-line, giving up cut-throat competition and so on.

Specific Social Responsibilities:

Specific social responsibilities of business could be described under various
categories as depicted in the following chart:

(1) Responsibilities towards Owners/Investors:

Some specific social responsibilities of business towards owners are:
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(i) Paying a reasonable rate of dividend as a reward for risking capital in business.
(ii) Ensuring safety of investment of funds provided by owners.
(iii) Giving owners a true and fair account of the functioning, profitability and financial position
of the company.
(iv) Showing due regard towards the interest of minority of members.
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(v) Ensuring growth of the company.
(vi) Not to indulge in undesirable speculation to the detriment of the interests of genuine
investors.
(vii) Not to mislead prospective investors, by any means, whatsoever, to invest in the company.
(2) Responsibilities towards employees
Some specific social responsibilities of business towards employees are:
(i) Payment of adequate and timely wages
(ii) Providing congenial work environment
(iii) Providing adequate industrial safety devices
(iv) Granting job security.
(v) Providing opportunities for promotion and advancement.
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(vi) Providing benefits like – subsidized housing, free medical care, leave with pay,
entertainment and recreational facilities etc.
(vii)Ensuring reasonable workers participation in management.
(viii)Giving workers their due share in the excess profits of the business.
(ix)Giving humane treatment to workers.
(x)Taking care of the personal problems of workers, of a serious nature.
(3) Responsibilities towards Consumers:
Some specific responsibilities of business towards consumers are:
(i) Supplying goods of good quality, at fair prices.
(ii) Avoidance of indulging in unfair trade practices like:
1. Supplying lesser weight
2. Defective packing of goods
3. Black-marketing, hoarding and profiteering.
4. Adulteration etc.
(iii) Taking due care of after-sales services.
(iv) Not to indulge in false, misleading and vulgar advertising.
(v) Immediate redress of consumer grievances.
(vi) Discouraging salesmen from resorting to pressurizing tactics to win customers.
(4) Responsibilities towards the State or Government:
Some specific responsibilities of the business towards the State (i.e. the
government) are:
(i) Timely payment of legitimate taxes.
(ii) Co-operating with the government in the implementation of its economic and social policies.
(iii) Supplying the required information to government departments, from time to time.
(iv) Refraining from corrupting public servants.
(v) Not to indulge in winning political favours for selfish interests.
(5) Responsibilities towards Community and Public in General:
Some specific responsibilities of business towards community and public in
general are:
(i) Ensuring best utilisation of the scarce economic resources of society.
(ii) Generation of maximum employment opportunities.
(iii) Controlling environmental pollution.
(iv) Preventing urban congestion.
(v) Undertaking programmes for rural development.
(vi) Helping in spread of housing, medical, educational and recreational facilities in society.
(vii) Innovating and implementing schemes for the uplift of the downtrodden.

Essay on Corporate Governance

Essay on Corporate Governance
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A project report on Corporate Governance. This report will help you to learn about:- 1.
Introduction to Corporate Governance 2. Meaning of Corporate Governance 3. Definitions 4.
Importance 5. Need 6. Models 7. Ethical Issues 8. Objectives 9. Principles 10. Players 11. 4Ps.
Contents:
Essay on the Introduction to Corporate Governance
Essay on the Meaning of Corporate Governance
Essay on the Definitions of Corporate Governance
Essay on the Importance of Corporate Governance
180
Essay on the Need of Corporate Governance
Essay on the Models of Corporate Governance
Essay on the Ethical Issues of Corporate Governance
Essay on the Objectives of Corporate Governance
Essay on the Principles of Corporate Governance
Essay on the Players in Corporate Governance
Essay on the 4Ps of Corporate Governance

1. Essay on the Introduction to Corporate Governance:

Corporate is a single word used for multiple components and working together and providing
direction is governance. The CEO with corporate executive’s assistance has to make maximum
efforts to satisfy all types of stakeholders.
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There are three broad categories of corporate and each one has its own method of
governance and fair-unfair practices:
(i) Private Corporations:
Some companies are very tightly held by individuals or family members. Both small and big
companies are in this category and managed under authoritative leadership. There will be many
types of unfair practices pertaining to statutory payments, disparity in payments, hiring-firing
and opportunism. There is heavy emphasis to business and profits and no emphasis to society
related activities.
(ii) Public Corporations:
This category consists of state owned, central government owned public sector enterprises, some
of the very old private companies running on the lines of Public Sector Enterprises. This is
almost opposite type of private corporations. Lack of accountability more concern for employee
welfare and lack of competitiveness in product and marketing. There will be many cases of
bribery and unethical practices in various corporate related activities.
(iii) Professional Corporations:
There are MNCs and other private and public limited companies where promoter’s and other
directors are all professionally qualified and competent. They are competent in their industry,
do-well, grow well and take care of the Corporate Social Responsibilities to the maximum
possible extent. The morale of employees is very high and job satisfaction is yet to achieve.
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The key issues that guide a company as to how and who are managing is based on the finance
structure of the company which has direct bearing on ownership or who is the boss? This leads
to the board composition and it’s working. The institutional environment inside and outside the
organisation plays a crucial role in decision making issues.
The relationships are shown in Fig. 1.1:

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Indian corporate is yet to achieve success in corporate governance, setting values and flextime
working. This is due to the facts that Indians follow discipline under regulations of rules. Ethical
values cover various aspects like fair competition, social responsibility, consumer care and
corporate image.
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These aspects can be attended by following methods:
(a) Code of ethics and company policy to be displayed all over the company premises.
(b) Form an ethics committee to look after need of ethical values in individuals and
departments.
(c) Seminars, workshops are audio-visual displays to be arranged periodically to educate
employees in ethical values and culture.
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(d) Appointing ombudsman to investigate decisions from ethical and moral point of view.
(e) Social audit by inside executives or by outsiders to be conducted annually to know
improvement areas.
If ethics committee is active that itself is enough caution for employees to refrain from unethical
practices. Social audit is a systematic assessment of ethical behaviour and actions and reporting
on some meaningful activities of the company having social impact. For example, pollution
control, social programmes, customer care etc.

2. Essay on the Meaning of Corporate Governance:

The concept of corporate Governance has been used in different perspectives. It started as
maximising shareholder’s wealth and then expanded to maximising all stakeholders wealth.
Corporate governance has been defined in many different ways by scholars and agencies.
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Some of these definitions/meanings are given below:
(a) Simply stated, corporate governance is about ‘performance as well as conformance’.
(b) According to Ada Demb and Friedrich Neubauer “Corporate governance is the process by
which corporation is made responsive to the rights and wishes of stakeholders”.
(c) As per James D. Wolfensohnn, President of World Bank “Corporate governance is about
promoting corporate fairness, transparency and accountability.
(d) OECD has defined the corporate governance to mean “a system by which business
corporations are directed and controlled”.
(e) Cadbury Committed (U.K.) has defined corporate governance as “(it is) the system by which
companies are directed and controlled”.
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(f) According to Y.C. Deveshwar, Chairman of ITC corporate governance refers to the structure,
systems, and processes in a corporation, that are considered most appropriate to enhance its
wealth generating capacity.
(g) Salim Sheikh and William Ress in their treatise ‘corporate governance and corporate control’
stated that “corporate governance is also concerned with the ethics, values and morals of a
company and its directors”. A review of various definitions and views brings out that in its
simplistic form corporate governance is an umbrella term encompassing various issues
concerning senior management, board of directors, shareholders and other corporate
stakeholders.

3. Essay on the Definitions of Corporate Governance:

Corporate governance is collective term encompassing various issues concerning top
management, board of directors, shareholders and the corporate stakeholders. It includes ethics
and values of the company and its top management. There is no single definition of corporate
governance. The definitions are evolving. Definitions by experts in the field are noted.
The definitions at 12 to 15 are current and termed corporate governance:
1. “Corporate governance is a field in economics that investigates how to secure/motivate
efficient management of corporations by the use of incentive mechanisms, such as contracts,
organisational designs and legislation. This is often limited to the question of improving
financial performance. For example how the corporate owners can secure/motivate that the
corporate managers will deliver a competitive rate of return”.
-Mathiesen (2002)
2. “Corporate governance deals with the ways in which suppliers of finance to corporations
assure themselves of getting return on their investment” (Journal of Finance).
-Shleifer and Vishny (1997)
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3. “Corporate governance is the system by which business corporations are directed and
controlled. The corporate governance structure specifies the distribution of rights and
responsibilities among different participants in the corporation, such as, the board, managers,
shareholders and other stakeholders, and spells out the rules and procedures for making
decisions on corporate affairs. By doing this, it also provides the structure through which the
company objectives are set, and the means of attaining those objectives and monitoring
performance”.
-OECD April 1999. OECD’s definition is similar to that given Cadbury Committee (1992)
4. “Corporate governance – which can be defined narrowly as the relationship of a company to
its shareholders or, more broadly, as its relationship to society-…”
-From an article in Financial Times (1997)
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5. “Corporate governance is about promoting corporate fairness, transparency and
accountability”.
-J. Wolfensohn, President of the World Bank, as quoted by an article in Financial Times, June
21,1999
6. “Some commentators take too narrow a view, and say it (corporate governance) is the fancy
term for the way in which directors and auditors handle their responsibilities towards
shareholders. Others use the expression as if it were synonymous with shareholders democracy.
Corporate governance is a topic recently conceived, as yet ill-defined, and consequently blurred
at the edges……. corporate governance as a subject, as an objective, or as a regime to be followed
for the good of shareholders, employees, customers, bankers and indeed for the reputations and
standing of our nation and its economy”.
-Maw et al. (1994. Pagel)

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7. Integrated framework frame work whereby people formally organise themselves for a defined
purpose in a corporation, and they apply systemic processes consistently to achieve predicted
performance for sustainable development.
8. “The system in which a company organizes and manages itself to ensure that all financial
stakeholders receive their fair share of a company’s earnings and assets”
-Standard and Poors
9. A continuous process through which conflicting or diverse interests may be accommodated
and cooperative action may taken
-Commission of Global Governance (1995)
10. “Corporate governance is concerned with holding the balance between economic and social
goals. The governance frame work is there to encourage the efficient use of resources. The aim is
to align as nearly as possible the interests of individuals, corporations and society”.
-Adrian Cadbury (2004)
11. Corporate governance is management of structuring, operating and controlling a company
with a view to achieve long term strategic goals to satisfy its stakeholders namely shareholders,
creditors, employees, customers, suppliers and those connected. Corporate governance
prescribes a code of conduct in relation to all the stake holders. Hence sets a framework of
effective accountability to its stake holders.
12. Corporate governance is about maximising shareholder value legally, ethically and on a
sustainable basis while ensuring fairness to every stakeholder – the company’s customers,
employees, investors, vendor-partners, the government of the land and the community. Thus,
corporate governance is a reflection of a company’s culture, policies, how it deals with its
stakeholders, and its commitment to values.
13. Good corporate governance serves several important objectives. It enhances corporate
performance by creating an environment that motivate managers to maximise returns on
investment, enhance operational efficiency and ensure long-term productivity growth basis. It
also ensures that corporations conform with the interests of investors and society by creating
fairness, transparency and accountability in business activities among employees, management
and the board.
14. Corporate Governance is a systemic process by which the companies are directed and
controlled to enhance their wealth generating capacity. Since large corporations employ vast
quantum of societal resources, governance process should ensure that these companies are
managed in a manner that meets stake-holders aspiration and societal expectations.
15. Corporate Governance is based on the principles of integrity, fairness, equity transparency,
accountability and commitment to values. Good governance practices stem from the culture and
mindset of the organisation. As stakeholders across the globe evince keen interest in the
practices and performance of companies, Corporate Governance has emerged on the centre
stage.

4. Essay on the Importance of Corporate Governance:

Introduction of Corporate Governance in a company brings order and methods in decision
making process and fixes who should own the responsibility. That is the goal and role
classification emerge. The company will focus on its mission, vision and not an personal likes
and dislikes of few top officers. The benefits of corporate governance are difficult to quantity in
short range.
Accounting jugglery and showing profits give a company short term gains but they are not long
term policies for financial credibility. True financial performance of a company, openness and
the governance policies give investor’s confidence.
The unethical policies or mismanagement by CEO or director of a company will be exposed by
adhering to corporate governance principles. Corporate governance will throw light on excessive
remunerations given to directors or CEO. It improves, investor confidence and relations.
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The occurrence of frauds and mismanagement can be detected early for remedial actions. It is
also agreed that no system can remove fraudulent practices fully. Corporate governance is open
democratic system. They may appear long winded or time consuming or individual decision
making is hindered. The risk of fraud is much bigger and damage to a company.
Introduction of corporate governance has a publicity images or snob value where the companies
with corporate governance are treated by investors and the general public as prosperous and
forward looking. Corporate governance helps institutional investors. The autocratic ways of
working by top brass is removed. Corporate governance creates a new open culture in the
organisation.
The trust generated by corporate governance will improve participative performance of the
organisation. More and more will come forward to provide financial capital, supply goods, buy
goods and service and join the company. The market capitalisation of a company comes down
drastically whenever a company is known to follow unethical practices.
This was seen in the cases of Satyam and Sun group cases in recent past. The society is investing
its resources in a company, naturally it will be duty of the company to provide its stakeholders a
honest and clear performance account. To achieve this company has to initiate corporate
governance and follow-up effective implementation.
The corporate governance policies and methods vary around the world through the basic
principles remain the same. In addition to written laws and codes on proper governance the
companies should have its voluntary codes matching its mission and objectives.
The importance of proper corporate governance is in the area detailed a to z
below:
(a) Highlighting and removing lack of commitment from CEO and board of directors and
executive management
(b) Removing culture of secrecy. Bring in openness in the policies and working of a company
(c) Removing the policies that help directors to amass power and money not due to them
(d) Highlighting unethical ways of policies and working in a company
(e) Removing extra protection for a particular group of investors or directors
(f) Protection of rights of minority shareholders
(g) Maximising shareholders value and equal treatment to all shareholders
(h) Respect for rights and democratic ways of working with all stakeholders and shareholders in
particular
(i) Remove administrative lethargy and legislative weaknesses
(j) Meet the competitive logic of global markets
(k) Abide by laws of the country
(l) Adhere to social responsibilities of a company
(m) The set ethical values of a company yield long range reputation, brand image and benefits
(n) Open work culture will have employee loyalty
(o) Increase in market capitalisation and appreciation of wealth invested
(p) Value creation for all stakeholders of a company
(q) Brighter future outlook for the company
(r) The company builds social and political image
(s) International reputation makes a company for growth by mergers and acquisition route
(t) Image of the promoters will be on the increase
(u) Though legal owners should exercise control over any company matter the other who control
affairs of few companies are by lenders by their finance muscle and management group by their
location and insider knowledge. The corporate governance helps in removing unnecessary
controls by vested interests
(v) Contributions from economic value addition and market value addition can be maximised by
corporate governance

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(w) Reduces managers incentives to manipulate or window-dress accounts and show more
profits
(x) The checks and balances in corporate governance will have large positive impact to stick to
company set objectives and goals without resorting to personal likes and dislikes
(y) Fair system of processes, performance and measurement
(z) Environment friendly.

5. Essay on the Need for Good Corporate Governance:

Late nineteenth century in USA the then large companies like Standard Oil and Rail Road
Company top brass collected pay-checks and perks unheard in history and used them to build
lavish mansions in islands. The resources of a company were clearly siphoned off for private
luxury.
The excesses of the tycoons became too large to ignore. Since 1880s Government of USA is
incrementally putting regulations in place of large industries and rein in the power of robber
barons. It is the beginning of Corporate Governance.
While discussing Corporate Governance one is reminded of in famous words “when the
President does it, that means it is not illegal” of Richard. M. Nixon (1913-1994) who was thirty
seventh President of United States. He was first to resign from the office for his involvement in
Water gate Scandal.
He arrogantly forgot that he was representative of people. Power made him to think that he was
above all laws of the land. This exactly what happens to many chief executives of companies,
more so, in private or family owned companies.
A modern regulatory state must make guidelines, code of conduct; make rules, regulations, laws
and train personnel needed to prevent corporate abuse. The idea is that the top officers like
MD., CEO Directors of the company should work for growth of the company and make company
govern for its own good and develop overall benefits to all its stakeholders the company on
equitable basis.
The top officers should behave as trustees of the company. They should not use their money and
positional power for enhancing their personal cause like amassing wealth, diverting resources
and using company information for their personal gains, benefiting their families by getting self-
approved fat salaries, bonuses, perks and other luxuries.
In fact, many business barons make ‘Yes Sir’ board of directors of friends and family members
and create a family union meeting in place of board meeting. Few industry barons enter political
arena or indulge in costly habits like flying daily company aircrafts and the like. In few family
owned companies all of these used to go in small measure. The clever accounting practice used
to cover up them.
Now the shareholders, governments and general public gets all the details and information and
it will be difficult for public limited companies to indulge in above activities thanks to the
general awakening awareness and fast or rather up to minute availability of information to all
stakeholders of the company. Economic development and gains of company should not be
allowed to be frittered away by a small group of top officers of a company for their personal
glorification.
The popularity, brand image and longevity of a company apart from high market capitalisation
show good corporate governance in the particular company. Corporate Governance has to be
built brick by brick and consolidated so that it becomes part and vision and a way of life in a
company.
i. With the onset of industrialisation the corporate came into existence.
ii. Corporate evolved out of small family business.
iii. The growth of corporate form small business house is seen more in India. All Indian top
corporate are family business.

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iv. Good family business houses developed many excellent corporate based on values and social
responsibilities.
Examples: TATA, Birla’s.
v. Most of Indian family owned companies have their shareholding in the range of 10 to 20
percent. The families enjoy 100 percent ownership. The families also started taking undue
advantage for the positions taken by the family member. Used the clout to use and miss-use the
resources of the company for enhancing further family benefits and political power. There was a
need for introducing corporate governance.
vi. Few started miss using their positions and
(a) Twisted rules for personal gains at cost of their companies.
(b) Few used company resources and powers for their political gains
(c) Employed every kith and kin. Sanctioned for themselves hefty perks remunerations.
(d) Indulge in unlawful activities
(e) Started gaining false accounts or showing huge expenditures or less profits.
(f) Duping shareholders or indulging in few employees getting illegal benefits.
(g) Hiding and twisting information.
(h) Changing policies and people at will.
(i) Gaining individual political benefits at the cost of company.
The Idea of Corporate Governance:
i. Considering above type of activities which ultimately harm the interest of the corporate or its
stable holder, the idea of corporate governance has emerged since last two decades in India.
ii. The present format of corporate governance has evolved since last 15 years. Now it is part of
company laws in India.
Pillars of Governance:
Corporate governance stands on:
i. Integrity and fairness of a company and its fair management
ii. On transparency in all its activities and in particular about disclosures and
iii. Accountability and responsibility.
The 3 pillars are shown in Fig. 1.2:

6. Essay on the Models of Corporate Governance:

Only two types of corporate models are discussed in the literature of corporate finance.
These are:
(i) Anglo-American Model and
(ii) German-Japanese Model.

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The ownership pattern of companies in India and many other South-Asian countries have a
distinctive corporate model, different from the above two models. The difference is mainly
because of the fact that the Indian-South Asian corporate model comprises three types of
owners.
They are:
(i) Promoter shareholders generally controlling 20% to 75% of the total share capital of the
company, the remaining being contributed by
(ii) Individuals and
(iii) Mutual funds and financial institutions, where individuals may not be contributing more
than one-third of the share capital generally.
Hence the three-models can be shown as in Fig. 1.3:

(i) Anglo-American Model:

The special features of this model are:
(i) Pre-1990 period ownership pattern was dominated by a large number of retail shareholders
scattered all over the country. There used to be full divorce between ownership and
management with serious agency problems.
(ii) Post-1990 period ownership of the companies which is generally evenly balanced between
both individual and institutional shareholders, with less agency problems.
(iii) Companies run by professional CEOs and managers with negligible ownership stakes except
in the form of Employees’ Stock Option (ESOP). There is, thus, a clear dividing line between
owners and managers.
(iv) The institutional investors are generally portfolio investors like banks and mutual funds
which are interested in quick exit after booking profit at the right time.
(v) As per Jonathan Charkham this is a “high-tension” model, as the CEO has to ensure
adherence to all regulatory authorities, capital markets, money markets and lurking threats of
takeover as well.
(ii) German-Japanese Model:
The models are similar. They share among them following common features.
These are:
(i) In both the countries the institutional investors namely banks and financial institutions are
long-term investors and play quite an active role in management. Their keen interest and
monitoring help in toning up companies’ performance and in protecting retail shareholders
interest.
(ii) In both these countries, the disclosure norms are lax and checks on insider trading is neither
comprehensive nor effective. Similarly, hostile takeovers are generally unheard of.
(iii) Indian-South Asian Model:
The ownership pattern of major Indian Companies allow clearly that:
(i) Promoter-shareholders are dominant owners, owning 25 per cent to 85 per cent of the total
share capital.
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(ii) The promoter group head is also generally the Chief Executive Officer (CEO) of the company.
(iii) The “Principal-agent” is thus, considerably diluted in this model, as the interests of
promoters converge with retail shareholders, at least theoretically.
(iv) The distinction between owners and managers namely principal and agent is blurred,
resulting in altogether different remedial measures to protect the interest of common
shareholders,
(v) Capital market regulators (SEBI in India) are, thus, required to take additional safeguards
for protecting the interest of common shareholders.
(vi) Principal-Agent relation obtaining in this model is not such as may generally create a clash
of interest between the promoter shareholders and retail shareholders.
(vii) If there is any remote possibility of a clash in this model, it can mainly be between (a)
promoter shareholders – Agent deo and (b) retail shareholders.
The good companies attract financial investment from the investors within the country and
number of other countries. The investment will not come if there is lack of investor confidence
particularly that of investors from overseas.
The answer for this is corporate governance and practices being followed by the company. The
features of the changes basically are that of transparency and accountability. The investors
would like to invest more and more in well governed companies.
The OECD has identified the need for corporate governance in the following areas:
The rights and obligations of shareholders:
The corporate governance should ensure protection of the shareholders rights. The government
should be on the lines of one vote one share basis. The management should be open and sharing
relevant information with all the shareholders. It is important that the minority shareholders
should be protected with all the fairness.
Equitable treatment of shareholders:
All the shareholders of a particular class be treated at par. The rights of the shareholders should
be protected by the law of the land.
The role of stakeholders and corporate governance:
All the stakeholders should get the necessary information by clear and open disclosures. The
stakeholders should take active part in formulation of the policies and stopping the wrong
doings. The corporate governance should provide effective mechanism for redressal of the
violation of any rights of the stakeholders.
Transparency, disclosure of information and audit:
The transparency is the corner stone of the corporate governance especially in the areas of
ownership structure, the financial data, balance sheet and results etc., members of the board
and top management, the important aspects regarding employees and other stakeholders, the
government policies and how they affect the company, the target sets by the company and the
achievements, the future outlook and prospects. The information should be made available well
within the time so that the stakeholders should read, digest and make their opinion on the
working of the company.
The board of directors:
The proper board guidance and monitoring of the progress ensure the strategically leadership of
corporate governance of the company. The board structure and the meeting and related
processes should be tuned to get the help of board in achieving the set goals.
Non-executive members of the board:
The outside members are independent board directors are chosen for independent judgment of
the performance of the company, strategies adopted, key appointments and asset management.
The independent member should be away from business relationship with the company.
Executive management, compensation and performance:

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The procedure for proper compensation to the management and the overall profitability be
published regularly. The executive management should ensure improve in competitiveness and
excess to capital.

7. Essay on the Ethical Issues in Corporate Governance:

Ethical values cover various aspects like fair competition, social responsibility, consumer care
and corporate image.
These aspects can be attended by following methods:
(a) Code of ethics and company policy to be displayed all over the company premises.
(b) Form an ethics committee to look after need of ethical values in individuals and
departments.
(c) Seminars, workshops are audio-visual displays to be arranged periodically to educate
employees in ethical values and culture.
(d) Appointing ombudsman to investigate decisions from ethical and moral point of view.
(e) Social audit by inside executives or by outsiders to be conducted annually to know
improvement areas.
If ethics committee is active that itself is enough caution for employees to refrain from unethical
practices. Social audit is a systematic assessment of ethical behaviour and actions and reporting
on some meaningful activities of the company having social impact. For example, pollution
control, social programmes, customer care etc.
A company may or may not publish the social audit report. However it should be published to all
employees to awaken their social responsibility and business ethics. Top management support is
essential to pursue CSR and business ethics together. Box 1.1 and 1.2 gives examples of
corporate governance of ITC and NALCO.

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8. Essay on the Objectives of Corporate Governance:
Good governance is integral for the existence of a company.
The main objectives of good corporate governance are:
(a) To promote a healthy environment for long-term investment.
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(b) To create a trust in the corporate and in its abilities.
(c) To promote business development.
(d) To improve the efficiency of the capital markets.
(e) To enhance the effectiveness in the service of the real economy.
(f) To exercise effective control on corporate affairs by the board at all times.
Corporate is a single word used for multiple components and working together and providing
direction is governance. A corporate is bound by various stake holders. The CEO with corporate
executive’s assistance has to make maximum efforts to satisfy all types of stakeholders.
There are three broad categories of corporate and each one has its own method of
governance and fair-unfair practices:
(1) Private Corporations,
(2) Public Corporations and
(3) Professional Corporations.
Indian corporate are yet to achieve success in flextime working. This is due to the facts that
Indians follow discipline under regulations of rules.

9. Essay on the Principles of Corporate Governance:

Governance style may be as different as the nature of companies. For this reason, both Cadbury
Committee and Rahul Bajaj Committee had stated that there is no unique structure of corporate
governance in the developed world. There is no ‘one size fits all’ structure for corporate
governance. Every company may have its own governance style. Despite uniqueness of styles,
there are some fundamental principles of corporate governance.
These principles are given below and also shown in Fig. 1.4:
(a) Ethics:
A company must observe ethical standards. Deviation from ethical principles corrupts
organisational culture and undermines stakeholder value.
(b) Transparency:
It involves the explaining of company’s policies and actions to those to whom it owes
responsibilities. Transparency leads to appropriate disclosures without endangering company’s
interest. In the case of Enron, the shareholder’s value was destroyed because it did not share is
setbacks with the shareholders.
(c) Accountability:
It signifies that the Board of Directors are accountable to shareholders and management is
accountable to the Board of Directors, and shareholders. Accountability provides impetus to
performance.
(d) Trusteeship:
There exists the principle of trusteeship on the Board of Directors who must act to protect and
enhance shareholders and other stakeholders value. Mahatma Gandhi had advocated this
principle.
(e) Empowerment:
It unleashes creativity and innovation throughout the organisation by truly vesting decision-
making powers at the most appropriate levels in the organisational hierarchy.
(f) Fairness to all Stakeholders:
It involves a fair and equitable treatment of all stakeholders who participate in the corporate
governance structure.
(g) Oversight:
It means the existence of a system of checks and balances. It should prevent misuse of power
and facilitate timely management response to change and risks.
(h) External Audit:
It must be independent and penetrating.
(i) Regulatory Regime:
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There must be an appropriate regulatory regime to back these obligations.
(j) Whistle Blower Policy:
Companies should adopt a policy for Whistle blowers. This was specifically recommended by
Narayan Murthy Committee.

While discussing the principles some relevant points that come up are:
(a) Practice prevalent in different modes:
Corporate governance is a practice which is being followed the corporate all over the world. Each
country may adopt its own form of corporate governance.
(b) No single definition:
It is a dynamic concept and can be defined in many ways. It is not defined in only one manner.
(c) Drawn from diverse fields:
Corporate governance is drawn from diverse fields like laws, economics, ethics, politics,
management, finance, etc.
(d) Mere law is not sufficient:
Corporate governance goes far beyond company law. In India company law has been amended
to include better corporate practices like audit committee, director’s responsibility statement,
voting by postal ballot. Strict implementation of the law is essential.
(e) Accounting standard:
In all the developed countries accounting standards have been devised and followed. India has
also evolved its own accounting standards which are required to be followed by all companies.
(f) Professional and competent directors:
The key to good corporate governance is a well-functioning, informed Board of Directors. The
board should have a core group of professionally acclaimed and accredited non-executive
directors.
(g) Evaluation:
Corporate governance can now be evaluated and corporate governance rating has come to stay.
Many Indian companies like ITC, Infosys, Grasim have been evaluated and awarded corporate
governance rating by agencies like CRISIL or ICRA.
In conclusion it can be said that minimal corporate governance can be achieved by following the
law, better governance by having a professional management but best corporate governance is
achieved by following ethical practices and principles.

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10. Essay on the Players in Corporate Governance:
There are two categories of players in corporate governance in any company they
are:
(a) Regulatory body: the regulatory body consists of the Chief Executive Officer or Managing
Director or Chairman cum Managing Director, the Board of Directors, Management and
Shareholders.
(b) The other type are stakeholders are many and scattered they include suppliers, customers,
employees, creditors, government bodies and society at large.
In many companies the shareholders delegate their voting rights to the managers to act in the
best interest of the companies. In other words the ownership of the companies is separated from
the control. The control is exercised by the shareholders over and above the managerial
decisions. In Indian conditions the ownership is not so defused hence there are problems are
controlled.
It becomes necessary for the Board of Directors to evolve policies, give directors to strategies
and appoint appropriate people to senior levels in the company. This will be in the direction of
insuring accountability of the organisation to government and shareholders.
The directors, employees and management officers receive their salaries, perks, benefits and
reputation whereas the shareholders or owners who take the risk and receive capital in return. A
shareholder participates in a company by investing his funds or financial capital to the company
so that he receives a fair share of financial returns.
The players in corporate governance are broadly shown as the board and the management
organisation from inside the company and outside the government, the financial institutions,
lenders, suppliers, customers, investors and general public. The question comes who is
governing or who is the real manager? Depending on the money, strength or positional strength
the center of governance shifts.
A simple figure showing who governs is shown in Fig. 3.1:

11. Essay on the 4Ps of Corporate Governance:

The companies now would have to provide detailed and true of account of their performance in
lieu of the resources spared by the society. The chief executive officer, the board of directors and
executive directors will have to own up the responsibility for the success and failures of an
enterprise, if not fully at least to the extent of their knowledge and actions.

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This aspect is making the entry of corporate governance and the enterprise work towards its set
direction effectively. Corporate governance does not go by profit figures or good cash flows, it
goes by long term goals and contribution by its people. Corporate governance has integrated
frame work of 4Ps or it is of people, purpose, processes and performance. The 4Ps have
important role in channelising resources of any company.
The 4Ps of corporate governance and what falls in each category is explained in a
flow diagram as Fig. 3.2:

(i) People:
It is people who run any company. The people are its stakeholders like investor, customers,
employees, lenders, suppliers, government and society at large. The inside stakeholders in a
company should be capable, talented for their jobs, purpose oriented workers and ethical in
their approach.
The management should be fair, equitable and result oriented. The company management must
incorporate ethical practices in the company like transparency and integrity. Cordial
relationships with different stakeholders and their involvement in decision making process
reduce conflict areas.
(ii) Purpose:
The management of a company should be clear in the purpose of a company. The purpose
should be communicated and known to all. The purpose should be altered as time and
conditions change. The established purpose should be measurable and actionable. Purpose
definition leads to vision and mission of a company. In turn setting path for strategic and
detailed action plans of a company processes.
(iii) Process:
The process management in a company be defined and documented. The process management
has subgroups resource management, organisation management, supply chain management,
energy management, marketing management, information management, risk management and
the lie.
The processes management include how these will coordinate and bring the preset results. The
control parameters and mechanisms will show the areas of deficiencies in these processes. The

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plant and processes are governed by various rules and laws of the country which need
compliance.
(iv) Performance:
The performance levels should be set and communicated so that all in chain know what is
expected. What is acceptable and what is not. The performance should be measurable. Regular
measurement leads to finding operation efficiencies and shortcomings at different levels. The
performance measurement can be fixed on the monetary transactions in a company like asset
efficiency or supply chain expenditure.

Values and Its Relation to Ethics | Corporate Governance

After reading this article you will learn about values and its relation to ethics in corporate
governance.
There are two important issues what is valued by an individual or society. One is how one goes
to achieve the value and second what are end results of values. That is how we get values and
how we employ them. Values are subjective in any person.
Values shape beliefs, beliefs lead to perception, perception take to making his attitudes. The
attitudes create personality and behaviour of a man. Values are important in human conduct.
Hence ethics is defined as a branch of philosophy that deals with values as they relate to human
conduct.
ADVERTISEMENTS:
The relation between different elements in the individual ethics and business ethics is shown in
Fig. 9.1 below. It may be seen from the diagram that individually and as a member of a group we
have different roles to play as masters and servants or victims. There is duality. This calls for
introspection.

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